International Business Chapter 15 Quiz
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Questions and Answers

Which of the following is the LEAST likely reason that consumers would prefer domestically made products over imports?

  • Nationalism
  • Belief that domestic products are better
  • Belief that imports are subsidized (correct)
  • Fear that foreign made goods may not be delivered on time

    • 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?

  • Transportation costs have become low relative to production costs.
  • China's currency is appreciating relative to the U.S. dollar.
  • The company need not alter its products for the Chinese market.
  • The firm is nearing capacity utilization in its U.S. plant. (correct)

    • Exporting is usually more feasible when transportation costs are high rather than low in relation to production costs.

    False

    Excess home-country capacity usually favors exporting rather than direct investment.

    <p>True</p> Signup and view all the answers

    The more a product must be altered for foreign markets, the less likely some production will shift abroad.

    <p>False</p> Signup and view all the answers

    In a short essay, discuss how transportation, trade restrictions, domestic capacity, and country-of-origin affect companies' decisions about modes of operating internationally.

    <p>Transportation costs can make some products impractical to ship over long distances. Trade restrictions by governments might force companies to produce in a foreign country to sell there. When companies have sufficient domestic capacity, they are more likely to export. However, if they need more capacity, they might consider building it abroad. Consumers may prefer products from their own countries or may have a preference for products from countries known for high-quality goods. These factors all influence companies' decisions about how to operate internationally.</p> Signup and view all the answers

    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?

    <p>Sharing ownership in the production of its secret formula concentrate</p> Signup and view all the answers

    Small economies are sometimes less successful than large countries in attracting FDI by raising import restrictions. What is the most likely reason for this?

    <p>Small economies frequently lack sufficient markets for large-scale production.</p> Signup and view all the answers

    A U.S. firm owns 100% of its production facility in Brazil; thus it is most likely using a(n) ____ strategy.

    <p>Internalization</p> Signup and view all the answers

    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 ____.

    <p>The costs of enforcing an agreement</p> Signup and view all the answers

    Appropriability theory refers to ____?

    <p>Denying rivals access to competitive resources such as management know-how</p> Signup and view all the answers

    Why can a company more easily pursue a global strategy when it owns 100 percent of foreign operations?

    <p>The company can sub-optimize results in one country in order to optimize results globally.</p> Signup and view all the answers

    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?

    <p>The German firm has skilled personnel that the U.S. firm cannot hire at a good price on its own.</p> Signup and view all the answers

    Textron, a U.S. clock manufacturer, recently built a new production facility in Bangladesh. Which term best describes the activities of Textron?

    <p>Greenfield strategy</p> Signup and view all the answers

    A company that makes a foreign investment largely to acquire knowledge is most likely to use ____ as a means of expansion.

    <p>An acquisition</p> Signup and view all the answers

    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?

    <p>Labor relations at existing Russian firms are poor and difficult to change.</p> Signup and view all the answers

    A greenfield investment is another name for a company's decision to ____.

    <p>Construct a new facility in a foreign market</p> Signup and view all the answers

    A firm that builds a new manufacturing facility in a foreign market is participating in a(n) ____.

    <p>Greenfield investment</p> Signup and view all the answers

    The purchase of an existing company or facility is known as a(n) ____.

    <p>Acquisition</p> Signup and view all the answers

    Appropriability theory describes a firm's desire to deny rivals access to its competitive resources.

    <p>True</p> Signup and view all the answers

    Wholly owned operations abroad inhibit a company's ability to pursue a global strategy.

    <p>False</p> Signup and view all the answers

    Foreign acquisitions are more advantageous than start-ups when the industry has little excess capacity than when it has a lot of excess capacity.

    <p>False</p> Signup and view all the answers

    Governments sometimes prohibit foreign acquisitions because they fear market dominance by foreign enterprises.

    <p>True</p> Signup and view all the answers

    Home Depot made an acquisition investment when it entered the Mexican market by purchasing Home Mart, a domestic store chain.

    <p>True</p> Signup and view all the answers

    Host-country governments often pressure MNEs to undertake acquisition over greenfield investments.

    <p>False</p> Signup and view all the answers

    There are two ways companies can invest in a foreign country. They can either acquire an interest in an existing operation or construct new facilities. In a short essay, describe the advantages and disadvantages of each alternative.

    <p>Acquiring an existing company provides access to established infrastructure, resources, and brand recognition. However, it presents challenges like integration difficulties, potential cultural clashes, and the risk of inheriting pre-existing problems. Building new facilities offers greater flexibility, control, and the opportunity to customize operations. But it requires more time, capital investment, and the burden of establishing a new operation from scratch.</p> Signup and view all the answers

    According to the appropriability theory and the internalization theory, why would companies want to control their foreign operations?

    <p>The appropriability theory suggests that companies want to maintain control over their valuable resources and innovations to prevent competitors from copying them. The internalization theory argues that direct management of foreign operations reduces transaction costs and avoids potential risks associated with relying on external partners.</p> Signup and view all the answers

    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?

    <p>Fixed costs for the work are high, and Company X has small volumes of work.</p> Signup and view all the answers

    Which of the following is an argument for using a collaborative agreement?

    <p>To secure vertical and horizontal links.</p> Signup and view all the answers

    Which of the following is a key reason that a company would most likely enter a collaborative venture with a foreign firm?

    <p>The foreign firm can fill an important gap in the company's value chain.</p> Signup and view all the answers

    Risk is an important factor for companies engaged in international business. One way a collaborative arrangement helps minimize risk when operating abroad is by ____.

    <p>Freeing up resources so a company can diversify into more countries.</p> Signup and view all the answers

    The more a company engages in international collaborative arrangements as opposed to wholly owned foreign operations, the more it is likely to ____.

    <p>Decrease its exposure to political risk</p> Signup and view all the answers

    Collaborative agreements allow companies to specialize more in those activities that best fit their competencies.

    <p>True</p> Signup and view all the answers

    An advantage of collaborative agreements is the ability to spread faster geographically.

    <p>True</p> Signup and view all the answers

    The more a company engages in collaborative agreements, the more it loses control over decisions and their implementation.

    <p>True</p> Signup and view all the answers

    What motives do businesses have for entering into collaborative arrangements? What are some of the problems associated with collaborative arrangements?

    <p>Businesses enter collaborative arrangements to reduce costs, specialize in core competencies, gain access to new markets, share resources, and leverage expertise. However, these agreements can be strained by differing objectives, control issues, uneven contributions, and cultural differences.</p> Signup and view all the answers

    What are the various types of collaborative arrangement options available to international businesses? How can firms most effectively manage international collaborative arrangements?

    <p>Common types of collaborative arrangements in international business include licensing, franchising, management contracts, turnkey operations, joint ventures, and equity alliances. Effective management requires careful partner selection, clear contracts, and an understanding of each partner's motivations, capabilities, and commitments. Frequent communication, performance evaluation, and adjustments are important to ensure successful outcomes.</p> Signup and view all the answers

    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?

    <p>Vertical alliance</p> Signup and view all the answers

    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?

    <p>It has a desired and unique resource.</p> Signup and view all the answers

    What is a key industry?

    <p>An industry that significantly affects the economy by virtue of its size or influence on other sectors</p> Signup and view all the answers

    Which of the following is NOT one of the arguments for governments to limit foreign control of key industries?

    <p>Host countries don't need foreign resources such as technology and export markets for these industries.</p> Signup and view all the answers

    Which of the following is NOT one of the arguments for permitting foreign control of key industries?

    <p>Foreign governments can no longer use their home-based companies to influence policies abroad.</p> Signup and view all the answers

    Dependencia theory holds that ____.

    <p>Low-income countries have practically no power in dealings with MNE’s</p> Signup and view all the answers

    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 ____.

    <p>Licensing agreement</p> Signup and view all the answers

    Which of the following is an example of an exclusive license agreement?

    <p>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.</p> Signup and view all the answers

    Which of the following describes a cross-licensing agreement?

    <p>The exchange of intangible property rights between two or more companies</p> Signup and view all the answers

    What is the primary reason for technology licensing to take place while a product is still in the developmental stage?

    <p>To ensure that a product launches in various countries at about the same time</p> Signup and view all the answers

    Licensing companies commonly negotiate a "front-end" payment from licensees to cover ____ transfer costs.

    <p>Technology</p> Signup and view all the answers

    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 ____.

    <p>Franchising</p> Signup and view all the answers

    What is a master franchise?

    <p>A franchisee with rights to open outlets on its own or develop sub-franchises</p> Signup and view all the answers

    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 United States. 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 ____.

    <p>Management contract</p> Signup and view all the answers

    For the provider, management contracts offer the advantage of ____.

    <p>Receiving income without making a capital outlay</p> Signup and view all the answers

    The advantage to host countries of international management contracts is that they ____.

    <p>Get assistance without foreign control</p> Signup and view all the answers

    Hotel chains are large providers of international management services through collaborative operations. All of the following are reasons for this EXCEPT which one?

    <p>Local companies can forgo making a capital investment.</p> Signup and view all the answers

    What is a turnkey operation?

    <p>A contract for a large construction project, often for a government agency</p> Signup and view all the answers

    Which of the following firms would most likely be involved in a turnkey operation?

    <p>Bechtel Construction</p> Signup and view all the answers

    Why do turnkey operators often require a feasibility study as part of the contract?

    <p>This helps to define what constitutes &quot;satisfactory completion&quot; of the project.</p> Signup and view all the answers

    What is an international joint venture?

    <p>The ownership of a company by two or more companies, of which at least one is a foreign company where the venture is located</p> Signup and view all the answers

    A consortium is defined as ____.

    <p>Multiple partners participating on a large-scale project</p> Signup and view all the answers

    All of the following would be examples of international joint ventures EXCEPT ____.

    <p>Two Venezuelan companies sharing ownership of a company in Venezuela</p> Signup and view all the answers

    What is an equity alliance?

    <p>A collaborative arrangement in which at least one collaborating company takes an ownership position in the other</p> Signup and view all the answers

    Turnkey projects generally differ from other forms of international business in that ____.

    <p>They are more often located in remote areas</p> Signup and view all the answers

    An argument for limiting foreign control of key industries is that decisions made abroad can have adverse effects on the local economy.

    <p>True</p> Signup and view all the answers

    Study Notes

    International Business, Chapter 15 Study Notes

    • Domestic Preference: Consumers are least likely to prefer domestically made products over imports due to belief that imports are subsidized, although nationalism or perception of domestic products as better are more likely reasons.

    • Export to Production Shift: A US firm's decision to shift from exporting to production in China is best explained by nearing capacity utilization in its US plant, rather than currency appreciation, product modifications, or low transportation costs.

    • Feasibility of Exporting: Exporting is less feasible when transportation costs are low in comparison to production costs.

    • Exporting vs. Direct Investment: Excess home-country capacity usually favors exporting rather than direct investment.

    • Product Alteration: The more a product alters for foreign markets, the less likely some production will shift abroad.

    • International Operations Considerations: Transportation, trade restrictions, domestic capacity, and country-of-origin directly affect companies' decisions on international operation modes.

    • Coca-Cola Collaboration: Coca-Cola's international collaborative forms do not include sharing ownership of its secret formula concentrate.

    • Small Economies and FDI: Small economies are less successful at attracting foreign direct investment (FDI) than larger economies, primarily due to a lack of sufficient markets for large-scale production.

    • U.S. Firm in Brazil: A U.S. firm owning 100% of its production facility in Brazil has most likely adopted a comprehensive ownership strategy.

    • U.S. Firm's Activities in Brazil: By using its own staff to manage all Brazilian operations, a U.S. firm reduces outsourcing costs, thus gaining operational efficiency.

    • Appropriability Theory: This theory focuses on a firm's desire to prevent rivals from accessing its competitive resources.

    • Global Strategy: A company is more likely to utilize a global strategy when it directly owns 100% of its foreign operations. This allows for optimizing globally while suboptimizing in certain countries.

    • Appropriability and Internalization: Companies wish to control their foreign operations to retain important resources. This, according to internalization theory, helps the firm's operations function effectively while avoiding costs related to oversight.

    • Collaboration Arrangement Selection: Considerations in selecting a collaboration arrangement include excess capacity, high fixed costs, lack of experience in outsourcing, and volume of work.

    • Collaborative Agreements: Collaborative agreements are often used when local companies can provide a good alternative to a wholly-owned operation. Reasons include preserving concentration strategies and establishing horizontal and vertical links.

    • Why Companies Collaborate Internationally: Companies may enter into a collaborative agreement to fill gaps in the value chain, access resources, or manage risk.

    • Advantages of Collaborative Arrangements: Spreading geographically, specializing in operations, and mitigating risk are some notable advantages of collaboration arrangements.

    • Disadvantages of Collaborative Arrangements: Loses control over decisions and implementation are major disadvantages of collaboration agreements.

    • Collaborative Arrangements' Motives: Businesses seek collaborative agreements for reducing costs, improving performance, leveraging resources, or combating larger competitors. Problems include differing objectives, control issues, differing cultures, and appropriability concerns.

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    Test your knowledge on the key concepts from Chapter 15 of International Business. This quiz covers topics such as domestic preferences, export shifts, and the feasibility of exporting versus direct investment. Prepare to dive into the complexities of global trade and production strategies.

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