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Global Business 3rd Edition Mike Peng – Test Bank

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Global Business 3rd Edition Mike Peng – Test Bank

Chapter 9—

Growing and Internationalizing the Entrepreneurial Firm

TRUE/FALSE

1. Firms with fewer than 500 employees in the United States are considered small- and medium-sized enterprises. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 2. Individuals who discover, evaluate, and exploit previously unexplored opportunities are referred to as entrepreneurs. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 3. The word “entrepreneurs” mostly refers to founders and owners of new businesses or managers of existing firms. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 4. SMEs are the exclusive domain of entrepreneurship. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 5. Whether entrepreneurship is facilitated or retarded significantly depends on formal institutions governing how entrepreneurs start up new firms. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 6. International entrepreneurship is defined as “a combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create wealth in organizations.” ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 7. SMEs tend to be less entrepreneurial than large firms. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 8. Cultural values and norms are examples of informal institutions. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Diversity KEY: Bloom’s: Knowledge 9. In general, governments in developed economies impose more procedures to start a company than those in poorer countries. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 10. Both formal and informal institutional constraints, as rules of the game, affect entrepreneurship. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 11. According to the resource-based view, the entrepreneurial resources must have inimitable resources to be successful. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 12. An institution-based view suggests that firm-specific resources and capabilities largely determine entrepreneurial success and failure. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 13. One hallmark of entrepreneurial growth is a dynamic, flexible, guerrilla strategy. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 14. The growth of an entrepreneurial firm can be viewed as an attempt to more fully use currently underutilized resources and capabilities. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 15. Owners, managers, and employees at large firms tend to be more innovative and take more risks than those at entrepreneurial firms. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 16. Firms that are first to introduce new goods or services are likely to earn “monopoly profits” until competitors emerge. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 17. Compared to large firms, innovators at SMEs have limited ability to personally profit from their innovations because property rights usually belong to the corporation. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 18. Brazil has the lowest level of informal investment in the world. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 19. Sweden has the lowest venture capitalist investment in the world. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 20. In entrepreneurial firms, an innovation strategy allows a potentially more sustainable basis for competitive advantage. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 21. Microfinance emerged in response to the lack of financing for entrepreneurial opportunities in many developing countries. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 22. Entrepreneurial opportunities exist to lower transaction costs and bring distant groups of people, firms, and countries together. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 23. Foreign direct investment is the only way in which SMEs can enter foreign markets. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 24. Domestic transaction costs are qualitatively higher than international transaction costs. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 25. Direct exports are the sale of products made through export intermediaries. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 26. A letter of credit increases transaction costs by increasing transaction risks. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 27. Licensing is mostly used in the service industries. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 28. Franchising is typically used in manufacturing industries. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 29. Franchising is a type of internationalizing business model. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 30. Foreign firms interested in becoming licensees or franchisees have to put their own capital up front. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 31. Foreign acquisitions are an example of an FDI entry into foreign markets. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 32. Entrepreneurial firms can internationalize while staying in domestic markets through indirect exports. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 33. Indirect export is one of the strategies used by entrepreneurial SMEs to internationalize without leaving their home country. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 34. A firm can internationalize by becoming a supplier for a foreign firm that is doing business in the domestic market. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 35. Becoming a licensee or franchisee of a foreign brand does not internationalize the licensee or franchisee firm. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 36. Family background and educational attainment correlate with entrepreneurship. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-5 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 37. Entrepreneurs need to cultivate strong informal norms granting legitimacy to entrepreneurs. ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-6 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 38. It is impossible to internationalize without venturing abroad. ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-6 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge MULTIPLE CHOICE 1. In the United States, small- and medium-sized enterprises (SMEs) are defined as firms with less than _____. a. 20 employees b. 250 employees c. 1000 employees d. 500 employees ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 2. Which of the following is a defining characteristic of entrepreneurship? a. Size of the firm b. Market share of the firm c. Ability to exploit opportunity d. Nationality of the individual or firm ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 3. Which of the following is true of SMEs? a. They are less entrepreneurial than large firms, on average. b. They account for over 95 per cent of total firms around the world. c. They generate less employment than larger firms around the world. d. They generally have more than a thousand employees per firm. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 4. In the European Union, small and medium-sized enterprises (SMEs) are defined as firms with less than _____. a. 500 employees b. 250 employees c. 1000 employees d. 750 employees ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 5. _____ is defined as the identification and exploitation of previously unexplored opportunities. a. Distributorship b. Dealership c. Vendorship d. Entrepreneurship ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 6. Founders and/or owners of new businesses or managers of existing firms who identify and exploit new opportunities are called _____. a. bloggers b. entrepreneurs c. adjudicators d. arbitrators ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 7. Which of the following types of societies would most likely foster more entrepreneurship? a. Individualistic and high uncertainty-avoidance b. Collectivistic and high uncertainty-avoidance c. Collectivistic and low uncertainty-avoidance d. Individualistic and low uncertainty-avoidance ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension 8. Which of the following is a part of the VRIO framework? a. Value b. Reliability c. Impulse d. Orientation ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 9. Among developed countries, _____ has the lowest rate of start-ups. a. United Kingdom b. United States c. Russia d. Japan ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-2 NAT: BUSPROG: Diversity KEY: Bloom’s: Knowledge 10. Which of the following is one of the four major characteristics associated with a growing entrepreneurial firm? a. Monotonousness b. Internationalization c. Inimitability d. Informality ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 11. ____ is at the fundamental component required for an entrepreneurial mindset. a. Firm size b. Leadership c. Innovation d. Financing ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 12. With regard to investment in start-ups, investment by _____ is considered as informal investment. a. foreign entrants b. friends c. venture capitalists d. banks ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 13. Which of the following nations has the lowest level of VC investment, as a percentage of GDP, in the world? a. Sweden b. The United States c. Greece d. South Africa ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Diversity KEY: Bloom’s: Knowledge 14. Which of the following nations has the highest level of informal investment, as a percentage of GDP, in the world? a. Sweden b. China c. Greece d. Japan ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Diversity KEY: Bloom’s: Knowledge 15. Microfinance provides micro loans used to: a. pay mortgages. b. pay car loans. c. start small businesses. d. start subsidiaries. ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 16. Which of the following supports the notion that most new ventures in China are financed by friends and family? a. Informal investments are outlawed in China. b. China lacks formal market-supporting institutions. c. Credit reporting agencies are abundant in China. d. Venture capitalists are the biggest investors for entrepreneurship in China. ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-3 NAT: BUSPROG: Diversity KEY: Bloom’s: Comprehension 17. The term for a global movement to help eradicate poverty by lending small sums used to start small businesses is referred to as _____. a. foreign direct investments b. microfinance c. venture capital investment d. preferred financing ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 18. International new ventures are also referred to as _____. a. born global firms b. microfinance firms c. greenfield subsidiaries d. conglomerates ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 19. Which of the following is one of the methods by which entrepreneurial firms internationalize by entering foreign markets? a. Harvest and exit b. Indirect exports c. Microfinancing d. Franchising ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 20. ____ is the sale of products made by entrepreneurial firms in their home country to customers in other countries. a. Direct exports b. Letters of credit c. Licensing d. Indirect exports ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 21. ____ is a way to reach overseas customers by exporting through domestic-based export intermediaries. a. Direct exports b. Licensing c. Indirect exports d. Letters of credit ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 22. In a manufacturing industry, _____ refers to firm A’s agreement to give firm B the rights to use A’s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B. a. franchising b. bailment c. adverse possession d. licensing ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 23. In a service industry, _____ refers to firm A’s agreement to give Firm B the rights to use A’s proprietary assets for a royalty fee paid to A by B. a. adverse possession b. franchising c. bailment d. licensing ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 24. Which of the following is a popular way to enter into international service markets? a. Licensing b. Harvest and exit c. Franchising d. Indirect exporting ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 25. Relative to licensing and franchising, _____ allow a firm to have better control of how its proprietary technology is used while entering foreign markets. a. harvest and exit methods b. foreign direct investments c. indirect exports d. direct exports ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 26. Which of the following is one of the methods by which entrepreneurial firms internationalize by staying in domestic markets? a. Through harvest and exit sell-offs to foreign entrants b. Through direct exports c. Through strategic alliances by FDI d. Through greenfield wholly owned subsidiaries abroad ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 27. ____ perform an important “middleman” function by linking sellers and buyers overseas. a. Export intermediaries b. Indirect exporters c. Sporadic exporters d. Alliance partners ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 28. A ____ is a financial contract that states that the importer’s bank will pay a specific sum of money to the exporter upon delivery of the merchandise. a. bill of lading b. deed c. letter of credit d. bill of exchange ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Ethics KEY: Bloom’s: Knowledge 29. Which of the following types of contracts are used between exporters and importers to reduce transaction risks? a. Letter of credit b. Articles of incorporation c. License d. Bill of lading ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 30. Entrepreneurs selling an equity stake or the entire firm to foreign entrants are using a(n) ____ strategy to internationalize. a. export b. franchising c. licensing d. harvest and exit ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 31. Which of the following types of entrepreneurs are best described as people who start, grow, and sell several businesses throughout their career? a. Social entrepreneurs b. Lifestyle entrepreneurs c. Serial entrepreneurs d. Cooperative entrepreneurs ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-5 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 32. Model of internationalization that portrays the slow step-by step process an SME must go through to internationalize its business is referred to as the: a. indirect model. b. stage model. c. franchising model. d. direct export model. ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-5 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge ESSAY 1. Explain the institution-based views in light of their effect on entrepreneurial success. ANS: Institutions offer the rules that entrepreneurs must follow. Both formal and informal institutional constraints, as rules of the game, affect entrepreneurship. Although entrepreneurship is thriving around the globe in general, its development is uneven. Whether entrepreneurship is facilitated or retarded significantly depends on formal institutions governing how entrepreneurs start up new firms. In addition to formal institutions, informal institutions such as cultural values and norms also affect entrepreneurship. For example, because entrepreneurs necessarily take more risks, individualistic and low uncertainty-avoidance societies tend to foster relatively more entrepreneurs, whereas collectivistic and high uncertainty-avoidance societies may result in relatively fewer entrepreneurs. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension 2. Explain the resource-based views in light of their effect on entrepreneurial success. ANS: The resource-based view sheds considerable light on entrepreneurship, with a focus on its value, rarity, imitability, and organizational (VRIO) aspects. First, entrepreneurial resources must create value. Second, resources must be rare. The best-performing entrepreneurs tend to have the rarest knowledge and deeper insights about business opportunities. Third, resources must be inimitable. They shouldn’t be easily replicable by competitors or new entrants. Fourth, entrepreneurial resources must be organizationally embedded. In sum, the resource-based view suggests that firm-specific (and in many cases, entrepreneur-specific) resources largely determine entrepreneurial success and failure. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension 3. Identify the three advantages offered by the innovation strategy used in a growing entrepreneurial firm. ANS: An innovation strategy offers three advantages. First, it allows a potentially more sustainable basis for competitive advantage. Firms that are first to introduce new goods or services are likely to earn (quasi) “monopoly profits” until competitors emerge. If entrepreneurial firms come up with “disruptive technologies,” then they may redefine the rules of competition, thus wiping out the advantages of incumbents. Second, innovation should be regarded broadly. Not only are technological breakthroughs innovations, less novel but still substantially new ways of doing business are also innovations. Most start-ups reproduce existing organizational routines but recombine them to create some novel product/service offerings. Third, entrepreneurial firms tend to be uniquely ready for innovation. Owners, managers, and employees at entrepreneurial firms tend to be more innovative and risk-taking than those at large firms. In fact, many SMEs are founded by former employees of large firms who were frustrated by their inability to translate innovative ideas into realities at those firms. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 4. Explain the concept of microfinance. ANS: Microfinance has emerged in response to the lack of financing for entrepreneurial opportunities in many developing countries. Microfinance involves lending small sums ($50–$300) used to start small businesses with the intention of ultimately lifting them out of poverty. Starting in the 1970s in countries such as Bangladesh and India, microfinance has now become a global movement and has become controversial lately. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 5. Identify and explain the dilemma behind transaction costs and international entrepreneurial opportunities. ANS: The costs of doing business internationally are much higher than doing domestic business. This is because there are often numerous formal and informal institutional differences. There are also greater levels of opportunism that are difficult to detect but necessary to plan for. Many small firms tend to view the costs as too high compared to the benefits. Due to higher transaction costs, many firms may choose not to pursue international opportunities. A few firms, however, think innovatively and add international dimensions to their businesses without totally going abroad. These include direct exports, licensing, and franchising. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension 6. Discuss direct exporting, licensing, and franchising as strategies for entering a foreign market. Explain each, and detail strengths and weaknesses. ANS: Direct export involves the sale of products made by entrepreneurial firms in their home country to customers in other countries. This strategy is attractive because entrepreneurial firms are able to reach foreign customers directly. When domestic markets experience some downturns, sales abroad may compensate for such drops. However, one major drawback is that SMEs may not have enough resources to turn overseas opportunities into profits. Another way to enter international markets is through licensing and/or franchising. Licensing refers to Firm A’s agreement to give Firm B the rights to use A’s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B. Franchising is essentially the same idea, except it is typically used in service industries, such as fast food. One great advantage is that SME licensors and franchisers can expand abroad while risking relatively little of their own capital. Foreign firms interested in becoming licensees or franchisees have to put their own capital up front. PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-4 NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge 7. Is successful entrepreneurship based more on the “traits” of the entrepreneur or on the “institutions” at work in his or her environment? ANS: “Traits” advocates say successful entrepreneurs have certain traits that set them apart from other workers. Critics, however, argue that some of these traits, such as a strong achievement orientation, are not necessarily limited to entrepreneurs, but instead are characteristic of many successful individuals. The diversity among entrepreneurs makes any attempt to develop a standard psychological or personality profile futile. “Institution” advocates argue that rather than traits of individuals, it is the formal and informal institutions, which set the rules of the game, that directly influence the success or failure of firms. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-5 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension 8. What is the stage model? Can SMEs internationalize faster than what is suggested by the stage model? ANS: The stage model posits that SMEs internationalize through a slow, stage-bay-stage process. Firms move from direct exports to licensing/franchising and finally to FDI gradually, due to the level of complexity and resources required to internationalize. However, enough counterexamples of rapidly internationalizing entrepreneurial firms, known as born global, exist to challenge stage models. Opponents of stage model argue that every industry has become “global” and that entrepreneurial firms need to go after these opportunities rapidly. A key issue, therefore, is whether it is better for entrepreneurs to start the internationalization process soon after founding (as “born global” firms do) or to postpone until the firm has accumulated significant resources. Firms following the prescription of stage models, when eventually internationalizing, must overcome substantial inertia because of their domestic orientation. In contrast, firms that internationalize earlier have fewer of these barriers to overcome. Therefore, SMEs without an established domestic orientation (such as Logitech) may outperform their rivals that wait longer to internationalize. On the other hand, opponents of rapid globalization argue that foreign sales during the first few years of the new venture may reduce its chances for survival. Given the split findings, there are no hard and fast rules on whether entrepreneurial firms should rapidly internationalize or not. PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-5 NAT: BUSPROG: Analytic KEY: Bloom’s: Comprehension

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