Scarb Eesbm6e TB 15

Essentials of Entrepreneurship & Small Business Management, 6e (Scarborough)
Chapter 15 Global Opportunities
1) Becoming a global entrepreneur requires:

A) constant innovation.
B) maintaining a high level of quality and constantly improving it.
C) being sensitive to foreign customers' unique requirements and adopting a more respectful
attitude toward foreign habits and customs.
D) All of the above
Answer: D
Diff: 1 Page Ref: 485-487
AACSB: Reflective Thinking
2) A survey by Bain and Company reports that ________ percent of global executives believe
that they will have to revamp their core businesses to remain competitive, and ________ percent
say that the speed of global business has made maintaining a competitive edge more difficult.
A) 85; 80
B) 75; 80
C) 50; 75
D) 25; 50
Answer: B
Diff: 3 Page Ref: 485
AACSB: Analytic Skills
3) For an entrepreneur, expanding into international markets:

A) guarantees its success in the marketplace.
B) makes it a member of GATT automatically.
C) helps it grow faster and survive competition better.
D) leads to business failure for companies under $100 million in annual revenue.
Answer: C
4) The first obstacle an entrepreneur must overcome on the way to creating a truly global
business is:
A) finding a joint venture partner.
B) learning to think globally.
C) locating motivated, multilingual managers for overseas assignments.
D) finding overseas distributors for the company's products.
Answer: B
Diff: 1 Page Ref: 486, 488
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Copyright © 2011 Pearson Education, Inc.
5) All of these are steps small companies follow when they begin conducting global business on
the Web except:
A) connecting to e-mail.
B) building a globally accessible Web site.
C) setting up links to related company Web sites.
D) using the Web to conduct international market research.
Answer: C
AACSB: Use of IT
6) Which of the following statements is/are true regarding export management companies?
A) Most are merchant intermediaries that work on a buy-and-sell arrangement with domestic
small companies.
B) They provide small businesses with a low-cost, efficient, independent, international marketing
department.
C) Many specialize in particular products or product lines and offer services ranging from market
research and advice or patent protection to arranging financing and handling shipping.
D) All of the above
Answer: D
7) An export trading company:

A) is a business that buys and sells products in many countries, either in its own name or as an
agent for its buyer-seller clients.
B) typically offer a wide range of services such as exporting, shipping, storing, distributing, and
others to their clients.
C) is formed by an agreement by which a licenser gives a foreign licensee the right to use a
patent, trademark, copyright, technology, and products in return for a percentage of the licensee's
sales or profits.
D) A and C above
Answer: D
8) A resident buying office is:

A) a business that buys and sells products in many countries, either in its own name or as an
agent for its buyer-seller clients.
B) a government-owned or business-owned facility set up in a foreign country to buy products
that are made there.
C) a firm in an overseas distribution network selling noncompetitive products made by other
firms.
D) formed by an agreement where a licenser gives a foreign licensee the right to use a patent,
trademark, copyright, technology, and products in return for a percentage of the licensee's sales
or profits.
Answer: B
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9) ________ act as international sales representatives in a limited number of markets for various
noncompeting domestic companies, typically operating on a commission basis.
A) Manufacturers' export agents
B) Export merchants
C) Resident buying offices
D) Foreign distributors
Answer: A
10) ________ are domestic wholesalers who do business in foreign markets, buying goods from
domestic companies and selling them in foreign markets, often handling competing lines.
A) Resident buying offices
B) Export trading companies
C) Foreign distributors
D) Export merchants
Answer: D
11) Which of the following trade intermediaries lowers the risk of exporting for a small
business?
A) Export management companies
B) Export trading companies
C) Resident buying offices
D) All of the above
Answer: D
12) Foreign distributors offer small businesses which of the following benefits?
A) A detailed knowledge of the local markets in which they sell
B) The ability to cover a foreign sales territory thoroughly
C) The ability to handle all of the marketing, distribution, and service functions in foreign
markets
D) All of the above
Answer: D
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13) In a(n) ________, two or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services. The companies get antitrust immunity and share
responsibility for the business equally.
A) foreign joint venture
B) trade intermediary
C) domestic joint venture
D) export management company
Answer: C
14) In a(n) ________, a domestic small business forms an alliance with a company in the target
nation for the purpose of exporting to that market.
A) foreign joint venture
B) trade intermediary
C) domestic joint venture
D) export management company
Answer: A
15) The most important ingredient for a successful joint venture is:
A) targeting the right country in which to sell.
B) getting government approval and avoiding antitrust charges.
C) choosing the right partner.
D) splitting costs and profits equally.
Answer: C
16) Which of the following is a common problem in joint ventures?

A) Incompatible management styles among partners
B) Failure of partners to establish common goals
C) Failure of partners to carefully determine each party's contributions and responsibilities,
distribution of earnings, etc.
D) All of the above
Answer: D
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17) Many joint ventures fail because the parties involved neglected to:
A) select a partner who shares their company's values.
B) spell out in writing exactly how the venture will work and who has decision-making
authority.
C) select a partner whose skills are different from, but compatible with, their own.
D) All of the above
Answer: D
18) Foreign licensing has its greatest potential in the licensing of:
A) products.
B) intangibles, such as technology, copyrights, and trademarks.
C) goods.
D) franchises.
Answer: B
AACSB: Multicultural & Diversity
19) If a business owner cannot afford to invest in foreign facilities and does not have time to
learn the foreign market, but is willing to give someone else the right to make and market her
product for a fee and royalties, her best bet for entering the foreign market is:
A) a foreign management company.
B) joint venturing.
C) foreign licensing.
D) international franchising.
Answer: C
20) Foreign licensing is:

A) required when a business buys and sells products in many countries, either in its own name or
as an agent for its buyer-seller clients.
B) a government-owned or business-owned facility set up in a foreign country to buy products
that are made there.
C) the use by one firm (the carrier) of its overseas distribution network to sell noncompetitive
products made by other firms (riders).
D) an agreement in which a licenser gives a licensee in another country the right to use that
licenser's patent, trademark, copyright, technology, and products in return for a percentage of the
licensee's sales or profits.
Answer: D
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21) Domino's Pizza and McDonald's operating in Japan and Europe are examples of:
A) foreign management companies.
B) joint venturing.
C) foreign licensing.
D) international franchising.
Answer: D
22) ________ is a transaction in which a company selling goods and services in a foreign market
agrees to help promote investment and trade in that country.
A) Countertrading
B) Bartering
C) Foreign licensing
D) Exporting
Answer: A
23) The drawbacks of countertrading include which of the following?

A) Countertrade transactions can be complicated, cumbersome, and time consuming.
B) Countertrade transactions can increase the chances that a company will be stuck with
merchandise it cannot move.
C) Countertrade transactions can lead to unpleasant surprises concerning the quantity and quality
of products required in the countertrade.
D) All of the above
Answer: D
24) ________, the exchange of goods and services for other goods and services, is one way of
trading with countries that lack convertible currency.
A) Countertrading
B) Bartering
C) Foreign licensing
D) Exporting
Answer: B
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25) Which of the following is/are often used by companies exporting to countries that lack a
convertible currency?
A) Countertrading
B) Indirect exporting
C) Bartering
D) A and C only
Answer: D
26) Nance Technologies, Inc., has agreed to sell some of its computers to a company in
Bascovina, a country whose currency is worthless outside its own borders. As part of the
agreement, Nance will sell the foreign customer its computers in exchange for a specified
number of tons of coffee, a major export of Bascovina. Nance has already arranged to sell the
coffee to a major processor for a set price in U.S. dollars. Nance has engaged in:
A) bartering.
B) foreign licensing.
C) exporting.
D) countertrading.
Answer: A
27) Small companies with fewer than 100 employees account for more than ________ percent of
the U.S. businesses that export goods and services and generate ________ percent of the nation's
export sales.
A) 21; 25
B) 60; 21
C) 90; 21
D) 90; 51
Answer: C
28) The biggest barrier facing companies that have never exported is:
A) finding the financing to launch an export program.
B) not knowing where or how to start.
C) locating a trade intermediary to represent them in foreign markets.
D) winning government approval to begin selling in foreign markets.
Answer: B
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29) Two valuable resources for entrepreneur's to investigate for going global should include:
A) U.S. Department of Commerce.
B) International Trade Administration.
C) A and B above
D) Neither of these resources will provide real value or insight.
Answer: C
30) The first step to create a sound export strategy is to:

A) recognize that even the smallest companies and least experienced entrepreneurs have the
potential to export.
B) analyze your product or service.
C) analyze your commitment.
D) research markets and pick your target.
Answer: A
31) The final step in creating a sound export strategy is to:

A) find your customer.
B) ship your goods.
C) collect your money.
D) find financing.
Answer: C
32) A ________ is an agreement between an exporter's bank and the foreign buyer's bank that
guarantees payment to the exporter for a specific shipment of goods.
A) bank draft
B) letter of credit
C) repurchase agreement
D) trade acceptance
Answer: B
33) A ________ is a document an exporter draws on a foreign buyer, requiring the buyer to pay
the face amount either on sight or on a specified date once the goods are shipped.
A) bank draft
B) letter of credit
C) repurchase agreement
D) trade acceptance
Answer: A
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34) Which of the following is not one of the three major advantages to establishing an
international location?
A) Lower production costs
B) Need for smaller staff
C) Lower marketing costs
D) Development of an intimate knowledge of customer preferences
Answer: B
35) Which of the following is a domestic barrier to small business exporting?

A) The attitude, "I'm too small to export"
B) A lack of information about how to get started in exporting
C) A lack of export financing for small companies
D) All of the above
Answer: D
36) Malcolm won a contract to provide nuts, bolts, and washers to a small African country's
military. Unfortunately, neither his bankers nor venture capitalists would provide the loans
needed to buy the material to produce the order. The bank did not do international loans. Which
barrier to international trade is Malcolm experiencing?
A) Financing
B) Information
C) Cultural
D) Attitude
Answer: A
37) John wants to expand into the foreign markets, but he cannot convince his partners. They
believe that international markets are the domain of large corporations. John is facing which
barrier to international trade?
A) Financing
B) Political
C) Cultural
D) Attitude
Answer: D
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38) A tariff is:
A) a law that government uses to regulate products that are imported into the country.
B) the maximum amount of a product that can be imported or exported.
C) a prohibition or suspension of foreign trade of specific imports or exports.
D) a duty, or tax, that a government puts on products that are imported into the country.
Answer: D
39) The small country of Bascovina wanted to protect its infant basket industry and imposed a
400 percent tariff on all imported baskets. The high tariff dropped the bottom out of imported
basket sales, and imports of baskets stops. Why did this happen?
A) The citizens realized that because the government imposed the tariff, imported basket
purchases were undesirable.
B) The tariff reduced the price of imported baskets and consumers felt that because of the low
prices, the baskets were of low quality and stopped their purchases.
C) The tariff barred all shipments of baskets to Bascovina.
D) The tariff makes the price of imported baskets so high that they are not competitive.
Answer: D
40) A quota is:

A) a duty or tax that a government puts on products that are imported into the country.
B) the maximum amount of a product that can be imported into a country.
D) a law that a government uses to regulate products that are imported into the country.
Answer: B
41) An embargo is:

A) a duty, or tax, that a government puts on products that are imported into the country.
B) the maximum amount of a product that can be imported or exported.
D) a law that a government uses to regulate products that are imported into the country.
Answer: C
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42) ________ is the practice of selling substantial quantities of a product in a foreign market at
prices that are below either the home-market price or below the full cost of producing it.
A) Exporting
B) Bartering
C) Dumping
D) Price discrimination
Answer: C
43) An American executive went to a foreign country to sign a business contract. While there,
he found that there were numerous complex government regulations his company needed to meet
before closing the deal. This executive was experiencing which barrier to international trade?
A) Tariff
B) Political
C) Cultural
D) Domestic
Answer: B
44) Business owners new to international business are sometimes shocked:

A) by the wide range of labor costs they encounter.
B) that practices common in the United States, such as overtime, women workers, and employee
benefits, are restricted, disfavored, or forbidden in other cultures.
C) that what appear to be "bargain" labor rates turn out to be excessively high after accounting
for the quality of the labor force and the benefits their governments mandate.
D) All of the above
Answer: D
45) An American executive went to a Middle Eastern country to sign an oil contract. Before the
contract was signed, the American and the Arab official met for tea. Relaxing, the American put
his feet up on a table. The official became angry and left the room. Later it was found that
showing the soles of shoes was a serious insult. This represents which barrier to international
trade?
A) Tactical
B) Political
C) Strategic
D) Cultural
Answer: D
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46) As of 2003, the World Trade Organization (WTO) had 153 member countries that represent
over ________ of all world trade.
A) 97 percent
B) 39 percent
C) 76 percent
D) 52 percent
Answer: A
47) The North American Free Trade Agreement, also known as NAFTA, served to:
A) bring South America, Mexico, the U.S., and Canada together as one market.
B) eliminate all tariffs among member nations, effective immediately, and raise them to
nonmembers.
C) mostly benefit the trading relationship between Canada and the United States.
D) create a unified market of 400 million people and $6.5 trillion in goods and services.
Answer: D
48) The North American Free Trade Agreement (NAFTA) created a free trade area among:
A) Canada, Mexico, and the United States.
B) Japan, Mexico, and Canada
C) Mexico, Japan, and the United States
D) None of the above
Answer: A
49) The North American Free Trade Agreement has which of the following provisions?
A) The immediate elimination of all tariff and quota barriers on all goods
B) The elimination of nontariff barriers by 2008
C) A lowering of safety and air quality standards
D) The formation of a North American Trade Organization
Answer: B
50) Which of the following is a guideline for becoming a successful international competitor?
A) Make yourself at home in all of the world's key marketsNorth America, Europe, and Asia.
B) Become familiar with foreign customs and languages.
C) Consider using partners and joint ventures to break into foreign markets you cannot penetrate
on your own.
D) All of the above
Answer: D
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51) Only about one-third of the world's purchasing power lies outside the borders of the United
States.
Answer: FALSE
52) As the trend toward increased globalization continues, successful companies must consider
themselves businesses without borders.
Answer: TRUE
53) Success in the global economy requires constant innovation, high quality, and flexibility and
the ability to have a new perspective about the potential of a business.
Answer: TRUE
54) Small companies that take the plunge into global business can extend their products' life
cycles, raise their quality levels, and increase sales and profits.
Answer: TRUE
55) Learning to think globally may be the firstand most threateningobstacle an entrepreneur
must overcome on the way to creating a truly global business.
Answer: TRUE
56) Some of the strategic options entrepreneurs have when deciding to go global include the
Web, joint ventures, and franchising.
Answer: TRUE
AACSB: Use of IT
57) Entrepreneurs can use the Web to generate sales leads by researching customers and market
characteristics in other countries.
Answer: TRUE
AACSB: Use of IT
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58) Most export management companies are merchant intermediaries that work on a buy-and-sell
arrangement with domestic small companies, providing small businesses with a low-cost,
efficient, independent, international marketing department.
Answer: TRUE
59) Export trading companies are government-owned operations established in countries around
the world (including the United States) for the purpose of buying goods there.
Answer: FALSE
60) While export management companies tend to focus on exporting, export trading companies
usually perform both import and export trades across many countries' borders.
Answer: TRUE
61) Unlike an EMC or an ETC, manufacturers' export agents act as international sales
representatives in a limited number of markets for various noncompeting domestic companies,
typically operating on a commission basis.
Answer: TRUE
62) Most export merchants buy goods, often competing lines, from many domestic companies
and then sell them in foreign markets.
Answer: TRUE
63) Selling to a resident buying office is just like selling to domestic customers since the buying
office handles all of the details of exporting the products.
Answer: TRUE
64) Foreign distributors offer exporting small businesses the benefit of knowledge of the local
markets in which they sell, the ability to cover a foreign sales territory thoroughly, and the ability
to handle all of the marketing, distribution, and service functions in foreign markets.
Answer: TRUE
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65) Most small businesses getting started in conducting global business do not need the services
of trade intermediaries because "going global" has become so easy that even the smallest
businesses can do it alone.
Answer: FALSE
66) In a domestic joint venture, a domestic company forms an alliance with a company in the
target nation.
Answer: FALSE
67) When two small businesses in the target nation form an alliance, they have formed a foreign
joint venture.
Answer: FALSE
AACSB: Communication
68) Some foreign countries place limitations on joint ventures with host companies within their
borders, for example by requiring the host company to own at least 51 percent of the venture.
Answer: TRUE
69) One reason joint ventures fail is because entrepreneurs did not select a partner who shares
their company's values and standards of conduct.
Answer: TRUE
70) Foreign licensing is when a business buys and sells products in many countries, either in its
own name, or as an agent for its buyer-seller clients.
Answer: FALSE
71) Foreign licensing is a relatively simple way for even the most inexperienced business owner
to extend his reach into global markets.
Answer: TRUE
72) Before engaging in foreign licensing, a business owner should secure patent trademark and
copyright protection.
Answer: TRUE
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73) The licensing potential for intangibles, such as technology, trademarks, and other forms of
protection, is often greater than the licensing opportunities for products.
Answer: TRUE
74) As the domestic market for franchises has become increasingly saturated with outlets, the
number of franchisers attracted to foreign markets has grown.
Answer: TRUE
75) Although franchising is a popular way to do business in the United States, it is not a popular
strategy in international markets.
Answer: FALSE
76) Although franchise outlets operate throughout the world, the primary market for U.S.
franchisers is Europe.
Answer: FALSE
77) One reason for McDonald's success in foreign markets is its decision to stick to exactly the
same menu in every country that it offers in the United States.
Answer: FALSE
78) A countertrade is a transaction in which a company selling goods and services in a foreign
country agrees to help promote investment and trade in that country.
Answer: TRUE
79) If a country's currency is not convertible into any other currency, companies exporting to that
country usually engage in either countertrading or bartering.
Answer: TRUE
80) Successful bartering is easier than countertrade but requires finding a business with
complementary needs.
Answer: TRUE
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81) Researching potential export markets is a waste of time and resources for small business
owners; the best way to find export opportunities is to travel abroad and sell.
Answer: FALSE
82) Among major industrialized nations, the United States spends the greatest amount per capita
to promote exports.
Answer: FALSE
83) The U.S. Department of Commerce and the International Trade Administration have the
market research available for locating the best target markets for a particular company and
specific customers in those markets.
Answer: TRUE
84) Lack of export financing remains a significant barrier to small businesses selling in foreign
markets.
Answer: TRUE
85) Collecting foreign accounts is usually less complex than collecting domestic ones.
Answer: FALSE
86) A letter of credit is an agreement between an exporter's bank and a foreign buyer's bank that
guarantees payment to the exporter for a specific shipment of goods.
Answer: TRUE
87) FOB is when the seller must deliver good to the carrier, obtain export licenses, pay export
taxes, and bear the risk of loss until the goods are delivered to the buyer.
Answer: FALSE
Diff: 2 Page Ref: 502, Table 15.3
88) The Foreign Corrupt Practice Act, passed in 1977, considers bribing foreign officials to be a
criminal act.
Answer: TRUE
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AACSB: Ethical Reasoning
89) Most small businesses begin their global ventures by establishing international locations.
Answer: FALSE
90) The three biggest domestic barriers to exporting facing small businesses are attitude,
information, and financing.
Answer: TRUE
91) The biggest barrier facing companies that have never exported is not knowing where or how
to start.
Answer: TRUE
92) The first and most difficult step to exporting for the small business is breaking the
psychological barrier, "My company is too small to export."
Answer: TRUE
93) Even the smallest businesses have the potential to export.

Answer: TRUE
94) The key to success in international markets is choosing the correct target market and
designing a strategy to reach it.
Answer: TRUE
95) A tariff is a limit on the amount of a product imported into a country.

Answer: FALSE
96) The government of Palmeria placed a high import tariff on steel from Dano. Dano's steel is
higher in quality and cheaper. Palmeria's actions result in higher prices for their consumers.
Answer: TRUE
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97) A quota is a limit on the amount of certain products imported into a country, while an
embargo is a total ban on imports of certain products.
Answer: TRUE
98) Dumping involves selling large quantities of a product in a foreign market below cost.
Answer: TRUE
99) Selling large quantities of a product in a foreign market below cost is the best way for a
small company to begin its export program.
Answer: FALSE
100) To prove a charge of dumping under the U.S. Antidumping Act, a company must prove that
a foreign company's prices on a product are lower here than in the home country and that U.S.
companies are directly harmed.
Answer: TRUE
101) The only cultural barrier an American small business manager must overcome when
conducting business internationally is the language gap.
Answer: FALSE
102) Learning the habits and the customs of the cultures in which they do business is essential
for small business managers trying to go global.
Answer: TRUE
103) American business people can be on their best American behavior and go overseas and
offend the locals. This is, in part, due to the fact that business customs that are acceptable or
even expected in one country may be taboo in another.
Answer: TRUE
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104) Fortunately for U.S. business owners, American customs and habits have become the
standard for proper business behavior around the world.
Answer: FALSE
105) While the World Trade Organization had 153 member countries in 2003, which represent
over 97 percent of all world trade, the market formed by NAFTA has more than 400 million
people and an annual output of $6.5 trillion in goods and services.
Answer: TRUE
106) A free trade area is an association of countries that have agreed to knock down trade
barriersboth tariff and nontariffamong partner nations.
Answer: TRUE
107) NAFTA is an agreement among the U.S., Canada, Mexico, Argentina, and Chile, forming a
free trade area among these countries.
Answer: FALSE
108) NAFTA includes provisions reducing tariff and nontariff barriers and toughening health and
safety standards.
Answer: TRUE
109) An important guideline for companies wanting to successfully compete internationally is to

appeal to the similarities within the various regions in which you operate, but recognize the
differences in their specific cultures.
Answer: TRUE
110) An important guideline for companies wanting to successfully compete internationally is to

familiarize yourself with foreign customs, languages, and cultures, including their lifestyles,
values, customs, and business practices.
Answer: TRUE
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111) Explain why it is important to "go global." What benefits can companies that take the
plunge into global business expect?
Answer: Small businesses can no longer consider themselves to be domestic companies if they
truly want to compete. Political, social, cultural, and economic forces are driving small
businesses into international markets. Powerful, affordable technology increases access to
information on conducting global business, and the growing interdependence of the world
economies makes it easier for companies of all sizes to engage in international trade.
Since the global market offers more niches, the flexibility and speed of a small business can
become a competitive advantage.
Advantages of going global include the following:
• Offsetting sales declines in the domestic market
• Increasing sales and profits
• Extending their products' life cycles
• Lowering manufacturing costs
• Improving competitive position and enhancing reputation
• Raising quality levels
• Becoming more customer oriented.
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112) Outline the eight strategies for "going global" available to the small business owner.
Answer:
Launching a Web siteSmall businesses should follow a three-step approach to conducting
global business on the Web.
Step 1: Establish an Internet connection and set up an e-mail account
Step 2: Connect to and conduct international market research
Step 3: Build a global Web site.
Relying on trade intermediariesRather than create an export program "from scratch," small
companies can rely on trade intermediaries for assistanceexport management companies
(EMC), export trading companies (ETC), manufacturers' export agents (MEA), export
merchants, resident buying offices, and overseas distributors all provide a variety of services for
a fee. Typically, at least $50,000 in sales is required to make their fees affordable.
Joint venturesIn a domestic joint venture, two or more U.S. small businesses form an alliance
for the purpose of exporting their goods and services abroad, which typically lowers their
individual risk. Special antitrust immunity is typically requested, allowing them to cooperate
freely. In a foreign joint venture, a domestic small business forms an alliance with a company in
the target nation.
Foreign licensingSmall companies can license businesses in other nations to use their patents,
copyrights, trademarks, technology, processes, or products in return for royalty payments from
sales. Risks include losing control or the possibility of creating a competitor.
International franchisingInternational outlets provide new sales to boost lagging sales and
saturated U.S. markets. Most franchises have found they need to modify their normally
standardized products for foreign tastes. Entrepreneurs have the backing of a large organization
and need help in understanding different markets.
Countertrading and barteringWhen a target nation's currency is worthless outside its borders,
companies often turn to barterthe exchange of goods and services for other goods and services.
ExportingEven the tiniest and least experienced entrepreneurs have the potential to export.
The biggest barrier is not knowing where or how to start.
Establishing international locationsSetting up an international office can require a significant
investment.
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113) One of the eight strategies a company uses to "go global" includes the use of trade
intermediaries. Identify the six types of trade intermediaries and explain why a small business
owner might use each one.
Answer:
1. Export management companies (EMCs)EMCs are merchant intermediaries that provide
small businesses with a low-cost, efficient, independent international marketing department.
Their focus is on exporting, and they typically do not handle competing firms.
2. Export trading companies (ETCs)ETCs are businesses that buy and sell products in a
number of countries and offer a wide variety of servicesexporting, importing, shipping,
storing, and distributingto their clients who may be competitors. They focus on long-term
relationships.
3. Manufacturers' export agents (MEAs)MEAs are businesses that act as international sales
representatives in a limited number of markets for various noncompeting domestic companies.
They are commission based and focus on short-term commitments.
4. Export merchantsExport merchants are domestic wholesalers who buy goods from many
domestic manufacturers and then market them in foreign markets. Most export merchants
specialize in particular industries and often carry competing lines.
5. Resident buying officesA government- or privately-owned operation established in a
country for the purpose of buying goods from businesses there. The buying office handles all the
details of exporting.
6. Foreign distributorsDomestic small companies export their products to foreign
distributors who handle all of the marketing, distribution, and service functions in the foreign
country. They offer exporting small businesses the benefits of knowledge in their local markets,
the ability to cover a given territory thoroughly, and prompt sales and service support.
114) What advantages do taking on a partner in a joint venture offer a small business in an
international business opportunity? Disadvantages?
Answer:
Domestic joint venturetwo or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services abroad.
Foreign joint venturea domestic small business forms an alliance with a company in the target
nation.
Advantages of international joint venture:
• Penetrate protected markets.
• Lower production costs.
• Share risks and high R&D costs.
• Gain access to marketing and distribution channels.
Disadvantages of international joint venture:
• Failure of the venture.
• Relationships that sour.
• Becoming overly dependent on the partner.
Diff: 3 Page Ref: 492, 494
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115) What strategies for trade can businesses use when exporting to countries whose currencies
are not convertible to other currencies? What are the disadvantages?
Answer: Countertrade is a transaction in which a company selling goods and services in a
foreign country agrees to help promote investment and trade in that country, even though profits
cannot be taken in the form of currency exchange. Countertrading transactions can be
complicated, cumbersome, and time consuming. They also increase the chances that a company
will get stuck with useless merchandise that it cannot move. They can also lead to surprises in
the quantity and quality of products required in the counter trade.
Bartering is the exchange of goods and services for other goods and services. Usually the traded
goods are sold to a third party for cash. Barter transactions require finding a business with
complementary needs, but they are much simpler than countertrading.
24
116) List and briefly explain the steps an entrepreneur should follow to establish an export
program.
Answer: The following steps provide guidance to an entrepreneur on how to establish an
exporting program:
1. Recgonize your potential regardless of your size. Recognize that even the tiniest companies
and least experienced entrepreneurs have the potential to export. The size of the firm has
nothing to do with the demand for its products. If the products meet the needs of global
customers, there is a potential to export.
2. Analyze your product or service. Is it special? Is it new? Is it unique? Is it of high quality?
Is it priced favorably because of lower costs or exchange rates? In which countries would there
be sufficient demand for it?
3. Analyze your commitment. Are you willing to devote the time and energy to develop export
markets? Does your company have the necessary resources? Export start-ups can take from six
to eight months (or longer), but entering foreign markets isn't as tough as most entrepreneurs
think.
4. Research markets and pick your target. Before investing in a costly sales trip abroad,
entrepreneurs should make a trip to the local library or the nearest branch of the Department of
Commerce. Exporters can choose from a multitude of guides, manuals, books, newsletters,
videos, and other resources to help them research potential markets. Armed with research, small
business owners can avoid wasting a lot of time and money on markets with limited potential for
their products and can concentrate on those with the greatest promise. Research shows export
entrepreneurs whether they need to modify their existing products and services to suit the tastes
and preferences of their foreign target customers. Sometimes foreign customers' lifestyles,
housing needs, body size, and cultures require exporters to make alterations in their product
lines. Such modifications can sometimes spell the difference between success and failure in the
global market.
5. Develop a distribution strategy. Should you use an export middleperson or sell directly to
foreign customers? Small companies just entering international markets may prefer to rely on
export middlepersons to break new ground.
6. Find your customer. Small businesses can rely on a host of export specialists to help them
track down foreign customers. The U.S. Department of Commerce and the International Trade
Administration should be the first stops on an entrepreneur's agenda for going global. These
agencies have the market research available for locating the best target markets for a particular
company and specific customers in those markets. They also have knowledgeable staff
specialists experienced in the details of global trade and in the intricacies of foreign cultures.
7. Find financing. One of the biggest barriers to small business exports is lack of financing.
Access to adequate financing is a crucial ingredient in a successful export program because the
cost of generating foreign sales often is higher and collection cycles are longer than in domestic
markets. The trouble is that bankers and other sources of capital don't always understand the
intricacies of international sales and view financing them as excessively risky. Also, among
major industrialized nations, the U.S. government spent the least per capita to promote exports.
It is important to note that several federal, state, and private programs are working to fill this
export financing void.
25
8. Ship your goods. Export novices usually rely on international freight forwarders and
custom-house agentsexperienced specialists in overseas shippingfor help in navigating the
bureaucratic morass of packaging requirements and paperwork demanded by customs. These
specialists, also known as transport architects, are to exporters what travel agents are to
passengers and normally charge relatively small fees for a valuable service. They move
shipments of all sizes to destinations all over the world efficiently, saving entrepreneurs many
headaches.
9. Collect your money. Collecting foreign accounts can be more complex than collecting
domestic ones, but by picking their customers carefully and checking their credit references
closely, entrepreneurs can minimize bad-debt losses. Financing foreign sales often involves
special credit arrangements such as letters of credit and bank (or documentary) drafts.
117) Identify and discuss the domestic barriers to trade.

Answer: Three major domestic barriers to international trade are common:
1. An attitude of "I'm too small to export"The first step to building an export program is
recognizing that the opportunity to export exists.
2. Lack of informationEntrepreneurs should thoroughly research the possibility of going
global and use every possible resource available to themgovernment and private organizations'
international exporting and marketing informationin order to make valid decisions. In
addition, companies must be willing to make the necessary adjustments to their products and
services, promotional campaigns, packaging, and sales techniques in foreign markets.
3. Lack of available financingMany entrepreneurs cite lack of financing as a major barrier to
international trade. Before embarking on an export program, entrepreneurs should have
available financing lined up.
118) Identify and discuss the international barriers to trade.

Answer: International barriers include the following:
Tariffsa tax, or duty, that a government imposes on goods and services imported into that
country. Imposing tariffs raises the price of the imported goodsmaking them less attractive to
consumersand protects the makers of comparable domestic products and services.
Quotasa limit on the amount of a product imported into a country, which helps to protect
domestic markets by limiting opportunities for foreign competitors.
Embargoesa total ban on imports of certain products, which helps to protect domestic markets
by keeping foreign competitors out.
Dumpingselling large quantities of a product in foreign countries below cost. Under the U.S.
Antidumping Act, a company must prove that the foreign company's prices are lower here than
in the home country and that U.S. companies are directly harmed.
26
119) Describe the other barriers to trade, including political, business, and cultural:
Answer:
Political barriersAlthough many U.S. business owners complain of excessive government
regulation in the United States, they are often astounded by the complex web of governmental
and legal regulations and barriers they encounter in foreign countries. Companies doing business
in politically risky lands face the very real dangers of government takeovers of private property;
attempts at coups to overthrow ruling parties; kidnapping, bombings, and other violent acts
against businesses and their employees; and other threatening events. Their investments of
millions of dollars may evaporate overnight in the wake of a government coup or the passage of
a law nationalizing an industry (giving control of an entire industry to the government).
Business barriersAmerican companies doing business internationally quickly learn that
business practices and regulations in foreign lands can be quite different from those in the United
States. Simply duplicating the practices they have adopted (and have used successfully) in the
domestic market and using them in foreign markets is not always a good idea. Perhaps the
biggest shock comes in the area of human resources management, where international managers
discover that practices common in the United States, such as overtime, women workers, and
employee benefits are restricted, disfavored, or forbidden in other cultures. Business owners
new to international business sometimes are shocked at the wide range of labor costs they
encounter and the accompanying wide range of skilled labor available. In some countries, what
appear to be "bargain" labor rates turn out to be excessively high after accounting for the quality
of the labor force and the benefits their governments mandate. In many nations, labor unions are
present in almost every company, yet they play a very different role from the unions in the
United States. Although management-union relations are not as hostile as in the United States
and strikes are not as common, unions can greatly complicate a company's ability to compete
effectively.
Cultural barriersThe culture of a nation includes the beliefs, values, view, and mores that its
inhabitants have. Differences in cultures among nations create another barrier to international
trade. The diversity of languages, business philosophies, practices, and traditions make
international trade more complex than selling to the business down the street. The assumption
that the American way of doing things is universal is false. Many international business deals
fail because businesspersons do not understand the importance of valuing diversity, or being
sensitive and respectful to different ways of doing business. Entrepreneurs who want to be
successful in international markets must understand the culture in which they plan to do business
and adapt their business styles and their products to suit that culture.
27
Mini-Case 15-1: The Grass Is Really Greener
It's not usual for city people to be concerned about plants or grassthey see so little of them.
Nevertheless, Martha Goldman has been interested in these things since her first biology course
back in Brooklyn, New York. Martha won all the awards in the science fairs and eventually was
the recipient of a scholarship to college. She chose to major in botany and became fascinated
with the creation of hybrid plants and grasses. Martha was also concerned about the problem of
hunger around the world. She knew that improved plants and grains increased the productivity of
American agriculture, and hoped that someday, she would find a way to play a small part in
reducing world hunger.
After college, with the help of her dad, she opened a small wholesale greenhouse. The business
was a modest success and allowed Martha to experiment with new growing methods. Two years
ago, Martha's research paid off. She had been working on developing a fast-growing grass that
needed less water. One of the experiments produced a grass that seemed to have real potential.
She tested it with a local cattle rancher. All tests so far have shown that the new hybrid grass is
better for feeding cattle. Martha may have realized her dreama grass that will grow better in
parts of the world that could not previously support cattle. High protein beef cattle may now be
able to thrive in parts of the world where previously it was not possible.
120) How should Martha proceed to determine the best way to export her new grass seed?
Answer: It appears that Martha's product has definite potential. Now, she must target specific
export markets, develop an export marketing strategy, and then implement it. Initially, she
should target one or two "prime" markets using the wealth of published data from the U.S.
Department of Commerce. Martha should explore many of the developing nations in arid
regions. She should seek advice and assistance from export trading companies and export
management companies. She should also contact the International Trade Association and
conduct searches on the World Wide Web to determine which markets could be best to target
first. (See Table 15.1 in the text for more international trade resources.) Martha should focus on
locating dependable foreign distributors and invoice all sales in U.S. dollars.
28

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Essentials of Entrepreneurship & Small Business Management, 6e (Scarborough)

Chapter 15 Global Opportunities

1) Becoming a global entrepreneur requires:

3) For an entrepreneur, expanding into international markets:

7) An export trading company:

8) A resident buying office is:

16) Which of the following is a common problem in joint ventures?

20) Foreign licensing is:

23) The drawbacks of countertrading include which of the following?

30) The first step to create a sound export strategy is to:

31) The final step in creating a sound export strategy is to:

35) Which of the following is a domestic barrier to small business exporting?

40) A quota is:

41) An embargo is:

44) Business owners new to international business are sometimes shocked:

93) Even the smallest businesses have the potential to export.

95) A tariff is a limit on the amount of a product imported into a country.

109) An important guideline for companies wanting to successfully compete internationally is to

110) An important guideline for companies wanting to successfully compete internationally is to

117) Identify and discuss the domestic barriers to trade.

118) Identify and discuss the international barriers to trade.

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