Name: Class: Date:

ch10: Entering Foreign Markets

1. A liability of foreignness refers to the inherent disadvantage that foreign firms experience in host countries because of
their nonnative status.
a. True
b. False
ANSWER: True

2. When foreign firms enter new markets, they are often discriminated against the local firms.
a. True
b. False
ANSWER: True

3. In the context of entering into foreign business, firms with a strategic goal to seek market should select economies of
scale and abundance of low-cost factors.
a. True
b. False
ANSWER: False

4. In the context of entering into foreign business, location advantages are the most important consideration.
a. True
b. False
ANSWER: False

5. A Spanish firm specializing in textiles will be more successful if they first enter foreign markets with vastly different
cultural norms than Spain.
a. True
b. False
ANSWER: False

6. According to the stage model, firms will enter culturally different countries during their first stage of
internationalization and will then gain more confidence to enter culturally similar countries in later stages.
a. True
b. False
ANSWER: False

7. To overcome cultural and institutional differences, it is more important to consider strategic goals such as market and
efficiency rather than culture and institutions.
a. True
b. False
ANSWER: True

8. Last movers will build precious relationships with key stakeholders such as customers and governments.
a. True
b. False
ANSWER: False

9. The pioneering status of first movers gives them the guarantee of success.
Copyright Cengage Learning. Powered by Cognero. Page 1
Name: Class: Date:

ch10: Entering Foreign Markets

a. True
b. False
ANSWER: False

10. A joint venture is defined as a subsidiary located in a foreign country that is entirely owned by the parent
multinational.
a. True
b. False
ANSWER: False

11. An MNE is defined by entering foreign markets via equity modes through FDI. A firm that merely exports/imports
with no FDI is usually not regarded as an MNE.
a. True
b. False
ANSWER: True

12. One advantage to engaging in a Joint Venture is sharing costs and risks with a local partner that limits risk exposure.
a. True
b. False
ANSWER: True

13. A greenfield operation limits the equity and management control of and MNE, which gives joint ventures a
comparative advantage.
a. True
b. False
ANSWER: False

14. To be successful in internationalization, managers need to understand the rules of the game, both formal and informal,
governing competition in foreign markets.
a. True
b. False
ANSWER: True

15. From a resource-based view, managers need to match entries with strategic goals to be successful in foreign markets.
a. True
b. False
ANSWER: True

16. Ink Struck Inc., a publishing company, wants to expand its market worldwide. In this case, which of the following will
be a challenge faced by Ink Struck Inc. in host countries?
a. Decreased legal differences
b. Decreased competition for its products in the host country
c. Loss of control over the operations
d. Overcoming liability of foreignness due to its nonnative status
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 2
Name: Class: Date:

ch10: Entering Foreign Markets

17. Flarring Corp. is a well-known company that manufactures spare parts for automobiles. The company, based in
Boston, expanded by entering the market of Nerodo. Even after 12 years of marketing in Nerodo, the company is on the
verge of failure. In this case, which of the following factors could lead to the failure of Flarring Corp. in Nerodo?
a. Decreased liability of foreignness
b. Formal rules that are favorable to local firms
c. Decreased competition from the local firms
d. Products that are hard to imitate
ANSWER: b

18. Which of the following is a formal barrier to trade when foreign firms enter new markets?
a. Differences in values
b. Differences in norms
c. Currency risk
d. Cultural differences
ANSWER: c

19. Which of the following is an informal barrier to trade when foreign firms enter new markets?
a. Differences in norms
b. Political differences
c. Economic differences
d. Existence of multiple currencies
ANSWER: a

20. Which of the following is a way that a foreign firm may be effected by the liability of foreignness?
a. Experiencing both formal and informal discrimination
b. Heightened competitive advantage
c. Adoption of VIRO
d. Having first-mover advantage
ANSWER: a

21. A chip company operating in Pakistan, a majority Muslim country, recently got into a public relations nightmare when
the public discovered that the firm was using a pork based product in their chips. Many Muslim people do not eat pork.
Which of the following aspects of the liability of foreignness is this an example of?
a. Regulatory risks
b. Difference of informal institutions
c. Economic differences
d. Existence of multiple currencies
ANSWER: b

22. _____ is the location-specific advantage that arises from the clustering of economic activities in certain locations.
a. Agglomeration
b. First-mover advantage
c. Late-mover advantage
d. Innovation
Copyright Cengage Learning. Powered by Cognero. Page 3
Name: Class: Date:

ch10: Entering Foreign Markets

ANSWER: a

23. Dubai attracts numerous foreign entrants to engage in international business. It is an ideal stopping point for air traffic
between Europe and Asia, and between Africa and Asia. Which of the following advantages has Dubai honed to attract
foreign business?
a. Late-mover advantage
b. Location-specific advantage
c. Export advantage
d. Cultural advantage
ANSWER: b

24. If a firm decides to engage in crude oil and petroleum business abroad, which of the following countries will provide
location-specific advantage to the firm?
a. Russia
b. Liberia
c. Switzerland
d. Greenland
ANSWER: a

25. Rues and West Bros., a technological giant, is a company motivated with the drive to find new and affordable
technologies. It is selecting a location so that it can operate with its motive, as well as enjoy the benefits of the location. In
this scenario, Rues and West Bros. should select locations:
a. that possess abundance of innovative individuals, firms, and universities.
b. that feature a combination of scale economies and low-cost factors.
c. that has an abundance of strong market demand.
d. that possess natural resources and related infrastructure.
ANSWER: a

26. Which of the following is true of location-specific advantages?

a. They are independent of cultural distance of the countries involved in a business.
b. They continually grow irrespective of any changes in the formal institution.
c. They decline when companies overcrowd or when taxes are raised.
d. They can be enjoyed only as a late mover.
ANSWER: c

27. Palova Skin care, a famous cosmetic brand, is successfully engaging in international business with several countries.
Contrary to the successes in foreign market, the recent attempts to expand its business in its neighboring country, Arkadas,
has been unsuccessful, owing to its strict rules for women and perception of beauty. In this scenario, which of the
following is most likely the reason for Palova’s failure in Arkadas?
a. Lack of natural resources
b. Physical distance
c. Cultural distance
d. Lack of purchasing power
ANSWER: c

Copyright Cengage Learning. Powered by Cognero. Page 4

Name: Class: Date:

ch10: Entering Foreign Markets

28. Which of the following is a strategy to overcome cultural distance while engaging in international business?
a. Entering culturally distant countries with confidence
b. Choosing countries with colony-colonizer links
c. Entering in countries without much physical distance
d. Entering a culturally different country as a late mover
ANSWER: b

29. In the context of entry timing, _____ is defined as the benefit that accrues to firms that are late entrants in the market
and that early entrants do not enjoy.
a. late-mover advantage
b. first-mover advantage
c. location-specific advantage
d. cultural advantage
ANSWER: b

30. Being a first mover in a market is advantageous for a firm because:

a. it may have an opportunity to free ride on late-mover investments.
b. it may gain advantage through proprietary technology.
c. it would attract more firms to join their business network.
d. it would face minimal technological and market uncertainties.
ANSWER: b

31. Which of the following statements is true of late movers?

a. They face greater technological and market uncertainties.
b. They drive some non-dominant firms abroad to avoid clashing with dominant firms in home market.
c. They may be able to free ride on the huge pioneering investments of first movers.
d. They may erect significant entry barriers for further entry by other firms.
ANSWER: c

32. Which of the following is a difference between first movers and late movers?
a. First movers take advantage of the inflexibility of late movers, whereas late movers may be locked into a
given set of fixed assets.
b. First movers face greater technological and market uncertainties, whereas late movers take advantage of the
solutions of the first movers.
c. First movers may be able to free ride on the huge pioneering investments of late movers, whereas late movers
have to make preemptive investments.
d. First movers attract more late entrants, whereas late movers erect entry barriers for further entrants.
ANSWER: b

33. Citigroup was one of the first firms to enter Afghanistan, earning a good deal of goodwill from the Afghan
government. This is an example of:
a. Late-mover advantage through free riding on first-mover investments
b. First-mover advantage through relationship building
c. First-mover advantage through preemptive investments?
d. Late-mover advantage through prior market adaptation
Copyright Cengage Learning. Powered by Cognero. Page 5
Name: Class: Date:

ch10: Entering Foreign Markets

ANSWER: b

34. KG Steel Co. is exporting steel bars at prices that are below what it costs to manufacture them, with the intent to raise
prices after eliminating local rivals. This practice is known as:
a. Extortion
b. Market seeking
c. Dumping
d. Plunking
ANSWER: c

35. Which of the following statements is true of scale of entry?

a. Small-scale entries experience higher liability of foreignness.
b. Large-scale entries demonstrate a strategic commitment to certain markets.
c. Small-scale entries face the difficulty of limited strategic flexibility elsewhere.
d. Large-scale entries will face difficulty capturing first-mover advantages.
ANSWER: b

36. Which of the following modes of entry call for the establishment of independent organizations overseas?
a. An equity mode
b. An export mode
c. A franchising mode
d. A licensing mode
ANSWER: a

37. Which of the following is true of a multinational enterprise (MNE)?

a. A firm that enters into a contractual agreement with a foreign firm
b. A firm that enters foreign market via foreign direct investment (FDI)
c. A firm that merely exports/imports products to host countries
d. A firm that enters foreign market by non-equity mode
ANSWER: b

38. _____ is a non-equity mode of entry into a foreign market.

a. Acquisition
b. Turnkey project
c. Joint venture
d. Wholly owned subsidiary
ANSWER: b

39. _____ is defined as a project in which clients pay contractors to design and construct new facilities and train
personnel.
a. An acquisition
b. A joint venture
c. A greenfield project
d. A turnkey project
Copyright Cengage Learning. Powered by Cognero. Page 6
Name: Class: Date:

ch10: Entering Foreign Markets

ANSWER: d

40. Pro-creations Corp., a tool manufacturing company, has decided to expand its business internationally. Consequently,
the company has paid a contractor to construct a manufacturing facility and an office. When the project is complete and
ready for operation, the contractor will hand over the facility to Pro-creations Corp. to pursue its business. This mode of
entry into international market is an example of _____.
a. a franchise
b. a greenfield project
c. a joint venture
d. a turnkey project
ANSWER: d

41. Which of the following statements is true of research and development (R&D) contracts?
a. They make innovations at relatively high cost.
b. They are difficult to negotiate and enforce.
c. Quality of a research is easy to assess.
d. Firms build their core R&D capabilities in the long run.
ANSWER: b

42. In the context of modes of entry, _____ refers to efforts among a number of firms to jointly market their products and
services.
a. franchising
b. licensing
c. co-marketing
d. a joint venture
ANSWER: c

43. Prime Vera is a company that sells electrical baking appliances in over 12 countries. It collaborates with Silibakes Inc.
and sells silicon baking cups with its new range of electric oven. This mode of entry is an example of _____.
a. a turnkey project
b. franchising
c. co-marketing
d. a joint venture
ANSWER: c

44. Laelle Corp., a popular cosmetic brand in France, has decided to expand its business to Australia. The company enters
into an agreement with a local firm in Australia by which the two companies share 50 percent equity. This mode of entry
is an example of _____.
a. a turnkey project
b. a joint venture
c. licensing
d. co-marketing
ANSWER: b

45. _____ is a type of wholly owned subsidiary.

Copyright Cengage Learning. Powered by Cognero. Page 7
Name: Class: Date:

ch10: Entering Foreign Markets

a. A research and development (R&D) contract

b. A greenfield project
c. Co-marketing
d. Franchising
ANSWER: b

46. A greenfield operation refers to:

a. efforts among a number of firms to jointly market their products.
b. building new factories and offices from scratch.
c. a new entity jointly created and owned by two or more parent companies.
d. exports and contractual agreements of smaller commitments to overseas markets.
ANSWER: b

47. Which of the following statements is true of greenfield operations?

a. They suffer from a slow entry speed of at least one to several years.
b. They face difficulty in achieving effective equity and management control.
c. They are cost effective and free from risk.
d. They do not add any new capacity to an industry.
ANSWER: a

48. A software company in China has decided to become a multinational enterprise (MNE). The company desires to
completely own its subsidiary and requires a fast entry mode. In addition, the company wants to enter into business
immediately without requiring to add a new capacity. In this scenario, which of the following modes of entry will be most
appropriate for the company?
a. Greenfield operation
b. Acquisition
c. Licensing
d. Build-operate-transfer agreement
ANSWER: b

49. If generating returns from foreign markets is the goal, and returns are not being generated, which of the following
strategies may be necessary?
a. Changing strategic goals
b. Withdrawing from those foreign markets
c. Engaging in a price war
d. Ignoring the liability of foreignness
ANSWER: b

50. What is a location-specific advantage? Explain its significance with examples. Align location advantages with
strategic goals.
ANSWER: Favorable locations in certain countries may give firms operating there what are called location-specific
advantages. Location-specific advantages are the benefits a firm reaps from features specific to a particular
place. Certain locations simply possess geographical features that are difficult for others to match. For
example, Miami, the self-styled "Gateway of the Americas," is an ideal location both for North American
firms looking south and Latin American firms coming north. Vienna is an attractive site as MNE regional
Copyright Cengage Learning. Powered by Cognero. Page 8
Name: Class: Date:

ch10: Entering Foreign Markets

headquarters for Central and Eastern Europe.

Given that different locations offer different benefits, it is imperative that a firm match its strategic goals
with potential locations.
Firms seeking natural resources have to go to particular foreign locations where those resources are found.
For example, the Middle East, Russia, and Venezuela are all rich in oil.
Market-seeking firms go to countries that have a strong demand for their products and services. As China
becomes the largest car market in the world, practically all the automakers in the world are now elbowing
into it. General Motors (GM) has emerged as the leader. In 2010, GM for the first time sold more cars in
China than in the United States. As demand for business aviation takes off in China, business jet makers are
now intensely eyeing the new market.
Efficiency-seeking firms often single out the most efficient locations featuring a combination of scale
economies and low-cost factors. It is the search for efficiency that induced numerous MNEs to enter China.
Innovation-seeking firms target countries and regions renowned for generating world-class innovations, such
as Silicon Valley and Bangalore (in IT), Dallas (in telecom), and Paris (in perfumes).

51. Explain cultural distance and institutional distance. How can these distances be overcome?
ANSWER: Cultural distance is the difference between two cultures along identifiable dimensions such as individualism.
Considering culture as an informal part of institutional frameworks governing a particular country,
institutional distance is the extent of similarity or dissimilarity between the regulatory, normative, and
cognitive institutions of two countries. Broadly speaking, cultural distance is a subset of institutional
distance.
Two schools of thought have emerged in overcoming these distances. The first is associated with the stage
model. Firms will enter culturally similar countries during their first stage of internationalization and will
then gain more confidence to enter culturally distant countries in later stages.
A second school of thought argues that it is more important to consider strategic goals such as market and
efficiency rather than culture and institutions.

52. Analyze first-mover disadvantages.

ANSWER: First movers face greater technological and market uncertainties.
As incumbents, first movers may be locked into a given set of fixed assets or reluctant to cannibalize existing
product lines in favor of new ones. Late movers may be able to take advantage of the inflexibility of first
movers by leapfrogging them.

53. Explain equity and non-equity modes of entry.

ANSWER: Non-equity modes include exports and contractual agreements and tend to reflect relatively smaller
commitments to overseas markets. Equity modes, on the other hand, are indicative of relatively larger,
harder-to-reverse commitments. Equity modes call for the establishment of independent organizations
overseas. Non-equity modes do not require such independent establishments. Overall, these modes differ
significantly in terms of cost, commitment, risk, return, and control.

54. Discuss the institution-based view and resource-based view that determines success of firms.
ANSWER: First, from an institution-based view, managers need to understand the rules of the game, both formal and
informal, governing competition in foreign markets. Failure to understand these rules can be costly. These
foreign entrants’ failure in understanding the informal, unwritten rules of the game that often have
protectionist (or even racist) undertones in developed economies. Knowing these rules of the game does not
mean these emerging multinationals need to be discouraged. They just need to do better homework, keep
their heads low, and work on low-profile acquisitions, which are routinely approved in developed economies.
Second, from a resource-based view, managers need to develop overwhelming capabilities to offset the
liability of foreignness. The key word is overwhelming. Merely outstanding, but not overwhelming,
capabilities cannot ensure success in the face of strong incumbents.
Copyright Cengage Learning. Powered by Cognero. Page 9
Name: Class: Date:

ch10: Entering Foreign Markets

Finally, managers need to match entries with strategic goals. If the goal is to deter rivals in their home
markets through price slashing as TI did in Japan, then be prepared to fight a nasty price war and lose money.

Copyright Cengage Learning. Powered by Cognero. Page 10