Deck 14: Entry Strategy and Strategic Alliances

Question 1

An advantage of turnkey projects is that the firm that enters into a turnkey deal will have no long-term interest in the foreign country.

Answer 1

False

Question 2

A wholly owned subsidiary limits a firm's control over operations in different countries.

Answer 2

False

Question 3

The long-run benefits of doing business in a country are a function of factors such as the size of the market,the present wealth of consumers in that market,and the likely future wealth of customers.

Answer 3

True

Question 4

Large strategic commitments limit strategic flexibility.

Question 5

Exporting may not be appropriate if lower-cost locations for manufacturing the product can be found abroad.

Question 6

The most typical joint venture is a 25/75 venture.

Question 7

Franchising enables a firm to quickly build a global presence.

Question 8

First-mover advantages are the advantages associated with entering a market early.

Question 9

Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.

Question 10

Tangible property includes patents,designs,copyrights,and trademarks.

Question 11

Licensing increases a firm's ability to realize experience curve and location economies by producing its product in a centralized location.

Question 12

In a turnkey project,the contractor agrees to handle every detail of the project for a foreign client.

Question 13

Exporting is advantageous because it avoids the cost of establishing manufacturing operations in the host country and because it may help a firm achieve experience curve and location economies.

Question 14

Costs that an early entrant has to bear that a later entrant can avoid are known as first-mover costs.

Question 15

By its very nature,licensing increases a firm's ability to utilize a coordinated strategy.

Question 16

An advantage of joint ventures with a local partner is the knowledge of the local environment the local partner contributes to the venture.

Question 17

The costs and risks associated with doing business in a foreign country are typically high in an economically advanced and politically stable democratic nation.

Question 18

A small-scale entrant is more likely than a large-scale entrant to capture first-mover advantages associated with demand preemption,scale economies,and switching costs.

Question 19

Educating customers is a part of pioneering costs.

Question 20

A strategic commitment can be reversed by the top management according to their convenience.

Question 21

Relational capital refers to the building of interpersonal relationships between the firms' managers in a strategic alliance.

Question 22

Over the decade,between 50 and 90 percent of all FDI inflows have been in the form of mergers and acquisitions.

Question 23

Firms entering a market via a wholly owned subsidiary must bear all the costs and risks associated with the venture.

Question 24

Switching costs:

A)drive early entrants out of the market.
B)make it easy for later entrants to win business.
C)make it difficult for later entrants to win business.
D)give later entrants a cost advantage over early entrants.

Question 25

If a firm is trying to enter a market where there are already well-established companies,and where global competitors are also interested in establishing a presence,the firm should choose a greenfield investment.

Question 26

To maximize the learning benefits of an alliance,partners should try to learn from each other and then disperse the knowledge within their own organizations.

Question 27

Cross-licensing agreements can be used to formalize arrangements to swap skills and technology in a strategic alliance.

Question 28

Brand names are generally well-protected by international laws pertaining to trademarks.

Question 29

Unlike joint ventures,strategic alliances require the firm to bear all the costs and risks of foreign expansion.

Question 30

Overpayment for assets of an acquired firm is one reason acquisitions fail.

Question 31

The main advantage of greenfield investment is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

Question 32

Evidence suggests that all acquisitions create rather than destroy value.

Question 33

The failure rate for international strategic alliances is very low.

Question 34

Other things being equal,the benefit-cost-risk trade-off is likely to be most favorable in:

A)politically unstable developing nations that operate with a mixed or command economy.
B)nations where there is a dramatic upsurge in either inflation rates or private-sector debt.
C)politically stable developed and developing nations that have free market systems.
D)developing nations where speculative financial bubbles have led to excess borrowing.

Question 35

Acquisitions rarely produce disappointing results.

Question 36

Firms pursuing global standardization or transnational strategies tend to prefer joint-venture arrangements over wholly owned subsidiaries.

Question 37

Firms may avoid strategic alliances because their complexity usually delays entry into a foreign market.

Question 38

A clear advantage of greenfield investments as compared to acquisitions is the short execution time involved.

Question 39

Acquisitions are less risky than in greenfield ventures in the sense that there is less potential for unpleasant surprises.

Question 40

Which of the following is not an advantage associated with entering a foreign market before other international businesses?

A)Ability to preempt rivals and capture demand by establishing a strong brand name.
B)Ability to ride down the experience curve ahead of rivals.
C)Ability to create switching costs.
D)Ability to avoid pioneering costs.

Question 41

Identify the incorrect statement about turnkey projects.

A)The contractor agrees to handle every detail of the project for a foreign client.
B)They are most common in industries which use inexpensive production technologies.
C)This is a means of exporting process technology to other countries.
D)They create efficient global competitors in the process.

Question 42

When an exporting firm finds that its local agent is also carrying competitors' products,the firm may switch to a _____ to handle local marketing,sales,and service.

A)wholly owned subsidiary
B)franchising arrangement
C)turnkey operation
D)licensing agreement

Question 43

Firms that lack the capital necessary to develop foreign operations may choose _____ as a means of expanding internationally.

A)turnkey projects
B)licensing
C)greenfield investments
D)acquisitions

Question 44

The threat of tariff barriers by the host government can make _____ very risky.

A)greenfield investment
B)franchising
C)licensing
D)exporting

Question 45

Patents,inventions,formulas,processes,designs,copyrights,and trademarks are all forms of

A)licensing agreements.
B)franchising agreements.
C)intangible property.
D)tangible property.

Question 46

Which of the following statements about small-scale entry is true?

A)The commitment associated with a small-scale entry makes it possible for the small-scale entrant to capture first-mover advantages.
B)Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale.
C)By giving a firm time to collect information,small-scale entry increases the risks associated with a subsequent large-scale entry.
D)Small-scale entry limits a firms ability to learn about a foreign market thereby also limiting the firm's exposure to that market.

Question 47

When local agents carry the products of competing firms and have divided loyalties,_____ is not appropriate.

A)franchising
B)licensing
C)exporting
D)greenfield investment

Question 48

Many Western firms that sold oil-refining technology to firms in Gulf states now find themselves competing with these firms in the world oil market.This is an example of:

A)the firm entering into a turnkey project with a foreign enterprise,inadvertently creating a competitor.
B)the firm entering into a turnkey deal having no long-term interest in the foreign country.
C)the country subsequently proving to be a major market for the output of the process that has been exported.
D)selling the firm's process technology through a turnkey project which is also selling competitive advantage to potential competitors.

Question 49

A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover advantages associated with:

A)demand preemption.
B)diseconomies of scale.
C)pioneering costs.
D)diseconomies of scope.

Question 50

The costs of promoting and establishing a product offering when a firm enters a foreign market prior to its rivals are known as:

A)switching costs.
B)market development costs.
C)pioneering costs.
D)promotional development costs.

Question 51

If a firm can realize location economies by moving production elsewhere,it should avoid:

A)exporting.
B)turnkey contracts.
C)licensing.
D)wholly owned subsidiaries.

Question 52

Which of the following is a distinct advantage of exporting?

A)It avoids the often substantial costs of establishing manufacturing operations in the host country.
B)Benefits from a local partner's knowledge of the host country's competitive conditions.
C)Avoids the threat of tariff barriers by the host-country government.
D)Appropriate if lower cost locations for manufacturing the product can be found abroad.

Question 53

Which of the following is not an advantage of a small-scale entry?

A)A small-scale entrant is more likely to be able to capture first-mover advantages associated with demand preemption,scale economies,and switching costs.
B)Small-scale entry is a way to gather information about a foreign market before deciding how best to enter.
C)By giving the firm time to collect information,small-scale entry reduces the risks associated with a subsequent large-scale entry.
D)Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.

Question 54

A turnkey strategy:

A)is always riskier than conventional FDI.
B)is never used in a country with unstable political and economic environments.
C)is useful where FDI is limited by host-government regulations.
D)is a strong indicator of a firm's long-term interest in a foreign country.

Question 55

What is the primary advantage of licensing?

A)It helps a firm avoid the development costs associated with opening a foreign market.
B)It gives a firm the tight control over manufacturing,marketing,and strategy.
C)It helps a firm achieve experience curve and location economies.
D)It increases a firm's ability to utilize a coordinated strategy.

Question 56

Early entrants to a market that are able to create switching costs that tie the customer to the product are capitalizing on:

A)economies of scale.
B)pioneering costs.
C)first-mover advantages.
D)late-mover advantages.

Question 57

All of the following are examples of pioneering costs except the costs of:

A)business failure.
B)educating consumers.
C)promoting and establishing a product offering.
D)learning from the mistakes of early entrants.

Question 58

When a firm faces significant transportation costs,_____ can be uneconomical.

A)joint ventures
B)greenfield investments
C)licensing agreements
D)exporting

Question 59

In which of the following industries are turnkey projects the most common?

A)Fresh fruit,grain,and meat products.
B)Chemical,pharmaceutical,and metal refining.
C)Consumer durables,computer peripherals,and automotive parts.
D)Apparel,shoes,and leather products.

Question 60

An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is a(n)_____ agreement.

A)wholly owned subsidiary
B)turnkey
C)licensing
D)exporting

Question 61

Cross-licensing agreements are increasingly common in the _____ industry.

A)transportation
B)high-technology
C)construction
D)consumer durables

Question 62

Which of the following statements about franchising is true?

A)It guarantees consistent product quality.
B)It tends to involve more short-term commitments than licensing.
C)It is a specialized form of licensing.
D)It is employed primarily by manufacturing firms.

Question 63

If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how,which of the following entry strategy is best?

A)Joint ventures
B)Licensing
C)Wholly owned subsidiaries
D)Turnkey contacts

Question 64

A wholly owned subsidiary is appropriate when:

A)the firm wants to share the cost and risk of developing a foreign market.
B)the firm wants 100 percent of the profits generated in a foreign market.
C)the firm wants a plant that is ready to operate.
D)the firm wants to test a market.

Question 65

Which of the following is a disadvantage of licensing?

A)It does not help firms that lack capital to develop operations overseas.
B)It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies.
C)It cannot be used when a firm possesses some intangible property that might have business applications.
D)The firm has to bear the development costs and risks associated with opening a foreign market.

Question 66

Which of the following is an advantage of franchising?

A)A firm takes profits out of one country to support competitive attacks in another.
B)A firm is relieved of many of the costs and risks of opening a foreign market on its own.
C)It guarantees consistent product quality.
D)It achieves experience curve and location economies.

Question 67

A _____ is the most costly method of serving a foreign market from a capital investment standpoint.

A)wholly owned subsidiary
B)franchising agreement
C)turnkey project
D)joint venture

Question 68

If a service firm wants to build a global presence quickly and at a relatively low cost and risk,_____ makes sense.

A)a wholly owned subsidiary
B)exporting
C)a turnkey project
D)franchising

Question 69

This mode of entry is primarily used by service firms.

A)Franchising
B)Licensing
C)A strategic alliance
D)A turnkey project

Question 70

Identify the advantage of establishing wholly owned subsidiaries.

A)It is the least expensive method of serving a foreign market from a capital investment standpoint.
B)Political considerations make it the most feasible entry mode.
C)It may be required if a firm is trying to realize location and experience curve economies.
D)It is particularly useful where FDI is limited by host-government regulations.

Question 71

To increase the potential for a successful acquisition,a firm should:

A)always bid low to allow for partial failure.
B)try to acquire a firm with a very different corporate culture so there is no forced "overlap".
C)seek companies only from similar national cultures.
D)screen the foreign enterprise to be acquired.

Question 72

When a company has some intangible property that might have business applications,but the firm does not want to develop those applications itself,_____ makes sense.

A)exporting
B)a turnkey project
C)licensing
D)a wholly owned subsidiary

Question 73

"Protection of technology and The Ability to engage in global strategic coordination" are advantages of which of the following?

A)Franchising
B)Turnkey contracts
C)Joint ventures
D)Wholly owned subsidiaries

Question 74

Firms may prefer acquisitions to greenfield investments for all of the following reasons except:

A)they allow companies to completely sidestep government regulations on investment.
B)they are quick to execute.
C)they enable the firm to preempt competitors.
D)managers believe acquisitions are less risky.

Question 75

Most service firms have found that _____ with local partners work best for controlling subsidiaries.

A)joint ventures
B)licensing agreements
C)greenfield investments
D)turnkey projects

Question 76

Firms engaging in _____ with a local company can benefit from a local partner's knowledge of the host country's competitive conditions,culture,language,political systems,and business systems.

A)turnkey projects
B)joint ventures
C)greenfield investments
D)licensing arrangements

Question 77

A firm that establishes a _____ must bear the full costs and risks of entering a foreign market.

A)licensing agreement
B)wholly owned subsidiary
C)franchise
D)joint venture

Question 78

According to the _____,top managers typically overestimate their ability to create value from an acquisition.

A)misvaluation theory
B)performance extrapolation hypothesis
C)market timing theory
D)hubris hypothesis

Question 79

Which mode of entry is pursued primarily by manufacturing firms?

A)Franchising
B)Turnkey
C)Licensing
D)Strategic alliance

Question 80

If a firm's core competency is based on control over proprietary technological know-how,it should avoid _____ and _____ arrangements if possible,to minimize the risk of losing control over that technology.

A)licensing; joint-venture
B)wholly owned subsidiary; exporting
C)turnkey contracts; exporting
D)exporting; joint-venture