Question 1

There are two ways companies can invest in a foreign country.They can either acquire an interest in an existing operation or construct new facilities.In a short essay, describe the advantages and disadvantages of each alternative.

Accepted Answer

a.Reasons for buying: There are many reasons for seeking acquisitions.One is the difficulty of transferring some resource to a foreign operation or acquiring that resource locally for a new facility.Foreign companies may find it difficult to hire, especially if local unemployment is low.Instead of paying higher compensation than competitors do to entice employees away from their old jobs, a company can buy an existing company, which gives the buyer not only labor and management but also an existing organizational structure.Through acquisitions, a company may also gain the goodwill and brand identification important to the marketing of mass consumer products, especially if the cost and risk of breaking in a new brand are high.Further, a company that depends substantially on local financing rather than on the transfer of capital may find it easier to gain access to local capital through an acquisition.Local capital suppliers may be more familiar with an ongoing operation than with the foreign enterprise.This may also prevent excess capacity within the market.
b.Reasons for building: Although acquisitions offer advantages, a potential investor will not necessarily be able to realize them.Companies frequently make foreign investments where there is little or no competition, so finding a company to buy may be difficult.In addition, local governments may prevent acquisitions because they want more competitors in the market and fear market dominance by foreign enterprises.Even if acquisitions are available, they may be less likely to succeed than start-up operations.The acquired companies might have substantial problems.Further, the managers in the acquiring and acquired companies may not work well together.Finally, a foreign company may find local financing easier to obtain if it builds facilities, particularly if it plans to tap development banks for part of its financial requirements.

Question 2

According to the appropriability theory and the internalization theory, why would companies want to control their foreign operations?

Accepted Answer

Control is important to foreign companies because they may want to do what is best for their global operations rather than what is best for the operations of a specific country.Companies are reluctant to transfer vital resources-capital, patents, trademarks, and management know-how-to another organization that can make all of its operating decisions independently.The company receiving these resources can use them to undermine the competitive position of the foreign company transferring them.The idea of denying rivals access to resources is called the appropriability theory.The control through self-handling of operations (internal to the organization)is internalization, which may save transaction costs.

Question 3

Coca-Cola collaborates extensively abroad, but it refuses collaboration that might imperil control of its core competency.As a result, which of the following is NOT one of its international collaborative forms?
A)sharing ownership in the production of its secret formula concentrate
B)using franchisers to bottle, sell, and deliver Coke beverages
C)licensing Coke's trademark for use on products in which it lacks skills
D)forming joint ventures with companies that provide supplies for Coke products

Accepted Answer

Coca-Cola has never shared ownership of its secret formula concentrate with any other company, as this would threaten its core competency and competitive advantage. All other options listed (B, C, and D) are actual forms of international collaboration that Coca-Cola engages in.

Question 4

Appropriability theory refers to ________.
A)denying rivals access to competitive resources such as management know-how
B)categorizing the appropriateness of a firm's foreign investments in terms of host country objectives
C)explaining an investing firm's choice of partner in a joint venture
D)predicting the general pattern of direct investment locations

Accepted Answer

Appropriability theory refers to a firm's ability to deny its rivals access to its competitive resources such as management know-how, which can create a sustainable competitive advantage for the firm.

Question 5

Governments sometimes prohibit foreign acquisitions because they fear market dominance by foreign enterprises.

Accepted Answer

Governments may restrict foreign acquisitions in order to protect domestic industries or prevent market dominance by foreign enterprises. This is a common practice in countries around the world.

Question 6

A company that makes a foreign investment largely to acquire knowledge is most likely to use ________ as a means of expansion.
A)a greenfield investment
B)internalization
C)an acquisition
D)a licensing agreement

Accepted Answer

Acquisitions are often used by companies to quickly access new technologies, skills, or competencies that the target company possesses, making it a common strategy for acquiring knowledge.

Question 7

A U.S.firm owns 100% of its production facility in Brazil; thus it is most likely using a(n)________ strategy.
A)comprehensive ownership
B)vertical integration
C)appropriability
D)internalization

Accepted Answer

When a U.S. firm owns 100% of its production facility in Brazil, it is using an internalization strategy. This approach involves a firm conducting its operations within the organization rather than relying on external partners or licensing, to retain control over its resources and capabilities.

Question 8

Why can a company more easily pursue a global strategy when it owns 100 percent of foreign operations?
A)The company is not likely to face overcapacity issues.
B)The company limits foreign-exchange rate fluctuations.
C)The company avoids communication misunderstandings.
D)The company can sub-optimize results in one country in order to optimize results globally.

Accepted Answer

Owning 100 percent of foreign operations allows a company to have full control over its international strategy, enabling it to prioritize global optimization over local performance, which might involve sub-optimizing results in one country for the benefit of the overall global strategy.

Question 9

A greenfield investment is another name for a company's decision to ________.
A)acquire an interest in an existing foreign operation
B)implement sustainable marketing practices
C)construct a new facility in a foreign market
D)build a facility for a local company

Accepted Answer

A greenfield investment refers to the construction of a new facility in a foreign market. It is different from acquiring an existing foreign operation or building a facility for a local company. While implementing sustainable marketing practices can be a part of the investment, it is not the primary focus of a greenfield investment.

Question 10

A U.S.firm is acquiring an existing company in Germany rather than starting up a new foreign operation.Which of the following statements best supports this decision?
A)Because the German firm is performing poorly, there is a good turn-around opportunity.
B)The U.S. firm's U.S. facility is working at capacity.
C)Stock market prices have been very high in Germany.
D)The German firm has skilled personnel that the U.S. firm cannot hire at a good price on its own.

Accepted Answer

The best reason to acquire an existing company in Germany rather than starting up a new foreign operation would be that the German firm has skilled personnel that the U.S. firm cannot hire at a good price on its own. This would make the acquisition a more cost-effective option for the U.S. firm, as they can gain access to already-trained personnel without having to pay the high costs of recruitment and training from scratch. None of the other reasons listed would directly support this decision.

Question 11

A U.S.firm plans to shift from exporting to production in China to serve the Chinese market.Which of the following statements would best explain this decision?
A)China's currency is appreciating relative to the U.S. dollar.
B)The firm is nearing capacity utilization in its U.S. plant.
C)The company need not alter its products for the Chinese market.
D)Transportation costs have become low relative to production costs.

Accepted Answer

The fact that the firm is nearing capacity utilization in its U.S. plant suggests that it may be more cost-effective for the company to produce in China to serve the Chinese market rather than continue exporting to China. The other options do not provide a good explanation for why the firm would shift to production in China.

Question 12

Executives at a U.S.firm are debating whether to start a new operation in Russia or acquire an existing one.Which of the following factors best supports a decision to start up a new operation in Russia?
A)The Russian government places restrictions on the outward transfer of foreign capital.
B)Labor relations at existing Russian firms are poor and difficult to change.
C)Russia's currency is weak and stock market prices are significantly depressed.
D)Existing companies have goodwill and positive brand recognition in Russia.

Accepted Answer

Starting a new operation could allow the U.S. firm to establish its own labor relations policies from the outset, potentially avoiding the challenges associated with poor labor relations at existing Russian firms.

Question 13

Appropriability theory describes a firm's desire to deny rivals access to its competitive resources.

Accepted Answer

Appropriability theory proposes that firms seek to protect their competitive advantage by controlling access to their unique resources or capabilities, thereby denying rivals the opportunity to imitate or replicate them. This can be achieved through various means, such as patents, trade secrets, copyrights, and exclusive contracts, among others. By doing so, firms can capture a larger share of the value they create and maintain their market position against competitors.

Question 14

In a short essay, discuss how transportation, trade restrictions, domestic capacity, and country-of-origin affect companies' decisions about modes of operating internationally.

Accepted Answer

The answer of In a short essay, discuss how transportation,...

Question 15

Which of the following is the LEAST likely reason that consumers would prefer domestically made products over imports?
A)belief that imports are subsidized
B)feelings of national pride and sentiment
C)negative associations with products from certain countries
D)concerns that parts will be difficult to obtain for foreign products

Accepted Answer

The least likely reason consumers would prefer domestically made products over imports is the belief that imports are subsidized. This belief does not directly relate to a preference for domestic products, as subsidies are a form of government support for producers rather than a reflection of the product's quality or availability.

Question 16

Wholly owned operations abroad inhibit a company's ability to pursue a global strategy.

Accepted Answer

Wholly owned operations abroad can actually facilitate a company's ability to pursue a global strategy by providing greater control over operations and ensuring consistency in product/service quality and brand image across different markets.

Question 17

A U.S.firm with a production facility in Brazil uses its own personnel to handle almost all activities because their outsourcing would be too costly and inefficient.Its internalization will most likely lead to cost savings because the firm can avoid ________.
A)costly customs brokers
B)high, fixed start-up costs
C)the costs of enforcing an agreement
D)sharing profits

Accepted Answer

Internalization allows a firm to avoid the costs associated with enforcing agreements with external parties, such as monitoring, legal fees, and ensuring compliance.

Question 18

Exporting is usually more feasible when transportation costs are high rather than low in relation to production costs.

Accepted Answer

Exporting tends to be more feasible and cost-effective when transportation costs are low in relation to production costs, as high transportation costs can significantly increase the overall cost of goods sold abroad, making exports less competitive.

Question 19

Foreign acquisitions are more advantageous than start-ups when the industry has little excess capacity than when it has a lot of excess capacity.

Accepted Answer

The answer of Foreign acquisitions are more advantageous than start-ups...

Question 20

Small economies are sometimes less successful than large countries in attracting FDI by raising import restrictions.What is the most likely reason for this?
A)Large economies impose higher trade restrictions.
B)Transportation costs are generally higher in small economies.
C)People in small economies are more nationalistic in their purchases.
D)Small economies frequently lack sufficient markets for large-scale production.

Accepted Answer

Small economies frequently lack sufficient markets for large-scale production. This means that they may have limited demand for the products produced by FDI, making it less attractive for foreign investors to choose to invest in these small economies. As a result, even if import restrictions are lifted, the lack of market size may still deter foreign investors.

Quiz 15: Direct Investment and Collaborative Strategies

There are two ways companies can invest in a foreign country.They can either acquire an interest in an existing operation or construct new facilities.In a short essay, describe the advantages and disadvantages of each alternative.

According to the appropriability theory and the internalization theory, why would companies want to control their foreign operations?

Coca-Cola collaborates extensively abroad, but it refuses collaboration that might imperil control of its core competency.As a result, which of the following is NOT one of its international collaborative forms?

Appropriability theory refers to ________.

Governments sometimes prohibit foreign acquisitions because they fear market dominance by foreign enterprises.

A company that makes a foreign investment largely to acquire knowledge is most likely to use ________ as a means of expansion.

A U.S.firm owns 100% of its production facility in Brazil; thus it is most likely using a(n) ________ strategy.

Why can a company more easily pursue a global strategy when it owns 100 percent of foreign operations?

A greenfield investment is another name for a company's decision to ________.

A U.S.firm is acquiring an existing company in Germany rather than starting up a new foreign operation.Which of the following statements best supports this decision?

A U.S.firm plans to shift from exporting to production in China to serve the Chinese market.Which of the following statements would best explain this decision?

Executives at a U.S.firm are debating whether to start a new operation in Russia or acquire an existing one.Which of the following factors best supports a decision to start up a new operation in Russia?

Appropriability theory describes a firm's desire to deny rivals access to its competitive resources.

In a short essay, discuss how transportation, trade restrictions, domestic capacity, and country-of-origin affect companies' decisions about modes of operating internationally.

Which of the following is the LEAST likely reason that consumers would prefer domestically made products over imports?

Wholly owned operations abroad inhibit a company's ability to pursue a global strategy.

A U.S.firm with a production facility in Brazil uses its own personnel to handle almost all activities because their outsourcing would be too costly and inefficient.Its internalization will most likely lead to cost savings because the firm can avoid ________.

Exporting is usually more feasible when transportation costs are high rather than low in relation to production costs.

Foreign acquisitions are more advantageous than start-ups when the industry has little excess capacity than when it has a lot of excess capacity.

Small economies are sometimes less successful than large countries in attracting FDI by raising import restrictions.What is the most likely reason for this?