Entrepreneurship Robert Hisrich 11e - Test Bank

Entrepreneurship Robert Hisrich 11e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Entrepreneurship, 11e (Hisrich)

Chapter 5   Identifying and Analyzing Domestic and International Opportunities

 

1) The key to successful entrepreneurship is to develop an idea that has a large, reachable market.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

2) An opportunity assessment plan is basically the same thing as a business plan.

 

Answer:  FALSE

Difficulty: 1 Easy

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

3) SCORE is a for-profit organization that provides online and in-person assistance in about 100 locations throughout the United States.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

4) An opportunity assessment plan has four sections—two major sections and two minor sections.

 

Answer:  TRUE

Difficulty: 1 Easy

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

5) Gartner provides information on technology markets.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

 

 

6) The Small Business Association provides Business Development Centers but also has a Women’s Business Center and a Minority Business Center.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

7) The Euromonitor provides very industry-specific information on companies in the European Union.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

8) Useful government sources of information include Business Source Complete and Mergent.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

9) International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries.

 

Answer:  TRUE

Difficulty: 1 Easy

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

10) International entrepreneurial decisions are more complex than domestic decisions due to uncontrollable factors such as economic development and stage of economic development.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

 

 

11) Entrepreneurs doing business in the former U.S.S.R. should be aware that barter, or third-party arrangements, are commonplace.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

12) The laws governing business arrangements have been standardized over 150 international legal systems.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

13) Only the pricing element in the business strategy of an international entrepreneur has the potential to be affected by the multiplicity of legal environments.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

14) Transfer risk is the risk in attempting to shift assets or other funds out of the country.

 

Answer:  TRUE

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

15) Three major types of political risks that might be present are operating risk, transfer risk, and ownership risk.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

16) Contract law varies significantly from country to country, in part reflecting the two types of legal tradition—commercial law and civil law.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

17) If the legal system of the country the global entrepreneur is dealing with does not have a good track record, it is not possible for the contract to contain any agreement that contract disputes will be heard in the courts of a different country or home country.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

18) For a global entrepreneur, technological environment variations are minimal since firms produce mostly standardized, relatively uniform products that can be sorted to meet industry standards.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

19) Culture encompasses a wide variety of elements, including language, social structure, religion, political philosophy, economic philosophy, education, and manners and customs.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

20) Nonverbal or hidden language of a culture accounts for a small percentage of all understood communication.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

21) Reference groups in any culture provide values and attitudes that influence behavior.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

 

 

22) Gifts related to business proceedings are illegal in most other countries and should not be offered to foreign business partners.

 

Answer:  FALSE

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

23) Profits and tax benefits are common motivations for going global.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

24) For a U.S.-based entrepreneurial firm, the 75 percent of the world’s population living outside the United States offers a very large market opportunity.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

25) In selecting a foreign market, two critical issues for the entrepreneur are foreign market selection and market entry strategy.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

26) When researching foreign markets, the entrepreneur will usually want data such as population, GDP, per capita income, inflation rate, literacy rate, unemployment, and education levels.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

27) There are three general classifications for exporting; direct, indirect and third-party.

 

Answer:  FALSE

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

28) A disadvantage of using licensing as an entry strategy for a foreign market is the high amount of risk involved.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

29) A nonequity arrangement is a method by which an entrepreneur can enter a market and obtain sales and profits without direct equity investment in the foreign market.

 

Answer:  TRUE

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

30) Nonequity arrangements discussed by the text include licensing, management projects and exporting.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

31) A vertical merger is the combination of two firms that produce one or more of the same or closely related products in the same geographical area.

 

Answer:  FALSE

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

32) A product extension merger occurs when acquiring and acquired companies have related production and/or distribution activities but do not have products that compete directly with each other.

 

Answer:  TRUE

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

 

 

33) The General Agreement on Tariffs and Trade is an attempt to impose significant tariffs on business between nations.

 

Answer:  FALSE

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

34) The objectives of the General Agreement on Tariffs and Trade was to liberalize trade by eliminating or reducing tariffs.

 

Answer:  TRUE

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

35) The North American Free Trade Agreement (NAFTA) increases trade barriers and quotas among the United States, Canada, and Mexico.

 

Answer:  FALSE

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

36) An opportunity assessment plan:

1. A) is the same thing as a business plan.
2. B) is longer than a business plan.
3. C) has a comprehensive financial statement.
4. D) focuses on the opportunity, not the venture.

 

Answer:  D

Difficulty: 2 Medium

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

 

 

37) All of the following statements concerning opportunity assessment plans are correct except:

1. A) the first major section of the opportunity assessment plan develops a time line indicating what steps need to be take to successfully launch the venture.
2. B) an opportunity assessment plan is not a business plan.
3. C) the second major section of the opportunity assessment plan focuses on the market.
4. D) an opportunity assessment plan has four sections—two major sections and two minor sections.

 

Answer:  A

Difficulty: 2 Medium

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

38) ________ is a nonprofit organization that provides free online and in-person assistance to entrepreneurs in the form of training, consulting and mentoring provided mainly by retired executives and entrepreneurs.

1. A) CSBC
2. B) NAICS
3. C) SCORE
4. D) SIC

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

39) ________ are both government sources of information that might be helpful in gathering the information needed to start a business.

1. A) Mergent and The Industrial monitor
2. B) NAICS and SIC codes
3. C) Business Source Complete and Small Business News
4. D) The Euromonitor and Business Source Complete

 

Answer:  B

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

 

 

40) ________ provides information on industries such as aerospace, energy, healthcare and defense.

1. A) Mergent
2. B) Plunkett
3. C) Frost and Sullivan
4. D) Business Source Complete

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

41) All of the following are government sources of information except:

1. A) census reports
2. B) export/import authority
3. C) NAICS and SIC
4. D) Hoovers

 

Answer:  D

Difficulty: 1 Easy

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

42) ________ is the process of an entrepreneur conducting business activities across national borders.

1. A) Intrapreneurship
2. B) International entrepreneurship
3. C) Domestic entrepreneurship
4. D) Direct importing

 

Answer:  B

Difficulty: 1 Easy

Learning Objective:  05-01 To understand how to identify viable domestic or international opportunities

Accessibility:  Keyboard Navigation

 

 

 

43) Concerns regarding roads, electricity, banking facilities, communication, and educational systems have to do with a country’s:

1. A) infrastructure.
2. B) balance of payments.
3. C) political climate.
4. D) economics.

 

Answer:  A

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

44) A country’s ________ is the difference between the value of a country’s imports and exports over time.

1. A) gross national product
2. B) purchasing power parity
3. C) current account
4. D) foreign exchange reserve

 

Answer:  C

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

45) What term describes the practice of paying for goods indirectly through another source?

1. A) Licensing
2. B) Barter
3. C) Promotion
4. D) Exporting

 

Answer:  B

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

46) Which among the following political risks is considered the biggest risk of all?

1. A) Transfer risk
2. B) Ownership risk
3. C) Investment risk
4. D) Operating risk

 

Answer:  B

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

47) ________ is defined as the risk of interference with the operations of the venture.

1. A) Transfer risk
2. B) Ownership risk
3. C) Investment risk
4. D) Operating risk

 

Answer:  D

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

48) Which of the following statements is true?

1. A) Most countries have laws and court procedures protecting intellectual property such as those in the United States.
2. B) Civil laws tend to be relatively nonspecific.
3. C) Laws of a country regulate the manner in which business transactions are executed.
4. D) Global entrepreneurs cannot specify in the contract that any contract disputes will be heard in the courts of another country.

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

49) In Kenya, the tribe where an individual is from can play a significant role in employer relations. This best exemplifies which aspect of culture?

1. A) Social structure
2. B) Education
3. C) Political philosophy
4. D) Economic philosophy

 

Answer:  A

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

 

 

50) McDonalds has learned to adapt its restaurants to local design preferences and the U.S. government tries to design their local embassies with local architectural considerations. These are examples of which aspect of culture?

1. A) Social structure
2. B) Political philosophy
3. C) Aesthetics
4. D) Manners and customs

 

Answer:  C

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

51) Which of the following statements is not true?

1. A) Technology, like social factors, varies significantly across countries.
2. B) Major events often are the beginning of slow shifts in public opinion or buying habits.
3. C) Cultural ethics deals with the values and morals of a society and how they translate to societal acceptance.
4. D) Psychographics exist within demographics.

 

Answer:  B

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

52) Which among the following influences whether customers are able to use the good or service properly and whether they are able to understand the firm’s advertising or other promotional messages?

1. A) Political philosophy
2. B) Religion
3. C) Manners and customs
4. D) Education

 

Answer:  D

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

 

 

53) Motivations for going global, discussed in the text, include all the following except:

1. A) cheap shipping costs
2. B) excess production capacity
3. C) technological advantage
4. D) competitive pressures

 

Answer:  A

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

54) Primary data is:

1. A) data that has been collected by the private sector.
2. B) data collected by the government.
3. C) original information collected by the entrepreneur.
4. D) data that is hard to find.

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

55) Exporting:

1. A) is the least popular method for going global.
2. B) results in a lack of control over quality.
3. C) results in an inability to realize location economies.
4. D) can be direct or indirect.

 

Answer:  D

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

56) ________ is not considered a nonequity arrangement.

1. A) Turn-key projects
2. B) Exporting
3. C) Licensing
4. D) Management contracts

 

Answer:  B

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

 

 

57) ________ has the main disadvantages of high transportation costs, trade barriers, and problems with local marketing agents.

1. A) Exporting
2. B) Turn-key projects
3. C) Licensing
4. D) Franchising

 

Answer:  A

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

58) Licensing is best described as:

1. A) a nonequity method of international business in which an entrepreneur contracts his or her management techniques and skills to a (foreign) purchasing company.
2. B) a method of doing international business whereby a foreign entrepreneur supplies the manufacturing technology or infrastructure for a business and then turns it over to local owners.
3. C) a method that involves giving a foreign manufacturer the right to use a patent, technology, production process, or product in return for the payment of a royalty.
4. D) an equity partnership that involves selling patents to foreign governments.

 

Answer:  C

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

59) A turn-key project is best defined as:

1. A) a method of doing business whereby a foreign entrepreneur supplies the manufacturing technology or infrastructure for a business and then turns it over to local owners
2. B) giving a foreign manufacturer the right to use a patent in return for the payment of a royalty
3. C) a method in which an entrepreneur contracts his or her management techniques and skills to a (foreign) purchasing company
4. D) a form of direct foreign investment in which the investing entrepreneur holds a minority ownership position in the foreign venture

 

Answer:  A

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

 

 

60) A ________ is the joining of two firms in order to form a third company in which the equity is shared.

1. A) majority interest
2. B) joint venture
3. C) product extension merger
4. D) minority interest

 

Answer:  B

Difficulty: 1 Easy

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

61) ________ is a type of merger in which acquiring and acquired companies have related production and/or distribution activities but do not have products that compete directly with each other.

1. A) Market extension merger
2. B) Horizontal merger
3. C) Product extension merger
4. D) Vertical merger

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

62) McDonald’s acquiring its store franchises is an example of what type of merger?

1. A) Market extension merger
2. B) Horizontal merger
3. C) Product extension merger
4. D) Vertical merger

 

Answer:  D

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

63) According to the text, the most prevalent reason for mergers is:

1. A) taxation.
2. B) economies of scale.
3. C) currency fluctuations.
4. D) to combine complementary resources.

 

Answer:  B

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

64) Philip Morris acquiring Miller Brewing is an example of what type of merger?

1. A) Market extension merger
2. B) Horizontal merger
3. C) Product extension merger
4. D) Vertical merger

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

65) All of the following is true of the General Agreement on Tariffs and Trade except:

1. A) it includes over 100 nations.
2. B) it reduces tariffs, subsidies, and import quotas.
3. C) it has extensive authority to enforce trade practices due to its voluntary membership.
4. D) it is one of the longest-lasting agreements on trade.

 

Answer:  C

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

66) The North American Free Trade Agreement (NAFTA) is between which of the following countries?

1. A) The United States, Brazil, and Canada
2. B) The United States, Mexico, and Brazil
3. C) The United States, Argentina, and Brazil
4. D) The United States, Canada, and Mexico

 

Answer:  D

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation

 

 

 

67) Explain what the differences are between a business plan and an opportunity assessment plan.

 

Answer:

1. Shorter

 

2. Focuses on the opportunity rather than the venture

 

3. No computer-based spreadsheets

 

4. Is the basis for whether to act upon an opportunity or wait until another, better opportunity comes along.

Difficulty: 1 Easy

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

68) Identify and briefly describe the four sections of an opportunity assessment plan.

 

Answer:  The first major section develops the product/service idea, analyzes the competitive products and companies, and identifies the uniqueness of the idea in terms of its unique selling propositions.

 

The second major section of the opportunity assessment plan focuses on the market—its size, trends, characteristics, and growth rate.

 

The third section focuses on the entrepreneur and the management team in terms of their background, education, skills, and experience.

 

The final section of the opportunity assessment plan develops a time line indicating what steps need to be taken to successfully launch the venture and translate the idea into a viable business entity.

Difficulty: 2 Medium

Learning Objective:  05-02 To be able to create an opportunity assessment plan.

Accessibility:  Keyboard Navigation

 

 

 

69) Discuss government stability and political risk when applied to international versus domestic business. Identify and briefly describe the three major types of political risk.

 

Answer:  It is important to understand the likelihood of how long the present government will remain in power and the political risk associated with that stability. It would not be prudent for an entrepreneur to devote significant time building relationships with a government that is likely to collapse. While there is some political risk in every country, the range from country to country varies significantly, and even in a country with a history of stability and consistency, these conditions could change.

 

There are three major types of political risks that might be present:

 

1. Operating risk—risk of interference with the operations of the venture

 

1. Transfer risk—risk in attempting to shift assets or other funds out of the country

 

1. Ownership risk—the largest potential risk, where the country takes over the venture’s property and employees

Difficulty: 2 Medium

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

70) List the seven various aspects of culture.

 

Answer:  Social Structure

 

Religion

 

Political Philosophy

 

Economics and Economic Philosophy

 

Education

 

Manners and Customs

 

Language

Difficulty: 1 Easy

Learning Objective:  05-03 To understand the problems of entering global markets.

Accessibility:  Keyboard Navigation

 

 

 

71) Explain the major factors an entrepreneur needs to consider in choosing the best distribution channel in a foreign country.

 

Answer:

(1) the overall sales potential

 

(2) the amount and type of competition,

 

(3) the cost of the product

 

(4) the geographical size and density of the country

 

(5) the investment policies of the country

 

(6) exchange rates and any controls

 

(7) the level of political risk

 

(8) the overall marketing plan

Difficulty: 3 Hard

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

72) List five of the nine major reasons why an entrepreneur would go global?

 

Answer:

• Profits
• Competitive pressures
• Unique product(s) or service(s)
• Excess production capacity
• Declining home country sales
• Unique market opportunity
• Economies of scale
• Technological advantage
• Tax benefits

Difficulty: 2 Medium

Learning Objective:  05-04 To understand how to select the best global market.

Accessibility:  Keyboard Navigation

 

 

 

73) What is a nonequity arrangement? Define the two major types of nonequity arrangements: licensing and turn-key projects, and give at least one advantage and disadvantage for each.

 

Answer:  Nonequity arrangement—a method by which an entrepreneur can enter a market and obtain sales and profits without direct equity investment in the foreign market.

 

1. Licensing—Involves an entrepreneur who is a manufacturer (licensee) giving a foreign manufacturer (licensor) the right to use a patent, trademark, technology, production process, or product in return for the payment of a royalty.

 

Benefits: Low development costs and risks.

 

Disadvantages: Lack of control over technology, inability to realize location and experience curve economies, inability to engage in global strategic coordination.

 

1. Turn-key projects—A method of doing international business whereby a foreign entrepreneur supplies the manufacturing technology or infrastructure for a business and then turns it over to local owners.

 

Benefits: Relatively low risk, ability to earn returns from process technology skills in countries where FDI is restricted.

 

Disadvantages: Creation of efficient competitors, lack of long-term market presence.

Difficulty: 2 Medium

Learning Objective:  05-05 To understand the options for entering a global market.

Accessibility:  Keyboard Navigation