International Marketing Asia Pacific 3rd

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Chapter 7

Foreign market entry

TRUE/FALSE

1. Exporting is the third less risky foreign market entry method.

ANS: F PTS: 1 DIF: Easy REF: Motivation to internationalise

2. In most cases today, a firm can enter the international market easily, and the process takes less time than
participating in the domestic market.

ANS: F PTS: 1 DIF: Easy REF: Motivation to internationalise

3. Proactive firms go international because they want to do so. Reactive motivations influence firms that are
responsive to environmental changes and who adjust to them by changing their activities over time.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

4. Agents have less freedom of movement than distributors.

ANS: T PTS: 1 DIF: Moderate REF: Change agents

5. Export activities are so important to revenue that all countries offer tax concessions to their firms.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

6. International marketing activities can often provide a good reason for international travel.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

7. Frequently, international market expansion motivated by overproduction did not represent full commitment
by management, but rather safety valve activity designed for short-term activities only.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

8. A motivator for a company to begin international marketing of products is stable domestic sales.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

9. Assuming product success in the home market, a company can penetrate an international market with a
pricing scheme focused on variable costs alone, but this strategy is only feasible with a long-term
commitment.

ANS: F PTS: 1 DIF: Difficult REF: Motivation to internationalise

10. Firms that are only psychologically distant from customers and ports tend to be more active in exporting.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
11. Sometimes cultural variables, legal factors and other societal norms make a foreign market that is
geographically close seem psychologically distant.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

12. In order for change to take place within an organisation, someone or something within the company must
initiate it and shepherd it through to implementation. This person (or this internal condition) is referred to as
an expansionist.

ANS: F PTS: 1 DIF: Difficult REF: Change agents

13. The issue of profit repatriation and accumulation may cause discontent.

ANS: F PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

14. Declining domestic sales volume (or market share) is only a motivator to enter international marketing if
significant lead time exists in the foreign market.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

15. New management is the primary external change agent in the internationalisation process.

ANS: F PTS: 1 DIF: Moderate REF: Change agents

16. Integrated distribution requires dealing with another domestic firm that acts as a sales intermediary for the
marketer, often taking over the international side of the marketer’s operations.

ANS: F PTS: 1 DIF: Moderate REF: Change agents

17. The growing global protection of intellectual property rights is one of the reasons why licensing is
becoming an increasingly popular.

ANS: T PTS: 1 DIF: Moderate REF: Licensing and franchising

18. Many of the problems encountered by joint ventures stem from a lack of careful, advance consideration of
how to manage the new endeavour.

ANS: T PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

19. Franchising is attractive to the governments of recipient countries because the outflow of foreign exchange
is low.

ANS: T PTS: 1 DIF: Difficult REF: Licensing and franchising

20. Joint venture legislation and the ensuing regulations are often subject to substantial interpretation and
arbitrariness.

ANS: T PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
MULTIPLE CHOICE

1. Which of the following is not a reactive reason why firms go international?

A. Managerial urge
B. Overproduction
C. Excess capacity
D. Proximity to customers and ports

ANS: A PTS: 1 DIF: Difficult REF: Motivation to internationalise

2. ____________, ___________, __________ and investment climate are the main causes of FDI.

A. Market factors; barriers of trade; cost factors

B. Government resources; economies of scale; risk management
C. Market factors; government resources; cost factors
D. Reactive factors; proactive factors; risk management.

ANS: A PTS: 1 DIF: Difficult REF: Foreign direct investment

3. Which of the following is not a proactive reason why firms go international?

A. A firm may produce goods or services that are not widely available from international competitors or
may have made technological advances in a specialised field.
B. They have exclusive market information, such as knowledge about customers and marketplaces.
C. The size of the international market may enable the firm to increase output and slide more rapidly on the
learning curve.
D. During downturns in the domestic business cycle, markets abroad provided an ideal outlet for high
inventories.

ANS: D PTS: 1 DIF: Difficult REF: Motivation to internationalise

4. Which of the following is not an external change agent in the internationalisation process?

A. Demand
B. Domestic distributors
C. Export management companies
D. New management

ANS: D PTS: 1 DIF: Easy REF: Change agents

5. Which of the following is considered a proactive motivation to go international?

A. Competitive pressures
B. Unique products
C. Over-production
D. Excess capacity

ANS: B PTS: 1 DIF: Moderate REF: Motivations to internationalise

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
 6. Which of the following is considered a reactive motivation to go international?

A. Profit advantage
B. Saturated domestic markets
C. Managerial urge
D. Technological advantage

ANS: B PTS: 1 DIF: Moderate REF: Motivations to internationalise

7. Historically, during downturns in the domestic business cycle, markets abroad provided an ideal outlet for
high inventories. Such international market expansion does not represent full commitment by management,
but rather a temporary _______________ designed for short-term activities

A. investment
B. psychic distance
C. safety valve activity
D. production

ANS: C PTS: 1 DIF: Moderate REF: Motivations to internationalise

8. Which of the following is not a specialisation market intermediaries bring?

A. External cultural understanding

B. Detailed information about the competitive conditions in certain markets
C. Evaluation of credit risk
D. Personal contacts with potential buyers abroad

ANS: A PTS: 1 DIF: Moderate REF: Change agents

9. Conditions used to be such that the first entrant into a foreign market could count on being the leader for
years, but in today’s marketplace, the competitive edge is not as great because:

A. of competing technology and frequent lack of intellectual property rights protection.

B. competing domestic firms were there first.
C. globalisation and the internet do not allow there to be a ‘first firm’.
D. most countries do not allow the first entrant to be a foreign firm.

ANS: A PTS: 1 DIF: Moderate REF: Change agents

10. Which of the following is the primary outside influence on a firm’s decision to become international?

A. In more than half of all cases, unsolicited orders

B. To take advantage of holiday destinations in colder months
C. Foreign demand
D. To satisfy a desire for continuous growth and market expansion

ANS: C PTS: 1 DIF: Moderate REF: Change agents

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
11. Why has taxation, although historically a good incentive for exporting, become less of an incentive for
companies to go international?

A. Companies do not pay taxes on exports any more.

B. Exports are subject only to taxation when consumed.
C. Because of WTO regulations.
D. Published lists indicate export quota taxation guidelines.

ANS: C PTS: 1 DIF: Difficult REF: Change agents

12. Which of the following requires the marketer to make an investment into the foreign market for the purpose
of selling its products in that market or more broadly in the region?

A. Agents
B. Indirect exporting
C. Direct exporting
D. Integrated distribution

ANS: D PTS: 1 DIF: Difficult REF: Change agents

13. As a result of overproduction, companies historically would move inventories to foreign markets during
periods of domestic downturn. What was this practice called?

A. Sky rocketing
B. Pitching, assuming lag time was present
C. Dumping, assuming lead time was available
D. Safety-valve activity

ANS: D PTS: 1 DIF: Difficult REF: Change agents

14. Which type of intermediaries are typically organised along product lines and provide the international
marketer with complete marketing services?

A. Agents
B. Direct exporters
C. Distributors
D. Indirect distributors

ANS: C PTS: 1 DIF: Moderate REF: Change agents

15. Which of the following is not a key issue in negotiating licensing agreements?

A. Remuneration
B. Compensation
C. Licensee compliance
D. Dispute resolution

ANS: A PTS: 1 DIF: Moderate REF: Licensing and franchising

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
16. Which of the following is not a disadvantage of licensing?

A. It may leave the international marketing functions to the licensee.

B. Transfer costs.
C. The initial toehold in the foreign market may not be a foot in the door.
D. The licensor may create its own competitors.

ANS: B PTS: 1 DIF: Moderate REF: Licensing and franchising

17. _____________ allows companies to improve their sustainability and be seen by consumers and
stakeholders as more environmentally friendly.

A. Foreign direct investment

B. Exporting
C. Franchising
D. Licensing

ANS: D PTS: 1 DIF: Difficult REF: Licensing and franchising

18. Which of the following is not a cost the licensor wants to cover?

A. Transfer costs
B. R&D costs
C. Opportunity costs
D. Remuneration

ANS: D PTS: 1 DIF: Moderate REF: Licensing and franchising

19. The internationalisation process can be driven by external forces such as:

A. enlightened management, domestic distributors and export intermediaries.

B. the researchers and product developers.
C. demand, other firms and banks.
D. the marketing department.

ANS: C PTS: 1 DIF: Moderate REF: Change agents

20. Firms can become unplanned participants in the international market because of:

A. a salesperson’s decision.
B. management’s gamble on a new market segment.
C. government mandate.
D. growth of corporate websites.

ANS: D PTS: 1 DIF: Moderate REF: Change agents

21. A firm that finds itself unexpectedly exporting its products without much planning is:

A. lucky.
B. an accidental exporter.
C. subject to heavy competitive scrutiny in the long term.
D. unlikely to succeed in the long term.

ANS: B PTS: 1 DIF: Easy REF: Change agents

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
22. Which of the following is not required to be stipulated in the licensing agreement?

A. Licensee’s marketing strategies

B. Export control regulations
C. Confidentiality of the intellectual property and technology provided
D. Record keeping and provisions for licensor audits

ANS: A PTS: 1 DIF: Moderate REF: Licensing and franchising

23. Which of the following is not a reason for foreign domestic investment?

A. Marketing factors
B. Trade restrictions
C. IPRS concerns
D. Cost factors

ANS: C PTS: 1 DIF: Moderate REF: Foreign direct investment

24. Which of the following is not a key impediment to international franchising?

A. Meeting and training qualities and reliable franchisees overseas

B. Collection and transfer of franchise fee
C. Storage of raw materials, equipment and other products
D. Shipping and handling of equipment needed to operate a foreign franchise

ANS: C PTS: 1 DIF: Difficult REF: Licensing and franchising

25. Export management companies and trading companies are firms that assist other firms in marketing
products abroad. What are these international broker-like companies called?

A. Export intermediaries
B. Export agents
C. Trading agents and distributors
D. Product representatives

ANS: A PTS: 1 DIF: Moderate REF: Change agents

26. _____________incentives are specific tax measures designed to serve as an attraction to the foreign
investor. _______ incentives offer special funding for the investor by providing land or buildings, loans.
loan guarantees or wage subsidies. _________ incentives can consist of guaranteed government purchases;
special protection from competition through tariffs, import quotas and local content requirements; and
investments in infrastructure facilities.

A. Financial; Fiscal; Non-fiscal

B. Fiscal; Financial; Non-fiscal
C. Fiscal; Financial; Non-financial
D. Semi-financial; Financial; Non-financial

ANS: C PTS: 1 DIF: Moderate REF: Foreign direct investment

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
27. Agents have less freedom than distributors because:

A. they operate on a commission basis.

B. they do not usually physically handle the goods.
C. the marketer can ensure the customer gets the most appropriate product version.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Change agents

28. An international distributor:

A. does not purchase the products.

B. is organised along product lines.
C. operates exclusively for one international marketer.
D. None of the above

ANS: B PTS: 1 DIF: Easy REF: Change agents

29. Under a licensing agreement:

A. the licensor permits another to use its intellectual property.

B. the licensee is paid on a royalty basis.
C. there are no intangibles.
D. control is shifted from the original centre of gravity on the vertical supply chain.

ANS: A PTS: 1 DIF: Moderate REF: Franchising and licensing

30. Merchandising licensing agreements:

A. can have fees ranging from 7–12 per cent of net sales.
B. only apply to trademarks.
C. need considerable effort on the part of licensors.
D. can have fees ranging from 7–12 per cent of net sales and only apply to trademarks.

ANS: D PTS: 1 DIF: Moderate REF: Franchising and licensing

31. Which of the following is a form of franchising?

A. Manufacturer–retailer systems
B. Manufacturer–wholesaler systems
C. Service firm–retailer systems
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Franchising and licensing

32. Which of the following statements is correct?

A. There is a love–hate relationship between governments and foreign direct investors.

B. Particularly in developed countries, the knowledge advantage of foreign investors may offer
opportunities for exploitation.
C. Governments criticise foreign direct investors for bringing capital and employment.
D. None of the above

ANS: A PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
 33. All of the following options are disadvantages of joint ventures, except:

A. Relationships are hard to maintain in partnerships.

B. In some cases, managers are interested in launching the venture but have little concern with actually
running the enterprise.
C. Joint ventures permit better relationships with local organisations – government, local authorities or
labour unions.
D. Reconciling conflicts of loyalty is one of the greatest human resource challenges for joint ventures.

ANS: C PTS: 1 DIF: Difficult REF: A perspective on foreign direct

investors

34. One special form of joint venture is the ____________, or partnership. These _______________
arrangements between two or more companies with a common business objective result from growing
global competition, rapid increases in the investment required for technological progress and growing risk
of failure.

A. joint ventures; unusual

B. joint ventures; informal
C. strategic alliance; formal
D. strategic alliance; formal or informal

ANS: D PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

35. Which of the following statements is incorrect?

A. Exporting permits a broader and quicker coverage of world markets with the ability to respond to
changes. Risks are lower, but costs tend to be higher because of transhipment and transaction expenses.
B. An increase will occur in the trend towards strategic alliances, or partnering, permitting the formation of
collaborative arrangements between firms.
C. FDI reflects the long-term nature of a firm’s objectives and makes use of local advantages.
D. The least visible and powerful players in the FDI field are larger-sized firms and multinational
corporations.

ANS: D PTS: 1 DIF: Difficult REF: Future insights

SHORT ANSWER

1. Why is licensing so popular with many potential international marketers?

ANS:
As an entry strategy, licensing may require neither capital investment nor knowledge and marketing
strength in foreign markets. By earning royalty income, it provides an opportunity to obtain an additional
return on research and development investments already incurred. After initial costs, the licensor can reap
benefits until the end of the contract period. Licensing reduces risk of exposure to government intervention.
Licensing helps to avoid host country regulations that are focused on equity ventures. Licensing serves as a
stage in the internationalisation of the firm by providing a means by which foreign markets can be tested
without major involvement of capital or management time. Licensing can pre-empt a market before the
entry of competition.

PTS: 1 DIF: Moderate REF: Licensing and franchising

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014
2. What is the difference between proactive and reactive motivators that spur a company to go international?

ANS:
Proactive motivations are initiated by the firm’s management and consist of perceived profit advantage,
technological advantage, product advantage, exclusive market information or managerial urge. Reactive
motivations are the responses of management to environmental change and pressures. Typical reactive
motivations include competitive pressures, overproduction, declining domestic sales and excess capacity.
Firms that are primarily stimulated by proactive motivations are more likely to enter international markets
aggressively and successfully.

PTS: 1 DIF: Difficult REF: Motivations to internationalise

3. Explain the three major types of foreign investment that governments offer to FDI.

ANS:
Fiscal incentives are specific tax measures designed to serve as an attraction to the foreign investor. They
typically consist of special depreciation allowances, tax credits or rebates, special deductions for capital
expenditures, tax holidays and other reductions of the tax burden on the investor. Financial incentives offer
special funding for the investor by providing land, buildings or loans.

PTS: 1 DIF: Difficult REF: Foreign direct investment

Test bank for International Marketing, third edition

© Cengage Learning Australia 2014