International Business: The New RealitiesChapter 3 Organizational Participants that Make International Business Happen

1) The majority of focal firms are privately owned multinational enterprises.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

2) The activities of firms, intermediaries, and facilitators in international business are thoroughly distinct and rarely overlap.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

3) Some focal firms are manufacturing businesses, while others are in the service sector.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

4) Focal firms and intermediaries represent the demand side of international business transactions.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

5) The value chain is not the complete business system of the focal firm.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

6) Retailers play critical roles in the initial stages of the international value chain.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

7) Sales representatives act as distribution channel intermediaries.

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Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

8) In an international value chain, sourcing occurs before research and development.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

9) Market research is a downstream value-chain activity.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

10) Distribution is an upstream value-chain activity.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-2

11) All focal firms are private businesses.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

12) In the years following World War II, most multinationals, typically from the United States and the United Kingdom, went abroad seeking raw materials, production efficiencies, and foreign-based customers.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

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13) Due to their size, MNEs account for the majority of firms active in international business.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

14) Compared to large multinationals, SMEs can be more flexible and quicker to respond to global business opportunities.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

15) The emergence of born global firms is associated with international entrepreneurship. Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

16) Focal firms can be analyzed in terms of the entry strategies they use to expand abroad.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

17) A firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation is known as a licensor.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

18) Joint ventures are less formal than project-based partnerships.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

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19) A firm that enters into a contractual agreement with a foreign partner to allow the partner the right to use certain intellectual property for a specified period of time in exchange for royalties or other compensation is known as a franchisor.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

20) For most exporters, relying on an independent foreign distributor is a low-cost way to enter foreign markets. Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

21) Foreign distributors are often called merchant distributors.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

22) Selling products on the Internet has triggered the reduction of traditional intermediaries, such as wholesalers.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy; Use of information technology

23) A manufacturer's representative is an intermediary contracted by the exporter.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

24) A retailer represents the first link between distributors and end users.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

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25) The number and role of facilitators have declined due to the complexity of international business operations, intense competition, and technological advances.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy

26) Many commercial banks are reluctant to extend credit to SMEs.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy

27) International manufacturers rarely use common carriers. Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy

28) Governments often nationalize important companies facing financial ruin.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-7AACSB: Dynamics of the global economy

29) Commercial banks are the monetary authorities in each country that issue currency and regulate national money supplies.Answer: FALSEDifficulty: EasySkill: ConceptObjective: 3-7AACSB: Dynamics of the global economy

30) Sovereign wealth funds are state-owned investment funds that undertake systematic, global investment activities.Answer: TRUEDifficulty: EasySkill: ConceptObjective: 3-7AACSB: Dynamics of the global economy

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31) A ________ is the initiator of an international business transaction.A) facilitatorB) focal firmC) distribution channel intermediaryD) freight forwarderAnswer: BDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

32) Which of the following refers to the participant responsible for conceiving and designing a product for consumption by customers worldwide?A) governmentB) facilitatorC) focal firmD) intermediaryAnswer: CDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

33) A ________ is a specialist firm that provides various logistics and marketing services for focal firms as part of international supply chains, both in the focal firm's home country and abroad.A) facilitatorB) not-for-profit corporationC) distribution channel intermediaryD) retailerAnswer: CDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

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34) A ________ is a firm or an individual with special expertise in banking, legal advice, customs clearance, or related support services that helps focal firms perform international business transactions.A) facilitatorB) born global firmC) distribution channel intermediaryD) turnkey contractorAnswer: ADifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

35) Which of the following refers to a specialized logistics service provider that arranges international shipping for exporting firms?A) freight forwarderB) wholesalerC) distributorD) turnkey contractorAnswer: ADifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

36) Which of the following represent the demand side of international business transactions?A) focal firmsB) facilitatorsC) intermediariesD) retailersAnswer: DDifficulty: ModerateSkill: ApplicationObjective: 3-1AACSB: Dynamics of the global economy

37) Logistics service providers, freight forwarders, and banks are examples of ________.A) retailersB) distribution channel intermediariesC) focal firmsD) facilitatorsAnswer: DDifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

38) ________ are businesses, institutions, and governments that purchase goods and services as

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inputs to a production process, or as supplies needed to run a business or organization.A) Organizational buyersB) Freight forwardersC) RetailersD) LicensorsAnswer: ADifficulty: EasySkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

39) Which of the following stages of the international value chain immediately precedes the marketing stage? A) sourcingB) productionC) distributionD) market researchAnswer: BDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

40) A tax accountant would most likely be involved as a facilitator in which of the following stages of the international value chain? A) distributionB) sourcingC) productionD) after-sales serviceAnswer: ADifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

41) Within the international value chain, which of the following would operate as a facilitator?A) importerB) lawyerC) retailerD) distributorAnswer: BDifficulty: ModerateSkill: ApplicationObjective: 3-2AACSB: Dynamics of the global economy

42) Which of the following stages of the international value chain immediately follows the research and development stage?

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A) distributionB) market researchC) productionD) sourcingAnswer: DDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

43) In the research and development stage of the international value chain, ________ act as distribution channel intermediaries.A) universitiesB) research labsC) innovation fairsD) consolidatorsAnswer: CDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

44) Peter, a graduate student from Michigan, ordered a notebook from Opus Inc., an American MNC manufacturing and selling computers and related products. The notebook that Peter ordered from Michigan was assembled in Opus' factory in Taipei. This exemplifies the ________ stage in the international value chain. A) research and developmentB) sourcingC) productionD) after-sales serviceAnswer: CDifficulty: ModerateSkill: ApplicationObjective: 3-2AACSB: Dynamics of the global economy

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45) Which of the following is an upstream value-chain activity? A) marketingB) sourcingC) distributionD) after-sales serviceAnswer: BDifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

46) Which of the following is a downstream value-chain activity?A) marketingB) sourcingC) market researchD) research and developmentAnswer: ADifficulty: EasySkill: ConceptObjective: 3-2AACSB: Dynamics of the global economy

47) Which of the following is true with regard to MNEs?A) MNEs are constrained by limited human resource.B) Due to their smaller size, MNEs often target specialized products.C) MNEs are more flexible than SMEs.D) MNEs perform various business activities through a network of subsidiaries.Answer: DDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

48) MNEs are best known for their ________.A) reluctance to explore emerging marketsB) foreign direct investment activitiesC) high rates of employee attritionD) preference for exporting as the main strategy for entering foreign marketsAnswer: BDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy; Use of information technology

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49) As defined in Canada and the United States, small and medium-sized enterprises (SMEs) are manufacturers or service providers with ________ or fewer employees.A) 500B) 5000C) 1000D) 250Answer: ADifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

50) As defined in the European Union, small and medium-sized enterprises (SMEs) are manufacturers or service providers with ________ or fewer employees.A) 500B) 5000C) 1000D) 250Answer: DDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

51) Which of the following is true about SMEs?A) They are more bureaucratic than are most MNEs.B) They are characterized by low adaptability.C) They often sustain entrepreneurship and innovation in national economies.D) They rarely target specialized products.Answer: CDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

52) The rise of Eastern European SMEs has resulted largely from two trends: the access these firms have gained in recent years to the massive European Union and ________. A) direct investment by foreign investors in emerging marketsB) an increased emphasis on niche marketingC) widespread outsourcingD) regular tax breaks from national governmentsAnswer: ADifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

53) In ________, some focal firms are partly or wholly owned by the government.

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A) free market economiesB) highly developed countriesC) market economiesD) centrally planned economiesAnswer: DDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

54) SMEs usually choose ________ as their main strategy for entering foreign markets.A) exportingB) importingC) divestingD) investingAnswer: ADifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

55) A born global firm is defined as ________.A) a consortium of firms that plan, finance, organize, manage, and implement all phases of a project and then hand it over to a foreign customer after training local personnelB) a large global company that sells diverse and unrelated productsC) an intermediary that engages in import and export of a variety of commodities, products, and services D) a young entrepreneurial company that initiates international business activity early in its evolution, moving rapidly into foreign marketsAnswer: DDifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

56) A young entrepreneurial company that initiates international business activity early in its evolution, moving rapidly into foreign markets is called a(n) ________.A) born global firmB) MNEC) not-for-profit companyD) conglomerateAnswer: ADifficulty: EasySkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

57) Which of the following best describes a firm that allows a partner the right to use certain

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intellectual property for a specified period of time in exchange for royalties or other compensation?A) franchisorB) licensorC) manufacturerD) trading companyAnswer: BDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

58) A firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation is known as a(n) ________.A) franchisorB) licensorC) export management companyD) brokerAnswer: ADifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

59) Delegating certain noncore functions to outside vendors is a strategy known as ________.A) franchisingB) licensingC) outsourcingD) diversifyingAnswer: CDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

60) Licensing allows companies to ________.A) internationalize rapidly while remaining in their home marketB) monitor and control employee behaviorC) eliminate the costs of advertising and brandingD) invest in emerging markets abroadAnswer: ADifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

61) ________ specialize in international construction, engineering, design, and architectural projects, usually for airports, hospitals, factories, power plants, oil refineries, campuses, and

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upgrades to public transportation such as bridges, roadways, and rail systems.A) Freight forwardersB) Turnkey contractorsC) Export management companiesD) RetailersAnswer: BDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

62) An increasingly popular type of turnkey contract in the developing economies is the ________, in which the contractors acquire an ownership stake in the facility for a period of time until it is turned over to the client.A) international collaborative ventureB) build-own-transfer ventureC) joint ventureD) project-based, nonequity ventureAnswer: BDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

63) A(n) ________ is a crossborder business alliance in which partnering firms pool their resources to create a new venture, sharing the associated costs and risks.A) SMEB) build-own-transfer ventureC) MNED) international collaborative ventureAnswer: DDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

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64) Collaborative arrangements help focal firms to ________.A) create and sustain market monopoliesB) connect with domestic customersC) configure value chains more effectivelyD) monitor and control employee behaviorAnswer: CDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

65) Project-based partnerships ________.A) are extremely formal venturesB) undertake projects with a relatively broad scopeC) involve equity investment in the parent companiesD) are short-term, nonequity venturesAnswer: DDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

66) A focal firm that creates and owns a new legal entity through equity investment or pooling of assets is called a(n) ________.A) project-based partnerB) joint venture partnerC) build-own-transfer ventureD) nonequity venture partnerAnswer: BDifficulty: EasySkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

67) Distribution channel intermediaries perform all of the following functions for focal firms EXCEPT ________.A) productionB) advertisingC) customer serviceD) warehousingAnswer: ADifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

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68) Foreign distributors that purchase products from exporters for resale at a profit are known as ________.A) brokersB) merchant distributorsC) domestic intermediariesD) sales representativesAnswer: BDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

69) Distribution channel intermediaries ________.A) deliver products and services in the home country and abroadB) provide financial support to SMEsC) facilitate customs clearance for MNEsD) assist focal firms with legal issuesAnswer: ADifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

70) A(n) ________ is an intermediary (often an individual or a small firm) that handles orders to buy and sell commodities, products, and services in international business transactions for a commission.A) agentB) licensorC) franchisorD) foreign distributorAnswer: ADifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

71) A(n) ________ is an intermediary contracted by the exporter to represent and sell its merchandise or services in a designated country or territory.A) licensorB) retailerC) franchisorD) agentAnswer: DDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

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72) In a market consisting of many small, widely dispersed buyers and sellers, the function of which of the following is especially important? A) foreign distributorsB) licensorsC) agentsD) retailersAnswer: CDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

73) Dealing directly with foreign-based retailers is efficient because ________.A) it shortens the distribution channelB) it enhances the brand image of productsC) it helps create market monopoliesD) it eliminates competitionAnswer: ADifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

74) ________ assume the international marketing function on behalf of producers, especially those with limited international business experience.A) Export management companiesB) Manufacturer's representativesC) Customs brokersD) Trading companiesAnswer: DDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

75) Trading companies play an important role in Japan's external trade because Japan ________.A) manufactures technological devicesB) has few natural resourcesC) has a steadily rising populationD) has a high average per-capita incomeAnswer: BDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

76) Which of the following is true with regard to online intermediaries? A) They discourage customers to visit physical outlets.

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B) They consolidate wholesale channels.C) They broker transactions between buyers and sellers worldwide. D) They complement traditional intermediaries.Answer: CDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy; Use of information technology

77) The increase in the number of international business facilitators has been driven by all of the following EXCEPT ________.A) technological advancesB) complexity of international business operationsC) intense competitionD) declining trade in international servicesAnswer: DDifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy; Use of information technology

78) Common carriers are firms that ________.A) plan, manage, and implement all phases of a project on behalf of foreign governments B) assist retailers in developing e-commerce based marketing systemsC) own the ships, trucks, and airplanes used to transport goods around the worldD) provide expert counsel to MNEs on the legal aspects of international business Answer: CDifficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

79) Which of the following assist focal firms in resolving disputes with foreign business partners?A) insurance companiesB) trade lawyersC) consultantsD) market research firmsAnswer: BDifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy

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80) Commercial banks facilitate the operations of international businesses by doing all of the following EXCEPT ________.A) regulating national money suppliesB) transferring funds to individuals and foreign banksC) supplying credit information on foreign buyersD) providing credit to buyers and sellersAnswer: ADifficulty: EasySkill: ConceptObjective: 3-6AACSB: Dynamics of the global economy

81) Sovereign wealth funds are owned by ________. A) MNEsB) private investorsC) national governmentsD) publicly traded corporationsAnswer: CDifficulty: EasySkill: ConceptObjective: 3-7AACSB: Dynamics of the global economy

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Shareholders Meeting (Scenario)A senior manager at Hudson Motors Inc. presented the top management of his firm with a strategy aimed at improving sales and profits. Based in Kentucky, Hudson Motors has always used American-made parts for its automobiles. However, sales and profits have slumped miserably over the past three years. In his plan, the senior manager proposes to delegate certain noncore operations to external vendors besides setting up manufacturing units in Asia, where the cost of labor is significantly low.

82) By proposing to set up manufacturing units in Asia, the senior manager of Hudson Motors is proposing the top management of his firm to adopt which of the following strategies?A) product differentiationB) diversificationC) outsourcingD) crowdsourcingAnswer: CDifficulty: ModerateSkill: ApplicationObjective: 3-4AACSB: Dynamics of the global economy

83) If Hudson Motors grants the right to Mercury Motors Inc., an Asian automobile firm, the right to use its business system in exchange for compensation, Hudson Motors would play the role of a ________.A) franchisorB) licensorC) agentD) turnkey contractorAnswer: ADifficulty: ModerateSkill: ApplicationObjective: 3-4AACSB: Dynamics of the global economy

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Nanocell (Scenario)Two years ago, Nanocell, a small Canadian company, began manufacturing a solar cell that holds a charge for 24 hours, many times longer than any competing solar cell. International sales of the palm-sized solar cell occurred quickly, and soon Nanocell was exporting to Australia, China, and Africa. Today, Nanocell is a growing multinational enterprise with sales expected to soar even higher.

84) Which of the following statements is best supported by the story of Nanocell?A) Born globals enjoy fleeting success before succumbing to the pressures of intense competition.B) The stock value of born global firms fluctuates due to the high risk factors.C) Flexibility offsets poor strategic decisions and short-term market growth.D) Size and experience do not predetermine the success or failure of a firm in international markets.Answer: DDifficulty: HardSkill: Critical ThinkingObjective: 3-3AACSB: Dynamics of the global economy; Reflective thinking skills

85) Nanocell's management team is considering entering into other foreign markets using a strategy of foreign direct investment (FDI). Which of the following, if true, would most support the claim that expansion through FDI would benefit Nanocell?A) Most small companies enter foreign markets by exporting, as Nanocell did two years ago.B) SMEs prefer FDI as a foreign market entry strategy even though it is expensive.C) Nanocell plans to cut advertising costs in the long run.D) FDI is a common and successful foreign market entry strategy for multinational enterprises.Answer: DDifficulty: HardSkill: Critical ThinkingObjective: 3-4AACSB: Dynamics of the global economy; Reflective thinking skills

86) Nanocell is considering partnering with either an agent or a foreign distributor to expand its overseas sales. Which of the following, if true, would most support Nanocell's decision to partner with an agent instead of a foreign distributor for the purpose of expanding sales?A) Nanocell has more widespread connections with foreign partners in Asia than in Europe.B) Nanocell's executives are opposed to having a foreign partner take title to their product.C) The major foreign distributors of solar power technology have strong track records of success.D) The market price of Nanocell's products is too low to support payment of commissions.Answer: BDifficulty: HardSkill: Critical ThinkingObjective: 3-5AACSB: Dynamics of the global economy; Reflective thinking skills

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87) Which of the following questions is most relevant for evaluating whether Nanocell should partner with an agent or a foreign distributor to expand its overseas sales?A) Has FDI been successfully used by solar technology companies expanding abroad?B) What would be the cost of capital required to finance additional expansion?C) Who do Nanocell's competitors typically collaborate with when expanding operations?D) Does Nanocell have an appropriate legal team in place to handle the requirements of expansion?Answer: CDifficulty: HardSkill: Critical ThinkingObjective: 3-5AACSB: Dynamics of the global economy; Reflective thinking skills

Super Cola (Scenario)U.S.-based Super Cola, one of the top five cola manufacturers, has previously attempted to enter the Asian beverage market with little success. Lacking the name recognition of its competitors, Super Cola was unable to gain market share and ceased shipping its products overseas after six months. Super Cola realizes that the large Asian market would be extremely profitable, but the company requires a new strategy. Consultants hired by Super Cola propose two different methods for entering the market: licensing and franchising.

88) Which of the following would occur if Super Cola entered into a licensing agreement with the Asian beverage manufacturer, Tsang Cola? A) Super Cola would distribute the product manufactured by Tsang Cola.B) Super Cola would produce and Tsang Cola would distribute the product.C) Tsang Cola would produce and distribute Super Cola's product for a specified period of time.D) Super Cola would both produce as well as distribute its product in Asia.Answer: CDifficulty: ModerateSkill: ApplicationObjective: 3-4AACSB: Dynamics of the global economy

89) Which of the following, if true, would render franchising unattractive for Super Cola?A) Franchisors have limited control over branches abroad. B) Studies indicate that American franchisees are less relationship-oriented than are Asian franchisees. C) Studies indicate that franchisees are more aware of and responsive to the needs of local markets than are salaried employees. D) Franchised businesses are more likely than not to benefit from existing business models. Answer: ADifficulty: HardSkill: Critical ThinkingObjective: 3-4AACSB: Dynamics of the global economy

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90) Which of the following primary benefits is Super Cola most likely to accrue by virtue of entering into a licensing agreement with Tsang Cola?A) Super Cola would learn the marketing techniques used by cola manufacturers in Asia and would simulate them after the expiry of the licensing agreement with Tsang Cola.B) Super Cola would be represented on the Tsang board of directors and would oversee Tsang operations in Asia and the U.S.C) Super Cola would learn the manufacturing techniques used by Tsang Cola and use the same methods in the U.S.D) Super Cola would receive royalties from beverage sales and an entry into the Asian market.Answer: DDifficulty: ModerateSkill: ApplicationObjective: 3-4AACSB: Dynamics of the global economy

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91) In a short essay, describe the four major participants in international business. Explain how they work together in international business activities.Answer: a. A focal firm is the initiator of an international business transaction that conceives, designs, and produces the offerings intended for consumption by customers worldwide. Focal firms take the center stage in international business. They include large multinational enterprises (MNEs; also known as Multinational Corporations or MNCs) and small and medium-sized enterprises (SMEs). Some are privately owned companies, others are public, stock-held firms, and still others are state enterprises owned by governments. Some focal firms are manufacturing businesses, while others are in the service sector.

b. A distribution channel intermediary is a specialist firm that provides a variety of logistics and marketing services for focal firms as part of the international supply chain, both in the focal firm's home country and abroad. Typical intermediaries include independent distributors and sales representatives, usually located in foreign markets where they provide distribution and marketing services to focal firms on a contractual basis.

c. A facilitator is a firm or an individual, with special expertise in legal advice, banking, customs clearance, or related support services. Facilitators assist focal firms with international business transactions. They include logistics service providers, freight forwarders, banks, and other support firms that assist focal firms in performing specific functions.

d. Governments or the public sector are also active in international business as suppliers, buyers, and regulators. State-owned enterprises account for a substantial portion of economic value added in many countries, even rapidly liberalizing emerging markets such as Russia, China, and Brazil. Governments in advanced economies like France, Australia, and Sweden have significant ownership of companies in telecommunications, banking, and natural resources.

International business transactions require numerous organizations, with varying motives, to work together as a coordinated team, contributing different types of expertise and inputs. The focal firm performs certain activities internally and delegates other functions to intermediaries and facilitators where their special expertise is needed. In other words, the focal firm becomes a client of intermediaries and facilitators who provide services on a contractual basis. The recent global financial crisis led governments to step up their involvement in business, especially as regulators.Difficulty: ModerateSkill: ConceptObjective: 3-1AACSB: Dynamics of the global economy

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92) In a short essay, describe the three key types of focal firms, and explain how their value chain enables international business.Answer: Focal firms are the most prominent international players. They include well-known multinational enterprises (MNEs) and small and medium-sized (SMEs) exporting firms, as well as contemporary organizations such as the born globals.

1. An MNE is a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. Leading MNEs are listed on the Fortune Global 500. Examples include well-known companies like Nestlé, Sony, Unilever, Nokia, Ford, Barclays, ABB, and Shell Oil. Although such firms employ a range of foreign market entry strategies, MNEs are best known for their foreign direct investment (FDI) activities. They operate in multiple countries, especially in Asia, Europe, and North America, by setting up production plants, marketing subsidiaries, and regional headquarters. MNEs such as Exxon, Honda, and Coca-Cola derive much of their total sales and profits, often more than half, from cross-border operations.

2. Another type of focal firm that initiates cross-border business transactions is the SME. As defined in Canada and the United States, SMEs are manufacturers or service providers with fewer than 500 employees (in the European Union and numerous other countries, they are defined as having fewer than 250 employees). SMEs now make up the majority of companies active in international business. Nearly all firms, including large MNEs, started out small. Compared to the large multinationals, SMEs can be more flexible and quicker to respond to global business opportunities. They are usually less bureaucratic, more adaptable, and more entrepreneurial, and are often the basis for entrepreneurship and innovation in national economies. Being smaller organizations, SMEs are constrained by limited financial and human resources. This explains why they usually choose exporting as their main strategy for entering foreign markets.

3. Born global firms represent a relatively new breed of international SME—those that undertake early and substantial internationalization. Despite the scarce resources typical of most small businesses, born globals usually internationalize within three years of their founding and may export to twenty or more countries, generating more than 25 percent of their sales from abroad.

The value chain is the complete business system of the focal firm, comprising all the activities the focal firm performs. In international business, the focal firm may retain core activities such as production and marketing within its own organization and delegate distribution and customer service responsibilities to independent contractors, such as foreign-based distributors. In this way, the resulting business system is subject to internationalization; that is, individual value-adding activities can be configured in multiple countries.Difficulty: HardSkill: SynthesisObjective: 3-2, 3-3AACSB: Dynamics of the global economy

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93) In a short essay, explain why SMEs now comprise the majority of firms active in international business. How have logistics specialists facilitated the success of SMEs attempting to become internationally active?Answer: SMEs are gaining equal footing with large multinationals in marketing sophisticated products around the world. This is due to a number of reasons. First, SMEs can be flexible and quick to respond to global business opportunities. Second, they are usually less bureaucratic, more adaptable, and more entrepreneurial, and often sustain entrepreneurship and innovation in national economies.

Being smaller organizations, SMEs are constrained by limited financial and human resources. To compensate for their limited resources, SMEs leverage the services of intermediaries and facilitators to succeed abroad. As their operations grow, some gradually establish company-owned sales offices or subsidiaries in their key target markets. Moreover, because of their size and relative inexperience, SMEs often target specialized products to market niches that MNEs consider too small to service. SMEs also use information and communications technology to their advantage by serving the specialized needs of customers around the world.

SMEs owe much of their international success to support provided by intermediaries and facilitators in foreign markets, and to globe-spanning logistics specialists such as FedEx and DHL. Smaller firms also rely on information and communications technologies that allow them to identify global market niches and efficiently serve specialized buyer needs.Difficulty: ModerateSkill: ConceptObjective: 3-3AACSB: Dynamics of the global economy

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94) In a short essay, explain the differences between franchisors, licensors, and turnkey contractors. What are the factors that determine the type of entry strategies used by focal firms to expand abroad?Answer: a. A licensor is a firm that enters a contractual agreement with a foreign partner that allows the latter the right to use certain intellectual property for a specified period of time in exchange for royalties or other compensation.

b. A franchisor is a firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation. Franchisors are sophisticated licensors that provide an entire business system to a foreign franchisee, such as McDonald's and Hertz Car Rental. In addition, many firms in the construction, engineering, design, or architectural industries provide their offerings via turnkey contracting.

c. Turnkey contractors are focal firms or a consortium of firms that plan, finance, organize, manage, and implement all phases of a project and then hand it over to a foreign customer after training local personnel.

Focal firms must consider a number of different factors before determining the most beneficial strategy. The type of entry mode depends on the nature of the business as well as the nature of the focal firm, its products, and goals. When the nature of business is dealing in intangibles, such as professional services, the focal firm may enter into agency relationships with a foreign partner. This is common among banks, advertising agencies, and market research firms. Franchising is popular among many types of service industry firms, such as Subway and KFC. Licensing and franchising are both commonly used in the international transfer of intangibles. Turnkey contractors are utilized when major construction projects, such as bridges, roadways, or rail systems, are needed in developing economies.Difficulty: ModerateSkill: ConceptObjective: 3-4AACSB: Dynamics of the global economy

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95) In a short essay, explain the two most common international entry strategies for MNEs and SMEs, and describe how franchising and licensing can contribute to those strategies.Answer: An MNE is a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. Although such firms employ a range of foreign market entry strategies, MNEs are best known for their foreign direct investment (FDI) activities. They operate in multiple countries, especially in Asia, Europe, and North America, by setting up production plants, marketing subsidiaries, and regional headquarters.

Another type of focal firm that initiates cross-border business transactions is the SME. As defined in Canada and the United States, SMEs are manufacturers or service providers with fewer than 500 employees (in the European Union and numerous other countries, they are defined as having fewer than 250 employees). Being smaller organizations, SMEs are constrained by limited financial and human resources. This explains why they usually choose exporting as their main strategy for entering foreign markets. Their limited resources prevent them from undertaking FDI, an expensive entry mode.

Both MNEs and SMEs often rely on contractual relationships such as franchising and licensing. A licensor is a firm that enters into a contractual agreement with a foreign partner to allow the partner the right to use certain intellectual property for a specified period of time in exchange for royalties or other compensation. A franchisor, on the other hand, is a firm that grants another the right to use an entire business system in exchange for fees, royalties, or other forms of compensation. A foreign market entry strategy refers to the manner in which the focal firm internationalizes, whether through exporting, importing, licensing, or FDI. The type of entry mode depends on the nature of the business as well as the nature of the focal firm, its products, and goals. When the nature of business is dealing in intangibles, such as professional services, the focal firm may enter into agency relationships with a foreign partner. This is common among banks, advertising agencies, and market research firms. Licensing and franchising are common in the international transfer of intangibles. A franchisor makes a contract with a foreign franchisee; a supplier of expertise makes a contract with a foreign client, and so forth.Difficulty: HardSkill: SynthesisObjective: 3-3, 3-4AACSB: Dynamics of the global economy

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96) In a short essay, identify the services provided by distribution channel intermediaries for focal firms. Why do exporters rely on intermediaries?Answer: Distribution channel intermediaries are physical distribution and marketing service providers in the value chain for focal firms. They move products and services in the home country and abroad, and perform key downstream functions in the target market on behalf of focal firms, including promotion, sales, and customer service. They may organize transportation of goods and offer various logistics services such as warehousing and customer support. Intermediaries are of many different types, ranging from large international companies to highly specialized, small operations.

The intermediary's intimate knowledge, contacts, and services in the local market can provide a strong support system for exporters that are inexperienced in international business or too small to undertake market-based activities themselves. Most intermediaries are based in the exporter's target market. They provide a multitude of services, including market research, appointing local agents or commission representatives, exhibiting products at trade shows, arranging local transportation for cargo, and clearing products through customs. Intermediaries also orchestrate local marketing activities, including product adaptation, advertising, selling, and after-sales service. Many intermediaries finance sales and extend credit, facilitating prompter payment to the exporter. In short, intermediaries based in the foreign market can function like the exporter's local partner, handling all needed local business functions. Difficulty: ModerateSkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

97) In a short essay, describe the intermediary functions of agents and manufacturer's representatives. How are the two intermediaries similar? Answer: An agent is an intermediary (often an individual or a small firm) that handles orders to buy and sell commodities, products, and services in international business transactions for a commission. Also known as a broker, an agent may act for either buyer or seller but does not assume title or ownership of the goods. The agent brings buyers and sellers together. Agents are common in the international trade of commodities, especially agricultural goods and base minerals. In the services sector, agents often transact sales of insurance and securities.

A manufacturer's representative is an intermediary contracted by the exporter to represent and sell its merchandise or services in a designated country or territory. In essence, they act as contracted sales personnel in a designated target market on behalf of the exporter, but usually with broad powers and autonomy. Manufacturer's representatives may handle various noncompetitive, complementary lines of products or services.

Neither agents nor manufacturer's representatives take title to the goods they represent, and they are both usually compensated with a commission. Difficulty: ModerateSkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy

98) In a short essay, discuss the impact of the Internet on traditional intermediaries and on retail

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businesses. Provide examples of retailers who have embraced the new technology and discuss how the Internet has affected their business. Answer: The Internet has triggered much disintermediation, the elimination of traditional intermediaries. Some focal firms now use the Internet to sell products directly to customers rather than going through traditional wholesale and retail channels. By eliminating traditional intermediaries, companies can sell their products cheaper and faster. This benefits SMEs in particular because they typically have limited resources for international operations.

Many traditional retailers established s or link with online service providers to create an electronic presence. The electronic sites of stores like Tesco and Walmart complement existing physical distribution infrastructure and bring more customers into retail outlets. Walmart and Tesco use the web to test the market for new products before offering them in their stores. Difficulty: EasySkill: ConceptObjective: 3-5AACSB: Dynamics of the global economy; Use of information technology

99) In a short essay, describe the role of a logistics service provider, and explain how it contributes to the distribution and facilitation of international trade.Answer: One category of participant in international business is facilitators, independent individuals or firms that assist the internationalization and foreign operations of focal firms and make it possible for transactions to occur efficiently, smoothly, and in a timely manner.

An important facilitator of international trade is the logistics service provider, a transportation specialist that arranges for physical distribution and storage of products on behalf of focal firms, also controlling information between the point of origin and the point of consumption. Companies such as DHL, FedEx, UPS, and TNT provide cost effective means for delivering cargo anywhere in the world. They also offer traditional distributor functions such as warehousing, inventory management, and order tracking.

In addition to being an important facilitator, logistics service providers are a part of the distribution chain. Distribution channel intermediaries are physical distribution and marketing service providers in the value chain for focal firms. They move products and services in the home country and abroad and perform key downstream functions in the target market on behalf of focal firms, including advertising, sales, and customer service. They may organize transportation of goods and offer various logistics services such as warehousing and customer support.Difficulty: HardSkill: SynthesisObjective: 3-5, 3-6AACSB: Dynamics of the global economy

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100) In a short essay, discuss how both commercial banks and central banks participate in international business. What are sovereign wealth funds?Answer: Various players facilitate the financial operations of international business. Commercial banks make possible the exchange of foreign currencies and provide financing to buyers and sellers who usually require credit to finance transactions. The process of getting paid often takes longer in international than in domestic transactions, so a focal firm may need a loan from a commercial bank. Commercial banks can also transfer funds to individuals or banks abroad; provide introduction letters and letters of credit to travelers; supply credit information on potential representatives or foreign buyers; and collect foreign invoices, drafts, and other foreign receivables. Within each country, large banks in major cities maintain correspondent relationships with smaller banks spread around the nation or the world or operate their own foreign branches, thus providing a direct channel to foreign customers.

Central banks are the monetary authorities in each country that issue currency and regulate national money supplies. Australia, Canada, China, Indonesia, the United States, and numerous European countries cut bank interest rates and injected billions into national money supplies. The European Central Bank devised new banking regulations with the goal of averting future crises. At the G-20 Summit in London in 2009, heads of state announced a range of synchronized policy initiatives intended to revive the global economy, stimulate employment, reform national financial systems, and improve global institutions like the International Monetary Fund. At the G-20 Summit in 2011, officials announced a new round of regulations on certain categories of international portfolio investments. Officials from various countries coordinated efforts to restore international growth by providing more credit and liquidity in world banking systems. Several governments advocated creating a new, global currency to replace the U.S. dollar as the favored currency in international business.

Governments participate in international business by investing in other economies. The trend is best exemplified by the sovereign wealth funds (SWFs), state-owned investment funds that undertake systematic, global investment activities to generate income or to achieve policy objectives, such as reviving a collapsed economy.Difficulty: HardSkill: SynthesisObjective: 3-6, 3-7AACSB: Dynamics of the global economy

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