INTERNATIONAL BUSINESS – CHAPTER 13

CHAPTER 13: ENTRY MODE

Multiple choice
1) ________ is the most common form of international business activity.
A) Exporting
B) Licensing
C) Countertrade
D) Joint Venture

2) Which of the following steps of the strategy development process for exports
involves performing market research and interpreting results obtained from the
research?
A) identification of a potential market
B) match needs of the market to the company's abilities
C) initiation of meetings
D) commitment of resources

3) Which of the following steps of the strategy development process for exports
involves establishing relationships with potential local distributors?
A) identification of a potential market
B) match market needs to the company's abilities
C) initiation of meetings
D) commitment of resources

4) What is the first step in selecting a foreign market?

A) identification of potential market
B) monitoring major markets
C) evaluating host country's trade policies
D) assessing general legal and political environments

5) Which of the following is true of distributors?

A) The use of distributors increases the exporter's control over the price buyers are
charged.
B) They are compensated with a fixed salary plus commissions based on the value
of their sales.
C) They are seldom required to take ownership of the merchandise when it enters

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their country.
D) They can stunt the growth of the exporter's market share by charging very
high prices

6) ________ occur(s) when a firm sells its products to a domestic customer, which in
turn exports the product, in either its original form or a modified form.
A) Indirect exporting
B) Direct exporting
C) Intercorporate transfers
D) Intracorporate transfers

7) Which of the following allows a country to earn back some of the currency it pays
out for imports?
A) switch trading
B) counterpurchase
C) buyback
D) barter

8) _______ refers to any one of several different arrangements that business parties
negotiate so that they can trade goods for good, primarily with countries that have
limited amounts of foreign exchange.
A) Factoring
B) Offset
C) Countertrade
D) Barter

9) The sale of goods and services to a country by a company that promises to buy a
specific product from that country in the future is called a(n) ________.
A) counterpurchase
B) offset
C) joint venture
D) barter

10) A company proposes that in exchange for a hard-currency sale, it will make a
hard-currency purchase of an unspecified product from the buyer nation in the
future. Which of the following is the company proposing?

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A) a counterpurchase
B) an offset
C) a buyback
D) a barter

11) An offset agreement differs from a counterpurchase agreement in that an offset

agreement ________.
A) fails to specify the type of product that must be purchased
B) fails to specify the amount that will be spent on the purchase
C) fails to give a business greater freedom in fulfilling its end of a countertrade
deal
D) fails to make a hard-currency purchase of any product from that nation in the
future

12) ________ is a countertrade whereby one company sells to another its obligation to
make a purchase in a given country.
A) Franchising
B) Joint venture
C) Switch trading
D) Barter

13) Buyback is defined as ________.

A) the export of industrial equipment in return for products produced by that
equipment
B) an agreement that a company will offset a hard-currency sale to a nation by
making a hard-currency purchase of an unspecified product from that nation in the
future
C) the sale of goods or services to a country by a company that promises to make a
future purchase of a specific product from that country
D) the exchange of goods or services for a certain amount of money

14) The export of industrial equipment in return for products produced by that
equipment is called ________.
A) barter
B) franchising
C) offset
D) buyback

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15) Which of the following statements is true of countertrade?

A) Countertrade is practiced by countries when there is a lack of hard
currency.
B) Countertrade involves products whose prices on world markets tend to remain
steady.
C) Countertrade usually involves industrial products and computer softwares.
D) Hedging risk in countertrade is prohibited.

16) Which of the following is a strategic factor that influences a company's

international entry mode selection?
A) market consumption capacity
B) market receptivity
C) market size
D) market intensity

17) Which of the following is an advantage of exporting?

A) vulnerability to tariffs
B) logistical complexities
C) potential conflicts with distributors
D) access to new markets

18) Scenario: Owen's HomeCare Products Owen McCain, owner of Owen's

HomeCare Products, is considering going international. He feels that the products
he manufactures will be well-received, especially in developing countries. He
wants to understand the exporting process and then scale his exporting activities
accordingly.

Through his research, Owen learns that the first step in developing a successful
export strategy is ________.
A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities

19) Scenario: Owen's HomeCare Products Owen McCain, owner of Owen's

HomeCare Products, is considering going international. He feels that the products
he manufactures will be well-received, especially in developing countries. He
wants to understand the exporting process and then scale his exporting activities

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 INTERNATIONAL BUSINESS – CHAPTER 13

accordingly.

Which of the following steps would Owen implement toward the end while
developing a successful export strategy?
A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities

20) Scenario: Owen's HomeCare Products Owen McCain, owner of Owen's

HomeCare Products, is considering going international. He feels that the products
he manufactures will be well-received, especially in developing countries. He
wants to understand the exporting process and then scale his exporting activities
accordingly.

If Owen's HomeCare Products decides to sell their products to intermediaries who

then resell them to buyers in target markets, the company would be engaging in
________ and use the services of an Export Management Company (EMC).
A) indirect exporting
B) counterpurchase
C) an acquisition
D) a joint venture

21) Scenario: Wang's Techno Toys Ann Wang has been successfully running Wang's
Techno Toys that sells high-tech toys in the domestic market. Continually
increasing and stiff competition at home has now forced Wang's Techno Toys to
enter international markets through direct exports.

Which of the following will most likely help Techno Toys sell its toys directly to
buyers in the target market?
A) agents
B) sales representatives
C) export management companies
D) export trading companies

22) Which of the following occurs when a company sells its products to buyers in a
target market without going through intermediary companies?
A) direct export
B) indirect export

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C) contract manufacturing
D) licensing

23) ________ take ownership of the merchandise when it enters their country and
accept all the risks associated with generating local sales.
A) Agents
B) Distributors
C) Sales representatives
D) Freight forwarders

24) A(n) ________ exports products on behalf of an indirect exporter.

A) local distributor
B) subsidiary
C) sales representative
D) export management company

25) Companies involved in direct exporting typically rely on ________.

A) distributors
B) agents
C) export management companies
D) All of the above

26) Which of the following is a method of export/import financing?

A) offset
B) buyback
C) switch trading
D) documentary collection

27) Which of the following normally takes the form of a wire transfer of money from
the bank account of the importer directly to that of the exporter prior to shipment
of merchandise?
A) documentary collection
B) letter of credit
C) advance payment
D) open account

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28) Advance payment is commonly used for export/import financing when ________.
A) two parties are unfamiliar with each other
B) the buyer has obtained credit for the transaction
C) the transaction is for a relatively high amount
D) the buyer has good credit rating at banks

29) Export/import financing in which a bank acts as an intermediary without accepting

financial risk is called ________.
A) documentary collection
B) counterpurchase
C) buyback
D) open account

30) Which of the following financing methods entails the greatest risk for importers?
A) documentary collection
B) advance payment
C) confirmed letter of credit
D) open account

31) Which of the following financing methods entails the lowest risk for exporters?
A) supersedeas bond
B) advance payment
C) letter of credit
D) open account

32) Scenario: Sports Stuff Inc. Herb Graham is vice president of Sports Stuff Inc., a
business that develops, manufactures, and markets sports products. The company
is looking to expand its operations into the European market. Herb believes that if
the company expands its product line to include products reflecting sports that are
popular in Europe, the company will achieve success there.

Herb knows that much of the success his company enjoys is due to the patents and
copyrights that protect the company's products. If Sports Stuff chooses an entry
mode in which it grants another firm the right to use its intangible property for a
specified period of time, it would be engaging in ________.
A) a turnkey project
B) franchising

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C) licensing
D) a joint venture

33) Herb has been exploring another type of entry mode that requires ongoing
assistance on the part of one firm, often in the form of start-up capital,
management training, or location advice. Herb is most likely considering
________.
A) a strategic alliance
B) franchising
C) licensing
D) a joint venture

34) The biggest advantage of an export management company is usually its ________.
A) knowledge of the target market's cultural, political, legal, and economic
conditions
B) well-developed and extensive distribution channels and storage facilities
C) well-rounded experience in countertrade-related activities
D) financial understanding of investment projects and its manufacturing expertise

35) A way for firms to trade by using either a small amount of hard currency, or even
none at all, is called ________.
A) indirect exporting
B) countertrade
C) licensing
D) a joint venture

36) Which of the following is a contractual entry mode?

A) wholly owned subsidiaries
B) licensing
C) joint ventures
D) exporting

37) Which of the following is a contractual entry mode in which a company owning
intangible property grants another firm the right to use that property for a specified
period of time?
A) franchising
B) licensing

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C) management contract
D) strategic alliance

38) Which of the following statements is true of licensing?

A) Licensing restricts finances needed for international expansion.
B) Cross licensing grants a company the right to use a property but does not grant
it sole access to a market.
C) A major advantage of licensing is that it is the least risky method of
international expansion.
D) Licensing increases the likelihood that a licensor's product will appear on the
black market.

39) Which of the following is a contractual entry mode in which one company
supplies another with intangible property and other assistance over an extended
period?
A) franchising
B) management contract
C) licensing
D) strategic alliance

40) When one company is hired to design, construct, and test a production facility for
a client, the arrangement is called ________.
A) a turnkey project
B) licensing
C) a joint venture
D) franchising

41) Which of the following is an investment entry mode?

A) licensing
B) franchising
C) joint venture
D) turnkey project

42) Which of the following is an advantage of wholly owned subsidiaries?

A) The parent company receives all profits generated by the subsidiary.
B) They are the least expensive investment entry modes.

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C) They help in the sharing of the cost of an international investment project.

D) They are the least risky when compared to other investment entry modes.

43) A ________ is a separate company created and owned by two or more

independent entities to achieve a common business objective.
A) wholly owned subsidiary
B) joint venture
C) strategic alliance
D) turnkey project

44) Which of the following types of joint ventures involve parties investing together in
downstream business activities?
A) backward integration
B) forward integration
C) multistage
D) buyback

45) A ________ joint venture is formed when each partner requires the same
component in its production process.
A) backward
B) multistage
C) forward
D) buyback

46) Which of the following is a disadvantage of strategic alliances?

A) They are the most expensive among the investment entry modes.
B) They increase the likelihood that one partner will try to take advantage of the
other.
C) They create future competitors.
D) They fail to tap into their competitors' specific strengths.

47) Scenario: Sports Stuff Inc. Herb Graham is vice president of Sports Stuff Inc., a
business that develops, manufactures, and markets sports products. The company
is looking to expand its operations into the European market. Herb believes that if
the company expands its product line to include products reflecting sports that are
popular in Europe, the company will achieve success there.

The CEO of Sports Stuff has decided that the company needs to retain complete

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control over its operations in Europe. To achieve this objective, Herb would most
likely recommend that the firm establish a ________.
A) joint venture
B) cross licensing agreement
C) wholly owned subsidiary
D) strategic alliance

48) The board of directors of Sports Stuff is concerned with the firm's lack of
experience in foreign markets. To minimize this problem, Herb recommends that
the firm create a ________ with a local partner.
A) joint venture
B) turnkey project
C) wholly owned subsidiary
D) franchise

49) Which of the following statements best differentiates between franchising and
licensing?
A) Licensing gives a company greater control than franchising over the sale of its
product in a target market.
B) Franchising is common in manufacturing industries while licensing is primarily
used in service industries.
C) Franchising requires ongoing assistance from the franchiser while
licensing normally involves a one-time transfer of property.
D) Licensees must often meet strict guidelines on product quality, day-to-day
management duties, and marketing promotions unlike franchisees.

50) Products for which there are fewer substitutes can more easily absorb higher
shipping and production costs.
T or F
51) Franchising is primarily used in service industries.
T or F
52) The primary advantage of franchising is that franchisees have a great degree of
organizational flexibility.
T or F
53) Under a turnkey project, one company supplies another with managerial expertise
for a specific period of time.
T or F

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54) In a backward integration joint venture, the parties choose to invest together in
downstream business activities.
T or F
55) The most important disadvantage of a strategic alliance is that it can create a future
local or even global competitor.
T or F
56) Low tariffs and high quota limits encourage market entry by means of investment.
T or F
57) The most common method used for buying and selling goods internationally is
exporting.
T or F
58) Most large companies use exporting to increase sales and open up new markets
when the domestic market has become saturated.
T or F
59) Companies can achieve economies of scale in production by expanding into
international markets.
T or F
60) Direct exporting is when a company sells its products directly to buyers in a target
market. Indirect exporting occurs when a company sells its products to
intermediaries who then resell to buyers in a target market.
T or F
61) Typically, indirect exporting relies on local sales representatives or distributors.
T or F
62) Distributors are firms who take ownership of the merchandise when it enters their
country.
T or F
63) Agency relationships are popular among exporters because they are easy to
terminate should difficulties arise.
T or F
64) Countertrade provides a way for firms to trade either by using a small amount of
hard currency or even none at all.
T or F
65) Countertrade is not an option for smaller companies because of the cash outlays
involved.
T or F
66) Buyback is the export of industrial equipment in return for products produced by
that equipment.
T or F

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67) A confirmed letter of credit is guaranteed by both the exporter's bank in the
country of export and the importer's bank in the country of import.
T or F
68) Letters of credit are popular among traders because it reduces the risk of non-
shipment.
T or F
69) Commonly licensed intangible property includes patents, copyrights, special
formulas and designs, trademarks, and brand names.
T or F

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