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17 views

Tut 1

Uploaded by

Sohad Elnagar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 1

Franchising is the process by which national governments sell state owned operations to
corporations and other investors.
a. True
b. False

A product cycle is the process by which a firm provides a specialized sales or service strategy,
support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
a. True
b. False

If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage
other firms to acquire it.
a. True
b. False

Which of the following theories identifies the non-transferability of resources as a reason for
international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above

Which of the following could reduce agency problems for an MNC?


a. stock options as managerial compensation.
b. hostile takeover threat.
c. investor monitoring.
d. all of the above are forms of corporate control that could reduce agency problems for an
MNC.
The agency costs of an MNC are likely to be lower if it:
a. scatters its subsidiaries across many foreign countries.
b. increases its volume of international business.
c. uses a centralized management style.
d. A and B.

MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized data base of information
b. ensuring that all data are reported consistently among subsidiaries
c. ensuring that the MNC always borrows from countries where interest rates are lowest
d. using a system that checks internal data for unusual discrepancies

In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur
____ fixed production costs and ____ transportation costs than DFI.
a. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher

____ were the earliest multinationals.


a. raw-material seekers
b. market seekers
c. cost minimizers
d. oil companies

Companies gradually increase their commitment to international business with strategies that are
progressively more sophisticated. Which one of the following steps is NOT one of the steps?
a. exporting
b. setting up a sales subsidiary
c. setting up a distribution system
d. creating a legal entity in the new target country

Which of the following is generally a licensing rather that an exporting opportunity for a
multinational looking to expand globally?
a. The firm has a product that can be shipped without adaptation.
b. The firm is seeking to market a specific product or process technology that can be written down
and transmitted objectively.
c. The firm has a product such as a new device that is technologically advanced.
d. A firm that has specialized cost-saving equipment.

a. Explain the agency problem of MNCs.


The agency problem reflects a conflict of interests between decision-making managers
and the owners of the MNC. Agency costs occur in an effort to assure that managers act
in the best interest of the owners.

b. Why might agency costs be larger for an MNC than for a purely domestic firm?
The agency costs are normally larger for MNCs than purely domestic firms for the
following reasons. First, MNCs incur larger agency costs in monitoring managers of
distant foreign subsidiaries. Second, foreign subsidiary managers raised in different
cultures may not follow uniform goals. Third, the sheer size of the larger MNCs would
also create large agency problems.

c. Do you think the acquisition of a foreign firm or licensing will result in greater growth for an
MNC? Which alternative is likely to have more risk?
An acquisition will typically result in greater growth, but it is more risky because it
normally requires a larger investment and the decision can not be easily reversed once
the acquisition is made.
d. Plak Co. of Chicago has several European subsidiaries that remit earnings to it each year.
Explain how appreciation of the euro (the currency used in many European countries) would
affect Plak's valuation.
Plak’s valuation should increase because the appreciation of the euro will increase the
dollar value of the cash flows remitted by the European subsidiaries.

Anheuser-Busch, the producer of Budweiser and other beers, expanded into Japan by engaging in
a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enables
Anheuser-Busch to have its beer distributed through Kirin’s distribution channels in Japan. In
addition, it could utilize Kirin’s facilities to produce beer that would be sold locally. In return,
Anheuser-Busch provided information about the American beer market to Kirin.
a. Explain how the joint venture enabled Anheuser-Busch to achieve its objective of maximizing
shareholder wealth.
The joint venture creates a way for Anheuser-Busch to distribute Budweiser throughout
Japan. It enables Anheuser-Busch to penetrate the Japanese market without requiring a
substantial investment in Japan.
b. Explain how the joint venture limited the risk of the international business.
The joint venture has limited risk because Anheuser-Busch does not need to establish its
own distribution network in Japan. Thus, Anheuser-Busch may be able to use a smaller
investment for the international business, and there is a higher probability that the
international business will be successful.

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