International Business Chapter 15: Entering Developed and Emerging Markets

Nora's company is considering going into a foreign market. They have determined which markets to go into and the timing for going into them. What other basic entry decision do they need to make?

on what scale should they go in

The attractiveness of a country as a potential market should be assessed by balancing what three items associated with doing business in that country?

costs, risks and benefits

What is the term used for when one company enters markets before its competitors?

early entry

What are three advantages associated with first-movers?

build sales volume, preempt rivals and create switching costs

Kylie's company was the first to bring BBQ pork sandwiches to fast-food franchises in England. In order to convince the customer base in England, his company spent thousands of dollars in advertising and promotional efforts to explain the BBQ concept. These expenses are an example of _____ costs.

pioneering

What are the three basic decisions firms must make when looking at foreign expansion?

on what scale to enter markets, when to enter markets and which markets to enter

When a company makes a commitment to enter a market on a large scale, this implies a _____ entry.

rapid

The potential for risk is higher when considering a foreign market with a politically _____ nation.

unstable

True or False: When a company enters a market on a large scale, it would be common for potential competitors to decide against entering that market.

true

Stephen's US based company entered the European market long after its competitors had established themselves. This is known as ________ entry.

late

Strategic inflexibility is associated with _________________ scale entry into a market

large

Meg's company was the initial producer of three-wheeled bikes in parts of Europe and benefited greatly because her company captured the demand early. This is an example of a _____ advantage.

first-mover

Pioneering costs are associated with businesses that enter a national market _____ other businesses.

before

What are the six modes companies use to enter foreign markets?

wholly owned subsidiaries, turnkey projects, joint ventures, franchising, exporting and licensing

Matt's company spent billions of dollars to acquire the financial investment operations of a company in Sweden. This would be an example of a _____ scale entry.

large

Which entry mode did many Japanese automakers use to gain access to US markets?

exporting

What benefits are associated with entering a market on a large scale?

easier to attract customers and puts limitations on other institutions considering entry

What are three examples of intangible property that might be covered by a licensing agreement?

patents, copyrights and designs

The two drawbacks of the large scale entry strategy are ______.

resulting risks and lack of flexibility

Even though the formula for the new paint process was created by Eliza's company, her company decided it didn't want the expense of manufacturing the paint so it provided the formula to another company in exchange for a royalty fee. This shows an advantage of _____.

licensing

The potential of losing control over technological know-how is a major drawback associated with ____.

licensing

Exporting, licensing, and establishing a joint venture are types of ______ companies can use.

entry modes

Maureen wants to set up a licensing agreement with a foreign partner but she is worried that the partner might take advantage of the technology she has and use it as a way to create competition against her. To resolve this, Maureen should consider a _____-licensing agreement.

cross

Not having to establish manufacturing operations overseas and being able to work to achieve experience curve and location economies are advantages of ______.`

exporting

Stanley invented a new way to make a book out of photos taken with a smart phone. He made an arrangement with Shutterfly which granted the company the right to use his idea in exchange for a 10% royalty fee each time his concept was sold. This is an example of a ____ agreement.

licensing

Which three of these statements accurately describe franchising?

the franchisee commits to abiding by strict riles on how it does business, it is similar to a license but with a longer time commitment and the franchiser typically receives a royalty payment

True or false: In a licensing agreement, a company doesn't have to be responsible for the development costs of opening a foreign market.

true

What are three disadvantages to licensing for the licensor?

a licensor does not have control over manufacturing, marketing and strategy, licensing limits the ability to coordinate strategic moves across several countries and a licensor can lose control over its technology by licensing it

What are two benefits of franchising?

relatively low cost and provides a quick global presence

In a ____________ -licensing agreement, a firm will not only receive a royalty payment for licensing intangible property, but will also request that its foreign partner license its own valuable intangible property back to the firm.

cross

Fast food restaurants like McDonald's and Pizza Hut which have sold their trademark to thousands of operations around the world are good examples of _____.

franchising

When the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson came together to make mobile phones, they became known as Sony-Ericsson. They were sharing consumer electronics expertise and technological leadership in the communications sector. This is an example of a _____.

joint-venture

There is some evidence which shows that a joint venture with a local partner is associated with a ______________ risk of potential adverse government interference

low

Just as licensing is a way for a firm to avoid many of the costs and risks associated with opening a foreign market, _____ also provides this benefit.

franchising

What are three disadvantages of joint ventures?

not having tight control over a local partner to realize experience curve or location economies, giving up control of technology to host country partner and shared ownership arrangements can lead to conflicts and battles for control

What are the two methods for establishing a wholly owned subsidiary?

greenfield venture and acquisition of an established firm

True or False: The most typical joint venture is a 60/40 venture, in which one party holds a 60 percent ownership stake and the other holds a 40 percent ownership stake.

false

What are three advantages of a joint venture?

take advantage of a local partner's knowledge of the host country, share the development costs and risks of operating in the host country and meet political considerations which make a joint venture the only feasible entry mode

Potentially giving up control of technology to its local partner and not having tight control over the local partner are disadvantages of a ______.

joint venture

When Kent's US-based firm acquired an established European investment firm, it used that firm to promote its financial products. Kent's company owns 100% of the stock of the European firm making it a ____.

wholly owned subsidiary

What are three advantages of a wholly owned subsidiary?

firm may realize location and experience curve economies, firm has tight control over foreign operations, can retain competitive advantage based on technology

Which strategy for serving a foreign market comes with the highest financial cost?

wholly owned subsidiary

As a way to enter the foreign market, Camille's company is considering purchasing a business in their target market rather than trying to build a subsidiary from scratch. They are considering a(n) ______ strategy.

acquisition

Garrett believes it is important for his company to retain control over the new technology they have developed. Based on this, it would be MOST beneficial for his company to pursue a _____ when entering a foreign market.

wholly owned subsidiary

What are two disadvantages of operating a wholly owned subsidiary?

most costly entry mode and subject to the full capital costs and risks

What are three advantages of acquisitions?

beat out the competition, fast to execute and less risk than greenfield venture

Starting a subsidiary in a foreign country from "scratch" where nothing is established is called a(n) _____.

greenfield venture

True or False: Cultural differences do not typically play a role in acquisitions.

false

The management team decided it would be more productive to build the foreign subsidiary from scratch than to try to change the culture that existed in the companies available to acquire. The team is planning a _____.

greenfield venture

A(n) _____ strategy is faster to complete.

acquisition

Choose three reasons why acquisitions fail.

culture clash between acquired and acquiring firms, inadequate pre-acquisition screening and not realizing gains from combining operations

What are three disadvantages to greenfield ventures?

preemption by other competitors, take longer to establish and uncertainty of future revenue

What entry mode's major advantage is that a firm has more control over the kind of subsidiary it wants in a foreign market?

greenfield venture

Which form of market entry refers to a cooperative agreement between potential or actual competitors?

strategic alliance

True or False: One advantage of a strategic alliance is that it can help the firm develop technological standards for the industry that will, in turn, benefit the firm.

true

The major disadvantages of _______ ventures is that they are slower to establish and come with financial risks.

greenfield

The main criticism of a strategic alliance is that it ______.

gives the competition a low-cost way to access new technology and markets

Nelson Warm Air Corp. entered into a short-term agreement with Hudson Heating as they developed systems to install in all rental units, such as apartments and town homes, throughout France. This short-term agreement is an example of _____.

strategic alliance

What are the four advantages associated with a strategic alliance?

-allow firms to share the fixed cost of developing new products

-brings together complementary skills that neither company could easily develop on their own

-may facilitate entry into a foreign market

-helps a firm establish technological standards that will benefit the firm

The entry mode that may allow competitors to access markets and technology at a low cost is a ___________.

strategic alliance