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Global Marketing, 6e (Keegan/Green)

Chapter 9 Global Market Entry Strategies: Licensing, Investment, and Strategic Alliances
1) Companies like Bill Blass, Hugo Boss, and other global design icons typically generate more
revenue from licensing deals for jeans, fragrances, and watches than from their high-priced
couture lines.
Answer: TRUE
Diff: 2
Page Ref: 265-267
AACSB: Reflective Thinking
2) Licensing is a contractual agreement whereby one company (the licensor) makes a legally
protected asset available to another company (the licensee) in exchange for royalties, license
fees, or some other form of compensation.
Answer: TRUE
Diff: 1
Page Ref: 265
3) Licensing enables companies to circumvent tariffs, quotas, or similar export barriers.
Answer: TRUE
Diff: 2
Page Ref: 266
AACSB: Reflective Thinking
4) Licensing agreements offer unlimited market control.
Answer: FALSE
Diff: 2
Page Ref: 266
AACSB: Reflective Thinking
5) Apple's failure to license its technology in the pre-Windows era arguably cost the company
tens of billions of dollars.
Answer: TRUE
Diff: 2
Page Ref: 267
6) Companies may find that the upfront easy money obtained from licensing turns out to be a
very expensive source of revenue.
Answer: TRUE
Diff: 2
Page Ref: 267
AACSB: Reflective Thinking
7) Sony was the first company to manufacture and market a transistor radio.
Answer: FALSE
Diff: 2
Page Ref: 267
AACSB: Reflective Thinking
8) Sony's worldwide success in manufacturing and marketing transistor radios in the 1950s
stemmed from its joint venture arrangement with an American corporation.
Answer: TRUE
Diff: 1
Page Ref: 267
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9) One of the cornerstones of Apple Computers' business strategy has been licensing its famed
operating system.
Answer: TRUE
Diff: 2
Page Ref: 267
AACSB: Reflective Thinking
10) Starbucks' relentless pursuit of new market opportunities in Germany and other countries
illustrates the fact that most firms face a limited range of strategy alternatives.
Answer: FALSE
Diff: 1
Page Ref: 265
AACSB: Reflective Thinking
11) A company that emphasizes direct investment as a market entry strategy is subject to a higher
degree of political risk than a company that relies heavily on exporting.
Answer: TRUE
Diff: 1
Page Ref: 265
AACSB: Reflective Thinking
12) Franchising is a variation of licensing strategy in which there is a contract between the parent
company franchiser and a franchisee that allows the franchisee to operate a business developed
by the franchiser in return for all rights for operations.
Answer: FALSE
Diff: 2
Page Ref: 267
AACSB: Reflective Thinking
13) In China, regulations require foreign franchisers to directly own two or more stores for a
minimum of one year before franchising.
Answer: TRUE
Diff: 1
Page Ref: 269
AACSB: Analytic Skills
14) McDonald's has the largest number of overseas sites according to a listing in the Wall Street
Journal (2006).
Answer: FALSE
Diff: 1
Page Ref: 268
15) Franchising in a global market is actually a market entry strategy that is typically executed
with less localization than licensing.
Answer: TRUE
Diff: 2
Page Ref: 269
AACSB: Reflective Thinking
16) Foreign direct investment figures reflect investment flows out of the home country as
companies invest in or acquire plants, equipment, or other assets.
Answer: TRUE
Diff: 2
Page Ref: 269-270
AACSB: Reflective Thinking
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17) Foreign investment can take the form of outright acquisition.


Answer: TRUE
Diff: 2
Page Ref: 270
AACSB: Reflective Thinking
18) A joint venture with a local partner represents another form of strategy that is similar to
exporting and licensing.
Answer: FALSE
Diff: 2
Page Ref: 270-271
AACSB: Reflective Thinking
19) A lesson that can be learned from Anheuser-Busch's experience in Japan is that it is better to
give control to a local partner via a licensing agreement rather than making a major investment.
Answer: TRUE
Diff: 2
Page Ref: 271-272
AACSB: Analytic Skills
20) The joint venture between Corning Glass and Mexican manufacturer Vitro failed primarily
due to conflicts arising out of cultural differences.
Answer: TRUE
Diff: 2
Page Ref: 272
21) GM and South Korea's Daewoo Group formed a joint venture which helped Daewoo
improve its competitiveness. The venture was terminated since Daewoo prevented the import of
GM cars to Korea.
Answer: FALSE
Diff: 2
Page Ref: 272-273
22) An example of a successful joint venture is Ericsson's cell phone alliance with Sony.
Answer: TRUE
Diff: 2
Page Ref: 273
AACSB: Analytic Skills
23) "Greenfield investment" is a phrase sometimes used interchangeably with the phrase
"licensing agreement."
Answer: FALSE
Diff: 2
Page Ref: 274-275
AACSB: Reflective Thinking
24) In 2008 the largest merger and acquisition deal in the pharmaceutical industry, Roche's
acquisition of Genentech, is an example of an equity stake.
Answer: FALSE
Diff: 2
Page Ref: 276

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25) Companies may move from licensing or joint venture strategies to ownership in order to
achieve faster expansion in a market, greater control, or higher profits.
Answer: TRUE
Diff: 2
Page Ref: 274
AACSB: Reflective Thinking
26) Monsanto and the German pharmaceutical company, Bayer AG, recently entered a joint
venture.
Answer: FALSE
Diff: 2
Page Ref: 274
AACSB: Reflective Thinking
27) If government restrictions prevent majority or 100 percent ownership by foreign companies,
the investing company will have to settle for a minority equity stake.
Answer: TRUE
Diff: 2
Page Ref: 274
AACSB: Reflective Thinking
28) Japan's Fuji Photo Film Company invested hundreds of millions of dollars in the United
States after the U.S. government ruled that Fuji was guilty of dumping.
Answer: TRUE
Diff: 2
Page Ref: 275
AACSB: Reflective Thinking
29) Following its bankruptcy filing in 2009, GM divested itself of several non-core businesses
and brands, including Saab.
Answer: TRUE
Diff: 2
Page Ref: 276
AACSB: Reflective Thinking
30) Borden ended licensing and joint venture arrangements for branded food products in Japan
and set up its own production, distribution, and marketing capabilities for dairy products. For
non-food products, Borden has maintained joint venture relationships with Japanese partners in
flexible packaging and foundry materials. All this indicates that strategy preference may change
over time.
Answer: TRUE
Diff: 2
Page Ref: 277
AACSB: Analytic Skills
31) To succeed in global markets, firms can rely exclusively on the technological superiority or
core competence which made them successful in the past.
Answer: FALSE
Diff: 2
Page Ref: 279
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32) Sony entered into a strategic partnership with Samsung in order to produce flat-panel TV
screens due to the high product development costs.
Answer: TRUE
Diff: 2
Page Ref: 280
AACSB: Reflective Thinking
33) Some companies prefer global strategic partnerships to joint ventures because, with a GSP,
there is less risk of strengthening a competitor.
Answer: FALSE
Diff: 2
Page Ref: 279-280
AACSB: Reflective Thinking
34) The CFM partnership between General Electric (USA) and Snecma (France) is a notable
example of a successful GSP.
Answer: TRUE
Diff: 2
Page Ref: 283
AACSB: Reflective Thinking
35) In Japan, a horizontal "keir etsu" is a form of business alliance between companies in a
particular group headed by a trading company, bank, or other cash-rich entity.
Answer: TRUE
Diff: 2
Page Ref: 286-289
AACSB: Reflective Thinking
36) Because "keir etsu" relationships are crossing the Pacific and directly affecting the American
market, U.S. companies have reason to be concerned.
Answer: TRUE
Diff: 2
Page Ref: 286-289
AACSB: Reflective Thinking
37) The South Korean government has recently abandoned the "chaebol" industry structure in
favor of the "keiretsu" structure.
Answer: FALSE
Diff: 1
Page Ref: 286-289
38) "Digital keiretsu" refers to alliances between companies in several industries that are
undergoing transformation and convergence.
Answer: TRUE
Diff: 2
Page Ref: 286-289
AACSB: Reflective Thinking
39) In a country and market concentration strategy, a company serves many markets in a few
countries.
Answer: FALSE
Diff: 2
Page Ref: 290-291
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40) In country and market diversification strategy, a company seeks out the world market for a
product.
Answer: FALSE
Diff: 2
Page Ref: 290-291
AACSB: Reflective Thinking
41) For Starbucks and other companies whose business models include a service component it is
not recommended that they use this method for going global.
A) joint ventures
B) licensing
C) 100 percent ownership
D) exporting
E) franchising
Answer: D
Diff: 2
Page Ref: 265
AACSB: Reflective Thinking
42) Licensing as a market entry mode has several disadvantages and opportunity costs, which
does not include:
A) limited market control.
B) agreement may have short life.
C) leveraging and exploiting by licensee.
D) similar product or technology development by licensee.
E) adaptations by licensee to fit local tastes.
Answer: E
Diff: 2
Page Ref: 265-267
AACSB: Reflective Thinking
43) In order to prevent a licensor-competitor from gaining unilateral benefit, licensing
agreements should provide for:
A) contract manufacturing.
B) franchising.
C) cross licensing.
D) strategic decision-making.
E) adaptation for local tastes.
Answer: C
Diff: 2
Page Ref: 267
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44) ________ represent(s) a market entry strategy whereby one company permits a foreign
company to make use of its patents, know-how, technology, company name, or other intangible
assets in return for a royalty payment.
A) Joint ventures
B) One hundred percent ownership
C) Licensing
D) Exporting
E) Global strategic alliances
Answer: C
Diff: 2
Page Ref: 265-267
AACSB: Reflective Thinking
45) Pollo Campero, a chicken restaurant chain based in Central America is using the following
method for expanding operation in the United States.
A) joint ventures
B) licensing
C) exporting
D) franchising
E) acquisition
Answer: D
Diff: 2
Page Ref: 267
AACSB: Reflective Thinking
46) In the mid-1990s, NCR signed an agreement allowing two South Korean companies,
Samsung and Hyundai, to build computers based on NCR's "parallel processing" technology.
Samsung and Hyundai can sell the new computers everywhere except the U.S., Western Europe,
Japan, and Australia. This arrangement is typical of which entry strategy?
A) joint ventures
B) licensing
C) 100% ownership
D) exporting
E) global strategic alliances
Answer: B
Diff: 2
Page Ref: 265-267
AACSB: Reflective Thinking
47) The specialty retailing industry, as well as the fast-food industry, favors ________ for global
growth:
A) licensing
B) investment
C) franchising
D) joint ventures
E) strategic alliances
Answer: C
Diff: 2
Page Ref: 269
AACSB: Reflective Thinking
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48) The agreements that allow McDonald's franchisees around the globe to use McDonald's
trademarked name and menu items represent, in essence, which form of market entry?
A) joint ventures
B) franchising
C) 100% ownership
D) exporting
E) acquisition
Answer: B
Diff: 2
Page Ref: 269
AACSB: Reflective Thinking
49) McDonald's success in franchising in global markets can be attributed to several factors
which does not include:
A) a well known global brand name.
B) a business system that can be easily replicated.
C) local market knowledge.
D) cross licensing.
E) granting franchisees leeway to tailor menu offerings to suit local tastes.
Answer: D
Diff: 3
Page Ref: 269
AACSB: Analytic Skills
50) Based on rankings by the Wall Street Journal (2006) the company which has the most
overseas franchised sites is:
A) Domino's Pizza.
B) Subway.
C) 7-Eleven.
D) McDonald's.
E) Yum Brands.
Answer: C
Diff: 2
Page Ref: 268
51) Honda has invested $550 million in building an assembly plant in Greensburg, Indiana;
IKEA spent nearly $2 billion to open stores in Russia; and South Korea's LG Electronics
purchased a 58% stake in Zenith Electronics. All of these are examples of:
A) acquisition.
B) licensing.
C) franchising.
D) FDI.
E) exporting.
Answer: D
Diff: 2
Page Ref: 269-270
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52) Starbucks has been successful in various global markets; however, it has to face tough
competition in several countries. In China the challenge comes from the traditional Chinese tea
house. Starbucks found that the Chinese consumers have different tastes and behavior patterns
which include all of the following except:
A) Chinese consumers prefer drinking in the cafes.
B) Chinese consumers prefer carry-out.
C) Chinese consumers go to cafes to socialize.
D) store traffic is heaviest in the afternoon.
E) Chinese need to be educated about coffee.
Answer: B
Diff: 2
Page Ref: 264-265
AACSB: Reflective Thinking
53) Which of the following does not fit into the sequence of experiences Anheuser-Busch had in
Japan?
A) Anheuser-Busch first entered Japan by means of a licensing agreement with Suntory, the
smallest brewery in Japan.
B) Anheuser-Busch created a joint venture with Kirin Brewery, the market leader.
C) Anheuser-Busch dissolved the joint venture with Kirin Brewery.
D) Anheuser-Busch entered into a joint venture with Kirin Brewery.
E) Anheuser-Busch reverted to a licensing agreement with Kirin Brewery.
Answer: D
Diff: 2
Page Ref: 270-271
AACSB: Reflective Thinking
54) GM executives are looking for a joint venture with AvtoVAZ, the largest carmaker in:
A) Germany.
B) Lithuania.
C) Russia.
D) Kazakhstan.
E) Turkey.
Answer: C
Diff: 2
Page Ref: 271
AACSB: Reflective Thinking
55) In a joint venture with Russian manufacturer AvtoVAZ, GM executives were planning to
have a stripped-down reengineered car based on its Opel model. However, the market research
revealed that a "Made-in-Russia" car would only be acceptable if:
A) it has a German name.
B) it sported a very low sticker price.
C) it has an American name.
D) it has a very high sticker price.
E) it has a Russian name.
Answer: B
Diff: 2
Page Ref: 271
AACSB: Reflective Thinking
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56) Joint ventures have proven successful for many companies. However, there are certain
disadvantages which does not include:
A) risk sharing.
B) market knowledge.
C) achieve synergy.
D) control and coordination.
E) market entry.
Answer: D
Diff: 2
Page Ref: 270-272
AACSB: Reflective Thinking
57) Sony Ericsson is a ________ Sweden's Telefonaktiebolaget LM and Japanese consumer
electronics giant Sony Corporation.
A) a joint venture between
B) licensor for
C) licensee for
D) franchisee for
E) franchisor for
Answer: A
Diff: 2
Page Ref: 273
AACSB: Reflective Thinking
58) The president of a Mexican company recently remarked, "Business in Mexico is done on a
consensus basis, very genteel and sometimes slow by U.S. standards." A few months later, the
Mexican company and its U.S. joint venture partner parted company. Judging by the president's
remark, one important reason for the "divorce" was:
A) failure of one partner to live up to the terms of the contract.
B) cultural differences.
C) the cancellation of NAFTA.
D) the U.S. government's insistence on quick negotiations.
E) the language barrier.
Answer: B
Diff: 2
Page Ref: 272
AACSB: Multicultural and Diversity
59) As a general rule, the Chinese government allows foreign companies to participate in its
market only if those companies agree to establish operations with local Chinese enterprises.
Which market entry mode would be the appropriate choice under these circumstances?
A) acquisition
B) licensing
C) joint venture
D) exporting
E) franchising
Answer: C
Diff: 2
Page Ref: 272-273
AACSB: Reflective Thinking
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60) Which automaker currently has a joint venture with Hindustan Motors (India)?
A) Volkswagen
B) Ford
C) GM
D) Renault
E) Mazda
Answer: C
Diff: 3
Page Ref: 272
AACSB: Reflective Thinking
61) Which of the following currently owns a 70% stake in Skoda, the Czech automaker?
A) GM
B) Volkswagen
C) Ford
D) DaimlerChrysler
E) Renault
Answer: B
Diff: 3
Page Ref: 275
62) Which automaker owns an equity stake in Japan's Nissan Motor?
A) GM
B) Volkswagen
C) Ford
D) DaimlerChrysler
E) Renault
Answer: E
Diff: 3
Page Ref: 275
63) Gerber's woes in France illustrate some of the disadvantages of which market entry strategy?
A) joint ventures
B) licensing
C) 100% ownership
D) exporting
E) franchising
Answer: B
Diff: 2
Page Ref: 277
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64) ________ is a market entry mode that traditionally has been used by companies that, for one
reason or another, needed a partner to manufacture products for sale in the partner's home
country market.
A) Acquisition
B) Strategic alliance
C) Joint venture
D) Exporting
E) Licensing
Answer: C
Diff: 2
Page Ref: 277
AACSB: Reflective Thinking
65) Which of the following is not a characteristic of global strategic alliances?
A) Participants maintain independence outside the framework of alliance.
B) Participants share benefits of the alliance.
C) Participants share control over the performance of the assigned tasks.
D) Participants make ongoing contributions in technology, products, and other areas.
E) Participants agree not to compete in areas unrelated to the alliance.
Answer: E
Diff: 2
Page Ref: 279-281
AACSB: Reflective Thinking
66) Which of the following is not a characteristic of global strategic alliances?
A) Participants maintain independence outside the framework of alliance.
B) Participants share benefits as well as control.
C) Participants make ongoing contributions in technology, products, and other areas.
D) Participants focus on an individual country market.
E) Participants share benefits of the alliance.
Answer: D
Diff: 2
Page Ref: 279-281
AACSB: Reflective Thinking
67) The terminology used to describe the new forms of cooperation strategies varies widely and
the phrases used include all of the following except:
A) collaborative agreements.
B) strategic alliances.
C) global strategic partnerships.
D) strategic international alliances.
E) Greenfield operations.
Answer: E
Diff: 2
Page Ref: 279
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68) GSPs (Global Strategic Partnerships) are attractive for several reasons which does not
include:
A) sharing high product development costs.
B) sharing technological developments.
C) securing access to national and regional markets.
D) continuous transfer of technology between partners.
E) focus on a single national market or a specific problem.
Answer: E
Diff: 2
Page Ref: 279-281
AACSB: Reflective Thinking
69) Which of the following does not fit in with the factors that should be considered by
companies forming GSP's?
A) Partners are competitors to each other.
B) Harmony is not the most important measure of success.
C) All employees and managers must understand where cooperation ends and competitive
compromise begins.
D) :Learning from partners is critically important.
E) none of the above
Answer: E
Diff: 2
Page Ref: 279-281
AACSB: Reflective Thinking
70) "Discussion and consensus must be the norms. Partners must be viewed as equals." When
applied to global strategic partnerships, this statement indicates the importance of which factor?
A) mission
B) strategy
C) governance
D) culture
E) organization
Answer: C
Diff: 2
Page Ref: 281
AACSB: Reflective Thinking
71) "Successful GSPs create win-win situations, where participants pursue objectives on the
basis of mutual advantage." When applied to global strategic partnerships, this statement
indicates the importance of which factor?
A) mission
B) strategy
C) governance
D) culture
E) organization
Answer: A
Diff: 2
Page Ref: 281-282
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72) According to a 1991 report by McKinsey & Co. problems of alliances between Western and
Japanese firms were related to all of the following factors except:
A) objective levels of performance.
B) a feeling of mutual disillusionment.
C) difference in expectations.
D) balance between partners.
E) frictional loss.
Answer: A
Diff: 3
Page Ref: 282
AACSB: Analytic Skills
73) Boeing developed the wide bodied aircraft, the 777 with about ________ percent of the work
subcontracted out to Mitsubishi, Fuji, and Kawasaki.
A) 50
B) 25
C) 20
D) 60
E) 75
Answer: C
Diff: 3
Page Ref: 283
74) The success of CFM International (the strategic partnership between GE and Snecma) can be
attributed to which of the following?
A) compatibility of the partners
B) capability of the partners
C) commitment of the partners
D) all of the above
E) none of the above
Answer: D
Diff: 2
Page Ref: 283
AACSB: Reflective Thinking
75) A number of factors combine to make Russia an excellent location for an alliance which does
not include:
A) a well-educated workforce.
B) quality is important to Russian consumers.
C) abundance of supplies.
D) potential for economic growth.
E) potential for growth in service sector.
Answer: C
Diff: 2
Page Ref: 284-286
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76) Which of the following is NOT true of Japanese keiretsu?


A) promotes risk sharing
B) promotes long-term employment
C) ensures low prices for Japanese consumers
D) blocks foreign suppliers from the Japanese market
E) relationships are cemented by bank ownership
Answer: E
Diff: 3
Page Ref: 286-289
AACSB: Analytic Skills
77) Which of the following is true about Japanese keiretsu?
A) Toyota is a vertical keiretsu, Mitsubishi is a horizontal keiretsu.
B) Toyota is a horizontal keir etsu, Mitsubishi is a vertical keiretsu.
C) Toyota and Mitsubishi are both horizontal keiretsu.
D) Toyota and Mitsubishi are both vertical keiretsu.
E) none of the above
Answer: A
Diff: 3
Page Ref: 286-289
AACSB: Analytic Skills
78) Which of the following statements most accurately describes the extent to which GM and
Toyota outsource components?
A) GM and Toyota each outsource approximately 50 percent of their components.
B) Toyota outsources about 50 percent of its components; GM outsources about 75 percent.
C) GM outsources about 50 percent of its components; Toyota outsources about 75 percent.
D) Neither GM nor Toyota outsources a significant proportion of its components.
E) GM and Toyota each outsource approximately 25 percent of their components.
Answer: C
Diff: 3
Page Ref: 287-288
AACSB: Analytic Skills
79) The next stage in the evolution of the global strategic alliance is predicted to be in the form
of:
A) mergers and acquisition.
B) relationship enterprise.
C) franchising.
D) joint ventures.
E) keiretsu.
Answer: B
Diff: 2
Page Ref: 290
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80) Saab markets two luxury car models, both prized by drivers for their "quirkiness." Thirty
percent of Saab's sales come from the USA, with most of the rest from Western Europe. Which
strategy does Saab appear to be using?
A) country concentration/market segment concentration
B) country diversification/market segment concentration
C) country concentration/market segment diversification
D) country diversification/market segment diversification
E) none of the above
Answer: A
Diff: 2
Page Ref: 290-291
AACSB: Reflective Thinking
81) Walt Disney Company has successfully adapted licensing as a market entry mode in different
countries. What are the advantages of using licensing as entry mode?
Answer: Walt Disney Company generates nearly $ 15 billion in annual revenues from licensed
merchandise, thanks to the popularity of their theme parks, movies, and television shows, as well
as Mickey Mouse, Winnie the Pooh, and other popular characters which have gained familiarity
all over the world. Licensing is a contractual arrangement whereby one company (the licensor)
makes a legally protected asset available to another company (the licensee) in exchange for
royalties, license fees, or some other form of compensation. There are two key advantages
associated with licensing as a market entry mode. First of all, because the licensee is typically a
local business that will produce and market the goods or services on a local or regional basis,
companies can circumvent tariffs, quotas, or similar export barriers. Secondly, licensees are
granted considerable autonomy by the licensor to freely adapt the licensed goods to an extent to
suit the local tastes and preferences. Disney licenses trademarked cartoon characters, names and
logos to producers of clothing, toys, and watches for sale throughout the world. This allows
Disney to create synergies based on its core theme park, motion pictures, and television
businesses. Its licensees have considerable leeway to adapt colors, materials, or other design
elements that fit with the local tastes of a particular country or region.
Diff: 2
Page Ref: 265-267
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82) Nike provides technical specifications to a subcontractor or local manufacturer for its
products. What is this arrangement called and what are its major benefits and drawbacks?
Answer: This type of arrangement is referred to as "contract manufacturing." Nike, for example,
provides technical specifications of products to be manufactured to the subcontractor who then
oversees production. The licensing firm can specialize in product design and marketing, while
transferring responsibility for ownership of manufacturing facilities to contractors and
subcontractors. Other advantages include limited commitment of financial and managerial
resources and quick entry into target countries. This is especially helpful when the target market
is too small to justify full- scale investment. Also, there is the possible advantage of securing
labor and resources at less cost than in the licensors home country or manufacturing plant. One
disadvantage would be that the licensed companies may become subject to public scrutiny and
criticism for several reasons. Nike has to face this problem if workers in the contracted
companies are underpaid. Inhumane working conditions and hiring underage workers have also
been points of criticism by many governmental and private organizations. Violations of
sustainable business practices have also come under scrutiny.
Diff: 2
Page Ref: 267-269
AACSB: Reflective Thinking
83) McDonald's and other fast food restaurants have benefitted tremendously by using
franchising as a mode of entry into different countries. What are the benefits of franchising and
how does it differ from other modes of entry?
Answer: Franchising involves a contract between a parent company (franchiser) and a
franchisee that allows a franchisee to operate a business developed by the franchiser in return for
a fee and adherence to franchise-wide policies and practices. This definition is very similar to
that of licensing since franchising itself is another variation of licensing strategy. McDonald's is a
very good example of the success that can be achieved through franchising. It has great appeal to
local entrepreneurs who are very anxious to learn and apply franchising, which has been found to
be very successful in the United States. The specialty retailing industry favors franchising as a
market entry mode. Many of the famous American restaurant chains have used franchising to
enter and to develop in other countries. McDonald's has a well-known global brand name and a
business system that can be easily replicated in multiple country markets. It also provides it
franchisees considerable leeway to tailor restaurant interior designs and menu offerings to suit
country-specific preferences and tastes. Franchising is a market entry strategy that is typically
executed with less localization than licensing.
Diff: 2
Page Ref: 267-269
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84) Joint ventures are becoming very popular as entry mode into foreign markets. Why is this
strategy so attractive to companies interested in entering other markets in the world?
Answer: A joint venture with a local partner represents a more extensive form of participation in
foreign markets than either exporting or licensing. A joint venture is an entry strategy for a single
target country in which the partners share ownership of a newly created business entity. This
strategy is attractive for several reasons such as the sharing of risk. Sharing of risk is a very
important advantage when a company is entering a new and unfamiliar region. Also, by pursuing
joint venture entry strategies, a company can limit its financial risks as well as exposure to
political uncertainty. A company can also use the joint venture experience to learn about a new
market environment. Joint ventures also allow partners to achieve synergy by combining
different value chain strengths. One company may be helpful in providing knowledge about local
markets and availability of resources and the other company may have a brand name and well
established reputation in the market. Thus, there can be a complimentary effect by linking the
attributes of both the companies. Joint venture is recommended for companies which lack
enough resources or technical know-how. Also, in cases where the governmental policies restrict
the full ownership of the companies by foreign businesses, joint venture is the only option to
enter.
Diff: 2
Page Ref: 270-273
AACSB: Reflective Thinking
85) Companies like Anheuser-Busch, Corning Glass, and GM have learned a lot by using joint
venture as a mode of entry into a foreign market. Some of their experiences are not very positive.
What are the disadvantages of joint venturing?
Answer: Many companies have experienced difficulties, some serious, when working with
partners under joint venture agreement. Anheuser-Busch first entered the Japanese market in
order to cross the difficult barrier by entering into a licensing agreement with Suntory, the
smallest of the brewers in Japan. Although Budweiser became popular, it had a minuscule share
of the market. Anheuser-Busch then created a joint venture with Kirin Brewery, the market
leader with a 90% stake in the venture. Kirin's distribution channel was very helpful and
Anheuser-Busch was able to use some of Kirin's facilities. On the other hand, Kirin gained a lot
of knowledge about the beer market globally. The beer market did not increase substantially for
Anheuser-Busch and the joint venture was losing money. Finally, Anheuser-Busch decided to
dissolve the joint venture and reverted to a licensing agreement with Kirin. Thus, joint venture
does not work in all circumstances and at times licensing works as well. In order for the joint
venture relationship to work well both partners must share rewards as well as risks. The main
disadvantage associated with joint venture is that a company may incur very significant costs
associated with control and coordination issues that arise when working with partners in another
country. Another disadvantage is that of potential for conflict between partners. These often arise
out of cultural differences. Corning Glass and Vitro, Mexico's largest industrial manufacturer,
had a joint venture. Mexican managers viewed the Americans as too direct and aggressive,
whereas the American managers believed Mexicans took too much time to make important
decisions. Another disadvantage is that a dynamic joint venture partner can evolve as a stronger
competitor. GM and South Korea's Daewoo had joint venture to produce cars for the Korean
market. GM developed Daewoo's competitiveness and finally Daewoo terminated the venture
since their cars were not allowed for exportation. Thus, all the disadvantages have to be taken
into account when entering into a joint venture agreement.
Diff: 3
Page Ref: 272-273
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86) Why would any firm, whether global or otherwise, seek to collaborate with another firm, be
it local or foreign?
Answer: Recent changes in the political, economic, sociocultural, and technological
environments of the global firms have prompted the need for strategies that are more current
rather than the traditional strategies. Trade barriers are less; global markets are more accessible;
consumer needs and wants have changed; product life cycles have shortened; and new
communication technologies and trends have emerged. These factors may provide unprecedented
opportunities. However; there are strong strategic implications for the global organizations and
new challenges for the global marketer. All these converging environmental forces or changes
require different unprecedented global strategies that take into account collaborations which were
not thought of at any period of time. Today's competitive environment is described as turbulent,
dynamic, and unpredictable. Global firms are under intense pressure to respond and adapt
quickly. They have to pursue "entrepreneurial globalization" by developing unique and flexible
organizational capabilities, innovation, and updating global strategies that takes care of the
demands.
Diff: 2
Page Ref: 278-279
AACSB: Reflective Thinking
87) A true global strategic partnership is unique and different. Using the example of Sony's
strategic alliance with Samsung, discuss attributes that are needed for a fine working partnership.
Answer: A true global strategic partnership requires a mutual collaboration between partners.
There are five attributes that are described as important for this type of collaboration. (1) Two or
more companies should develop a joint long-term strategy aimed at achieving world leadership
by pursuing cost-leadership, differentiation, or a combination of two. Samsung and Sony are two
major companies jockeying for leadership in the global television market. Flat-panel TV market
is the newest market that has a great potential. (2) The relationship should be reciprocal with
each partner bringing in specific strengths that can prove to be mutually beneficial. Also, both
sides should be able to learn from each other. Samsung is the leader in the manufacturing
technology into world-class products. They can learn from Sony how the present technology can
be advanced. (3) The partners' vision and effort are truly global, extending beyond home
countries and the home regions to the rest of the world. Sony and Samsung are both global
companies that market global brands throughout the world. (4) The relationship should be
organized along horizontal not vertical lines. Also, continual transfer of resources laterally
between partners is required, with resource pooling representing norms. Both Sony and Samsung
are in direct contact with each other and there is good sharing of resources. (5) When competing
in markets excluded from the partnership, the participants retain their national and ideological
identities. Both Sony and Samsung are well established and have sufficient key products in the
world market that they will be able to retain their national and ideological identities as well as
competitive edge.
Diff: 2
Page Ref: 279-281
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88) Why are alliances between Western companies and Asian competitors so different if not
difficult? What are some of the concerns and how can those be addressed?
Answer: Western companies may find themselves to be at a disadvantage in GSPs with an Asian
competitor. To limit transparency, some companies involved in GSPs establish a "collaboration
section." This department is designed to serve as a gatekeeper through which requests for access
to people and information must be channeled. Unintended transfers are therefore guarded and
controlled. A study by McKinsey & Co. identified four common problem areas that have gone
wrong in alliances between Japanese and Western firms. The Japanese partner saw itself
emerging from the alliance as a leader in its business or building a new basis for the future,
whereas the Western partner sought relatively quick and risk-free financial returns. The second
area of concern related to the balance between partners. Each must contribute to the alliance and
each must depend on the other to a degree that justifies participation in the alliance. Another
common cause of problems was found to be due to friction. This mainly stemmed from
differences in management philosophy, expectations, and approaches. Lastly, the study found
that short-term goals can result in the foreign partner limiting the number of people allocated to
the joint venture. The original goals of the venture are lost as each new manager takes their turn.
There is little original corporate memory or reminder of the initial intent of the venture. These
concerns if addressed adequately and before any formal agreement is signed will be helpful in
taking care of later concerns, frictions and unnecessary problems.
Diff: 2
Page Ref: 282-283
AACSB: Reflective Thinking
89) Japanese keiretsu is considered to be a strong cooperative strategy that will have an impact in
global marketing. Describe what it is and how it can affect U.S. businesses.
Answer: Japan's keiretsu represents a special category of cooperative strategy which is an
interbusiness alliance or enterprise group. It exists in a broad spectrum of markets, including the
capital market, primary goods markets, and component parts markets. Keiretsu relationships are
often cemented by bank ownership of large blocks of stock and by cross-ownership of stock
between a company and its buyers and nonfinancial suppliers. Also, keiretsu executives can
legally sit on each other's boards, share information, and coordinate prices. Thus, keiretsu serves
as a cartel that have the government's blessing. Although it is not a market entry strategy per se,
it played an integral part in the international success of the Japanese companies as they sought
new markets. Clyde Prestowitz provided the following example to show how keiretsu
relationships have a potential impact on U.S. businesses. In the1980s Nissan was in the market
for a supercomputer to use in car design. Two vendors under consideration were Cray and
Hitachi. Cray was the worldwide leader in supercomputers and Hitachi had no functional product
to offer. When it appeared that the purchase of Cray computer was pending, Hitachi executives
called for solidarity since both Nissan and Hitachi were members of the same big six keiretsu.
Hitachi was pushing Nissan to show preference for Hitachi and the U.S. had to put pressure on
both Nissan and the Japanese government to have the sale proceed with Cray. Because keiretsu
relationships are crossing the Pacific and directly affecting the American market, the U.S.
companies have a reason for concern. In California alone, keiretsu owns more than half of the
Japanese businesses. Other keiretsu businesses are moving into different parts of the United
States.
Diff: 2
Page Ref: 286-289
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90) Companies are faced with the decision whether to expand by seeking new markets in
existing countries or seeking new country markets for already identified and served market
segments. Faced with these situations what are the strategies that can be followed?
Answer: There are four different dimensions that emerge in combination to produce four
different sets of strategies that are described as follows. (1) Country and market concentration,
which involves targeting a limited number of customer segments in a few countries. This is
typically a starting point for most companies and it matches with limited company resources and
market investment needs. (2) Country concentration and market diversification, in which a
company serves many markets in a few countries. Many European companies have followed this
strategy. American companies that decide to diversify in the U.S. market as opposed to going
international have also followed this strategy. (3) Country diversification and market
concentration is the classic global strategy whereby a company seeks out the world market for a
product. This strategy is desirable since it serves the world customer as well as a company can
achieve a greater accumulated volume at a lower cost. It also has a competitive advantage due to
cost. This is the strategy followed by well-managed businesses that serve a distinct need and
customer category. (4) Country and market diversification is the corporate strategy of a global,
multibusiness company such as Matsushita. Thus, based on the level of involvement desired and
available resources one of the above-mentioned strategies should be selected.
Diff: 2
Page Ref: 290-291
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