Test Bank For Entrepreneurship 9th Edition by Hisrich – Test Bank

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Test Bank For Entrepreneurship 9th Edition by Hisrich – Test Bank

Sample  Questions

 

Chapter 03 Entrepreneurial Strategy: Generating and Exploiting New Entries Answer Key

True / False Questions

  1. A new entry can be either offering a new product to a new market or creating a new organization.
    TRUE

 

Difficulty: Medium

p.58

  1. Newness of a new entry is always an advantage.
    FALSE

 

Difficulty: Medium

p.58

  1. The long-run performance of a firm is dependent upon the ability to generate and exploit numerous new entries.
    TRUE

 

Difficulty: Medium

p.59

  1. In order to be the basis for a firm’s superior performance, a bundle of resources must be valuable, rare, and imitable.
    FALSE

 

Difficulty: Medium

p.60

 

  1. A franchise is the instrument used to protect the owner of the technology from people imitating the technology.
    FALSE

 

Difficulty: Hard

p.60

  1. Knowledge is the basis of the entrepreneurial resource.
    TRUE

 

Difficulty: Medium

p.60

  1. Experience is idiosyncratic—unique to the life of the individual.
    TRUE

 

Difficulty: Easy

p.61

8.The knowledge needed to generate innovation cannot be easily learned from a textbook.
TRUE

 

Difficulty: Medium

p.61

  1. The entrepreneur’s market knowledge is deeper than the knowledge that could be gained through market research.
    TRUE

 

Difficulty: Medium

p.61

 

  1. Technological knowledge refers to the entrepreneur’s possession of information, technology, know-how, and skills that provide insight into a market and its customers.
    FALSE

 

Difficulty: Medium

p.61

  1. Market research, such as surveys, has limited effectiveness because it is often difficult for customers to articulate the underlying problems they have with a product or service.
    TRUE

 

Difficulty: Hard

p.61

  1. The period of time when the environment is favorable for entrepreneurs to exploit a particular new entry is called the window of opportunity.
    TRUE

 

Difficulty: Easy

p.63

  1. The longer the entrepreneur takes to research a new entry, the less accurate customer demand estimates are.
    FALSE

 

Difficulty: Medium

p.63

  1. When the window of opportunity is open, the environment is unfavorable for entrepreneurs to exploit a new product or enter a new market with an existing product.
    FALSE

 

Difficulty: Medium

p.63-64

 

  1. An error of omission occurs from the decision not to act of a new entry opportunity when in hindsight they should have.
    TRUE

 

Difficulty: Medium

p.64

  1. An error of commission occurs from the decision not to act on a new entry opportunity.
    FALSE

 

Difficulty: Hard

p.64

17.The assessment of a new entry attractiveness is less about whether this opportunity “really” exists or not and more about whether the entrepreneur believes he or she can make it work.
TRUE

 

Difficulty: Medium

p.65

  1. First movers suffer a cost disadvantage as they are not able to move down the experience curve.
    FALSE

 

Difficulty: Medium

p.65

  1. First movers can monitor changes in the market that might be difficult or impossible to detect for those firms not participating in the market.
    TRUE

 

Difficulty: Easy

p.65

 

  1. If there is a poor fit between its resources and the external environment, then the firm will not enjoy superior performance.
    TRUE

 

Difficulty: Medium

p.66

  1. Key success factors are the requirements that any firm must meet to successfully compete in a particular industry.
    TRUE

 

Difficulty: Medium

p.66

  1. Emerging industries are industries that have been around for years but are just starting to experience explosive growth.
    FALSE

 

Difficulty: Medium

p.67

  1. Environmental changes are highly unlikely in emerging industries.
    FALSE

 

Difficulty: Easy

p.67

  1. By overestimating demand, the entrepreneur will suffer the costs of under capacity.
    FALSE

 

Difficulty: Hard

p.67

 

  1. Entrepreneurs that delay entry have the advantage of more information about market demand.
    TRUE

 

Difficulty: Medium

p.67

  1. Technological uncertainty is eliminated by a superior technology.
    FALSE

 

Difficulty: Medium

p.68

  1. Adaptations necessary to meet changes in market demand are difficult because an organization resists change.
    TRUE

 

Difficulty: Medium

p.68

  1. Customers always embrace change in products and services.
    FALSE

 

Difficulty: Easy

p.69

  1. To overcome customer uncertainty, the venture should educate customer through demonstration and documentation on how to use the product.
    TRUE

 

Difficulty: Medium

p.69

 

  1. The late mover is able to operate in the industry for a grace period under conditions of limited competition.
    FALSE

 

Difficulty: Medium

p.70

  1. Building customers’ switching costs decreases barriers to entry for other firms.
    FALSE

 

Difficulty: Easy

p.71

  1. Competition within an industry always has a negative effect on industry growth.
    FALSE

 

Difficulty: Medium

p.71

  1. A narrow scope strategy offers a small product range to a small number of customer groups.
    TRUE

 

Difficulty: Medium

p.73

  1. Using a broad scope strategy helps to reduce the risk of market uncertainty.
    TRUE

 

Difficulty: Medium

p.74

  1. If a company has a superior product, customers will always be willing to pay a higher price for higher value.
    FALSE

 

Difficulty: Medium

p.73

  1. A narrow scope strategy reduces the risks associated with competition.
    TRUE

 

Difficulty: Medium

p.73

  1. Imitation of other products increases the downside loss associated with new entry.
    FALSE

 

Difficulty: Medium

p.74

  1. Franchising is an example of a new entry strategy that increases the risk of downside loss for the franchises.
    FALSE

 

Difficulty: Medium

p.75

  1. A “me-too” strategy consists of copying products that already exist and attempting to build an advantage through minor variations.
    TRUE

 

Difficulty: Easy

p.75

  1. The three major risk reduction strategies discussed in the text are narrow scope, broad scope and imitation.
    FALSE

 

Difficulty: Medium

  1. 73-75
  2. Lack of informal communication systems is one of the assets of newness.
    FALSE

 

Difficulty: Medium

p.76

 

Multiple Choice Questions

  1. A new entry includes all of the following except:
    A.Offering a new product to a new market
    B. Offering an established product to an new market
    C. Creating a new product development process for your company
    D. Creating a new organization

 

Difficulty: Easy

p.58

  1. The set of decisions, actions, and reactions that first generate, and then exploit over time, a new entry is:
    A.entrepreneurial financing.
    B. entrepreneurial strategy.
    C. bootstrapping.
    D. informal organization.

 

Difficulty: Medium

p.59

  1. Which among the following is not a key stage of the entrepreneurial strategy?
    A.Market research to identify a new entry opportunity.
    B. Generation of a new entry opportunity.
    C. Exploitation of a new entry opportunity.
    D. A feedback loop from the culmination of a new entry generation and exploitation back to generation of a new opportunity.

 

Difficulty: Medium

p.59

  1. Which item is not part of the new entry generation stage in the entrepreneurial strategy process?
    A.Technical knowledge
    B. Risk reduction strategies
    C. Rare resources
    D. Market Knowledge

 

Difficulty: Easy

p.59

  1. The basic building blocks to a firm, or the inputs into the production process, are:
    A.competition.
    B. strategy.
    C. liabilities.
    D. resources.

 

Difficulty: Medium

p.60

  1. To be the basis of a firm’s superior performance over competitors for an extended period of time, resources need to be:
    A.valuable.
    B. fully utilized.
    C. patented.
    D. shared.

 

Difficulty: Medium

p.60

  1. _________ are used to protect the owner of the technology from people imitating the technology.
    A. Franchises
    B. Switching costs
    C. Patents
    D. Distributors

Difficulty: Medium

p.60

 

 

 

  1. Which of the following statements is(are) true?
    A.Knowledge is a valuable entrepreneurial resource that is gained through formal education.
    B. Knowledge can be gained through highly experienced managers and/or firms.
    C. Knowledge based on experience is unlikely to be learned in a classroom.
    D. Research, more than knowledge, leads to the generation of new entries in markets and technologies.

 

Difficulty: Medium

p.61

  1. ______________ knowledge refers to the entrepreneur’s possession of information, technology, know-how, and skills that provide insight into the industry and customers.
    A. Technological
    B. Resource
    C. Opportunity
    D. Market

 

Difficulty: Medium

p.61

  1. Which is the best way to gain knowledge about a potential new entry?
    A.Marketing research
    B. Internet research
    C. Entrepreneur’s market experience and knowledge.
    D. Surveys

 

Difficulty: Hard

p.61

  1. Technological knowledge:
    A.is gained through market research.
    B. can lead to a technology that is the basis for a new entry.
    C. does not help unless the market applicability is obvious.
    D. does not help if the market is limited.

 

Difficulty: Hard

p.62

 

  1. When conducting research on a new entry:
    A.the more information the entrepreneur has, the more difficult it is to focus on the consumer.
    B. the entrepreneur must rely upon surveys more that market knowledge.
    C. extensive research is expensive in terms of time and money.
    D. lesser prior knowledge is advantageous since it minimizes the risk of entrepreneurial bias.

 

Difficulty: Medium

p.63

  1. The window of opportunity is part of:
    A.assessing the attractiveness of a new entry opportunity.
    B. creating a resource bundle.
    C. choosing an entry strategy.
    D. choosing a risk reduction strategy.

 

Difficulty: Medium

p.63-64

  1. The period of time when the environment is favorable for entrepreneurs to exploit a particular new entry is the:
    A.market research phase.
    B. window of opportunity.
    C. technology window.
    D. narrow-scope strategy.

 

Difficulty: Medium

p.63-64

  1. When an entrepreneur pursues a new entry opportunity only to find out later that he or she had overestimated his or her ability to create customer demand it is a(n):
    A.technological error.
    B. window of opportunity.
    C. error of omission.
    D. error of commission.

 

Difficulty: Medium

p.64

 

  1. An error of omission occurs when an entrepreneur:
    A.enters a market but overestimates the customer demand.
    B. develops a product for a market that is too narrow.
    C. decides not to enter a market that is, in fact, desirable.
    D. fails to understand the limitations of a market.

 

Difficulty: Hard

p.64

  1. Regarding entry into a new market, which of the following is(are) true?
    A.First movers gain expertise through participation.
    B. First movers are not able to detect changes in the market.
    C. First movers suffer a cost disadvantage.
    D. First movers face more competitive rivalry.

 

Difficulty: Easy

p.65

  1. First movers:
    A.are not able to gain from moving down the experience curve.
    B. are better positioned to satisfy customers.
    C. face more competition than late movers.
    D. fail to secure important channels.

 

Difficulty: Medium

p.65

  1. Which of the following is not a reason that first movers are better positioned to satisfy their customers?
    A.They have a chance to select and secure the most attractive segments of the market
    B. They have the chance to position themselves at the center of the market
    C. They have a chance to face less competitive rivalry
    D. They have a chance to establish their product as the industry standard

 

Difficulty: Hard

p.65

 

  1. A disadvantage of being a first mover is:
    A.environmental instability.
    B. cost disadvantages.
    C. long lead time to gain knowledge.
    D. a limited market.

 

Difficulty: Hard

p.66

  1. If there is a good fit between the venture’s bundle of resources and the external environment:
    A.the firm will be rewarded with superior performance.
    B. the entrepreneur will be unable to compete in the market segment.
    C. environmental variables will be irrelevant.
    D. demand uncertainty will be irrelevant.

 

Difficulty: Medium

p.66

  1. In emerging industries:
    A.environmental factors do not affect customer demand.
    B. entrepreneurs confront demand certainty.
    C. environmental changes are highly likely.
    D. it is easier to respond effectively to sudden changes.

 

Difficulty: Medium

p.67

  1. First movers face:
    A.market rigidities.
    B. high entry barriers.
    C. cost disadvantages.
    D. demand uncertainty.

 

Difficulty: Easy

p.67

 

  1. By delaying entry, late movers:
    A.can learn from the actions of first movers without incurring the same costs.
    B. have less information about market demand.
    C. secure the window of opportunity.
    D. can avoid high entry barriers.

 

Difficulty: Medium

p.67

66.Technological uncertainty:
A. is a result of uncertainty about customer demand.
B. occurs because an alternative technology could be introduced by competitors.
C. only occurs in emerging markets.
D. can be avoided by early entrants with superior technology.

 

Difficulty: Hard

p.68

  1. Changes needed to adapt to environmental changes:
    A. are easier in established organizations because of inertia.
    B. can be avoided by late entry.
    C. are more difficult because of the entrepreneur’s tendency to escalate commitment.
    D. don’t affect smaller organizations.

 

Difficulty: Medium

p.68

  1. The entrepreneurial attributes of persistence and determination, which are so beneficial when the new venture is on the “right course,”:
    A. can make the entrepreneur more suitable to work in volatile markets.
    B. can hasten the process of adapting to sudden changes.
    C. can aid the entrepreneur in recognizing, and implementing changes.
    D. can inhibit the ability of the entrepreneur to detect, and implement, change.

 

Difficulty: Medium

p.68

 

  1. By entering a market later,
    A.customer uncertainties have already been substantially reduced.
    B. the venture can build a reputation as a “founder.”
    C. the company can erect barriers to entry and imitation.
    D. the player gets to operate only for a grace period.

 

Difficulty: Medium

p.69

  1. Customer uncertainty can take all of the following forms except:
    A.not understanding how to use the product
    B. not knowing whether the product will perform as expected
    C. not knowing where to buy the product
    D. being uncertainty adverse in general and resistant to change

 

Difficulty: Medium

p.69

  1. By being first to market a product, the venture:
    A.can tends to lose customer loyalties to late entrants.
    B. loses out to switching costs.
    C. secures access to important sources of supply.
    D. can sell its products and services at a higher price.

 

Difficulty: Easy

p.71

  1. The costs that must be borne by customers if they are to stop purchasing from the current supplier and begin purchasing from another is (are):
    A.customer switching costs.
    B. lead time.
    C. resource costs.
    D. resource bundle errors.

 

Difficulty: Medium

p.71

 

  1. Lead time is:
    A.the time from production to market delivery
    B. the time in which the first mover operates in the market under conditions of limited competition
    C. the time it takes for an entrepreneur to go from the concept stage to the delivery stage
    D. the time between product introduction and customer acceptance

 

Difficulty: Medium

p.70-71

  1. Barriers to entry include all of the following except:
    A.patents
    B. switching costs
    C. environmental instability
    D. building customer loyalties

 

Difficulty: Hard

p.71

  1. Frequent flier miles would be an example of which barrier to entry?
    A.Building customer loyalties
    B. Securing access to supply of key resources
    C. Creating product uniqueness
    D. Building in switching costs

 

Difficulty: Hard

p.71

  1. _____ refers to the probability, and magnitude, of downside loss.
    A. Reward
    B. Risk
    C. Liability of newness
    D. Technology error

 

Difficulty: Easy

p.73

 

  1. Offering a small product range to a small number of customer groups is:
    A. a narrow-scope strategy.
    B. an imitation strategy.
    C. a broad-scope strategy.
    D. a way of reducing market uncertainties.

 

Difficulty: Medium

p.73

  1. A narrow-scope market strategy:
    A.does not provide the entrepreneur an opportunity to build up specialized knowledge and expertise.
    B. provides substantial protection against competitors.
    C. is like putting all your eggs in one basket.
    D. can be thought of as taking a “portfolio” approach to dealing with uncertainties.

 

Difficulty: Medium

p.73

  1. A broad-scope market strategy:
    A.focuses on producing customized products.
    B. provides substantial protection against competitors.
    C. is used to reduce market uncertainty.
    D. is based primarily on product quality.

 

Difficulty: Medium

p.74

  1. A broad-scope strategy:
    A.is vulnerable to the risk that market demand does not materialize as expected and/or changes over time.
    B. opens the firm up to many different “fronts” of competition.
    C. focuses the firm on producing customized products, localized business operations, and high levels of craftsmanship.
    D. offers a way of reducing some competition-related risks.

 

Difficulty: Medium

p.74

 

  1. Imitation strategies:
    A.require expensive and extensive research.
    B. are rare and inimitable.
    C. does not provide organizational legitimacy.
    D. can enhance a firm’s performance.

 

Difficulty: Medium

p.74

  1. A ______ strategy that copies products that already exist and attempts to build an advantage through minor variations.
    A.technological
    B. narrow scope
    C. me-too
    D. broad scope

 

Difficulty: Easy

p.75

  1. Which of the following is a liability of newness?
    A.Costs associated with learning new tasks are high.
    B. Lack of established routines and processes give the venture a new slate.
    C. Communication in informal systems is increased.
    D. Market for potential consumers is limited.

 

Difficulty: Hard

p.76

  1. Franchising:
    A.is the only imitation strategy discussed in the text.
    B. reduces risk of downside loss.
    C. is the same as the me-too strategy.
    D. reduces the amount of competition an entrepreneur will face.

 

Difficulty: Medium

p.75

 

 

Short Answer/Essay Questions

  1. Identify and briefly describe the major stages of entrepreneurial strategy.Three major stages:
    Stage 1 New entry generation – The generation of a new entry is the result of a combination of knowledge and other resources into a bundle that its creators hope will be valuable, rare, and difficult for others to imitate. Depending on how in-depth the instructor wants the answer items like market and technological knowledge, window of opportunity and error of omission/commission may be required/discussed.
    Stage 2 New entry exploitation – comprised of choosing an entry strategy, a risk reduction strategy. Depending on how in-depth the instruction wants the answer items like first mover advantages/disadvantages, demand and technological uncertainty, adaptation, lead time, and narrow/broad scope strategies may be discussed.
    Stage 3 Feedback loop of resources – a brief description is appropriate since not much time is spent on this stage. Answer may include items from the following excerpt obtained from the textbook, ” we should not underestimate the importance of the feedback loop of stage 3 because an entrepreneur cannot rely on the generation and exploitation of only one new entry; rather, long-run performance is dependent upon the ability to generate and exploit numerous new entries. If the firm does rely on only one new entry, then as the life cycle for the product enters maturity and declines, so goes the life cycle of the organization.”

Answer will vary.

Difficulty: Medium-Hard

p.58-59

  1. Explain what constitutes a new entry.

New entry refers to (1) offering a new product to an established or new market, (2) offering an established product to a new market, or (3) creating a new organization (regardless of whether the product or the market is new to competitors or customers).

 

Difficulty: Easy

  1. 58-59
  2. Explain the difference between errors of omission and commission.

An error of commission occurs from the decision to

pursue this new entry opportunity, only to find out later that the entrepreneur had overestimated

his or her ability to create customer demand and/or to protect the technology from

imitation by competitors. The costs to the entrepreneur were derived from acting on the

perceived opportunity.

An error of omission occurs from the decision not to act on the new entry opportunity,

only to find out later that the entrepreneur had underestimated his or her ability to create

customer demand and/or to protect the technology from imitation by competitors. In this

case, the entrepreneur must live with the knowledge that he let an attractive opportunity

slip through his fingers.

Difficulty: Medium

p.64

  1. List the 5 main first-mover advantages discussed in the text.

Cost advantages

Less competition

Secure important channels

Prime position for customers

Expertise from participation

 

Difficulty: Medium (to increase ask for more detailed explanation of advantages)

p.65-66

 

 

  1. Identify the main disadvantages of being a first-mover.

 

Environmental instability

Customer Uncertainty

Short lead time

 

Difficulty: Easy (increase to medium by asking for explanation of each)

p.66

 

 

  1. Identify and briefly explain the 4 ways that lead time can be extended by creating barriers to entry. Give examples where appropriate.

 

Building customer loyalties by trying to get the customer to associate the industry with the “first-movers” product. Establish and build customer loyalty to be brand of choice.

 

Build switching costs to try and lock in existing customers by making it “costly” for them to switch through mechanisms like loyalty programs.

 

Protecting product uniqueness through patents, trademarks, trade secrets or other IP protections.

 

Securing access to important sources of supply and distribution by developing exclusive relationships with key sources. This forces competitors to use lesser quality sources or can bar them from entering if supply is limited.

 

Difficulty: Medium

p.71

 

 

  1. Identify and describe the three major risk reduction strategies.A. Narrow scope – A narrow-scope strategy offers a small product range to a small number of customer groups to satisfy a particular need. The narrow scope can reduce the risk that the firm will face competition with larger, more established firms in a number of ways. A narrow-scope strategy focuses the firm on producing customized products, localized business operations, and high levels of product quality. By focusing on a specific group of customers, the entrepreneur can build up specialized expertise and knowledge that provide an advantage over companies that are competing more broadly. The high end of the market typically represents a highly profitable niche.
    B. Broad scope – broad-scope strategy can be thought of as taking a “portfolio” approach to dealing with uncertainties about the attractiveness of different market segments. By offering a range of products across many different market segments, the entrepreneur can gain an understanding of the whole market by determining which products are the most profitable. Unsuccessful products (and market segments) can then be dropped and resources concentrated on those product markets that show the greatest promise. In essence, the entrepreneur can cope with market uncertainty by using a broad-scope strategy to learn about the market through a process of trial and error.
    C. Imitation strategies – Imitation is another strategy for minimizing the risk of downside loss associated with new entry. Imitation involves copying the practices of other firms, whether those other firms are in the industry being entered or from related industries. Entrepreneurs may simply find it easier to imitate the practices of a successful firm than to go through the process of a systematic and expensive search that still requires a decision based on imperfect information. In essence, imitation represents a substitute for individual learning. Imitating some of the practices of established successful firms can help the entrepreneur develop the skills necessary to be successful in the industry, rather than attempting to work out which skills are required and develop these skills from scratch. Imitation also provides organizational legitimacy. If the entrepreneur acts like a well established firm, it is likely to be perceived by customers as well established. Imitation is a means of gaining status and prestige. Customers feel more comfortable doing business with firms that they perceive to be established and prestigious.

Answer will vary.

 

Difficulty: Medium-Hard depending on detailed required by instructor

p.73-75

 

  1. Explain why an entrepreneur might adopt an imitation strategy.

 

Reduces the risk by:

-reducing research and development costs

-reducing customer uncertainty about the firm/established reputation

-established market demand

-protected name and products (IP)

-access to help with financial, marketing and managerial issues

 

Difficulty: Medium

  1. 75-76

 

 

  1. Explain the three major causes of “liabilities of newness.”

 

  • New organizations face costs in learning new tasks. It may take some time and

training to customize employees’ skills to the new tasks they are asked to perform.

  • As people are assigned to the roles of the new organization, there will be some overlap

or gaps in responsibilities. This will often cause conflict until the boundaries around

particular roles are more formally set (once management has gained sufficient

knowledge to do so) and/or until they have been informally negotiated by the parties

to the conflict.

  • Communication within the organization occurs through both formal and informal

channels. A new organization has not yet had the opportunity to develop informal

structures, such as friendships and organizational culture. It takes time for a new firm

to establish these informal structures.

 

Difficulty: Medium

  1. 76Chapter 05 Identifying and Analyzing Domestic and International Opportunities Answer KeyTrue / False Questions
    1. The key to successful entrepreneurship is to develop an idea that has a market with a need for the product or service idea conceived.
      TRUE

    Difficulty: Medium
    p.121

    1. An opportunity assessment plan is basically the same thing as a business plan.
      FALSE

    Difficulty: Medium
    p.121

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

    Difficulty: Medium
    p.122 

    1. The U.S. Chamber of Commerce and Small Business Development Centers are good places to get information and assistance in starting a new business.
      TRUE

    Difficulty: Easy
    p.122 

    1. Gartner provides information on technology markets.
      TRUE

    Difficulty: Hard
    p.123 

     

    1. The Kaufmann foundation Provides resources for entrepreneurship education and research and lists the angel (private investor) groups throughout the United States.

    TRUE

     

    Difficulty: Medium

    p.123

     

    1. The Euromonitor provides very industry specific information on companies in the European Union.

    FALSE

     

    Difficulty: Medium

    p.123

     

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

    FALSE

     

    Difficulty: Medium

    p.124

    1. International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries.
      TRUE

    Difficulty: Easy
    p.125

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

    Difficulty: Medium
    p.126

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

    Difficulty: Medium
    p.127 

    1. The laws governing business arrangements have been standardized over 150 international legal systems.
      FALSE

    Difficulty: Medium
    p.127 

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

    Difficulty: Medium
    p.127

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

    Difficulty: Easy
    p.128

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

    Difficulty: Hard
    p.128

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

    Difficulty: Medium
    p.128

    1. 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.
      FALSE

    Difficulty: Hard
    p.128-129

    1. 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.
      FALSE

    Difficulty: Hard
    p.129

     

    1. Culture encompasses a wide variety of elements, including language, social structure,

    religion, political philosophy, economic philosophy, education, and manners and customs.

    TRUE

     

    Difficulty: Medium

    p.130

    1. Nonverbal or hidden language of the culture can be thought of in terms of several components – time, intangible value, and business relationships.
      FALSE

    Difficulty: Medium
    p.131

    1. Reference groups in any culture provide values and attitudes that influence behavior.
      TRUE

    Difficulty: Medium
    p.132

     

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

    FALSE

     

    Difficulty: Easy

    p.133

     

    1. Profits and tax benefits are common motivations for going global.
      TRUE

     

    Difficulty: Medium
    p.134

     

    1. 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.
      FALSE

     

    Difficulty: Medium
    p.134

     

     

     

    1. In selecting a foreign market the selection decision should be based on both past sales and competitive positioning as well as an assessment of each foreign market alternative.

    TRUE

     

    Difficulty: Medium

    p.136

     

    1. 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.
      TRUE

     

    Difficulty: Medium
    p.137

     

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

     

    Difficulty: Medium
    p.139

     

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

     

    Difficulty: Medium
    p.140

     

    1. 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.

    TRUE

     

    Difficulty: Medium

    p.140

     

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

    FALSE

     

    Difficulty: Medium

    p.140

     

    1. 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.

    FALSE

     

    Difficulty: Medium

    p.142

     

    1. 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.
    TRUE

    Difficulty: Medium

     p.143

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

    Difficulty: Medium
    p.144

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

    Difficulty: Medium
    p.144

    1. The North American Free Trade Agreement (NAFTA) increases trade barriers and quotas among the U.S., Canada, and Mexico.
      FALSE

    Difficulty: Easy
    p.145

     

    Multiple Choice Questions

    1. An opportunity assessment plan:
      A.is the same thing as a business plan.
      B. is longer than a business plan.
      C. has a lot of computer-based spreadsheets.
      D. focuses on the opportunity, not the venture.

     

    Difficulty: Medium
    p.121

     

    1. All of the following are questions an opportunity assessment plan might answer except:
      A.How much capital do I need?
      B. What market need does it fill?
      C. What business skills do I have?
      D. Can a patent be obtained?

     

    Difficulty: Hard

    p.121-122

     

     

    1. ______ is a nonprofit organization that provides free online and in-person assistance to entreprenuers in the form of training, consulting and mentoring provided mainly by retired executives and entreprenuers.
      A. CSBC
      B. NAICS
      C. SCORE
      D. SIC

     

    Difficulty: Medium
    p.122 

     

     

    1. ____ and _____ are both government sources of information that might be helpful in gathering the information needed to start a business.
      A.Mergent and The Industrial monitor
      B. NAICS and SIC codes
      C. Business Source Complete and Small Business News
      D. The Euromonitor and Business Source Complete

     

    Difficulty: Medium
    p.123-124

     

    1. ______ provides information on industries such as aerospace, energy, healthcare and defense.
      A. Mergent
      B. Plunkett
      C. Frost and Sullivan
      D. Business Source Complete

     

    Difficulty: Hard
    p.123 

     

    1. All of the following are government sources of information except:
    2. Census reports
    3. Export/Import Authority
    4. NAICS and SIC
    5. Hoovers

     

    Difficulty: Easy

    p.123

     

    1. _____________ is the process of an entrepreneur conducting business activities across national borders.
      A. Intrapreneurship
      B. International entrepreneurship
      C. Domestic entrepreneurship
      D. Direct importing

     

    Difficulty: Medium
    p.125

     

    1. Concerns regarding roads, electricity, banking facilities, communication, and educational systems have to do with a country’s:
      A.infrastructure.
      B. balance of payments.
      C. political climate.
      D. economics.

     

    Difficulty: Medium
    p.127 

     

    1. A country’s _______________ is the difference between the value of a country’s imports and exports over time.
      A.gross national product
      B. purchasing power parity
      C. current account
      D. foreign exchange reserve

     

    Difficulty: Easy
    p.127

     

    1. What term describes the practice of paying for goods indirectly through another source?
      A.Licensing
      B. Barter
      C. Promotion
      D. Exporting

     

    Difficulty: Easy
    p.127

     

    1. Which among the following political risks is considered the biggest risk of all?
      A.Transfer risk
      B. Ownership risk
      C. Investment risk
      D. Operating risk

     

    Difficulty: Hard
    p.128

     

     

    1. ______ is defined as the risk of interference with the operations of the venture.
      A. Transfer risk
      B.Ownership risk
      C. Investment risk
      D. Operating risk

     

    Difficulty: Medium
    p.128

     

     

     

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

     

    Difficulty: Medium
    p.128 

     

    1. Which of the following is not an aspect of nonverbal or hidden language?
      A.Energy
      B. Business relationships
      C. Space
      D. Time

    Difficulty: Easy
    p.131 

     

    1. It is a practice in some cultures to hug and even kiss when greeting a known business partner. What aspect of nonverbal language is being referred to in the above example?
      A.Time
      B. Business relationship
      C. Space
      D. Customs

     

    Difficulty: Easy
    p.131 

     

    1. Which of the following statements is not true?
      A.Religion in a culture defines the ideas for life, reflected in the values and attitudes of individuals and the overall society.
      B. The tenets of nonreligious or secularist societies do not affect behavior.
      C. The impact of religion varies depending on the strength of the dominant religious tenets and their impact on the values and attitudes of the culture.
      D. Religion provides the basis for some degree of transcultural similarity under shared beliefs and attitude.

    Difficulty: Medium
    p.132-133 

     

    1. 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?
      A.Political philosophy
      B. Religion
      C. Manners and customs
      D. Education

     

    Difficulty: Easy
    p.133

    1. Motivations for going global, discussed in the text, include all the following except:
      A.cheap shipping costs
      B. excess production capacity
      C. technological advantage
      D. competitive pressures

    Difficulty: Medium
    p.134

    1. Primary data is:
      A.data that has been collected by the private sector.
      B. data collected by the government.
      C. original information collected by the entrepreneur.
      D. data that is hard to find.

    Difficulty: Medium
    p.137

     

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

     

    Difficulty: Medium
    p.139 

     

    1. _____ is not considered a nonequity arrangement.
      A. Turn-key projects
      B. Exporting
      C. Licensing
      D. Management contracts

     

    Difficulty: Medium
    p.140

     

     

    1. _____ has the main disadvantages of high transportation costs, trade barriers, and problems with local marketing agents.
      A.Exporting
      B. Turn-key projects
      C. Licensing
      D. Franchising

    Difficulty: Medium
    p.140 

     

    1. Licensing is best described as:
      A. a nonequity method of international business in which an entrepreneur contracts his or her

    management techniques and skills to a (foreign) purchasing company.

    1. 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.
    2. 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.
    3. an equity partnership that involves selling patents to foreign governments.

    Difficulty: Easy
    p.140-141 

     

    1. A turn-key project is best defined as:
      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
      B. giving a foreign manufacturer the right to use a patent in return for the payment of a royalty
      C. a method in which an entrepreneur contracts his or her management techniques and skills to a (foreign) purchasing company
      D. a form of direct foreign investment in which the investing entrepreneur holds a minority ownership position in the foreign venture

    Difficulty: Medium
    p.141

     

    1. A _____ is the joining of two firms in order to form a third company in which the equity is shared.
      A.majority interest
      B. joint venture
      C. product extension merger
      D. minority interest

     

    Difficulty: Medium
    p.141 

     

    1. _____ 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.
      A.Market extension merger
      B. Horizontal merger
      C. Product extension merger
      D. Vertical merger

    Difficulty: Medium
    p.143

    1. McDonald’s acquiring its store franchises is an example of what type of merger?
      A.Market extension merger
      B. Horizontal merger
      C. Product extension merger
      D. Vertical merger

     

    Difficulty: Medium
    p.143

    1. According to the text, the most prevalent reason for mergers is:
      A.taxation.
      B. economies of scale.
      C. currency fluctuations.
      D. to combine complementary resources.

    Difficulty: Hard
    p.143

     

    1. Philip Morris acquiring Miller Brewing is an example of what type of merger?
      A.Market extension merger
      B. Horizontal merger
      C. Product extension merger
      D. Vertical merger

     

    Difficulty: Hard
    p.143

     

    1. All of the following is true of the General Agreement on Tariffs and Trade except:
      A.it includes over 100 nations.
      B. it reduces tariffs, subsidies, and import quotas.
      C. it has extensive authority to enforce trade practices due to its voluntary membership.
      D. it is one of the longest-lasting agreements on trade.

    Difficulty: Medium
    p.144

    1. The North American Free Trade Agreement (NAFTA) is between which of the following countries?
      A.United States, Brazil, and Canada
      B. United States, Mexico, and Brazil
      C. United States, Argentina, and Brazil
      D. United States, Canada, and Mexico

    Difficulty: Medium
    p.145

     

    Short Answer/Essay Questions

    1. Explain what the differences are between a business plan and an opportunity assessment plan.
    2. Shorter
    3. Focuses on the opportunity rather than the venture
    4. No computer-based spreadsheets
    5. Is the basis for whether to act upon an opportunity or wait until another, better opportunity comes along.

     

    Difficulty: Medium

    p.121

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

    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: Medium/Hard depending on detail required by instructor.

    p.121-122

    1. Define political risk analysis, and identify and briefly describe the three major types of political risk.Political risk analysis – Prior to entering into business in another country, an assessment of that country’s political policies and its stability

      A. Operating risk – risk of interference with the operations of the venture
      B. Transfer risk – risk in attempting to shift assets or other funds out of the country
      C. Ownership risk – the largest potential risk, where the country takes over the venture’s property and employees

    Answer will vary.

    Difficulty: Medium

    p.128

    1. List the seven various aspects of culture.

    Social Structure

    Religion

    Political Philosophy

    Economics and Economic Philosophy

    Education
    Manners and Customs

    Language

     

    Difficulty: Hard (ask for less for a medium level of difficulty)

    p.132 figure 5.1

     

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

     

    (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: Hard

    p.134

     

     

     

     

     

    1. What are the major reasons why an entrepreneur would go global?

     

    • 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: Medium (depending of number of reasons instructor requires)

    p.134 table 5.3

     

    1. (p. 147-149)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.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.

      A. 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.
      Benefit: 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.
      B. 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.

    Answer will vary.

    Difficulty: Medium

    p.140-141