International Business

Chapter 3
Organizational Participants that Make
International Business Happen
1) The majority of focal firms are privately owned multinational enterprises.
(True or False)

2) The activities of firms, intermediaries, and facilitators in international business are thoroughly
distinct and rarely overlap.
(True or False)

3) Some focal firms are manufacturing businesses, while others are in the service sector.
(True or False)

4) Focal firms and intermediaries represent the demand side of international business
transactions.
(True or False)

5) The value chain is not the complete business system of the focal firm.
(True or False)

6) Retailers play critical roles in the initial stages of the international value chain.
(True or False)

7) Sales representatives act as distribution channel intermediaries.

(True or False)

8) In an international value chain, sourcing occurs before research and development.

(True or False)

9) Market research is a downstream value-chain activity.

(True or False)

10) Distribution is an upstream value-chain activity.

(True or False)

11) All focal firms are private businesses.

(True or False)

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.
(True or False)

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13) Due to their size, MNEs account for the majority of firms active in international business.
(True or False)

14) Compared to large multinationals, SMEs can be more flexible and quicker to respond to
global business opportunities.
(True or False)

15) The emergence of born global firms is associated with international entrepreneurship.
(True or False)

16) Focal firms can be analyzed in terms of the entry strategies they use to expand abroad.
(True or False)

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.
(True or False)

18) Joint ventures are less formal than project-based partnerships.

(True or False)

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.
(True or False)

20) For most exporters, relying on an independent foreign distributor is a low-cost way to enter
foreign markets.
(True or False)

21) Foreign distributors are often called merchant distributors.

(True or False)

22) Selling products on the Internet has triggered the reduction of traditional intermediaries, such
as wholesalers.
(True or False)

23) A manufacturer's representative is an intermediary contracted by the exporter.

(True or False)

24) A retailer represents the first link between distributors and end users.
(True or False)

25) The number and role of facilitators have declined due to the complexity of international
business operations, intense competition, and technological advances.
(True or False)

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26) Many commercial banks are reluctant to extend credit to SMEs.
(True or False)

27) International manufacturers rarely use common carriers.

(True or False)

28) Governments often nationalize important companies facing financial ruin.

(True or False)

29) Commercial banks are the monetary authorities in each country that issue currency and
regulate national money supplies.
(True or False)

30) Sovereign wealth funds are state-owned investment funds that undertake systematic, global
investment activities.
(True or False)

31) A ________ is the initiator of an international business transaction.

A) facilitator
B) focal firm
C) distribution channel intermediary
D) freight forwarder

32) Which of the following refers to the participant responsible for conceiving and designing a
product for consumption by customers worldwide?
A) government
B) facilitator
C) focal firm
D) intermediary

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) facilitator
B) not-for-profit corporation
C) distribution channel intermediary
D) retailer

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) facilitator
B) born global firm
C) distribution channel intermediary
D) turnkey contractor

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35) Which of the following refers to a specialized logistics service provider that arranges
international shipping for exporting firms?
A) freight forwarder
B) wholesaler
C) distributor
D) turnkey contractor

36) Which of the following represent the demand side of international business transactions?
A) focal firms
B) facilitators
C) intermediaries
D) retailers

37) Logistics service providers, freight forwarders, and banks are examples of ________.
A) retailers
B) distribution channel intermediaries
C) focal firms
D) facilitators

38) ________ are businesses, institutions, and governments that purchase goods and services as
inputs to a production process, or as supplies needed to run a business or organization.
A) Organizational buyers
B) Freight forwarders
C) Retailers
D) Licensors

39) Which of the following stages of the international value chain immediately precedes the
marketing stage?
A) sourcing
B) production
C) distribution
D) market research

40) A tax accountant would most likely be involved as a facilitator in which of the following
stages of the international value chain?
A) distribution
B) sourcing
C) production
D) after-sales service

41) Within the international value chain, which of the following would operate as a facilitator?
A) importer
B) lawyer
C) retailer
D) distributor

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42) Which of the following stages of the international value chain immediately follows the
research and development stage?
A) distribution
B) market research
C) production
D) sourcing

43) In the research and development stage of the international value chain, ________ act as
distribution channel intermediaries.
A) universities
B) research labs
C) innovation fairs
D) consolidators

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 development
B) sourcing
C) production
D) after-sales service

45) Which of the following is an upstream value-chain activity?

A) marketing
B) sourcing
C) distribution
D) after-sales service

46) Which of the following is a downstream value-chain activity?

A) marketing
B) sourcing
C) market research
D) research and development

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.

48) MNEs are best known for their ________.

A) reluctance to explore emerging markets
B) foreign direct investment activities
C) high rates of employee attrition
D) preference for exporting as the main strategy for entering foreign markets

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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) 500
B) 5000
C) 1000
D) 250

50) As defined in the European Union, small and medium-sized enterprises (SMEs) are
manufacturers or service providers with ________ or fewer employees.
A) 500
B) 5000
C) 1000
D) 250

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.

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 markets
B) an increased emphasis on niche marketing
C) widespread outsourcing
D) regular tax breaks from national governments

53) In ________, some focal firms are partly or wholly owned by the government.
A) free market economies
B) highly developed countries
C) market economies
D) centrally planned economies

54) SMEs usually choose ________ as their main strategy for entering foreign markets.
A) exporting
B) importing
C) divesting
D) investing

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 personnel
B) a large global company that sells diverse and unrelated products
C) 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 markets

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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 firm
B) MNE
C) not-for-profit company
D) conglomerate

57) Which of the following best describes a firm that allows a partner the right to use certain
intellectual property for a specified period of time in exchange for royalties or other
compensation?
A) franchisor
B) licensor
C) manufacturer
D) trading company

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) franchisor
B) licensor
C) export management company
D) broker

59) Delegating certain noncore functions to outside vendors is a strategy known as ________.
A) franchising
B) licensing
C) outsourcing
D) diversifying

60) Licensing allows companies to ________.

A) internationalize rapidly while remaining in their home market
B) monitor and control employee behavior
C) eliminate the costs of advertising and branding
D) invest in emerging markets abroad

61) ________ specialize in international construction, engineering, design, and architectural

projects, usually for airports, hospitals, factories, power plants, oil refineries, campuses, and
upgrades to public transportation such as bridges, roadways, and rail systems.
A) Freight forwarders
B) Turnkey contractors
C) Export management companies
D) Retailers

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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 venture
B) build-own-transfer venture
C) joint venture
D) project-based, nonequity venture

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) SME
B) build-own-transfer venture
C) MNE
D) international collaborative venture

64) Collaborative arrangements help focal firms to ________.

A) create and sustain market monopolies
B) connect with domestic customers
C) configure value chains more effectively
D) monitor and control employee behavior

65) Project-based partnerships ________.

A) are extremely formal ventures
B) undertake projects with a relatively broad scope
C) involve equity investment in the parent companies
D) are short-term, nonequity ventures

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 partner
B) joint venture partner
C) build-own-transfer venture
D) nonequity venture partner

67) Distribution channel intermediaries perform all of the following functions for focal firms
EXCEPT ________.
A) production
B) advertising
C) customer service
D) warehousing

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68) Foreign distributors that purchase products from exporters for resale at a profit are known as
________.
A) brokers
B) merchant distributors
C) domestic intermediaries
D) sales representatives

69) Distribution channel intermediaries ________.

A) deliver products and services in the home country and abroad
B) provide financial support to SMEs
C) facilitate customs clearance for MNEs
D) assist focal firms with legal issues

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) agent
B) licensor
C) franchisor
D) foreign distributor

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) licensor
B) retailer
C) franchisor
D) agent

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 distributors
B) licensors
C) agents
D) retailers

73) Dealing directly with foreign-based retailers is efficient because ________.

A) it shortens the distribution channel
B) it enhances the brand image of products
C) it helps create market monopolies
D) it eliminates competition

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74) ________ assume the international marketing function on behalf of producers, especially
those with limited international business experience.
A) Export management companies
B) Manufacturer's representatives
C) Customs brokers
D) Trading companies

75) Trading companies play an important role in Japan's external trade because Japan ________.
A) manufactures technological devices
B) has few natural resources
C) has a steadily rising population
D) has a high average per-capita income

76) Which of the following is true with regard to online intermediaries?

A) They discourage customers to visit physical outlets.
B) They consolidate wholesale channels.
C) They broker transactions between buyers and sellers worldwide.
D) They complement traditional intermediaries.

77) The increase in the number of international business facilitators has been driven by all of the
following EXCEPT ________.
A) technological advances
B) complexity of international business operations
C) intense competition
D) declining trade in international services

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 systems
C) own the ships, trucks, and airplanes used to transport goods around the world
D) provide expert counsel to MNEs on the legal aspects of international business

79) Which of the following assist focal firms in resolving disputes with foreign business
partners?
A) insurance companies
B) trade lawyers
C) consultants
D) market research firms

80) Commercial banks facilitate the operations of international businesses by doing all of the
following EXCEPT ________.
A) regulating national money supplies
B) transferring funds to individuals and foreign banks
C) supplying credit information on foreign buyers
D) providing credit to buyers and sellers

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81) Sovereign wealth funds are owned by ________.
A) MNEs
B) private investors
C) national governments
D) publicly traded corporations

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 differentiation
B) diversification
C) outsourcing
D) crowdsourcing

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) franchisor
B) licensor
C) agent
D) turnkey contractor

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.

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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.

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.

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?

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.

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.

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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.

91) In a short essay, describe the four major participants in international business. Explain how
they work together in international business activities.

92) In a short essay, describe the three key types of focal firms, and explain how their value
chain enables international business.

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?

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?

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.

96) In a short essay, identify the services provided by distribution channel intermediaries for
focal firms. Why do exporters rely on intermediaries?

97) In a short essay, describe the intermediary functions of agents and manufacturer's
representatives. How are the two intermediaries similar?

98) In a short essay, discuss the impact of the Internet on traditional intermediaries and on retail
businesses. Provide examples of retailers who have embraced the new technology and discuss
how the Internet has affected their business.

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.

100) In a short essay, discuss how both commercial banks and central banks participate in
international business. What are sovereign wealth funds?

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