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CHAPTER 3: INTERNATIONAL MANAGEMENT AND GLOBALIZATIONMultiple Choice Questions

1. According to Steve Radewych _____ is the process of closing high-cost manufacturing plants and opening others in regions of the world where costs are considerably lower. a. strategic managementb. transnational managementc. global growth managementd. human resource management

Answer: c (p. 58, moderate, recall)

2. Celestica’s challenge of satisfying customers and growing their business required careful coordination among _____.a. the customersb. various manufacturing sitesc. multiple suppliersd. all of the above

Answer: d (p. 59, moderate, integration)

3. _____ refers to the flow of goods and services, capital, and knowledge across country borders. a. Marketingb. Globalizationc. Repatriation d. Entrepreneurialism

Answer: b (p. 59, easy, recall)

4. According to Thomas Friedman, the third stage of globalization involves _____.a. internationalization of countriesb. countries moving into international marketsc. individuals collaborating or competing on a global basisd. increasing influence of national governments on local economies

Answer: c (pp. 59 – 60, difficult, application)

5. A country’s _____ consists of its rules, policies, and enforcement processes. a. cultural milieub. economic dimensionc. institutional environmentd. socio-economic landscape

Answer: c (p. 61, easy, recall)

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6. All of the following EXCEPT _____ are dimensions of a country’s distinct institutional environment.a. political-legalb. geographic c. economic developmentd. physical infrastructure

Answer: b (p. 61, moderate, recall)

7. Which one of the following economies tends to have a more-effective capital market?a. emergingb. developingc. developedd. expansive

Answer: c (p. 62, difficult, recall)

8. When the laws of a country related to and enforcement of _____ are weak, firms with valuable technologies are reluctant to bring them into the country.a. currency exchange ratesb. intellectual property rightsc. infrastructure dimensionsd. environmental protections

Answer: b (p. 63, moderate, integration)

9. All of the following EXCEPT _____ are dimensions of a country’s physical infrastructure.a. airports b. raw materialsc. telephone linesd. roads and highways

Answer: b (p. 63, difficult, recall)

10. _____ have emerging-market economies but still need greater development of their institutional dimensions.a. Cluster 1 countriesb. Cluster 2 countriesc. Cluster 3 countries d. Cluster 4 countries

Answer: b (p. 64, difficult, application)


11. Which of the following countries are members of Cluster 4 institutional environments?a. Japan and the United Statesb. Brazil, Russia, and Nigeriac. China, India, the Netherlands, and Singapored. Finland, France, Germany, Portugal, and Sweden

Answer: a (p. 64, difficult, recall)

12. _____ is a learned set of assumptions, values, and beliefs that have been accepted by members of a group and that affect human behavior.a. Cultureb. Historyc. Nationality d. Ethnicity

Answer: a (p. 64, easy, recall, AACSB: Multicultural and Diversity)

13. Studies conducted by Geert Hofstede and Robert House identified which of the following dimensions of national culture?a. power distanceb. uncertainty avoidancec. individualism versus collectivismd. all of the above

Answer: d (pp. 64 – 65, moderate, recall, AACSB: Multicultural and Diversity)

14. According to Hofstede, _____ is the extent to which people accept power and authority differences among people.a. gender focusb. individualism c. power distanced. uncertainty avoidance

Answer: c (p. 65, moderate, recall, AACSB: Multicultural and Diversity)

15. Cultures differ in terms of _____; that is, the extent to which they need things to be clear or ambiguous.a. collectivismb. individualismc. power distanced. uncertainty avoidance

Answer: d (p. 65, difficult, recall, AACSB: Multicultural and Diversity)


16. People who live in countries which score high on individual orientations, such as the United States and Great Britain, tend to _____.a. value collective decisions b. emphasize group membershipc. emphasize and reward individual achievementd. exhibit emotional dependence on organizations


17. _____ is the extent to which a person’s identity is a function of the group(s) to which he or she belongs and the extent to which group members are expected to look after each other.a. Individualismb. Collectivism c. Power distanced. Uncertainty avoidance

Answer: b (p. 65, easy, recall, AACSB: Multicultural and Diversity)

18. The term _____ represents the extent to which people in a given country value masculine or feminine traits.a. gender focusb. individualismc. collectivismd. power distance

Answer: a (p. 65, easy, recall, AACSB: Multicultural and Diversity)

19. In order to do all of the following EXCEPT _____ when entering new markets, firms often cluster their international operations in one or a few geographic regions. a. reduce potential costsb. minimize their risks c. manage their learning curved. maximize economies of scale

Answer: d (p. 66, difficult, integration)

20. _____ involves manufacturing products in a firm’s home country and shipping them to a foreign market.a. Importingb. Exporting c. Outsourcing d. Strategic marketing

Answer: b (p. 67, easy, recall)


21. A foreign company can enter a new market via _____ agreements which allow a local firm in the new market to manufacture and distribute the foreign company’s product.a. exportingb. importingc. licensingd. marketing


22. Which of the following is likely to be an advantage for the licensee in a licensing arrangement?a. low cost and little risk b. major returns on investmentc. strict control over the use of its product and brand named. none of the above

Answer: a (p. 67, moderate, application)

23. _____ are cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.a. Strategic alliancesb. Licensing arrangementsc. Cross-border acquisitionsd. Wholly-owned subsidiaries

Answer: a (p. 67, easy, recall)

24. Critics assert that _____ are one of the biggest reasons why offshoring services fail.a. reduced efficienciesb. cultural differencesc. increased labor costsd. all of the above

Answer: b (p. 68, moderate, application)

25. A foreign firm can enter a new international market by using a _____ to acquire a local firm in that market.a. strategic allianceb. licensing agreementc. cross-border acquisitiond. none of the above



26. Which of the following is a challenge associated with cross-border acquisitions?a. choosing the correct targetb. controlling the cost of the acquisitionc. integrating two previously independent companiesd. all of the above


27. When a company creates a _____ in a foreign country, it makes a direct investment to establish a business that it solely owns and controls there.a. corporate acquisition b. licensing arrangementc. wholly owned subsidiaryd. cross-border acquisition


28. A _____ is often called a “Greenfield venture.”a. strategic allianceb. licensing arrangementc. wholly owned subsidiaryd. cross-border acquisition


29. Companies can use all of the following methods EXCEPT _____ for managing their international subsidiaries.a. global focusb. region/country focusc. transnational focusd. internal operations focus


30. In a _____, the firm’s home office makes major strategic decisions.a. transnational organizationb. globally focused organization c. internally focused organizationd. regionally focused organization



31. Which of the following is NOT an advantage offered by a globally focused strategy?a. economies of scaleb. efficient resource allocationc. relatively standardized product lined. quick reaction to market opportunities

Answer: d (p. 72, difficult, application)

32. In an organization using a region-country focus, the primary authority to determine competitive strategy rests with the _____.a. corporate stockholdersb. corporate board of directorsc. home office management teamd. management of the international subsidiary

Answer: d (p. 73, moderate, integration)

33. European multinational firms commonly use a _____ approach because they are operating in multiple countries with different institutional environments. a. supply chainb. transnational c. globally focusedd. region-country focused

Answer: d (p. 73, moderate, recall)

34. A transnational organization is characterized by _____.a. global efficiencyb. local market responsivenessc. both global efficiency and local market responsivenessd. neither global efficiency nor local market responsiveness


35. In high-context cultures, the situation has a _____ on what is considered appropriate behavior. a. minimal influenceb. marginal influencec. significant influenced. negligible influence



36. _____ is the degree to which a situation influences behavior or perception of the appropriateness of behavior.a. Cultural milieub. Cultural contextc. Cultural elasticityd. Cultural dimensionality

Answer: b (p. 74, easy, recall, AACSB: Multicultural and Diversity)

37. In _____ people pay close attention to the situation and its various elements.a. diverse culturesb. global culturesc. low-context culturesd. high-context cultures

Answer: d (p. 74, moderate, recall, AACSB: Multicultural and Diversity)

38. In _____, appropriate behaviors are NOT strongly governed by contextual variables.a. diverse culturesb. global culturesc. low-context culturesd. high-context cultures


39. The key issue for managers leading multicultural teams is to recognize that _____.a. high context and low context cultures are identicalb. high context and low context cultures are differentc. high context and low context cultures are irrelevantd. high context and low context cultures do not exist

Answer: b (p. 75, moderate, application, AACSB: Multicultural and Diversity)

40. _____ rely on electronically mediated communication.a. Virtual teamsb. Ad hoc teamsc. Swift-trust teamsd. Cross-functional teams

Answer: a (p. 75, moderate, recall, AACSB: Communication)


41. Which of the following is NOT a characteristic of geographically dispersed multicultural teams?a. Mutual trust is not especially important.b. They often lack traditional supervision.c. They must work more autonomously.d. Coordination between team members is challenging.

Answer: a (p. 75, difficult, application)

42. The manager of an international team must _____ in order to build swift-trust.a. coordinate the efforts of team membersb. quickly eliminate misunderstandingsc. help members communicate in a positive wayd. all of the above

Answer: d (p. 75, moderate, integration, AACSB: Communication)

43. A _____ is a set of cognitive attributes that allows an individual to influence individuals, groups, and organizations from diverse sociocultural and institutional environments.a. winning attitudeb. global-mind setc. facile imaginationd. charismatic personality


44. Managing multicultural teams, competing in international markets, and managing international operations all require managers to develop a _____.a. global mind-setb. certain savoir-fairec. cross-functional vocabularyd. no-holds-barred management style

Answer: a (p. 75, moderate, integration)

45. Opponents of globalization assert that it _____.a. erects cultural boundariesb. stifles economic growthc. threatens cultural identitiesd. limits cultural sensitivity and understanding

Answer: c (pp. 76 – 77, difficult, integration, AACSB: Multicultural and Diversity)


True/False Questions

46. In recent years, the amount of outsourcing of manufacturing from high-cost regions to lower-cost regions has increased substantially.

Answer: True (p. 59, moderate, recall)

47. Increasing globalization has dramatically changed the competitive landscape for everyone in recent years.

Answer: True (p. 60, easy, recall AACSB: Multicultural and Diversity)

48. The influence of India and China in the global business arena is expected to decrease over the next 30 to 40 years.

Answer: False (p. 61, moderate, recall, AACSB: Multicultural and Diversity)

49. The institutional environment of a country has little effect on the individuals and organizations that operate within it.

Answer: False (p. 61, moderate, recall)

50. A country’s institutional environment consists of its rules, policies, and enforcement processes.

Answer: True (p. 61, easy, recall)

51. Developed economies tend to be smaller than less-developed or emerging economies.


52. The Sarbanes-Oxley Act was enacted by the United States to enforce tariffs and quotas on goods imported from China.

Answer: False (p. 62, easy, recall)

53. If a country’s laws related to intellectual property rights are weak, then firms with valuable technologies will be reluctant to bring them into that country.

Answer: True (p. 63, moderate, integration)

54. The availability of physical infrastructure in a new market rarely plays a significant role in a foreign firm’s decision to enter that market.



55. The strong presence of multinational firms in a country strongly influences the development of its institutional environment.


56. Societal culture can dramatically influence how people observe and interpret the business world around them.

Answer: True (p. 64, easy, application, AACSB: Multicultural and Diversity)

57. Culture can be defined as an inherited state of mind that has a powerful effect on human behavior.


58. Power distance is the extent to which people accept power and authority differences among people.

Answer: True (p. 65, moderate, recall, AACSB: Multicultural and Diversity)

59. Citizens in nations high in uncertainty avoidance prefer to have fewer rules and tend to be more comfortable in ambiguous situations.

Answer: False (p. 65, difficult, recall, AACSB: Multicultural and Diversity)

60. Individualism can be defined as the extent to which a person’s identity is a function of the groups to which he or she belongs.


61. People from countries with high individual orientations tend to emphasize and reward individual achievement and value individual decisions.

Answer: True (p. 65, moderate, application)

62. People from countries with high collective orientations tend to exhibit emotional dependence on the organizations and institutions to which they belong.


63. When managers come from cultures that are low in power distance and emphasize collectivism, they are usually more receptive to socially responsible activities.



64. As firms gain more experience operating in international markets, they prefer to enter markets that have institutional environments and cultures similar to their own.

Answer: False (p. 66, moderate, application)

65. The most common way of entering international markets is via strategic alliances.


66. Exporting involves manufacturing products in a firm’s home country and shipping them to a foreign market.


67. Licensing arrangements can be expensive and very risky for both the licensee and licensor.


68. Licensing is unlikely to produce major returns for the licensor unless the potential sales in the new market are large.


69. By forming a strategic alliance, two firms agree to share resources to accomplish a mutually desirable goal.


70. Strategic alliances have become the most popular strategy for international expansion.


71. Cultural differences are one of the biggest reasons why offshoring services fail.


72. The acquisition of a local firm by a foreign firm in order to enter a new international market is referred to as a cross-boarder acquisition.


73. In cross-border acquisitions, it is common for acquiring firms to obtain target firms at bargain prices.

Answer: False (p. 70, moderate, application)


74. Wholly owned subsidiaries are often complex and expensive to launch.

Answer: True (p. 71, difficult, recall)

75. In a globally-focused organization, strategic decisions are made in the branch offices.

Answer: False (p. 72, difficult, recall)

76. An organization using a region-country focus is highly decentralized.


77. A transnational organization tries to be simultaneously centralized and decentralized.


78. Cultural context is the degree to which a situation influences behavior and/or the perception of the appropriateness of various behaviors.


79. In high-context cultures, key contextual variables determine appropriate and inappropriate behavior.


80. In low-context cultures, the situation itself may or may not affect what is considered to be appropriate behavior.


81. Managers rarely have to manage multicultural teams within one organization in one location.


82. In virtual teams, members frequently depend on computer-mediated communications.

Answer: True (p. 75, easy, recall, AACSB: Communication)

83. Managers of international teams should use a leisurely approach to build trust between team members.



84. A global mindset can allow a manager to influence individuals, groups, and organizations from diverse sociocultural and institutional environments.

Answer: True (pp. 75 – 77, moderate, recall)

85. Globalization is changing not only economies but also societies and their customs.

Answer: True (p. 76, easy, recall, AACSB: Multicultural and Diversity)

Short Essay Questions

86. What challenges and opportunities has the emerging Chinese economy created for the United States? (p. 60)

China has had a major impact on the United States’ recovery following the 2001 recession. Some economists believe that the growing number of low-priced products imported from China is one reason why inflation has remained low in the United States. Moreover, China’s central bank has purchased billions of dollars of U.S. Treasury bills, thereby keeping interest rates low. These factors have stimulated U.S. investment and growth. In addition, Americans are exporting more goods to China; in 2006, these exports were up by 20 percent.

However, China’s growing trade surplus is a concern for its trading partners in the United States. Textile lobbyists believe that Chinese imports have cost thousands of Americans their jobs. As a result, they have filed a petition to limit the importation of certain clothing products. China is also under pressure from the United States to increase the value of its currency. This would help make Chinese imports more expensive and make U.S. imports into China more competitive. Finally, U.S. retailers are complaining about the long delivery times of Chinese imports. Therefore, they are beginning to consider local markets for some of their merchandise.

87. According to Thomas Friedman, how has globalization influenced business competition? (pp. 59 – 61)

Increasing globalization has dramatically changed the competitive landscape. For example, small firms now have access to markets and resources in other countries. This access has allowed them to compete effectively with larger firms. Furthermore, even firms from economies that are less developed can better compete in international markets. The world is at the point where even individual people are collaborating or competing on a global basis. According to Friedman, the increased globalization has made all of us “next-door neighbors” and competitors.


88. Define the term “institutional environment.” (p. 61)

Each country has a distinct institutional environment composed of political-legal, economic development, and physical infrastructure dimensions. This institutional environment consists of the country's rules, policies, and enforcement processes. This, in turn, influences the behavior of individuals and organizations that operate in the country.

89. What are the four country institutional environment clusters? (p. 64)

Cluster one largely consists of developing and transition economies. These countries are high in regulatory control and low in political rights. Cluster two largely consists of emerging market countries that are more advanced than cluster one countries but still need greater development of institutional dimensions. These countries score a bit higher on political rights but the lowest on monetary policies and the second highest on investment restrictions. Cluster three countries have the second highest regulatory controls but also score high on political rights. They also have strong physical infrastructures. Cluster four countries have the most developed institutional infrastructures overall; along with balanced regulatory controls and political rights, and strong economic and physical infrastructure institutional dimensions.

90. Identify and discuss the prominent dimensions of national culture identified by Hofstede and House. (pp. 64 – 66, AACSB: Multicultural and Diversity)

There are at least four prominent dimensions of national culture: power distance, uncertainty avoidance, individualism versus collectivism, and gender focus. Power distance is the extent to which people accept power and authority differences among people. Power distance does not suggest whether status and power differentials exist in a country; instead, it is the extent to which people in the country accept any differences.

Cultures differ in the extent to which they need things to be clear or ambiguous. This dimension of culture has been labeled uncertainty avoidance. Groups which are high in uncertainty avoidance create structures and institutions to reduce uncertainty. Groups which are low in uncertainty avoidance are more comfortable in ambiguous situations and prefer fewer rules.

Individualism is the extent to which people’s identities are self-oriented and people are expected to take care of themselves and their immediate families. People from countries with high individual orientations exhibit high emotional independence from organizations or institutions and tend to recognize individual decisions and reward individual achievements. In contrast, collectivism is the extent to which a person’s identity is a function of the group(s) to which he or she belongs and the extent to which group members are expected to look after each other. People from countries high in this dimension exhibit emotional dependence on the organizations and institutions to which they belong, emphasize group membership, and value collective decisions.


Gender focus represents the extent to which people value masculine or feminine traits. Countries emphasizing masculine traits value activities that lead to success, money, and possessions. Countries emphasizing feminine traits value activities which involve caring for others and enhancing the quality of life.

91. Discuss the ways that firms can enter new global markets. (pp. 66 – 71)

Firms can enter new foreign markets in the following ways: exporting products to the new market, licensing products to local firms, acquiring or creating strategic alliances with local firms, or establishing operations within the new market. Exporting involves manufacturing products in a firm’s home country and shipping them to a foreign market. Licensing arrangements allow a local firm in the new market to manufacture and distribute a foreign firm’s products. Strategic alliances are cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal. Acquisitions of local firms made by foreign firms to enter a new international market are called cross-border acquisitions. When a company creates a wholly owned subsidiary in a foreign country, it makes a direct investment to establish a business that it solely owns and controls there.

92. The outsourcing of corporate functions is a controversial practice in today’s workplace. Discuss the advantages and disadvantages of this practice. (p. 68, AACSB: Multicultural and Diversity; Communication)

Proponents of outsourcing think that moving jobs offshore means cutting labor costs which, in theory, will allow companies to sell their products at a lower price. Outsourcing also converts fixed costs into variable costs, thus releasing capital that can be used elsewhere in the business. Investors view outsourcing positively because a company can put more capital into revenue-producing activities. In addition, outsourcing allows companies to be more efficient by focusing human resources where they are needed.

Critics say that outsourcing is destined to fail due to cultural differences: such as different communication styles and language barriers; and different approaches to completing tasks, resolving conflicts, and making decisions. A recent poll shows that public concern in the United States over outsourcing is increasing, with over 80 percent of those surveyed wanting employers to stop moving jobs to other countries. Others feel that outsourcing diminishes human interaction from our workplace. Finally, many believe that when employers move services overseas, they are taking jobs from American workers.

93. Discuss the three different approaches for managing international operations. (p. 72 – 73)

In a globally focused organization, the firm’s home office makes major strategic decisions. Thus, the global organization has centralized authority, and the international subsidiaries usually follow the same or a similar strategy in each of their markets. In an organization using a region-country focus, the primary authority to determine competitive strategy rests with the managers of its international subsidiary based in a region of the


world or a specific country. The region or country mangers tailor their strategies to local markets or demands; therefore, this type of organization is decentralized. A transnational organization strives to be simultaneously centralized and decentralized. Its goal, therefore, is to achieve global efficiency while being responsive to local markets.

94. Define and discuss the term “cultural context.” (p. 74, AACSB: Multicultural and Diversity)

Cultural context is the degree to which a situation influences behavior or perception of the appropriateness of behaviors. In high-context cultures, people pay close attention to the situation and its various elements. Key contextual variables determine appropriate and inappropriate behavior. In low-context cultures, contextual variables have much less impact on determining appropriate behaviors. In summation, in low-context cultures, the situation may or may not affect what is considered appropriate behaviors; however, in high-context cultures, the context has a significant effect on this judgment.

95. Why is “swift trust” important to geographically dispersed teams? (p. 75, AACSB: Multicultural and Diversity; Communication)

Multicultural teams are often geographically dispersed. In spite of this, they often focus on regular business tasks. These teams use computer-mediated communication to expedite the completion of these tasks. Such communication media lack the richness of face-to-face interaction, thus increasing the likelihood that business messages will be misperceived or misunderstood. If miscommunications occur in the early stages of the team’s development, the members may not learn to trust each other. Trust is especially important for geographically dispersed teams because they must work autonomously (with little direct supervision), and they face challenges when they try to coordinate with other team members.

During the early development of geographically dispersed teams, managers must help them build trust rapidly. Swift trust is the rapid development of trust in teams with positive and reciprocal communication about the team’s task activities. To build swift trust, a team’s manager must help members communicate with one another in a positive way, coordinate their efforts, and remedy any misunderstandings. To do this, the manager must have not only managerial skills but also cultural knowledge and sensitivity.

Note: The remaining questions in this section will be based on the following scenario:

Microwave Systems Company (MSC) is a privately held corporation that was founded in 2000. It was started by three mechanical engineers with over 80 years of collective experience in business, and research and development. The Company occupies 50,000 square feet of modern research and manufacturing space in Raleigh, NC; there are 75 full-time employees and 25 part-time workers; annual sales for the past year were $23.7 million. MSC produces microwave-heating systems for continuous-flow manufacturing processes. Its systems are protected by over 20 U.S. patents. MSC shipped its first commercial system in 2003 and currently has systems deployed or being developed for


the following industries in the United States: food products, textiles, and chemical processing.

During the first board meeting of the year, the CEO, Marvin Lee, broaches the subject of entering new foreign markets. MSC’s track record of success has attracted the interest of manufactures from around the world. Moreover, the weakness of the U.S. dollar has made its microwave heating systems more cost effective in the global marketplace.

96. Discuss the challenges and opportunities of MSC using exporting to enter new foreign markets. (p. 67)

Exporting involves manufacturing products in a firm’s home country and shipping them to a foreign market. It is the most common way of entering international markets for smaller firms and firms without international business experience. This strategy could work for MSC because it would not require them to establish operations in foreign markets, thereby avoiding a large capital investment. However, MSC would have to develop marketing and distribution systems in the new markets. To do so, it may have to combine exporting with strategic alliances with local firms. Combined with the costs of transporting its systems, sharing revenues with local firms will reduce profits. Although exporting is less risky, it is unlikely to provide big financial returns.

97. Discuss the challenges and opportunities of MSC using licensing to enter new foreign markets. (p. 67)

Licensing arrangements allow a local firm in the new foreign market to manufacture and distribute a company’s product. Usually, the licensing contract provides specifications to maintain quality, control the quantity that is produced and sold, and delineate the royalty percentages on gross sales. In theory, the licensor has low costs and low risks; instead, the licensee takes the major risks. However, this arrangement is unlikely to produce major returns for the licensor, unless the potential for sales is high. Furthermore, the licensing firm has little control over its product and the use of its brand in the new market. Instead, it must rely on the clarity and enforceability of its licensing contracts.

Intellectual property rights will be important to MSC in this scenario, given that its systems are patented. It is unlikely that MSC would license foreign firms to produce its patented systems, especially if the laws in a given country pertaining to protecting and enforcing intellectual property rights were weak.

98. Discuss the challenges and opportunities of MSC using strategic alliances to enter new foreign markets. (pp. 67 – 69)

The most popular strategy for international expansion has become strategic alliances; that is, cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal. By forming strategic alliances, MSC could share the costs and risks of entering new markets and learn new ways of doing business. In


addition, strategic alliances could allow MSC to outsource some of its functions, thereby controlling costs and enhancing its competitive abilities in global business.

Unfortunately, not all strategic alliances are successful. The level of trust and the way an alliance is managed are critical to success. Furthermore, outsourcing alliances often fail due to differences in culture and language. Finally, a country’s institutional environment affects strategic alliances. In addition to the particular institutions in place, the stability of those institutions is important, because economic uncertainty can stunt profit potential, making a new market more risky and less desirable.

99. Discuss the challenges and opportunities of MSC using cross-boarder acquisitions to enter new foreign markets. (pp. 69 – 70)

Acquisitions of local firms by foreign firms, in order to enter new international markets, are known as cross-border acquisitions. If MSC decided to enter a new foreign market by acquiring a local firm, there would be advantages: entry into the new market would be fast; and operations in the new market would be immediate, given the acquired firm’s customers, facilities, and business relationships.

However, the problems with cross-border acquisitions can be severe. For example, integrating two previously independent companies is challenging, given differences in corporate and national cultures. Costs are another issue. It is common for acquiring firms to pay a premium (more than market value) for target firms. The current devaluation of the U.S. Dollar would exacerbate this problem. Given that international currency markets will continue to fluctuate, MSC may find that cross-boarder acquisitions would be cost prohibitive in the present and financially disastrous in the long term.

100. Discuss the challenges and opportunities of MSC using wholly owned subsidiaries to enter new foreign markets. (pp. 70 – 71)

When a company creates a wholly owned subsidiary (a Greenfield venture) in a foreign country, it makes a direct investment to establish a business that it owns and controls there. This choice for entering new foreign markets would give MSC maximum control over operations; however, it would be complex and expensive to launch, especially considering the current devaluation of the U.S. Dollar. MSC would have to build its own facilities, establish relationships with suppliers, build distribution networks, and foster a positive relationship with potential customers. In addition, MSC would have to learn about the national culture and institutional environment on its own. If the cultural distance or institutional distance between the facility in Raleigh, NC and the new market is high, MSC may find it difficult to establish a wholly owned subsidiary, let alone make it successful. Therefore, the risks of MSC starting a Greenfield venture are high.
