MGM5966 Lecture 8 quiz

Which of the following statements regarding institutional frameworks and foreign entry strategies is correct?

• Regulatory institutions may prohibit certain operations or transactions.

• Lack of contract enforcement increases the costs of arm-length contracts

• Institutional idiosyncrasies increases the need to acquire local knowledge.

• All of the above statements are correct.

Answer explanation

All of the above statements are correct because regulatory institutions can prohibit operations, lack of contract enforcement increases transaction costs, and institutional idiosyncrasies increase the need for local knowledge. All these factors can contribute to a firm's decision to form a joint venture or wholly-owned subsidiary with a local partner.

What are the strategic goals that drive the location of foreign entries? Select all correct answers.

• Natural resource seeking

• Market Seeking

• Innovation Seeking

• Efficiency Enhancing

Answer explanation

The strategic goals that drive the location of foreign entries include natural resource seeking (quality and cost of the resources), market seeking (strong market demand and customers willing to pay), innovation seeking (innovative individuals and firms), and efficiency enhancing (economies of scale, low-cost labour and suppliers, infrastructure).

According to Dunning's Eclectic paradigm, what influences the choice of entry mode?

• Transaction cost economics, cultural similarity, and institutional theory

• Ownership, locational, and internalization advantages

• Product complexity, differentiation advantage, and firm size

• Market size, demand uncertainty, and competition intensity

Answer explanation

According to Dunning's Eclectic paradigm, the choice of entry mode is influenced by ownership (e.g. core-competencies, brand, IP), locational (e.g. market potential, access to resources. regulatory framework), and internalization advantages (e.g. transaction costs, transfer of tacit knowledge). ALL these factors must be considered in determining the entry mode.

The Network Internationalization Model emphasizes the importance of:

• Geographical proximity in market selection.

• Leveraging relationships and networks.

• Strictly following a predetermined internationalization plan.

• Avoiding interactions with external stakeholders.

Answer explanation

The Network Internationalization Model emphasizes the importance of leveraging relationships and networks. Networks provide access to assets, talent and technology, as well as knowledge of potential customers, suppliers and competitors. Firms in a network reinforce each other’s internationalization processes.

How does the experience paradox highlight the dilemma faced by firms entering new markets?

• It emphasizes the importance of relying solely on internal expertise to avoid mistakes.

• It suggests that firms should prioritize gaining international experience over partnering with locals.

• It highlights the need for a balance between relying on local expertise and avoiding major mistakes in contract negotiations.

• It indicates that firms with limited international experience are less likely to make mistakes in contract design.

Answer explanation

The experience paradox underscores the dilemma faced by firms entering new markets: they need the local expertise of a partner to succeed, but relying solely on local expertise can also lead to mistakes in contract design. Therefore, firms must strike a balance between leveraging local knowledge and ensuring sound contract negotiations to mitigate risks and maximize opportunities in new markets.

When deciding on entry mode, which internal factor is most important to consider?

• Proximity to suppliers

• Historical significance of the area

• International experience

• Demand condition

Answer explanation

International experience is an internal factor influencing entry mode choice. Others are external factors.

Which accelerated processes enables born globals or international new ventures?

• Recruiting an entrepreneurial team that is enthusiastic but new to international expansion

• Learning from others operating in the domestic market

• Learning from studying the experiences of others through books and podcasts

• Acquiring resources in the foreign country, possibly entire firms.

Answer explanation

Acquiring resources in a foreign country, possibly entire firms, enables born globals or international new ventures to expand their business rapidly overseas by providing access to key assets and capabilities needed for rapid growth and market entry. The other approaches are incorrect.

Which of the following is disadvantage for first-mover?

• Lack opportunity to free-ride on first-mover investments

• Establish relationship and connections with key stakeholders

• Establish entry barriers for late entrants

• Establish proprietary, technological leadership

Answer explanation

Lack opportunity to free-ride on first-mover investments is the disadvantage. The others are advantages of first-mover. As a first mover, a firm can establish a strong foothold in the foreign market by having close relationships with local stakeholders, leading technological development, and building entry barriers.

Which type of markets do firms tend to enter with wholly owned modes?

• Culturally similar countries with stable conditions

• High investment risk countries

• Markets with intense competition

• Countries with many legal restrictions

Answer explanation

Firms tend to enter culturally similar countries with stable conditions with wholly owned modes to have better control and minimize risks. They will choose lower control entry modes when there are high investment risks, high competition, and many legal restrictions in foreign countries.

In a scenario where the business owners are extremely risk averse, which mode of entry is typically preferred?

• Exporting

• Joint venture with local partners

• Wholly owned subsidiaries

• Acquisition of foreign firm

Answer explanation

Risk-averse owners prefer lower-risk entry modes like exporting to maintain control over product distribution and reduce investment risks. Other entry modes such as joint ventures and wholly owned subsidiaries, mergers and acquisitions have higher risks.