According to the text, which of the following entry strategies has the lowest degree of risk?

TRUE/FALSE

1. A fundamental consideration that must be made in business is the risk-return trade-off. In general, the greater the risk (loss of capital invested) entrepreneurs are willing to take, the greater the rewards (profit) they are likely to reap.

ANS: T PTS: 1 DIF: Difficulty: Moderate REF: p. 192 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. Interestingly, licensing and franchising typically leads to the penetration of international markets without significant capital investment abroad by the parent company.

ANS: T PTS: 1 DIF: Difficulty: Moderate REF: p. 195 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. When it comes to franchising, the parent company’s objective is to make sure that when a customer visits its franchisee in any country, the quality of products and services provided are as different and unique in every store.

ANS: F PTS: 1 DIF: Difficulty: Moderate REF: p. 195 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Comprehension

1. Strategic alliances differ from joint ventures in one major characteristic: they involve non- equity arrangements, meaning that strategic alliances do not involve the creation of a separate entity with joint ownership.

ANS: T PTS: 1 DIF: Difficulty: Moderate REF: p. 196 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. When Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle’s huge national bottling and distribution network. This is an example of international joint venture in global markets.

ANS: F PTS: 1 DIF: Difficulty: Easy REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. Subsidiaries require major marketing efforts to penetrate the international market because of cultural differences and because the entrant is new and relatively unknown.

ANS: T PTS: 1 DIF: Difficulty: Moderate REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. General Electric (United States), Sony (Japan), BMW (Germany), and Petrobras (Brazil) are just a few of the hundreds examples of large MNEs.

ANS: T PTS: 1 DIF: Difficulty: Easy REF: p. 200 OBJ: LO: 08-02 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. In a free enterprise system, the overriding objective of firms wanting to invest abroad is to funnel the proceeds to a central government.

ANS: F PTS: 1 DIF: Difficulty: Easy REF: p. 201 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. When MNEs go abroad, they generally do so for two major reasons. There could be massive competition in the home market or firms may genuinely identify new business opportunities abroad based upon the company’s competitive advantage in production, technology and management.

ANS: T PTS: 1 DIF: Difficulty: Moderate REF: p. 201 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. While economic growth rates in stable economies may be high compared with emerging- market economies like BRIC, their high per-capita-income levels translate to poor levels of consumption that could prove to be an unstable source of revenue and profits for MNEs wanting to enter these markets.

ANS: F PTS: 1 DIF: Difficulty: Challenging REF: p. 202 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. Trade barriers lead to decreased competition from abroad, and raise prices and profits of domestic firms. Interestingly, such protection over time will often lead to higher-quality domestic products and services.

e. moderate; high ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

1. According to the text, which of the following entry strategies has the highest degree of risk? a. Licensing b. Wholly-owned foreign subsidiary c. Foreign acquisition d. Joint venture e. Strategic alliance ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

2. According to the text, which of the following entry strategies has the lowest degree of risk? a. Licensing b. Wholly-owned foreign subsidiary c. Foreign acquisition d. Joint venture e. Strategic alliance ANS: A PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

3. Of the following, which is NOT true about the export-import business? a. Many employees, often 100+, are required for an export-import business to operate. b. The export-import business is a relatively low-risk operation. c. The export-import business involves penetrating foreign markets or importing merchandise at competitive prices for domestic consumption. d. The opportunity to participate in export-import business is significant. e. Government agencies offer specialized seminars and programs on how to identify markets overseas and sell merchandise there. ANS: A PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

4. Around _____ percent of international trade is conducted by small business. a. 5 b. 20 c. 35 d. 50 e. 65

ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. Which of the following is NOT true about licensing? a. It involves slightly more risk to the licensee than licensor. b. The license fee could be based on a percentage of final sales revenue of the product, or the number of units sold. c. When a product is licensed, the foreign partner will use the licensor’s patented technology as agreed to manufacture and sell products that meet the licensor’s standards. d. Unscrupulous licensees have been known to manufacture licensed products and sell them under different brand names. e. Licensing is the practice in which a company or individual provides the foreign partner with the technology to manufacture and sell products or services in a target country for an annual fee ANS: A PTS: 1 DIF: Difficulty: Challenging REF: p. 194 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

2. Disney Consumer Goods and Bayer Aspirins are examples of _____. a. licensing b. franchising c. a foreign acquisition d. a joint venture e. an export-import business ANS: A PTS: 1 DIF: Difficulty: Challenging REF: p. 194 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

3. The practice in which the parent firm is obligated to provide its brand name, specialized equipment and/or service, and sometimes to fund some startup costs, to another firm in return for an annual fee is known as _____. a. licensing b. franchising c. a foreign acquisition d. a joint venture e. an export-import business ANS: B PTS: 1 DIF: Difficulty: Easy REF: p. 195 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

4. Which of the following is NOT true about franchising?

ANS: E PTS: 1 DIF: Difficulty: Easy REF: p. 197 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. The ultimate objective of most joint ventures is _____. a. acquiring other companies b. making a brand name c. developing sustainable environment d. using joint production and sales distribution networks to increase revenue e. helping others ANS: D PTS: 1 DIF: Difficulty: Moderate REF: p. 196 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

2. Coca-Cola has built 41 bottling plants and two concentrate manufacturing plants with three separate partners in China since 1979. This is an example of a(n) _____. a. license b. franchise c. foreign acquisition d. strategic alliance e. international joint venture ANS: E PTS: 1 DIF: Difficulty: Challenging REF: p. 197 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

3. The United States spends _____ percent of its GDP on health care. a. 15 b. 30 c. 45 d. 60 e. 75 ANS: A PTS: 1 DIF: Difficulty: Challenging REF: p. 198 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

4. The purchase of established firms abroad with the goal of using the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm’s global strategy is known as a(n) _____. a. subsidiary b. multinational enterprise c. foreign acquisition d. strategic alliance e. divestiture

ANS: C PTS: 1 DIF: Difficulty: Easy REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. In 1993, Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle’s huge national bottling and distribution network. This is an example of a(n) a. subsidiary b. multinational enterprise c. foreign acquisition d. strategic alliance e. divestiture ANS: C PTS: 1 DIF: Difficulty: Challenging REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

2. Of the following, which is NOT true of mergers and acquisitions? a. By merging the strengths of the home company with those of the host country firm, the new firm will become more competitive internationally. b. The company being acquired should be well established and have a good reputation in the local market. c. Mergers and acquisitions are relatively low-risk. d. Corporate cultural differences may inhibit smooth integration of the two organizations. e. An exit strategy should be in place that enables the home company to leave the host country. ANS: C PTS: 1 DIF: Difficulty: Challenging REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

3. General Electric, Microsoft, Sony, Toyota, and BMW are examples of _____. a. subsidiaries b. multinational enterprises c. foreign acquisitions d. strategic alliances e. acquisitions ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 199 OBJ: LO: 08-02 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

4. Of the following, which is NOT an emerging-market? a. South Africa b. India c. Australia

c. acquiring other companies d. exploring joint ventures e. reacting to exchange rate movements ANS: A PTS: 1 DIF: Difficulty: Challenging REF: p. 204 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

1. U. corporations have been pouring investments into China to build manufacturing facilities to produce goods for the local and export markets. Since economists expect the Chinese yuan to appreciate against the dollar in the future, the forthcoming Chinese yuan profits of U. MNEs when converted to U. dollars will be high. This is an example of U. companies cutting costs by _____. a. minimizing factor input costs b. generating revenue c. acquiring other companies d. exploring joint ventures e. reacting to exchange rate movements ANS: E PTS: 1 DIF: Difficulty: Challenging REF: p. 204 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

2. The Coca-Cola company has operations in more than 140 countries and generates more that 55 percent of its profits from its overseas operations. Coca-Cola’s annual profits are, therefore, more stable than those of a firm that focuses upon the U. market alone. Coca- Cola is engaging in _____. a. importing b. diversification c. a merger d. a joint venture e. an exchange rate movements ANS: B PTS: 1 DIF: Difficulty: Challenging REF: p. 205 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Application

3. The first stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: B PTS: 1 DIF: Difficulty: Easy REF: p. 205 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

4. The second stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: C PTS: 1 DIF: Difficulty: Easy REF: p. 205 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

5. The third stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: D PTS: 1 DIF: Difficulty: Easy REF: p. 205 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

6. The last stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: A PTS: 1 DIF: Difficulty: Easy REF: p. 205 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

7. Who identified three key economic “advantages” that firms should have for FDI to occur? a. Hawthorne b. Maslow c. Dunning d. Ford e. Roosevelt ANS: C PTS: 1 DIF: Difficulty: Easy REF: p. 206 OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

8. Dunning identified _____ key economic “advantages” that firms should have for FDI to occur.

COMPLETION

1. ______ refers to the potential financial loss that entrepreneurs are willing to take in a business.

ANS: Risk profile

PTS: 1 DIF: Difficulty: Easy REF: p. 192 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. A relatively low-risk business operation that involves penetrating foreign markets (by exporting) or importing merchandise at competitive prices for domestic consumption refers to _______.

ANS: export-import business

PTS: 1 DIF: Difficulty: Moderate REF: p. 193 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. _______ refers to the practice in which a company or individual provides the foreign partner with the technology to manufacture and sell products or services in a target country for an annual fee.

ANS: Licensing

PTS: 1 DIF: Difficulty: Easy REF: p. 194 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. _______ refers to the practice in which the parent firm is obligated to provide specialized equipment and/or service, and sometimes funding some startup costs to host-country firm in return for an annual fee.

ANS: Franchising

PTS: 1 DIF: Difficulty: Easy REF: p. 195 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. An agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time refers to _______.

ANS: strategic alliances

PTS: 1 DIF: Difficulty: Moderate REF: p. 196 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. ______ is a business that is jointly owned and operated by two or more firms that pool their resources to penetrate host country markets, generate and split profits, and share commercial risk.

ANS: International joint venture

PTS: 1 DIF: Difficulty: Moderate REF: p. 197 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. ______ refers to the purchase of established firms abroad with the goal of utilizing the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm’s global strategy.

ANS: International acquisition

PTS: 1 DIF: Difficulty: Moderate REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. New facilities built and operated overseas that require large investment of capital to tailor to the exact needs of the home country firm refers to _____.

ANS: subsidiaries

PTS: 1 DIF: Difficulty: Moderate REF: p. 199 OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Knowledge

1. ______ are firms that are headquartered in one country, but own and control manufacturing, services, research and development facilities, or other business entities on foreign soil.

ANS: Multinational enterprises

PTS: 1 DIF: Difficulty: Moderate REF: p. 192- OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Comprehension

1. Differentiate between strategic alliances and international joint ventures.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 196- OBJ: LO: 08-01 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Analysis

1. Companies go global for three possible motives. Describe each of these three motives and the possible strategies available to companies under each motive.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 201- OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Evaluation

1. Briefly describe Dunning’s Eclectic Theory of Foreign Direct Investment.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 205- OBJ: LO: 08-03 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Comprehension

1. What are the benefits and costs of foreign direct investment from the host country’s perspective? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 206- OBJ: LO: 08-04 NAT: BUSPROG: Analytic STA: DISC: Strategy KEY: Bloom's: Comprehension

CASE

Scenario – Lewis Fabrication

Lewis Fabrication was founded in 2001 and is based in Maryland, USA. This company manufactures custom designed motorcycle parts and currently has over two thousand U. customers. Due to the growing number of inquiries received from foreign countries such as Japan, Canada, China, and Indonesia, Lewis Fabrication has decided to begin operations on a global scale. The owners realize there is much to learn before undertaking this monumental step. However, financial projections indicate about $1 million in profit is very likely in the first year of going global. The owners are very excited and looking forward to the business expansion.

1. While Lewis Fabrication has decided to begin operations on a global scale, it realizes there is still much to learn. One of the fundamental things it must have knowledge on is the manner in which it can begin operations globally. Which one of the following would not be considered a choice for starting international business operations for this company? a. Begin as an export-import business b. License a foreign business partner to produce and sell the company’s products c. Open wholly owned subsidiaries of the company in the Midwest d. Sell franchises of the business to foreign buyers e. Form a strategic alliance with a foreign firm

ANS: c

PTS: 1 DIF: Difficulty: Moderate REF: p. 192- OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Strategy KEY: Bloom's: Evaluation

1. The global markets in which Lewis Fabrication plans to expand provides this company with the opportunity for entering relatively high-growth markets with a product that is in demand. Which one of the following would Lewis Fabrication be least likely to expect to find in this type of market? a. No government or military influence or intervention for Lewis Fabrication b. Per capita incomes are rising and expected to continue to rise c. The middle class is growing in numbers and so is their demand for products d. A larger percent of the population is financially classed as below middle class in certain of these foreign markets e. These foreign markets are considered to have high profitability potential for companies such as Lewis Fabrication

ANS: a

d. Use of joint production and distribution will help to increase market share e. Boseman will maintain all decision making rights in the foreign market

ANS: e

PTS: 1 DIF: Difficulty: Moderate REF: p. 196- OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Strategy KEY: Bloom's: Analysis

1. Boseman Clothier, Inc. has indicated it would like to use different entry strategies for each of the four markets it plans to enter. Which of the following would not be considered a benefit from using licensing in the other foreign markets it plans to enter? a. This type of relationship is expected to last for years so there must be a high level of trust between the companies involved b. Bozeman will be subjected to the least amount of risk with this type of entry into a foreign market c. Bozeman is expected to provide the foreign partner with the process necessary to produce its highly desired suits d. Bozeman’s partner is expected to pay an annual license fee to the company for the use of its production process and the ability to sell its products e. Bozeman does not have to have financial resources to open new production facilities within the foreign country

ANS: b

PTS: 1 DIF: Difficulty: Moderate REF: p. 194- OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Strategy KEY: Bloom's: Evaluation

1. Bozeman is also considering making the entry into the international market by engaging in foreign direct investments in the nations. Which one of the following is not a true statement regarding foreign direct investment from the host country’s perspective? a. Significant financial inflows always result from engaging in foreign direct investment. b. Foreign direct investment can create new jobs and can generate tax revenues for governments c. A concern of the local governments in host countries is the lack of corporate social responsibility d. There is the potential for exploitation of human labor within certain countries e. These investments may take the form of plants, buildings, or inventories

ANS:

a

PTS: 1 DIF: Difficulty: Moderate REF: p. 206- OBJ: LO: 08-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Strategy KEY: Bloom's: Evaluation

Which strategy for entering a foreign market has the highest degree of risk?

Which of the following methods of entering international business is riskiest and most expensive?

Which strategy has the most risk of a company losing control of proprietary technology?

What three factors help a company determine which entry mode is most appropriate?