A firm contemplating foreign expansion must make three decisions: (1) which __________ ___ __________, (2) __________ to enter the markets, and (3) on what _________.
Markets to enter, when, scale
The costs and risks associated with doing business in a foreign country are typically lower in __________ advanced and politically stable ___________ nations.
The benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have __________ ___________ systems, and where there is not a dramatic upsurge in either __________ rates or __________-__________ debt.
Free market, inflation, private-sector
True/False: If an international business can offer a product that has not been widely available in a market and that satisfies an unmet need, the value of that product to consumers is likely to be much lower.
Definition: Entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves.
Timing of entry
Definition: Advantages accruing to the first to enter a market.
Definition: Disadvantages associated with entering a foreign market before other international businesses.
Definition: Costs that an early entrant has to bear that a later entrant can avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.
One first-mover advantage is the ability to preempt rivals and capture __________ by establishing a strong brand name.
One first-mover advantage is the ability to build __________ volume in that country and ride down the ___________ curve ahead of rivals, giving the early entrant a cost advantage.
One first-mover advantage is the ability of early entrants to create _________ __________ that tie customers into their products or services.
Pioneering costs include: (a) the costs of business _________ if the firm, due to its ignorance of the foreign environment, makes major mistakes, (b) the costs of ___________ and establishing a product offering, including the costs of __________ customers; and (c) the costs associated with a change in __________ that invalidate prior assumptions about the best business model in a country.
Failure, promoting, educating, regulations
True/False: Research confirms that the probability of firm survival increases if an international business enters a national market after several other foreigns firms have already done so.
True/False: Entering a market on a large scale involves rapid entry.
_________-scale entrants are more likely to be able to capture first-move advantages.
_________-scale entry allows a firm to learn about a foreign market while limiting the firm’s exposure to that market.
Small-scale entry ___________ the risks associated with a subsequent large-scale entry.
Christopher ___________ and Sumantra ___________ argue that companies based in developing nations should use the entry of foreign multinationals as an opportunity to _________ from these competitors by benchmarking their operations and performance against them.
Bartlett, Ghoshal, learn
Christopher ___________ and Sumantra ___________ argue that companies based in developing nations can differentiate itself from a foreign multinational by focusing on market _________ that the multinational ignores or is unable to serve effectively.
Bartlett, Ghoshal, niches
Firms can use six different modes to enter foreign markets: (1) ___________, (2) __________ projects, (3) __________, (4) ____________, (5) establishing ____________ __________ with a host-country firm, or (6) setting up a _______, ____________ __________ subsidiary within the host country.
Exporting, turnkey, licensing, franchising, joint ventures, new, wholly owned
Definition: Sale of products produced in one country to resident of another country.
Exporting has two main advantages: (1) It avoids the substantial costs of establishing ____________ operations in the host country, and (2) Exporting may help a firm achieve ____________ curve and ____________ economies.
Manufacturing, experience, location
Exporting has many drawbacks: (1) It may not be appropriate if _________-_________ locations for manufacturing can be found abroad; (2) It has high _________ costs, especially for bulk products; (3) _________ barriers can make exporting uneconomical.
Lower-cost, transportation, tariff
Though exporting has high transportation costs, one way of getting around this is to manufacture _________ products regionally.
The way around exporting’s problems is to set up __________ ___________ subsidiaries in foreign nations to handle local marketing, sales, and services.
Definition: A project in which a firm agrees to set up an operating plant for a foreign client and hand over the “key” when the plant is fully operational.
_________ _________ are most common in the chemical, pharmaceutical, petroleum refining, and metal refining industries, all of which use complex, expensive production technologies.
True/False: The main advantages to turnkey projects is that they are a way of earning great economic returns from a valuable asset, and that they can be less risky than conventional FDI.
There are three disadvantages to turnkey projects: (1) A firm will have no ________-________ interest in the foreign country; (2) A firm may inadvertently create a _________; and (3) If the firm’s process technology is a source of competitive advantage, selling this technology through a turnkey project is selling competitive advantage to _________.
Long-term, competitor, competitors
Definition: Occurs when a firm licenses the rights to produce its product, its production processes, or its brand name or trademark to another firm; in return, the licensor collects a royalty fee from the licensee.
The advantages of licensing are that (a) the firm does not have to bear the ____________ costs and risks associated with opening a foreign market; (b) the firm is able to get around foreign ___________ to investment; and (c) allows firms to use intangible property in business without developing ____________ itself.
Development, barriers, applications
Licensing has three main disadvantages: (1) It does not give a firm tight ___________ over manufacturing, marketing, and strategy; (2) It does not allow a firm to coordinate strategic moves across countries by using __________ from one country to support attacks on another; and (3) Firms are less able to maintain control over their ____________ know-how within the framework of a licensing agreement.
Control, profits, technological
There are a couple ways to minimize the risk of licensing: (1) Entering into a _________-__________ agreement with a foreign firm, and (2) Linking an agreement to license know-how with the formation of a __________ ___________.
Cross-licensing, joint venture
Franchising tends to involve __________-term commitments than licensing.
Definition: A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.
A franchiser typically receives a __________ payment that amounts to some percentage of the franchisee’s revenues.
The main advantage of franchising is that the firm is relieved of many of the _________ and __________ of opening a foreign market on its own.
The disadvantages of franchising are (a) it may inhibit the firm’s ability to take profits out of one country to support competitive ___________ in another, and (b) it may inhibit the firm’s ability to control the ___________ created by the franchisee.
Franchising can sometime inhibit a firm’s ability to control the quality of the product upheld by the franchisee. One way around this disadvantage is to set up a ___________ in each country in which the firm expands.
Definition: Establishing a firm that is jointly owned by two or more otherwise independent firms.
The main advantages of a joint venture are: (1) A firm benefits from a _________ _________’s knowledge of the host country’s competitive conditions, culture, language, etc.; (2) When the development costs and/or risks of opening a foreign market are high, a firm might gain by __________ these costs with a local partner; and (3) In many countries, __________ considerations make joint ventures the only feasible entry mode.
Local partner, sharing, political
Joint ventures have major disadvantages: (1) A firm risks giving control of its ___________ to its partner; (2) A firm doesn’t have the tight ____________ over subsidiaries that it needs to realize experience curve or location economies; (3) A firm doesn’t have the tight control over a subsidiary that it needs for a coordinated __________ ___________ against rivals; and (4) They can lead to conflicts between the investing firms if their __________ change or they disagree on what the ___________ should be.
Technology, control, global attack, goals, strategy
Sometimes a joint venture can be risky because a firm risks giving control of its technology to its partner. This risk can be minimized if the firm holds __________ ownership in the venture or “_________ _________” from a partner technology that is central to the core competence of the firm.
Majority, walls off
True/False: Sometimes a joint venture can be risky because a firm risks a conflict over the strategy. These conflicts often end in the dissolution of the venture.
Definition: A subsidiary in which the firm owns 100% of the stock.
Wholly owned subsidiary
The advantages of wholly owned subsidiaries: (1) When a firm’s competitive advantage is based on technological competence, this method of entry reduces the risk of losing __________ over that competence; (2) A firm has tight control over operations in different __________; and (3) This method of entry may be __________ if a firm is trying to realize location and experience curve economies.
Control, countries, required
Disadvantages of wholly owned subsidiaries: (1) It is a __________ method of serving a foreign market from a capital investment standpoint; and (2) The problems with trying to marry __________ corporate cultures.
True/False: If a firm’s competitive advantage is based on control over proprietary technological know-how, licensing and joint-venture arrangements are the best methods of entry into a foreign market.
Licensing technological know-how has two main advantages: (1) By licensing it to ___________, a firm may deter them from developing their own technology; and (2) A firm can establish its technology as the ___________ design in the industry.
Licensing a technology can be risky; however, it can be a good entry method if the technological advancement is only ____________ and it expects a rapid imitation of the technology by competitors.
True/False: For service firms, the risk of losing control over management skills to franchisees or joint-venture partners is not great.
The __________ the pressures for cost reductions are, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries.
True/False: Firms pursuing global standardization or transnational strategies tend to avoid establishing wholly owned subsidiaries.
Advantages of acquisitions: (1) They are __________ to execute; (2) In many cases, firms make acquisitions to preempt their __________; and (3) Acquisitions are less __________ than greenfield ventures.
Quick, competitors, risky
When a firm makes an acquisition in a foreign market, it acquires ___________ assets like factories, logistics systems, and customer service systems, and ___________ assets like a brand name and manager knowledge.
Acquisitions fail for several reasons: (1) Acquiring firms often __________ for the assets of the acquired firm; (2) There is a clash between the _________ of the acquiring and acquired firm; (3) Attempts to realize synergies by integrating the acquired and acquiring entities take _________ than forecast; and (4) Sometimes firms have inadequate pre-acquisition __________.
Overpay, cultures, longer, screening
Sometimes firms overpay for acquisitions because the price of the target firm can get bid up if ________ _________ _________ firm is interested in its purchase, and the management of the acquiring firm could be too __________ about the value of the acquisition.
More than one, optimistic
The ___________ ____________ postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.
True/False: After an acquisition, many acquired companies experience high management turnover.
Screening a firm before an acquisition can help make sure the firm (1) does not ________ too much for the acquired unit, (2) does not uncover any nasty ________ after the acquisition, and (3) acquires a firm whose organization culture is not _________ to the acquiring firm.
Pay, surprises, antagonistic
The main advantage to establishing a __________ ___________ is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.
It is __________ to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit.
True/False: Greenfield ventures are quicker to establish than acquisitions.
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