Chapter 6

Question 1

The name of Chapter 6

Answer 1

Entering Foreign Markets

Question 2

liability of foreignness

Answer 2

The inherent disadvantage foreign firms experience in host countries because of their nonnative status

Question 3

dissemination risk

Answer 3

The risk associated with the unauthorized diffusion of firm-specific assets

Question 4

regulatory risk

Answer 4

Risk associated with unfavorable government regulations

Question 5

obsolescing bargain

Answer 5

A deal struck by an MNE and a host government, which changes the requirements after the entry of the MNE

Question 6

trade barrier

Answer 6

Barrier blocking international trade

Question 7

tariff barrier

Answer 7

Taxes levied on imports

Question 8

trade war

Answer 8

A country imposes tariffs or quotas on imports and other countries retaliate with similar forms of trade protectionism

Question 9

nontariff barrier

Answer 9

Trade and investment barriers that do not entail tariffs

Question 10

currency risk

Answer 10

Risk stemming from exposure to unfavorable movements of the currencies

Question 11

currency hedging

Answer 11

A transaction that protects traders and investors from exposure to the fluctuations of the spot rate

Question 12

strategic hedging

Answer 12

Spreading out activities in a number of countries in different currency zones to offset any currency losses in one region through gains in other regions

Question 13

location-specific advantage

Answer 13

Advantage associated with operating in a specific location

Question 14

agglomeration

Answer 14

Clustering economic activities in certain locations

Question 15

first-mover advantage

Answer 15

Advantage that first movers enjoy and later movers do not

Question 16

late-mover advantage

Answer 16

Advantage associated with being a later mover

Question 17

First-Mover Advantages Examples in the Text

Answer 17

Proprietary, technological leadership
- Apple’s iPhone

Relationships with key stakeholders such as governments
- Citigroup
- JP Morgan Chase

Avoidance of clashes with dominant firms at home
- Sony
- Honda

Question 18

Late-Mover Advantages Examples in the Text

Answer 18

• Amazon free rides on Flipkart’s investment in educating customers in India
• Tesla as well as BMW, GM, and Toyota wait until the Nissan Leaf resolves technical uncertainties
• Greyhound is stuck with the bus depots, whereas Megabus simply uses curbside stops

Question 19

scale of entry

Answer 19

The amount of resources committed to foreign market entry

Question 20

nonequity mode

Answer 20

Mode of foreign market entry that does not involve the use of equity

Question 21

equity mode

Answer 21

Mode of foreign market entry that involves the use of equity

Question 22

ownership advantage

Answer 22

Advantage associated with directly owning assets overseas

Question 23

internalization

Answer 23

The process of replacing a market relationship with
a single multinational organization spanning both countries

Question 24

internalization advantage

Answer 24

Advantage associated with replacing a market relationship with an internal organization

Question 25

OLI advantages

Answer 25

Ownership, location, and internalization advantages, which are typically associated with MNEs

Question 26

entry mode

Answer 26

A form of operation that a firm employs to enter foreign markets

Question 27

turnkey project

Answer 27

Project in which clients pay contractors to design and construct new facilities and train personnel

Question 28

build-operate-transfer (BOT) agreement

Answer 28

A special kind of turnkey project in which contractors first build facilities, operate them for a period of time, and then transfer them back to clients

Question 29

research and development (R&D) contract

Answer 29

Outsourcing agreements in R&D between firms

Question 30

co-marketing

Answer 30

Agreements among a number of firms to jointly market their products and services

Question 31

joint venture (JV)

Answer 31

A “corporate child” is a new entity is jointly owned by two or more parent companies

Question 32

wholly owned subsidiary (WOS)

Answer 32

Subsidiary located in a foreign country that is entirely owned by the MNE

Question 33

greenfield operation

Answer 33

Building factories and offices from scratch (on a proverbial piece of “greenfield” formerly used for agricultural purposes)

Question 34

country-of-origin effect

Answer 34

The positive or negative perception of firms and products from a certain country

Question 35

LLL advantages

Answer 35

Linkage, leverage, and learning advantages, which are typically associated with MNEs from emerging economies

Question 36

reciprocity

Answer 36

An informal agreement based on mutual exchange of gratifications

Question 37

institutional void

Answer 37

Institutional conditions of a country lacking market-supporting infrastructure