International Business Chapter 12

International Business, 6e (Griffin/Pustay)
Chapter 12 Strategies for Analyzing and Entering Foreign Markets

1) Which of the following is not one of the three steps in increasing market share, revenue, and
profits?
A) Assess alternative markets.
B) Evaluate respective costs, benefits, and risks.
C) Perform a situation analysis.
D) Select market with most potential for entry or expansion.
E) All are relevant steps.
Answer: C
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Objective: 12.1: Discuss how firms analyze foreign markets.
2) Starbucks uses all of the following entry methods in its international operations except
________.
A) wholly owned subsidiaries
B) licensing agreements
C) franchising agreements
D) joint ventures
E) Starbucks uses all of the above methods
Answer: C
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Skill: AACSB: Globalization
Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign
market.
3) Which of the following factors is commonly considered when assessing alternative foreign
markets?
A) current size of market
B) potential size of market
C) competitive levels in market
D) legal and political environment in market
E) all of the above
Answer: E
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4) What is the first step in selecting a foreign market?

A) assessing market potential
B) assessing the level of competition
C) monitoring major markets
D) evaluating host country's trade policies
E) assessing general legal and political environments
Answer: A
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5) Which of the following is not a critical factor in assessing new market opportunities?
A) product-market dimensions
B) potential target markets
C) success factors
D) potential for worldwide learning
E) product-market differences
Answer: D
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6) Objective measures of the potential for growth in an economy include all of the following
except ________.
A) GDP
B) ownership of private automobiles
C) changes in per capita income
D) energy consumption
E) impact of changes in political regime
Answer: E
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7) Which of the following factors is not used to assess the competitive environment in a foreign
market?
A) the number of existing firms
B) the size of existing firms
C) current advertising strategies
D) relative market shares
E) existing pricing and distribution strategies
Answer: C
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8) A firm might choose to forgo exporting to a foreign market when ________.

A) the current size of market is small
B) many other firms are already exporting
C) there are high trade barriers
D) the company wants to use the market as a platform to other markets
E) the firm's existing foreign operations are geographically distant
Answer: C
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9) ________ refer to expenses incurred by the firm as it enters a new foreign market.
A) Indirect costs
B) Direct costs
C) Opportunity costs
D) Variable costs
E) All of the above
Answer: B
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10) Because a firm has limited resources, entering one market may preclude its entry into
another. What type of cost is reflected in this situation?
A) indirect costs
B) direct costs
C) opportunity costs
D) variable costs
E) all of the above
Answer: C
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11) Costs associated with setting up a business operation, transferring managers to run it, and
shipping equipment and merchandise are all examples of which type of cost?
A) opportunity costs
B) set-up costs
C) direct costs
D) indirect costs
E) opening costs
Answer: C
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12) All of the following are potential benefits of entering a new market except ________.
A) elimination of synergy with other operations
B) expected sales and profits
C) lower acquisition and manufacturing costs
D) foreclosing of markets to competitors
E) access to new technology
Answer: A
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13) Which theory listed below is useful in deciding which mode of entry to use when entering
foreign markets?
A) ownership advantage theory
B) internalization theory
C) eclectic theory
D) relative factor endowments
E) national competitive advantage
Answer: C
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14) Which of the following should be considered when choosing a mode of entry?
A) ownership advantages
B) location advantages
C) internalization advantages
D) need for control
E) all of the above
Answer: E
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market.
15) Which of the following is not one of the decision factors in the choice of entry mode?
A) ownership advantages
B) location advantages
C) national competitive advantages
D) internalization advantages
E) resource availability
Answer: C
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market.
16) The informational, political, and cultural disadvantages that foreign firms face when trying to
compete against local firms in the host country market are referred to as ________.
A) opportunity costs
B) liability of foreignness
C) internalization disadvantages
D) ownership liability
E) the burden of internationalization
Answer: B
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market.
17) Which of the following is not a mode of entry into foreign markets?
A) exporting
B) importing
C) international licensing
D) international franchising
E) greenfield strategy
Answer: B
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market.
18) ________ are tangible or intangible resources owned by a firm which grant it a competitive
advantage over its industry rivals.
A) Ownership advantages
B) Location advantages
C) National competitive advantages
D) Internalization advantages
E) Resource availabilities
Answer: A
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market.
19) ________ are those factors that affect the desirability of host country production relative to
home country production.
Answer: B
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market.
20) When the host country is found to be more desirable for production than the home country,
which mode of entry will the firm most likely choose?
A) exporting
B) international licensing
C) foreign direct investment
D) both A and B
E) both B and C
Answer: E
Diff: 3
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market.
21) ________ are those that make it desirable for a firm to produce a good or service itself rather
than contracting with another firm to produce it.
Answer: D
Diff: 2
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market.
22) Toyota's efficient manufacturing techniques and reputation for producing high-quality
automobiles are examples of ________.
A) location advantages
B) ownership advantages
C) internalization advantages
D) legal advantages
E) internationalization advantages
Answer: B
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market.
23) Which entry mode is used frequently by pharmaceutical firms?
A) exporting
B) licensing
C) greenfield strategy
D) management contract
E) franchising
Answer: B
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market.
24) The choice of entry mode is a trade-off between the level of risk borne by the firm and
________.
A) potential rewards possible
B) magnitude of resource commitment necessary
C) level of control sought by the firm
D) all of the above
E) none of the above
Answer: D
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market.
25) ________ is the most common form of international business activity.

A) Exporting
B) Licensing
C) Greenfield strategy
D) Management contract
E) Franchising
Answer: A
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Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist
firms in exporting their goods.
26) Exporting offers all of the following advantages except ________.
A) relatively low financial exposure
B) gradual market entry
C) opportunity to gain knowledge about the local market
D) logistical complexities
E) avoidance of restrictions on foreign investments
Answer: D
Diff: 2
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27) ________ are those that pull a firm into foreign markets as a result of opportunities available
there.
A) Reactive motivations
B) Proactive motivations
C) Opportunity motivations
D) Avoidance motivations
E) Attraction motivations
Answer: B
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28) ________ for exporting are those that push a firm into foreign markets.
A) Reactive motivations
B) Proactive motivations
C) Opportunity motivations
D) Avoidance motivations
E) Attraction motivations
Answer: A
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29) Which of the following is not a disadvantage of exporting?
A) vulnerability to tariffs
B) logistical complexities
C) potential conflicts with distributors
D) gradual market entry
E) vulnerability to NTBs
Answer: D
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30) Which of the following is not an advantage of licensing?
A) low financial risks
B) low-cost way to assess market potential
C) reduced control
D) avoidance of tariffs
E) knowledge of local markets
Answer: C
Diff: 2
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Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages
and disadvantages of licensing.
31) Which of the following is an advantage of franchising?
A) limited market opportunity
B) avoidance of tariffs
C) dependence on franchisee
D) potential conflicts with franchisee
E) possibility of creating future competitor
Answer: B
Diff: 1
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Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages
and disadvantages of franchising.
32) Which mode of entry has the potential to create a future competitor?
A) licensing
B) exporting
C) turnkey project
D) contract manufacturing
Answer: A
Diff: 3
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33) Which of the following is an advantage of foreign direct investment?
A) high financial investments
B) high exposure to political risk
C) high profit potential
D) greater managerial complexity
E) vulnerability to restrictions on foreign investment
Answer: C
Diff: 1
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Objective: 12.7: Characterize the greenfield and acquisition forms of FDI.
34) A company engages in indirect exporting
A) sells to a domestic customer which then sells to a foreign customer
B) sells directly to the foreign customer
C) sells to an affiliated company
D) sells to a foreign customer only after serving domestic customers
Answer: A
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35) ________ occur(s) when a firm sells its products to a domestic customer, which in turn
exports the product, in either its original form or a modified form.
A) Indirect exporting
B) Direct exporting
C) Intercorporate transfers
D) Intracorporate transfers
E) All are forms of exporting.
Answer: A
Diff: 2
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36) When Hewlett-Packard buys microchips from Intel to use in manufacturing computers and
then exports the completed computers to Europe, ________ has occurred.
A) indirect exporting of Intel's chips
B) direct exporting of Intel's chips
C) an intercorporate transfer of Intel's chips
D) an intracorporate transfer of Intel's chips
E) none of the above
Answer: A
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37) ________ occur(s) through sales to customers located outside the firm's home country.
B) Direct exporting
Answer: B
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38) ________ is/are the sale of goods by a firm in one country to an affiliated firm in another
country.
B) Direct exporting
Answer: D
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39) When British Petroleum ships crude oil from its storage facilities in Kuwait to its Australian
subsidiary, ________ has occurred.
A) indirect exporting
B) direct exporting
C) an intracorporate transfer
D) an intercorporate transfer
E) an interfirm transfer
Answer: C
Diff: 3
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40) Which form of exporting is used by firms in order to lower their production costs?
A) indirect exporting
B) direct exporting
C) intercorporate transfers
D) intracorporate transfers
E) interfirm transfers
Answer: D
Diff: 3
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41) The imposition of ________ discourages international firms from relying on exports as an
entry mode.
A) tariffs
B) export promotion policies
C) export financing programs
D) home country subsidization
E) all of the above
Answer: A
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42) Which of the following marketing concerns affect the decision to export?
A) image
B) distribution
C) customer responsiveness
D) need for customer feedback
E) all of the above
Answer: E
Diff: 2
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43) What are the third parties that specialize in facilitating imports and exports called?
A) intermediaries
B) wholesalers
C) retailers
D) exporters
E) distributors
Answer: A
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44) ________ offer services including export management companies, Webb-Pomerene
associations, and international trading companies.
A) Intermediaries
B) Wholesalers
C) Retailers
D) Exporters
E) Distributors
Answer: A
Diff: 2
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45) A(n) ________ is a firm that acts as its client's export department.
A) Webb-Pomerene association
B) Greenfield organization
C) export management company
D) international trading company
E) management broker
Answer: C
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46) Which of the following duties is handled by export management companies?
A) shipping
B) clearing customs
C) document preparation
D) advice about consumer needs
E) all of the above
Answer: E
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47) When an EMC acts as a commission agent for exporters ________.
A) they handle export financing
B) they handle marketing
C) they handle shipping and customs clearing
D) they take title to the goods
E) they make their profits form reselling the goods
Answer: C
Diff: 2
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48) A(n) ________ is a group of U.S. firms that operate within the same industry and that are
allowed by law to coordinate their export activities without fear of violating U.S. antitrust laws.
Answer: A
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49) Which of the following activities is commonly performed by Webb-Pomerene associations?
A) market research
B) overseas promotional activities
C) freight consolidate
D) contract negotiations
E) all of the above
Answer: E
Diff: 2
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50) A(n) ________ is a firm directly engaged in importing and exporting a wide variety of goods
for its own account.
Answer: D
Diff: 1
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51) Which of the following services is provided by international trading companies?

A) market research
B) customs documentation
C) international transportation
D) host country distribution
E) all of the above
Answer: E
Diff: 2
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52) Where are the world's most important international trading companies located?
A) the United States
B) Germany
C) Japan
D) Canada
E) China
Answer: C
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53) A sogo sosha is
A) an export management company
B) another term for a Webb-Pomerene association
C) another term for a keiretsu
E) a management broker
Answer: D
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54) Which of the following is not an advantage of sogo sosha?
A) access to information about economic conditions worldwide
B) ready access to financing
C) built-in source of customers
D) economies of scale in transportation
E) All of the above are advantages.
Answer: E
Diff: 2
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55) Which of the following solicits domestic orders for foreign manufacturers on a commission
basis?
A) manufacturers' agent
B) export and import broker
C) freight forwarder
D) manufacturers' export agent
E) sogo sosha
Answer: A
Diff: 1
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56) The ________ acts as a foreign sales department for domestic manufacturers by selling those
firms' goods in foreign markets.
A) manufacturers' agent
B) export and import broker
C) freight forwarder
D) manufacturers' export agent
E) sogo sosha
Answer: D
Diff: 1
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57) ________ can bring together international buyers and sellers of standardized commodities
like coffee and grains.
A) A manufacturers' agent
B) An export and import broker
C) A freight forwarder
D) A manufacturers' export agent
E) A sogo sosha
Answer: B
Diff: 1
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58) ________ specialize in the physical transportation services for their clients.
A) Manufacturers' agents
B) Export and import brokers
C) Freight forwarders
D) Manufacturers' export agents
E) Sogo sosha
Answer: C
Diff: 1
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59) The Mitsubishi Corporation is a firm that is directly engaged in importing and exporting a
wide variety of goods for its own account and is a part of a keiretsu system. What type of export
intermediary is it?
A) export management company
B) Webb-Pomerene association
C) sogo sosha
D) freight forwarder
E) export and import broker
Answer: C
Diff: 3
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60) The Nintendo Company manufactures electronic video game players and game cartridges.
Nintendo provides game designers with technical specifications for how its game players work.
The design firms create the games and then pay Nintendo a fee to manufacture those games.
What mode of entry is described in this example?
A) exporting
B) franchising
C) licensing
D) greenfield strategy
E) joint venture
Answer: C
Diff: 3
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61) The firm that leases the right to use intellectual property is called ________.
A) the leasee
B) the leasor
C) the licensor
D) the licensee
E) the franchisee
Answer: C
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62) Which is not a part of the licensing process?
A) the boundaries of the agreement
B) establishment of the compensation rates
C) agreement on the rights, privileges, and constraints conveyed in the agreement
D) specification of the duration of the agreement
E) all of the above are part of the licensing process
Answer: E
Diff: 2
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63) How are royalties determined in licensing agreements?
A) flat fee
B) fixed amount per unit sold
C) percentage of sales
D) all of the above
E) only B and C
Answer: D
Diff: 2
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64) All of the following are disadvantages of licensing except ________.
A) licensing offers low financial risk
B) licensing limits market opportunities
C) licensing creates co-dependency
D) licensing could create a future competitor
E) All of the above are disadvantages of licensing.
Answer: A
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65) In a franchise agreement, what does the franchisor provide to the franchisee?
A) intellectual property (such as brand name)
B) operating systems
C) advertising support service
D) training
E) all of the above
Answer: E
Diff: 2
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66) As compared to franchising, licensing offers ________.
A) a similar level of control
B) a higher level of control
C) a lower level of control
D) greater support
E) similar support
Answer: C
Diff: 2
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67) When is international franchising most likely to succeed?
A) when the franchisor has unique products
B) when the franchisor has an advantageous operating procedure
C) when success factors are easily transferable to foreign markets
D) when foreign investors are interested in entering into franchise agreements
E) all of the above
Answer: E
Diff: 1
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68) A ________ is used by firms that outsource most or all of their manufacturing needs to other
companies.
A) management contract
B) turnkey project
C) contract manufacturing strategy
E) licensing
Answer: C
Diff: 2
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Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations
as specialized entry modes for international business.
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69) A ________ is an agreement whereby one firm provides managerial assistance, technical
expertise, or specialized services to a second firm for some agreed-upon time in return for
monetary compensation.
B) turnkey project
E) licensing
Answer: A
Diff: 2
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70) A ________ is a contract under which a firm agrees to fully design, construct, and equip a
facility and then turn the project over to the purchaser when it is ready for operation.
B) turnkey project
E) licensing
Answer: B
Diff: 2
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71) What type of construction project commonly involves the use of an international turnkey
contract?
A) nuclear power plant
B) airport
C) oil refinery
D) all of the above
E) both A and B
Answer: D
Diff: 2
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72) A ________ means that the firm builds a facility, operates it, and later transfers ownership of
the project to some other party.
B) BOT project
E) license
Answer: B
Diff: 2
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73) Which of the following is a method for foreign direct investment?
A) building new facilities
B) buying existing assets in a foreign country
C) participating in a joint venture
D) acquisition strategy
E) all of the above
Answer: E
Diff: 1
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Objective: 2.1: Evaluate the impact of the political and economic characteristics of the world's
various marketplaces on the opportunities available to international businesses.
74) A greenfield strategy can be beneficial because of all of the following except ________.
A) it allows the firm to select the site that meets its needs
B) the firm can construct modern facilities
C) the firm starts with a clean slate
D) the firm can acclimate itself with the new culture at its own pace
E) the firm must comply with local and national regulations
Answer: E
Diff: 2
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75) When two or more firms agree to work together and create a joint owned firm to promote
mutual interest, ________ has occurred.
A) an acquisition
B) a greenfield investment
C) a joint venture
D) a licensing agreement
E) a franchise agreement
Answer: C
Diff: 1
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76) Assessing market potential is the second step in the process of foreign market analysis.
Answer: FALSE
Diff: 1
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77) A firm specializing in low-priced, lower-quality goods could find a poorer market more
attractive than a richer one.
Answer: TRUE
Diff: 2
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78) Firms should use both objective and subjective measures when considering the potential for
growth in an economy.
Answer: TRUE
Diff: 2
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79) Trade policies usually have little effect on a firm's choice of entry mode.
Answer: FALSE
Diff: 2
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80) Government stability is an important factor in foreign market assessment.
Answer: TRUE
Diff: 1
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81) Firms can reduce the uncertainty associated with sociocultural influences by focusing their
internationalization efforts in countries that are culturally similar to their own.
Answer: TRUE
Diff: 2
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82) Indirect costs are those the firm incurs in entering a new market and include costs associated
with setting up a business operation.
Answer: FALSE
Diff: 2
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83) Dunning's eclectic theory is useful in understanding which mode of entry to use.
Answer: TRUE
Diff: 2
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market.
84) When deciding which mode of entry to use, a firm must consider things like ownership
advantages, location advantages, and internalization advantages.
Answer: TRUE
Diff: 1
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market.
85) Ownership advantages are always tangible resources.
Answer: FALSE
Diff: 2
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market.
86) Liability of foreignness refers to the internalization advantages that make it desirable to
produce a good or service in-house.
Answer: FALSE
Diff: 2
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market.
87) Embedded technology is often best transferred through an equity mode.
Answer: TRUE
Diff: 2
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market.
88) Pharmaceutical firms routinely use licensing as their entry mode.
Answer: TRUE
Diff: 1
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market.
89) Exporting is the most complicated mode of internationalizing due to the issue of tariffs and
nontariff barriers.
Answer: FALSE
Diff: 2
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90) One disadvantage of exporting is that it forces the firm to enter the foreign market quickly.
Answer: TRUE
Diff: 2
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91) Foreign direct investment offers both high profit potential and high financial risk.
Answer: TRUE
Diff: 1
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92) Reactive motivations for exporting are those that pull a firm into foreign markets as a result
of opportunities available there.
Answer: FALSE
Diff: 2
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93) Intracorporate transfers are common in the service sector.
Answer: TRUE
Diff: 2
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94) Export management companies always take title to the goods.
Answer: FALSE
Diff: 2
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95) Webb-Pomerene associations play a major role in international business.
Answer: FALSE
Diff: 3
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96) The most important trading companies in the global marketplace are Japan's keiretsu.
Answer: TRUE
Diff: 3
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97) Manufacturers' agents specialize in the physical transportation of goods.

Answer: FALSE
Diff: 1
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98) Royalties are determined most commonly as a percentage of the sales of the licensed
products.
Answer: TRUE
Diff: 1
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99) When the licensor fully investigates market opportunities and the abilities of its licensees,
licensing has a relatively low financial risk.
Answer: FALSE
Diff: 3
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100) The greater the investment costs incurred by the licensee, the longer is the likely duration of
the licensing agreement.
Answer: TRUE
Diff: 2
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101) International franchising is among the fastest growing forms of international business.
Answer: TRUE
Diff: 2
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102) McDonald's, Pizza Hut, and KFC all rely on franchising for their international expansion.
Answer: TRUE
Diff: 3
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103) Management contracts are attractive because they allow firms to earn additional revenues
without incurring any investment risks or obligations.
Answer: TRUE
Diff: 2
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104) When there is overcapacity in an industry, acquisition is best strategy.
Answer: TRUE
Diff: 2
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105) The number of joint ventures being formed today is on the decline.
Answer: FALSE
Diff: 2
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106) Name five critical factors in assessing new market opportunities.
Answer: There are several factors listed in Table 12.1. They are product-market dimensions,
major product-market differences, structural characteristics of the national product market,
competitor analysis, potential target markets, relevant trends, explanation of change, success
factors, and strategic options.
Diff: 2
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107) What are the major competitor characteristics that should be analyzed when conducting a
competitor analysis?
Answer: Major competitor characteristics that should be considered include the competitor's
size, capacity utilization, strengths and weaknesses, technology, supply sources, preferential
market arrangements, and relations with the government. An analysis should also include
competitor performance in terms of market share, sales growth, and profit margins.
Diff: 3
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108) Which risks should international businesses be aware of when considering new markets?
Answer: A firm entering a new market should be aware of the risks of exchange rate
fluctuations, additional operating complexity, and direct financial losses resulting from
inaccurate assessment of market potential.
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market.
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109) What are direct and opportunity costs?

Answer: Direct costs are those the firm incurs in entering a new foreign market and include
costs associated with setting up a business operation. Opportunity costs are the costs of missing
other opportunities by virtue of entering one market rather than another.
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market.
110) What are the five primary types of entry modes for foreign markets?
Answer: The five primary ways to enter a foreign market include exporting, international
licensing, international franchising, specialized modes, and foreign direct investment.
Diff: 2
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market.
111) What are the three types of foreign direct investment?
Answer: The three types of foreign direct investment are greenfield strategy, acquisition
strategy, and joint venture.
Diff: 2
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112) What is liability of foreignness?
Answer: Liability of foreignness reflects the informational, political, and cultural disadvantages
that foreign firms face when competing against local firms in the host market.
Diff: 1
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market.
113) What is the meaning of ownership advantages? Give an example.
Answer: Ownership advantages are tangible or intangible resources owned by a firm which
grant a competitive advantage over its industry rivals. An example is the brand image and
luxurious reputation of Dom Perignon champagne.
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market.
114) Explain the meaning of internalization advantages.
Answer: Internalization advantages are those that make it desirable for a firm to produce a good
or service in-house rather than contracting with another firm to produce it.
Diff: 2
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market.
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115) Why might an exporter hire a local distributor?

Answer: Firms, especially those that are just beginning to export, often lack the expertise to
market their products abroad, and so seek a local distributor to handle their products.
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116) What are the two ways EMCs operate?
Answer: EMCs can act as commission agents where they handle the details of shipping, clearing
customs, an documentation in exchange for an agreed-upon fee, or they can take title to the
goods and resell them at a higher price.
Diff: 2
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117) What are the advantages and disadvantages of contract manufacturing?
Answer: Its advantages are low financial risk, minimal required resources devoted to
manufacturing, and the ability to focus firm's resources on other areas of the value chain. Its
disadvantages are reduced control, reduced learning potential, and potential public relations
problems.
Diff: 2
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118) What is indirect exporting?
Answer: Indirect exporting occurs when a firm sells its product to a domestic customer, which in
turn exports the product, either in its original form or a modified form.
Diff: 1
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119) What is an intracorporate transfer?
Answer: An intracorporate transfer is the sale of goods by a firm in one country to an affiliated
firm in another.
Diff: 1
Page Ref: 345
29
120) Why might exporters market and distribute their goods in international markets using export
intermediaries?
Answer: Export intermediaries are third parties that specialize in facilitating imports and
exports. They offer many services such as transportation and documentation. They may also take
on many other broad responsibilities.
Diff: 1
Page Ref: 347
121) What service do manufacturers' agents provide?
Answer: Manufacturers' agents solicit domestic orders for foreign manufacturers, usually on a
commission basis.
Diff: 1
Page Ref: 348
122) What service is provided by manufacturers' export agents?
Answer: They act as foreign sales departments for domestic manufacturers, selling those firms'
goods in foreign markets.
Diff: 1
Page Ref: 348
123) What service is provided by export and import brokers?
Answer: They bring together international buyers and sellers of such standardized commodities
as coffee, cocoa, and grains.
Diff: 1
Page Ref: 348
124) What service is provided by freight forwarders?
Answer: They specialize in the physical transportation of goods, arranging customs
documentation, and obtaining transportation services for their clients.
Diff: 1
Page Ref: 348
30
125) What are the advantages and disadvantages of international licensing?

Answer: Licensing carries relatively low financial risk. It allows the licensor to learn more about
the sales potential of its products in a new market without significant commitment of financial
and managerial resources. However, it limits market opportunities for both parties. It requires
interdependence between the parties because they are both involved in maintaining product
quality and promoting brand image.
Diff: 2
Page Ref: 351
126) What are the basic issues addressed in a legal contract for a licensing agreement?
Answer: The basic issues covered in the legal contract should include 1) specifying the
boundaries of the agreement, 2) determining compensation, 3) establishing rights, privileges, and
constraints, and 4) specifying the duration of the contract.
Diff: 3
Page Ref: 350
127) What is a B-O-T project?
Answer: A B-O-T project is a variation of the turnkey project in which the firm builds a facility,
operates it, and late transfers ownership of the project to some other party.
Diff: 2
Page Ref: 355
128) Why are international turnkey projects usually administered by large construction firms?
Answer: International turnkey projects are usually administered by large construction firms
because they often involve large, complex, multiyear projects like the construction of a nuclear
power plant, an airport, or an oil refinery..
Diff: 2
Page Ref: 355
129) Which form of market entry should a firm use when it needs to coordinate the activities of
its foreign subsidiaries to achieve strategic synergies?
Answer: When a firm needs to coordinate the activities of its foreign subsidiaries to achieve
strategic synergies it should expand through foreign direct investment.
Diff: 2
Page Ref: 356
31
130) Which type of foreign direct investment did Disney use when it expanded its theme park to
France?
Answer: Disney built its Paris theme park using a greenfield investment.
Diff: 2
Page Ref: 357
131) What is a brownfield strategy?
Answer: A brownfield strategy involves buying existing assets in a foreign country.
Diff: 2
Page Ref: 357
132) What are the advantages of exporting?
Answer: Exporting offers a firm two advantages. First, the firm can control its financial
exposure to the host country market as it deems appropriate. Little or no capital investment may
be needed. Second, exporting permits a firm to enter a foreign market gradually. A firm can then
monitor its success prior to more extensive entry into that market.
Diff: 2
Page Ref: 340
133) What are the steps involved in foreign market analysis?
Answer: When assessing foreign markets, firms must first assess alternative markets. This
process involves considering market potential, levels of competition, the legal and political
environment, and sociocultural influences. Then, the firm should evaluate the respective costs,
benefits, and risks of entering each, and finally, select those that hold the most potential for entry
or expansion.
Diff: 2
Page Ref: 332
market.
134) What are sogo soshas? What advantages do they offer exporters? Give three examples of
prominent sogo soshas.
Answer: A sogo sosha is an international trading company. Sogo soshas are part of Japan's
keiretsu system. They have access to information about economic conditions and business
opportunities in virtually every corner of the world. Because of their link to a keiretsu, they have
ready access to financing and a built-in source of customers. They have a low-cost structure and
international expertise. The five largest sogo sosha are Mitsubishi Corporation, Mitsui and
Company, Itochu Corporation, Sumitomo Group, and Marubeni.
Diff: 3
Page Ref: 348
32
135) Explain the licensing process.

Answer: In a licensing agreement, the licensor leases the rights to use its intellectual property to
the licensee. The licensee uses the intellectual property to create products for local sale. It then
pays a royalty back to the licensor. The licensor is able to earn new revenues with relatively low
investment.
Diff: 2
Page Ref: 348
136) Describe the specialized entry modes for international business.
Answer: Companies can take advantage of international business opportunities without making
long-term investments by using specialized entry modes like contract manufacturing,
management contracts, and turnkey projects. Contract manufacturing involves outsourcing
manufacturing to other companies. A management contract is an agreement whereby one firm
provides managerial assistance, technical expertise, or specialized services to a second firm for
some agreed-upon time in return for monetary compensation. A turnkey project is a contract
under which a firm agrees to fully design, construct, and equip a facility and then turn the project
over to the purchaser when it is ready for operation.
Diff: 1
Page Ref: 353
137) What specific issues must be addressed in a detailed legal contract for an international
licensing agreement? Discuss the importance of each one.
Answer: Contracts for licensing agreements must include the boundaries of the agreement. The
licensor and licensee must determine which rights and privileges are and are not being conveyed
in the agreement. This protects both parties. Compensation must also be set out in the agreement.
The royalty amount (or method of determination) as well as a minimum royalty payment should
be specified. The rights, privileges, and constraints should be addressed in the contract. This
protects the image of both companies and ensures the appropriate quality level. Finally, the
length of the agreement must be stated.
Diff: 2
Page Ref: 350
138) Compare and contrast the three forms of foreign direct investment.
Answer: The three methods are building new facilities or making a greenfield investment,
buying existing assets or making an acquisition, and participating in a joint venture. Building
new facilities allows a firm to select the best possible site and construct the best facility.
However, it does require time and patience. Acquisition provides quick control and the ability to
continue to generate revenues. Joint ventures are created when two or more firms agree to work
together and create a jointly owned separate firm to promote their mutual interests.
Diff: 1
Page Ref: 357
33
139) What are the advantages and disadvantages of acquisition?

Answer: When a firm acquires another company, the firm obtains control of the acquired firm's
factories, employees, technology, brand names, and distribution networks, and can continue to
generate a revenue stream while the new operations are being integrated into the existing ones.
Acquisition is also attractive because it maintains industry capacity, and because it allows a firm
to quickly establish a presence in a foreign market. However, when a firm makes an acquisition
it needs large sums of money and also gains the liabilities of the acquired firm.
Diff: 3
Page Ref: 357
34

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International Business, 6e (Griffin/Pustay)

Chapter 12 Strategies for Analyzing and Entering Foreign Markets

4) What is the first step in selecting a foreign market?

8) A firm might choose to forgo exporting to a foreign market when ________.

25) ________ is the most common form of international business activity.

51) Which of the following services is provided by international trading companies?

97) Manufacturers' agents specialize in the physical transportation of goods.

109) What are direct and opportunity costs?

115) Why might an exporter hire a local distributor?

125) What are the advantages and disadvantages of international licensing?

135) Explain the licensing process.

139) What are the advantages and disadvantages of acquisition?

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