International Business
Chapter 14 Direct Investment and Collaborative Strategies
1) 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
Answer: A
2) All of the following are ways that Coca-Cola has been attempting to increase its global sales EXCEPT ________.
A) gaining licenses to use brand names of other companies
B) acquiring companies with complementary products
C) adding alcoholic beverages to its product line
D) distributing soft drinks from other companies
Answer: C
3) 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
Answer: A
4) 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.
Answer: B
Learning Outcome: Explain the implications of foreign direct investment for both host and home country
5) 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.
Answer: D
AACSB: Dynamics of the global economy
6) A U.S. firm owns 100% of its production facility in Brazil, thus is most likely using a ________ strategy.
A) comprehensive ownership
B) vertical integration
C) appropriability
D) internalization
Answer: D
Learning Outcome: Explain the implications of foreign direct investment for both host and home country
7) 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
Answer: C
Learning Outcome: Explain the implications of foreign direct investment for both host and home country
8) 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
Answer: A
9) 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 rates fluctuations.
C) The company avoids communication misunderstandings.
D) The company can sub-optimize results in one country in order to optimize results globally.
Answer: D
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.
Answer: D
Learning Outcome: Explain the implications of foreign direct investment for both host and home country
Skill: Critical Thinking
11) 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
Answer: C
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.
Answer: B
Learning Outcome: Explain the implications of foreign direct investment for both host and home country
Skill: Critical Thinking
13) 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
Answer: C
14) In which of the following situations would Company X most likely seek a collaborative arrangement with Company Z in which Company Z would handle work for Company X?
A) Company X has excess capacity.
B) Fixed costs for the work are high, and Company X has large volumes of work.
C) Company X is inexperienced in outsourcing work.
D) Fixed costs for the work are high, and Company X has small volumes of work.
Answer: D
AACSB: Reflective thinking skills
15) Which of the following is an argument for using a collaborative agreement?
A) to prevent problems caused by minority shareholders
B) to preserve a concentration strategy
C) to secure vertical and horizontal links
D) to maintain better control
Answer: C
16) Coca-Cola has collaborative arrangements whereby it produces concentrate that it sells to other companies to bottle its drinks. Which of the following terms best describes this type of arrangement?
A) vertical alliance
B) horizontal alliance
C) link alliance
D) scale alliance
Answer: A
17) Risk is an important factor for companies engaged in international business. One way a collaborative arrangement helps minimize risk when operating abroad is by ________.
A) reducing the possibility of technological appropriation
B) freeing up resources so a company can diversify into more countries
C) preventing the entry of new competitors
D) eliminating losses from exchange rate depreciation abroad
Answer: B
18) In which of the following situations is a firm most likely to be able to choose the foreign operating form it would most like to use?
A) Its main motive is to gain location-specific assets.
B) It has a desired and unique resource.
C) Its preference for entering foreign markets is via acquisition of foreign facilities.
D) It has little concern about appropriability.
Answer: B
19) The more a company engages in international collaborative arrangements as opposed to wholly owned foreign operations, the more it is likely to ________.
A) decrease its exposure to political risk
B) increase its control over foreign operations
C) learn rapidly about foreign environments
D) protect its core assets
Answer: A
20) What is a key industry?
A) an industry that is locked up competitively by domestic producers
B) a turnkey operator specializing in the construction of infrastructure components
C) an industry that receives government subsidies
D) an industry that significantly affects the economy by virtue of its size or influence on other sectors
Answer: D
21) All of the following are arguments for governments to limit foreign control of key industries EXCEPT which one?
A) Host countries don't need foreign resources such as technology and export markets for these industries.
B) History shows that home governments have used powerful foreign companies to influence policies in the countries where they operate.
C) Important decisions can be made abroad that are contrary to the country's best interest.
D) Foreign companies can find means of profiting in these industries without having to control them.
Answer: A
Learning Outcome: Discuss arguments for and against government intervention in international business
22) All of the following are arguments for permitting foreign control of key industries EXCEPT which one?
A) Managers, whether in a foreign or local company, make decisions based on what they think is best for the company rather than based on some local socio-economic agenda.
B) MNEs staff their organizations abroad mainly with local nationals and depend in part on their input for making decisions.
C) Foreign governments can no longer use their home-based companies to influence policies abroad.
D) The security arguments for restrictions on foreign ownership are really just a sham to protect politically powerful industries and employment.
Answer: C
Learning Outcome: Discuss arguments for and against government intervention in international business
23) Dependencia theory holds that ________.
A) countries should seek to diversify their economies
B) low-income countries have practically no power in dealings with MNEs
C) in a globalized world, no nation can be independent economically or politically
D) there is a natural division of labor whereby developing countries depend on production using fairly unskilled labor and developed countries depend on highly educated workers
Answer: B
24) Chrysler granted South East Motor (a company in China) rights to produce its Grand Voyager minivan for sale in China in exchange for a fee. This is an example of a(n) ________.
A) licensing agreement
B) bargaining school arrangement
C) technology appropriation
D) turnkey operation
Answer: A
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
25) Which of the following is an example of an exclusive license agreement?
A) Three licensees have worldwide rights to sell the product worldwide for three years, during which time no other companies can use the asset.
B) The licensee is currently the only company using the intangible property, but the licensor has rights to add other licensees.
C) One licensee gets rights for the north island of New Zealand, a second licensee gets rights for the south island of New Zealand, and the licensor agrees to add no new licensees to New Zealand for the next five years.
D) The licensee and licensor use the property in the same market.
Answer: C
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
26) Which of the following describes a cross-licensing agreement?
A) allocation of exclusive rights to a licensee to prevent competition
B) an agreement between two or more companies not to compete in each other's home countries
C) an exchange of explicit knowledge for tacit knowledge
D) the exchange of intangible property rights between two or more companies
Answer: D
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
27) What is the primary reason for technology licensing to take place while a product is still in the developmental stage?
A) to enable the licensor to receive some earnings in case the technology never becomes operative
B) to ensure that a product launches in various countries at about the same time
C) to gain funds to complete the development
D) to reduce transaction costs
Answer: B
28) Licensing companies commonly negotiate a "front-end" payment from licensees to cover ________ transfer costs.
A) employee
B) brand name
C) technology
D) copyright
Answer: C
29) Which of the following is NOT a factor affecting the payment amount of international licensing contracts?
A) geographic scope of the sales territory
B) tax treaties between the parties' home countries
C) length of time the asset will have market value
D) market experience of using the asset elsewhere
Answer: B
30) When a company wants to be compensated in a foreign subsidiary beyond its contribution in capital and managerial resources, it often ________.
A) licenses intangible property to its subsidiary
B) negotiates a special agreement with the host government
C) establishes a management contract
D) sets up an equity alliance
Answer: A
31) Judson Baked Goods, a U.S. firm, grants the use of its trademark to a company in Sweden and provides the Swedish company with operational assistance on a continuing basis. Judson is most likely involved in ________.
A) a management contract
B) franchising
C) offshoring
D) appropriability
Answer: B
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
32) What is a master franchise?
A) the original agreement between the franchisor and franchisee
B) the franchisee with the highest revenue in a region
C) a franchisee with rights to open outlets on its own or develop subfranchises
D) the set of standard terms regulating the relationship between franchisor and franchisee
Answer: C
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
33) Lesser-known franchisors sometimes enter foreign countries with company-owned outlets. A reason for doing this is to ________.
A) guarantee profits
B) avoid competition
C) compete with local stores
D) attract potential franchisees
Answer: D
34) Franchisees sometimes wish to change the product or service offered by the franchisor to better fit local market needs abroad. Why are these changes a problem for franchisors?
A) Too many changes eliminate the need for the franchisors.
B) The royalties as a percentage of sales decrease.
C) Governments impose more stringent operating restrictions.
D) Sales decrease because consumers want to get the "real thing."
Answer: A
35) Metro Hotels, a U.S. hotel chain, has transferred several of its employees to Myanmar where they will work for three or four years before returning to the U.S. The employees will be working with a Myanmar hotel to provide it with their extensive knowledge regarding how to run a hotel. Metro is most likely involved in a ________.
A) franchise
B) turnkey operation
C) joint venture
D) management contract
Answer: D
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
36) For the provider, management contracts offer the advantage of ________.
A) receiving income without making a capital outlay
B) increasing their merchandise exports
C) reducing their global taxes
D) better access to raw materials
Answer: A
Learning Outcome: Summarize the main entry strategies and modes that businesses use to enter into foreign markets
37) The advantage to host countries of international management contracts is that they ________.
A) receive state-of-the-art facilities
B) get assistance without foreign control
C) can pay in local currency
D) save on making capital investments