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Int’l Business Final Exam

What is the main disadvantage of wholly owned subsidiaries?
the firm bears the full cost and risk of setting up overseas operations
Wholly owned subsidiary
the firm owns 100 percent of the stock
If a firm wants the option of global strategic coordination, the firm should choose
a wholly owned subsidiary
Establishing a wholly owned subsidiary in a foreign country can be done
by setting up a new operation or by acquiring an established firm
Wholly owned subsidiaries are attractive
*reduce the risk of losing control
* give a firm the tight control in different countries
* may be required in order to realize location and experience curve economies
What is the most costly form of foreign market entry?
Wholly owned subsidiary
Which entry mode has high costs and risks?
Wholly owned subsidiaries
Turnkey Project
contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel
What are the six different ways to enter a foreign market?
exporting
turnkey projects
licensing
franchising
establishing joint ventures with a host country firm
setting up a new wholly owned subsidiary in the host country
Turnkey projects are a means of exporting _____ to other countries
process technology
Turnkey projects are most common in the following industries:
chemical, pharmaceutical, petroleum refining, and metal refining.
An advantage of _____ is that they are a way of earning great economic returns from technological assets.
turnkey projects
In which strategy does a foreign client have the least input in details of a project?
turnkey strategy
Creating competitors and lack of long-term market presence are disadvantages of:
turnkey projects
Which of the following is an advantage of turnkey projects?
earning great returns from the technological know-how of running a complex process.
Why are wholly owned subsidiaries preferred by firms pursuing global or transnational strategies?
they allow the use of profits generated in one market and improve the competitive position in another.
Turnkey Contract Advantage
ability to earn returns from process technology skills in countries where FDI is restricted
Turnkey Contract Disadvantage
*creating efficient competitors
lack of long-term market presence
Exporting
is a common first step in the international expansion process for many manufacturing firms
How do most firms begin their international expansion?
with exporting
Tariff barriers can make it uneconomical to use which mode of entry?
exporting
All of the following statements are disadvantages of exporting EXCEPT
exporting may help a firm achieve experience curve economies.
Which of the following is an advantage of exporting?
Allows a firm to achieve experience curve and location economies.
The greater the pressures for cost reductions are, the most likely a firm will want to pursue some combination of:
exporting and wholly owned subsidiaries.
Licensing Agreement
an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified time period, and in return, the licensor receives a royalty fee from the licensee
An arrangement whereby a licensor grants the rights to intangible property to another entity for a specified time period in exchange for royalties is a(n) _____ agreement.
licensing
A primary advantage of _____ is that the firm does not have to bear the development costs and risks associated with opening a foreign market.
licensing
A disadvantage of licensing is
lack of control over technology inability to realize location & experience curve economies
Another disadvantage of licensing is
Inability to engage in global strategic coordination
Which of the following is NOT a drawback of licensing?
Licensing can become unprofitable due to trade barriers and transportation costs.
Under a(n) _____ agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm.
cross-licensing
Which type of agreement is believed to reduce the risks associated with licensing technological know-how?
Cross-licensing agreement
Although they are similar, _____ tends to involve longer-term commitments than:
franchising; licensing.
Advantages of _____ are low development costs and risks.
franchising and licensing
Franchising is employed primarily by:
service firms
Because the _____ typically assumes most costs and risks, he or she has the incentive to build a profitable operation as quickly as possible.
franchisee
Which entry mode has low development costs and risks?
Franchising
Which entry mode has a lack of control over quality?
Franchising
The magnitude of the advantages and disadvantages associated with an entry mode is NOT determined by:
the surface area of the country
A _____ entails establishment of a firm that is jointly owned by two or more otherwise independent firms.
joint venture
Which of the following is NOT a disadvantage of joint ventures?
a joint venture is the most costly and risky choice
Which of the following is a disadvantage of joint ventures?
*lack of control over technology
*inability to engage in global strategic coordination
*inability to realize location & experience economies
What is the advantage of joint venture?
*access to local partner’s knowledge
*sharing development costs and risks
*politically acceptable
The advantages frequently associated with entering a market early are commonly known as:
first-mover advantages
Which of the following is a first-mover advantage?
create switching costs that tie customers into their products or services.
What are disadvantages associated with entering a market early commonly known as?
first-mover disadvantages
The ability to preempt rivals and capture demand by establishing a strong brand name is an example of:
first-mover advantages.
Which theory suggests that in case where there may be important first mover advantages, governments can help firms from their countries attain these advantages?
strategic trade theory
Suzi’s Sleds, Inc. is considering establishing a subsidiary in Japan, where there are no other incumbent competitors to acquire. Suzi’s would do best in Japan with a(n):
green-field venture.
The big advantage of establishing a(n) _____ in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.
greenfield venture
Greenfield strategy
building a subsidiary from the ground up
Which venture is risky?
greenfield
All of the following are advantages of acquisitions EXCEPT
it is easy to realize synergies by integrating the operations of the acquired entites

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