Chapter 8

Question 1

Global marketers have to make a multitude of decisions regarding the entry mode which may include:

Answer 1

1. the target product/market
2. the goals of the target markets
3. the mode of entry
4. The time of entry
5. A marketing-mix plan
6. A control system to check the performance in the entered markets

Question 2

A crucial step in developing a global expansion strategy in the selection of potential target market is the entry decision process.

Answer 2

Target Market Selection

Question 3

Initial screening procedure include:

Answer 3

1. Select indicators and collect data. 2. Determine importance of country indicators.
2. Rate the countries in the pool on each indicator.
3. Compute overall score for each country.

Question 4

is the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.

Answer 4

Entry Mode

Question 5

Decision Criteria for the mode entry

Answer 5

Market size and growth
Risks
Government Regulation
Competitive Environment
Local Infrastructure
Company Objectives
Need for control
Internal resources, assets and capabilities
Transaction Cost

Question 6

The most common method of buying and selling goods internationally

Answer 6

Exporting and Importing

Question 7

Types of Exporting

Answer 7

1. Direct Exporting
2. Indirect Exporting
3. Cooperative Exporting

Question 8

Why companies Export?

Answer 8

1. Gain Experience
2. Expand Sales
3. Diversify Sales

Question 9

Advantage of Exports

Answer 9

1. Avoids cost of establishing manufacturing operations
2. May help achieve experience curve and location economies

Question 10

Disadvantages of Exports

Answer 10

1. May compete with low cost location manufacturers
2. Possible high transportation cost
3. Tariff Barriers
4. Possible lack of control over marketing reps.

Question 11

Developing an export strategy

Answer 11

STEP 1: Identify a potential market STEP 2: Match needs to abilities
STEP 3: Initiate meetings
STEP 4: Commit resources

Question 12

practice by which a company sells its products directly to buyers in the target market. Typically, these companies rely on either local sales representatives or distributors.

Answer 12

Direct Exporting

Question 13

(whether an individual or an organization) represents only its own company’s products, not those of other companies.

Answer 13

Sales Representative

Question 14

promote those products in many ways, such as by attending trade fairs and making personal visits to local retailers and wholesalers.

Answer 14

Sales Representatives

Question 15

who take ownership of the merchandise when it enters their country. As owners of the products, they accept all the risks associated with generating local sales.

They sell either to retailers and wholesalers or to end users through their own channels of distribution.

Answer 15

Distributors

Question 16

It occurs when a company sell its products to intermediaries who then resell to buyers in a target market.

Answer 16

Indirect Exporting

Question 17

There are several types of intermediaries, the most common include:

Answer 17

agents
export management companies (EMC) and export trading companies (ETC).

Question 18

Individuals or organizations that represent one or more indirect exporters in a target market

Answer 18

Agents

Question 19

typically receive compensation in the form of commission on the value of sales.

Answer 19

Agents

Question 20

A company that exports products on behalf of an indirect exporter.

Answer 20

Export Management Companies

Question 21

operates contractually, either as an agent (being paid through commissions based on the value of sales) or as a distributor (taking ownership of the merchandise and earning a prof its from its resale.

Answer 21

EMC

Question 22

A company that provides services to indirect exporters in addition to the activities directly related to client’s exporting activities.

Answer 22

Export Trading Companies

Question 23

EMC vs ETC

Answer 23

Whereas an EMC is restricted to export related activities, and ETC assists its clients by providing import, export, and counter trade services; developing and expanding distribution channels; providing storage facilities; financing trading and investment projects; and even manufacturing products.

Question 24

Selling goods and services that are paid for, in whole or in part, with other services is called

Answer 24

Countertrade

Question 25

Types of Countertrade

Answer 25

1. Buyback 2. Barter 3. Counterpurchase 4. Offset 5. Switch trading

Question 26

is the exchange of goods and services directly for other goods and services without the use of money. It is the oldest form of countertrade.

Answer 26

Barter

Question 27

is the sale of goods and services to a country that promises to make future purchase of as specific product from that country. This type of agreement is designed to allow country to earn back some currency that it paid for original imports.

Answer 27

Counterpurchase

Question 28

is an agreement that a company will offset a hard-currency sale to a nation by making hardcurrency purchase of an unspecified product from the nation in the future. It differs from a counterpurchase in that this type does not specify the type of product that must be purchased, just the amount that will be spent. Such an arrangement gives a business greater freedom in fulfilling its end of a countertrade deal.

Answer 28

Offset

Question 29

is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.

Answer 29

Switch Trading

Question 30

is the export of industrial equipment in return for products produced by that equipment. This practice usually typif ies long-term relationships between companies involved.

Answer 30

Buyback

Question 31

Contractual entry modes

Answer 31

1. Licensing 2. Franchising 3. Management Contracts 4. Turnkey projects

Question 32

is a contractual entry mode in which a company that owns intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time.

Answer 32

Licensing

Question 33

is the party that receives a license.

Answer 33

Licensee

Question 34

party that grants the license. 

Answer 34

Licensor

Question 35

Advantage of licensing

Answer 35

-Low Financial Risk -Low-cost ways to assess market potential -Avoid tariffs, NTBs, restrictions on foreign investment - licensee provides knowledge of local markets

Question 36

Disadvantage of Licensing

Answer 36

-Limited Market Opportunities/ Profits - Dependence on Licensee - Potential conflicts with Licensee - Possibility of creating future competitor

Question 37

 is an arrangement in which the franchisor gives the franchisee the right to distribute and sell the franchisor’s goods or services and use its business name and business model for a specified period, and possibly covering a geographical area.

Answer 37

Franchising

Question 38

is the owner of the business that provides the product/service.

Answer 38

The franchisor

Question 39

the person who receives the rights to use the franchisor’s business name, model, etc.

Answer 39

franchisee

Question 40

Advantage of Franchising

Answer 40

Less Risk Training and Support Brand Recognition Access to Funding

Question 41

Disadvantage of Franchising

Answer 41

Cost Lack of Control Negative Halo Effect Growth Challenges Restriction on Sale Poor Execution

Question 42

one company supplies another with managerial expertise for a specific period of time.

Answer 42

Management Contract

Question 43

Such contracts are commonly found in the public utilities sectors of developed and emerging markets

Answer 43

Management Contracts

Question 44

Two types of knowledge can be transferred through management contracts

Answer 44

(1) the specialized technical knowledge of managers and (2) the business management skills of general managers.

Question 45

When one company designs, constructs, and tests a production facility for a client, the agreement is called .

Answer 45

a turnkey (build-operate-transfer) project

Question 46

derived from the understanding that the client, who normally pays a f lat fee for the project, is expected to do nothing more than simply “turn a key” to get the facility operating

Answer 46

Turnkey Project

Question 47

is the outsourcing of part of the manufacturing process of a product to a third-party.

Answer 47

Contract Manufacturing

Question 48

an outsourcing of certain production activities that were previously performed by the manufacturer to a third-party.

Answer 48

Contract Manufacturing

Question 49

Pros to Contract Manufacturing

Answer 49

1. Low Financial Risk 2. Minimize Resources devoted to manufacturing 3. Focus firm's resources on other elements of the value chains

Question 50

Cons to Contract Manufacturing

Answer 50

1. Reduce Control Quality 2. Reduce Learning potential 3. Potential public relations problems

Question 51

entail direct investment in plant and equipment in a country coupled with ongoing involvement in the local operation.

Answer 51

Investment Entry Modes

Question 52

The three common forms of i investment entry:

Answer 52

wholly owned subsidiaries, joint ventures, and strategic alliance.

Question 53

is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

Answer 53

A joint venture (JV)

Question 54

Joint Venture Configurations

Answer 54

Forward Integration Joint Venture - Backward Integration Joint Venture - Buyback Joint Venture - Multistage Joint Venture

Question 55

In this type of joint venture, the parties choose to invest together in downstream business activities further along in the “value system” that are normally performed by others.

Answer 55

Forward Integration JV

Question 56

This type of joint venture signals a move by each company into upstream business activities earlier in the value system that are normally performed by others.

Answer 56

Backward Integration JV

Question 57

is formed when each partner requires the same component in its production process. It might be formed when a production facility of a certain minimum size is needed to achieve economies of scale but neither partner alone enjoys the demand to warrant building it.

Answer 57

A buyback joint venture

Question 58

often results when one company produces a good service required by another.

Answer 58

A multistage joint venture

Question 59

Advantages of JV

Answer 59

1. Benefit from local partner's knowledge 2. Shared cost/risk with partner 3. Reduced political risk

Question 60

Disdvantages of JV

Answer 60

1. Risk of giving control of technology to partner 2. May not realize experience curve or location economies 3. Shared ownership can lead to conflict

Question 61

is a facility entirely owned and controlled by a single parent.

Answer 61

A wholly owned subsidiary

Question 62

Companies can establish a wholly owned subsidiary either by

Answer 62

(1)forming a new company and constructing entirely new facilities ( such as factories, offices and equipment) or (2) by purchasing an existing company and internalizing its facilities.

Question 63

Advantage of Wholly Owned Subsidiaries

Answer 63

Managers have complete control over day-to-day operations in the target market and access to valuable technologies, processes, and other intangible properties within the subsidiary. A wholly owned subsidiary is a good mode of entry when a company wants to coordinate the activities of all its national subsidiaries.

Question 64

Disdvantage of Wholly Owned Subsidiaries

Answer 64

They can be expensive undertakings because companies must typically finance investments internally or raise funds in financial markets. Risk exposure is high because a wholly owned subsidiary requires substantial company resources.

Question 65

is a company that belongs to another company, which is usually referred to as the parent company or the holding company.

Answer 65

subsidiary

Question 66

 is used to describe the relationship between two entities wherein one owns less than a majority stake in the other's stock.

Answer 66

 affiliate

Question 67

is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence

Answer 67

strategic alliance

Question 68

Advantages of Strategic Alliance

Answer 68

1. Speed up the entry into a new market: 2. Enhance sales: 3.  Learn new skills and technology: 4. Divided fixed costs and resources: 5. Innovative products and services: 6. Enhanced distribution channels: 7. Easy to get into the international market: 8. Builds the image of the brand:

Question 69

Disadvantages of Strategic Alliance

Answer 69

1. Poor Management of the business alliances: 2. Poor Communication: 3. Benefits are unequal: 4. The risk to reputation: 5. Barriers in work culture and language: 6. Risks of conflicts: 7. Vulnerability: 8. Legal issues:

Question 70

Possible exit strategies

Answer 70

Liquidation or walkaway Family succession Selling the business Taking the company public Bankruptcy