Chapter 15 Global Opportunities: Essentials of Entrepreneurship and Small Business Management, 8e (Scarborough)

Essentials of Entrepreneurship and Small Business Management, 8e (Scarborough)
Chapter 15 Global Opportunities

1) Becoming a global entrepreneur requires ________.
A) constant innovation
B) maintaining a high level of quality and constantly improving it
C) being sensitive to foreign customers' unique requirements and adopting a more respectful
attitude toward foreign habits and customs
D) All of the above
Answer: D
Diff: 1
AACSB: Reflective Thinking
Learning Obj: 15-1 Explain why "going global" has become an integral part of many small
companies' marketing strategies.
2) For an entrepreneur, expanding into international markets ________.
A) guarantees its success in the marketplace
B) makes it a member of GATT automatically
C) helps it grow faster and survive competition better
D) leads to business failure for companies under $100 million in annual revenue
Answer: C
Diff: 2
AACSB: Analytical Thinking
3) The first obstacle an entrepreneur must overcome on the way to creating a truly global
business is ________.
A) finding a joint venture partner
B) learning to think globally
C) locating motivated, multilingual managers for overseas assignments
D) finding overseas distributors for the company's products
Answer: B
Diff: 1
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4) Before going global, entrepreneurs should ask themselves questions regarding ________.
A) profit potential and commitment of resources for a global effort
B) a viable exit strategy and the cost of not going global
C) the reasons, rationale, and understanding cultural differences
D) All the above
Answer: D
Diff: 1
5) Only about one-third of the world's purchasing power lies outside the borders of the United
States.
Answer: FALSE
Diff: 2
6) As the trend toward increased globalization continues, successful companies must consider
themselves businesses without borders.
Answer: TRUE
Diff: 1
7) Success in the global economy requires constant innovation, high quality, and flexibility and
the ability to have a new perspective about the potential of a business.
Answer: TRUE
Diff: 1
8) Small companies that take the plunge into global business can extend their products' life
cycles, raise their quality levels, and increase sales and profits.
Answer: TRUE
Diff: 2
2
9) Learning to think globally may be the first (and most threatening) obstacle an entrepreneur
must overcome on the way to creating a truly global business.
Answer: TRUE
Diff: 2
10) Some of the strategic options entrepreneurs have when deciding to go global include the
Web, joint ventures, and franchising.
Answer: TRUE
Diff: 1
AACSB: Information Technology
11) Entrepreneurs can use the Web to generate sales leads by researching customers and market
characteristics in other countries.
Answer: TRUE
Diff: 1
12) Explain why it is important to "go global." What benefits can companies that take the plunge
into global business expect?
Answer: Small businesses can no longer consider themselves to be domestic companies if they
truly want to compete. Political, social, cultural, and economic forces are driving small
businesses into international markets. Powerful, affordable technology increases access to
information on conducting global business, and the growing interdependence of the world
economies makes it easier for companies of all sizes to engage in international trade.
Since the global market offers more niches, the flexibility and speed of a small business can
become a competitive advantage.
Advantages of going global include the following:
Offsetting sales declines in the domestic market
Increasing sales and profits
Extending their products' life cycles
Lowering manufacturing costs
Improving competitive position and enhancing reputation
Raising quality levels
Becoming more customer oriented
Diff: 3
AACSB: Diverse and Multicultural Work Environments
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13) All of these are steps small companies follow when they begin conducting global business on
the Web except ________.
A) connecting to e-mail
B) building a globally-accessible Web site
C) setting up links to related company Web sites
D) using the Web to conduct international market research
Answer: C
Diff: 2
Learning Obj: 15-2 Describe the principal strategies small businesses have for going global.
14) Which of the following statements is/are true regarding export management companies?
A) Most are merchant intermediaries that work on a buy-and-sell arrangement with domestic
small companies.
B) They provide small businesses with a low-cost, efficient, independent, international marketing
department.
C) Many specialize in particular products or product lines and offer services ranging from market
research and advice or patent protection, to arranging financing and handling shipping.
D) All of the above
Answer: D
Diff: 1
15) An export trading company ________.
A) is a business that buys and sells products in many countries, either in its own name or as an
agent for its buyer-seller clients
B) typically offers a wide range of services such as exporting, shipping, storing, distributing, and
others to their clients
C) is formed by an agreement by which a licenser gives a foreign licensee the right to use a
patent, trademark, copyright, technology, and products in return for a percentage of the licensee's
sales or profits
D) Both A and C above
Answer: D
Diff: 1
4
16) Which of the following trade intermediaries lowers the risk of exporting for a small
business?
A) Export management companies
B) Export trading companies
C) Resident buying offices
D) All of the above
Answer: D
Diff: 1
17) ________ act as international sales representatives in a limited number of markets for
various noncompeting domestic companies, typically operating on a commission basis.
A) Manufacturers' export agents
B) Export merchants
C) Resident buying offices
D) Foreign distributors
Answer: A
Diff: 1
18) A resident buying office is ________.
A) a business that buys and sells products in many countries, either in its own name or as an
agent for its buyer-seller clients
B) a government-owned or business-owned facility set up in a foreign country to buy products
that are made there
C) a firm in an overseas distribution network selling noncompetitive products made by other
firms
D) formed by an agreement where a licenser gives a foreign licensee the right to use a patent,
trademark, copyright, technology, and products in return for a percentage of the licensee's sales
or profits.
Answer: B
Diff: 2
19) ________ are domestic wholesalers who do business in foreign markets, buying goods from
domestic companies and selling them in foreign markets, often handling competing lines.
A) Resident buying offices
B) Export trading companies
C) Foreign distributors
D) Export merchants
Answer: D
Diff: 1
5
20) Foreign distributors offer small businesses which of the following benefits?
A) A detailed knowledge of the local markets in which they sell.
B) The ability to cover a foreign sales territory thoroughly.
C) The ability to handle all of the marketing, distribution, and service functions in foreign
markets.
D) All of the above
Answer: D
Diff: 1
21) In a(n) ________, two or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services. The companies get antitrust immunity and share
responsibility for the business equally.
A) foreign joint venture
B) trade intermediary
C) domestic joint venture
D) export management company
Answer: C
Diff: 1
22) In a(n) ________, a domestic small business forms an alliance with a company in the target
nation for the purpose of exporting to that market.
A) foreign joint venture
B) trade intermediary
C) domestic joint venture
D) export management company
Answer: A
Diff: 1
23) The most important ingredient for a successful joint venture is ________.
A) targeting the right country in which to sell
B) getting government approval and avoiding antitrust charges
C) choosing the right partner
D) splitting costs and profits equally
Answer: C
Diff: 2
6
24) Which of the following is a common problem in joint ventures?

A) Incompatible management styles among partners.
B) Failure of partners to establish common goals.
C) Failure of partners to carefully determine each party's contributions and responsibilities,
distribution of earnings, etc.
D) All of the above
Answer: D
Diff: 1
25) Many joint ventures fail because the parties involved neglected to ________.
A) select a partner who shares their company's values
B) spell out in writing exactly how the venture will work and who has decision-making authority
C) select a partner whose skills are different from, but compatible with, their own
D) All of the above
Answer: D
Diff: 1
26) Foreign licensing has its greatest potential in the licensing of ________.
A) products
B) intangibles (e.g., technology, copyrights, and trademarks).
C) goods
D) franchises
Answer: B
Diff: 2
27) If a business owner cannot afford to invest in foreign facilities and does not have time to
learn the foreign market, but is willing to give someone else the right to make and market her/his
product for a fee and royalties, her/his best bet for entering the foreign market is ________.
A) a foreign management company
B) joint venturing
C) foreign licensing
D) international franchising
Answer: C
Diff: 2
7
28) Foreign licensing is ________.

A) required when a business buys and sells products in many countries, either in its own name or
as an agent for its buyer-seller clients
B) a government-owned or business-owned facility set up in a foreign country to buy products
that are made there
C) the use by one firm (the carrier) of its overseas distribution network to sell noncompetitive
products made by other firms (riders)
D) an agreement in which a licenser gives a licensee in another country the right to use that
licenser's patent, trademark, copyright, technology, and products in return for a percentage of the
licensee's sales or profits
Answer: D
Diff: 1
29) Domino's Pizza and McDonald's operating in Japan and Europe are examples of ________.
A) foreign management companies
B) joint venturing
C) foreign licensing
D) international franchising
Answer: D
Diff: 1
30) The first step in establishing a successful global franchise arrangement is to ________.
A) generate lead for potential franchisees
B) structure the franchise deal
C) identify the country or countries that are best suited to the franchiser's business concept
D) select quality candidates
Answer: C
Diff: 1
31) ________ is a transaction in which a company selling goods and services in a foreign market
agrees to help promote investment and trade in that country.
A) Countertrading
B) Bartering
C) Foreign licensing
D) Exporting
Answer: A
Diff: 1
8
32) The drawbacks of countertrading include which of the following?

A) Countertrade transactions can be complicated, cumbersome, and time-consuming.
B) Countertrade transactions can increase the chances that a company will be stuck with
merchandise it cannot move.
C) Countertrade transactions can lead to unpleasant surprises concerning the quantity and quality
of products required in the countertrade.
D) All of the above
Answer: D
Diff: 2
33) ________, the exchange of goods and services for other goods and services, is one way of
trading with countries that lack convertible currency.
A) Countertrading
B) Bartering
C) Foreign licensing
D) Exporting
Answer: B
Diff: 1
34) Which of the following is/are often used by companies exporting to countries that lack a
convertible currency?
A) Countertrading
B) Indirect exporting
C) Bartering
D) A and C only
Answer: D
Diff: 2
35) Nance Technologies, Inc., has agreed to sell some of its computers to a company in
Bascovina, a country whose currency is worthless outside its own borders. As part of the
agreement, Nance will sell the foreign customer its computers in exchange for a specified
number of tons of coffee, a major export of Bascovina. Nance has already arranged to sell the
coffee to a major processor for a set price in U.S. dollars. Nance has engaged in ________.
A) bartering
B) foreign licensing
C) exporting
D) countertrading
Answer: A
Diff: 2
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36) Small businesses contribute ________ percent of U.S. export sales.

A) 20
B) 25
C) 33
D) 40
Answer: C
Diff: 2
37) The biggest barrier facing companies that have never exported is ________.
A) finding the financing to launch an export program
B) not knowing where or how to start
C) locating a trade intermediary to represent them in foreign markets
D) winning government approval to begin selling in foreign markets
Answer: B
Diff: 2
38) Two valuable resources for entrepreneurs to investigate for going global should include
________.
A) U.S. Department of Commerce
B) International Trade Administration
C) A and B above
D) Neither of these resources will provide real value or insight
Answer: C
Diff: 2
39) The first step to create a sound export strategy is to ________.
A) recognize that even the smallest companies and least experienced entrepreneurs have the
potential to export
B) analyze your product or service
C) analyze your commitment
D) research markets and pick your target
Answer: A
Diff: 2
10
40) The second step to creating a sound export strategy involves ________.
A) analyzing the product or service
B) recognizing the potential to export
C) analyze your commitment
D) research market and pick your target
Answer: A
Diff: 2
41) One of the biggest barriers to small business exports is lack of ________.
A) access to adequate financing
B) attractive countries that are not already saturated by franchising efforts
C) effective distribution strategies
D) information to make informed decisions about franchising
Answer: A
Diff: 2
42) The final step in creating a sound export strategy is to ________.
A) find your customer
B) ship your goods
C) collect your money
D) find financing
Answer: C
Diff: 2
43) A ________ is an agreement between an exporter's bank and the foreign buyer's bank that
guarantees payment to the exporter for a specific shipment of goods.
A) bank draft
B) letter of credit
C) repurchase agreement
D) trade acceptance
Answer: B
Diff: 1
11
44) A ________ is a document an exporter draws on a foreign buyer, requiring the buyer to pay
the face amount, either on sight or on a specified date, once the goods are shipped.
A) bank draft
B) letter of credit
C) repurchase agreement
D) trade acceptance
Answer: A
Diff: 1
45) Which of the following is not one of the three major advantages to establishing an
international location?
A) Lower production costs
B) Need for smaller staff
C) Lower marketing costs
D) Development of an intimate knowledge of customer preferences
Answer: B
Diff: 2
46) In the United States alone, companies import more than ________ worth of goods and
services annually.
A) $3.2 million
B) $1.2 trillion
C) $2.7 trillion
D) $2.3 trillion
Answer: C
Diff: 2
47) Entrepreneurs who are considering importing goods and services or outsourcing their
manufacturing to foreign countries should begin by ________.
A) making sure that importing or outsourcing is right for their business
B) do your research before you leave home
C) establish a target market for your product
D) do your groundwork once you arrive
Answer: A
Diff: 2
12
48) Trade intermediaries are domestic agencies that serve as distributors in foreign countries for
domestic companies of all sizes.
Answer: TRUE
Diff: 1
49) Most export management companies (EMCs) are merchant intermediaries that work on a
buy-and-sell arrangement with domestic small companies, providing small businesses with a
low-cost, efficient, independent, international marketing department.
Answer: TRUE
Diff: 1
50) Export trading companies are government-owned operations established in countries around
the world (including the United States) for the purpose of buying goods there.
Answer: FALSE
Diff: 1
51) While export management companies tend to focus on exporting, export trading companies
usually perform both import and export trades across many countries' borders.
Answer: TRUE
Diff: 2
52) Unlike an EMC or an ETC, manufacturers' export agents act as international sales
representatives in a limited number of markets for various noncompeting domestic companies,
typically operating on a commission basis.
Answer: TRUE
Diff: 2
53) Most export merchants buy goods, often competing lines, from many domestic companies
and then sell them in foreign markets.
Answer: TRUE
Diff: 2
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54) Selling to a resident buying office is just like selling to domestic customers since the buying
office handles all of the details of exporting the products.
Answer: TRUE
Diff: 2
55) Most small businesses getting started in conducting global business do not need the services
of trade intermediaries because "going global" has become so easy that even the smallest
businesses can do it alone.
Answer: FALSE
Diff: 2
56) Foreign distributors offer exporting small businesses the benefit of knowledge of the local
markets in which they sell, the ability to cover a foreign sales territory thoroughly, and the ability
to handle all of the marketing, distribution, and service functions in foreign markets.
Answer: TRUE
Diff: 2
57) In a domestic joint venture, a domestic company forms an alliance with a company in the
target nation.
Answer: FALSE
Diff: 1
58) When two small businesses in the target nation form an alliance, they have formed a foreign
joint venture.
Answer: FALSE
Diff: 2
59) Some foreign countries place limitations on joint ventures with host companies within their
borders, for example by requiring the host company to own at least 51 percent of the venture.
Answer: TRUE
Diff: 1
14
60) One reason joint ventures fail is because entrepreneurs did not select a partner who shares
their company's values and standards of conduct.
Answer: TRUE
Diff: 1
61) Foreign licensing is when a business buys and sells products in many countries, either in its
own name, or as an agent for its buyer-seller clients.
Answer: FALSE
Diff: 2
62) Foreign licensing is a relatively simple way for even the most inexperienced business owner
to extend his reach into global markets.
Answer: TRUE
Diff: 2
63) Before engaging in foreign licensing, a business owner should secure patent, trademark and
copyright protection.
Answer: TRUE
Diff: 1
64) The licensing potential for intangibles, such as technology, trademarks, and other forms of
protection, is often greater than the licensing opportunities for products.
Answer: TRUE
Diff: 2
65) As the domestic market for franchises has become increasingly saturated with outlets, the
number of franchisers attracted to foreign markets has grown.
Answer: TRUE
Diff: 1
15
66) Although franchising is a popular way to do business in the United States, it is not a popular
strategy in international markets.
Answer: FALSE
Diff: 2
67) Although franchise outlets operate throughout the world, the primary market for U.S.
franchisers is Europe.
Answer: FALSE
Diff: 2
68) A franchiser should have sufficient managerial and financial resources to devote to
globalization.
Answer: TRUE
Diff: 2
69) One reason for McDonald's success in foreign markets is its decision to stick to exactly the
same menu in every country that it offers in the United States.
Answer: FALSE
Diff: 2
70) A countertrade is a transaction in which a company selling goods and services in a foreign
country agrees to help promote investment and trade in that country.
Answer: TRUE
Diff: 1
71) If a country's currency is not convertible into any other currency, companies exporting to that
country usually engage in either countertrading or bartering.
Answer: TRUE
Diff: 2
16
72) Successful bartering is easier than countertrade but requires finding a business with
complementary needs.
Answer: TRUE
Diff: 2
73) Researching potential export markets is a waste of time and resources for small business
owners; the best way to find export opportunities is to travel abroad and sell.
Answer: FALSE
Diff: 1
74) Lack of export financing remains a significant barrier to small businesses selling in foreign
markets.
Answer: TRUE
Diff: 1
75) Collecting foreign accounts is usually less complex than collecting domestic ones.
Answer: FALSE
Diff: 1
76) A letter of credit is an agreement between an exporter's bank and a foreign buyer's bank that
guarantees payment to the exporter for a specific shipment of goods.
Answer: TRUE
Diff: 1
77) FOB is when the seller must deliver goods to the carrier, obtain export licenses, pay export
taxes, and bear the risk of loss until the goods are delivered to the buyer.
Answer: FALSE
Diff: 2
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78) Outline the eight strategies for "going global" available to the small business owner.
Answer:
Launching a Web Site
Small businesses should follow a three-step approach to conducting global business on the Web.
Step 1: Establish an Internet connection and set up an e-mail account.
Step 2: Connect to and conduct international market research.
Step 3: Build a global Web site.
Creating a Web Site
An economical and flexible way to enter the global market 24 hours a day, 7 days a week.
Relying on Trade Intermediaries
Rather than create an export program "from scratch," small companies can rely on trade
intermediaries for assistance export management companies (EMC), export trading
companies (ETC), manufacturers' export agents (MEA), export merchants, resident buying
offices, and overseas distributors all provide a variety of services for a fee. Typically, at least
$50,000 in sales is required to make their fees affordable.
Joint Ventures
In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose
of exporting their goods and services abroad, which typically lowers their individual risk. Special
antitrust immunity is typically requested, allowing them to cooperate freely. In a foreign joint
venture, a domestic small business forms an alliance with a company in the target nation.
Foreign Licensing
Small companies can license businesses in other nations to use their patents, copyrights,
trademarks, technology, processes, or products in return for royalty payments from sales. Risks
include losing control or the possibility of creating a competitor.
International Franchising
International outlets provide new sales to boost lagging sales and saturated U.S. markets. Most
franchises have found they need to modify their normally standardized products for foreign
tastes. Entrepreneurs have the backing of a large organization and need help in understanding
different markets.
Countertrading and Bartering
When a target nation's currency is worthless outside its borders, companies often turn to barter
the exchange of goods and services for other goods and services.
Exporting
Even the tiniest and least experienced entrepreneurs have the potential to export. The biggest
barrier is not knowing where or how to start.
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Establishing International Locations

Setting up an international office can require a significant investment.
Diff: 3
79) One of the eight strategies a company uses to "go global" includes the use of trade
intermediaries. Identify the six types of trade intermediaries and explain why a small business
owner might use each one.
Answer:
1. Export Management Companies (EMCs)
EMCs are merchant intermediaries that provide small businesses with a low-cost, efficient,
independent international marketing department. Their focus is on exporting, and they typically
do not handle competing firms.
2. Export Trading Companies (ETCs)
ETCs are businesses that buy and sell products in a number of countries and offer a wide variety
of services (exporting, importing, shipping, storing, and distributing) to their clients who may be
competitors. They focus on long-term relationships.
3. Manufacturers' Export Agents (MEAs)
MEAs are businesses that act as international sales representatives in a limited number of
markets for various noncompeting domestic companies. They are commission based and focus
on short-term commitments.
4. Export Merchants
Export merchants are domestic wholesalers who buy goods from many domestic manufacturers
and then market them in foreign markets. Most export merchants specialize in
particular
industries and often carry competing lines.
5. Resident Buying Offices
A government- or privately-owned operation established in a country for the purpose of buying
goods from businesses there. The buying office handles all the details of exporting.
6. Foreign Distributors
Domestic small companies export their products to foreign distributors who handle all of the
marketing, distribution, and service functions in the foreign country. They offer exporting small
businesses the benefits of knowledge in their local markets, the ability to cover a given territory
thoroughly, and prompt sales and service support.
Diff: 3
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80) What advantages do taking on a partner in a joint venture offer a small business in an
international business opportunity? Disadvantages?
Answer:
Domestic Joint Venture
Two or more U.S. small businesses form an alliance for the purpose of exporting their goods and
services abroad.
Foreign Joint Venture
A domestic small business forms an alliance with a company in the target nation.
Advantages of International Joint Venture
Penetrate protected markets
Lower production costs
Share risks and high R&D costs
Gain access to marketing and distribution channels
Disadvantages of International Joint Venture
Failure of the venture
Relationships that sour
Becoming overly dependent on the partner

Diff: 3
81) What strategies for trade can businesses use when exporting to countries whose currencies
are not convertible to other currencies? What are the disadvantages?
Answer: Countertrade is a transaction in which a company selling goods and services in a
foreign country agrees to help promote investment and trade in that country, even though profits
cannot be taken in the form of currency exchange. Countertrading transactions can be
complicated, cumbersome, and time-consuming. They also increase the chances that a company
will get stuck with useless merchandise that it cannot move. They can also lead to surprises in
the quantity and quality of products required in the counter trade.
Bartering is the exchange of goods and services for other goods and services. Usually the traded
goods are sold to a third party for cash. Barter transactions require finding a business with
complementary needs, but they are much simpler than countertrading.
Diff: 2
20
82) List and briefly explain the steps an entrepreneur should follow to establish an export
program.
Answer: The following steps provide guidance to an entrepreneur on how to establish an
exporting program:
1. Recognize Your Potential Regardless of Your Size
Recognize that even the tiniest companies and least experienced entrepreneurs have the potential
to export. The size of the firm has nothing to do with the demand for its products. If the products
meet the needs of global customers, there is a potential to export.
2. Analyze Your Product or Service
Is it special? Is it new? Is it unique? Is it of high quality? Is it priced favorably because of lower
costs or exchange rates? In which countries would there be sufficient demand for it?
3. Analyze Your Commitment
Are you willing to devote the time and energy to develop export markets? Does your company
have the necessary resources? Export start-ups can take from six to eight months (or longer), but
entering foreign markets isn't as tough as most entrepreneurs think.
4. Research Markets and Pick Your Target
Before investing in a costly sales trip abroad, entrepreneurs should make a trip to the local
library or the nearest branch of the Department of Commerce. Exporters can choose from a
multitude of guides, manuals, books, newsletters, videos, and other resources to help them
research potential markets. Armed with research, small business owners can avoid wasting a lot
of time and money on markets with limited potential for their products and can concentrate on
those with the greatest promise. Research shows export entrepreneurs decide whether they need
to modify their existing products and services to suit the tastes and preferences of their foreign
target customers. Sometimes foreign customers' lifestyles, housing needs, body size, and cultures
require exporters to make alterations in their product lines. Such modifications can sometimes
spell the difference between success and failure in the global market.
5. Develop a Distribution Strategy
Should you use an export middleperson or sell directly to foreign customers? Small companies
just entering international markets may prefer to rely on export middlepersons to break new
ground.
6. Find Your Customer
Small businesses can rely on a host of export specialists to help them track down foreign
customers. The U.S. Department of Commerce and the International Trade Administration
should be the first stops on an entrepreneur's agenda for going global. These agencies have the
market research available for locating the best target markets for a particular company and
specific customers in those markets. They also have knowledgeable staff specialists experienced
in the details of global trade and in the intricacies of foreign cultures.
7. Find Financing
One of the biggest barriers to small business exports is lack of financing. Access to adequate
financing is a crucial ingredient in a successful export program because the cost of generating
foreign sales often is higher and collection cycles are longer than in domestic markets. The
trouble is that bankers and other sources of capital don't always understand the intricacies of
international sales and view financing them as excessively risky. Also, among major
industrialized nations, the U.S. government spent the least per capita to promote exports. It is
important to note that several federal, state, and private programs are working to fill this export
financing void.
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8. Ship Your Goods

Export novices usually rely on international freight forwarders and custom-house agents
(experienced specialists in overseas shipping) for help in navigating the bureaucratic morass of
packaging requirements and paperwork demanded by customs. These specialists, also known as
transport architects, are to exporters what travel agents are to passengers and normally
charge
relatively small fees for a valuable service. They move shipments of all sizes to destinations
all over the world efficiently, saving entrepreneurs many headaches.
9. Collect Your Money
Collecting foreign accounts can be more complex than collecting domestic ones, but by picking
their customers carefully and checking their credit references closely, entrepreneurs can
minimize bad-debt losses. Financing foreign sales often involves special credit arrangements
such as letters of credit and bank (or documentary) drafts.
Diff: 3
Mini-Case 15-1: The Grass Is Really Greener
It's not usual for city people to be concerned about plants or grass they see so little of green
space. Nevertheless, Martha Goldman has been interested in these things since her first biology
course in Brooklyn, New York. Martha won all the awards in the science fairs and eventually
was the recipient of a college scholarship. She chose to major in botany and became fascinated
with the creation of hybrid plants and grasses. Martha was also concerned about the problem of
hunger around the world. She knew that improved plants and grains increased the productivity of
American agriculture, and hoped that someday she would find a way to play a small part in
reducing world hunger.
After college with the help of her dad, she opened a small wholesale greenhouse. The business
was a modest success and allowed Martha to experiment with new growing methods. Two years
ago, Martha's research paid off. She had been working on developing a fast-growing grass that
needed less water. One of the experiments produced a grass that seemed to have real potential.
She tested it with a local cattle rancher. All tests so far have shown that the new hybrid grass is
better for feeding cattle. Martha may have realized her dream a grass that will grow better in
parts of the world that could not previously support cattle. High protein beef cattle may now be
able to thrive in parts of the world where previously it was not possible.
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83) How should Martha proceed to determine the best way to export her new grass seed?
Answer: It appears that Martha's product has definite potential. Now, she must target specific
export markets, develop an export marketing strategy, and then implement it. Initially, she should
target one or two "prime" markets using the wealth of published data from the U.S. Department
of Commerce. Martha should explore many of the developing nations in arid regions. She should
seek advice and assistance from export trading companies and export management companies.
She should also contact the International Trade Association and conduct searches on the World
Wide Web to determine which markets could be best to target first. Martha should focus on
locating dependable foreign distributors and invoice all sales in U.S. dollars.
Diff: 3
84) The most frequently encountered impediment to international trade for small and mediumsized manufacturers is ________.
A) foreign sales are not sufficiently profitable
B) transportation and shipping costs
C) language and cultural barriers
D) foreign regulations
Answer: B
Diff: 2
Learning Obj: 15-3 Discuss the major barriers to international trade and their impact on the
global economy.
85) The most frequently encountered impediment to international trade for small and mediumsized service firms is ________.
A) foreign sales are not sufficiently profitable
B) transportation and shipping costs
C) language and cultural barriers
D) foreign regulations
Answer: A
Diff: 2
global economy.
23
86) Which of the following is a domestic barrier to small business exporting?

A) The attitude, "I'm too small to export."
B) A lack of information about how to get started in exporting.
C) A lack of export financing for small companies.
D) All of the above
Answer: D
Diff: 2
global economy.
87) Old assumptions regarding global business assumptions for exporting include ________.
A) I am "too small" to go global and my product or service won't sell outside the U.S.
B) Exporting is too risky for my small company and my domestic market is currently secure.
C) Getting paid is difficult and this will impede my success.
D) All of the above
Answer: D
Diff: 2
global economy.
88) Many nations have lowered tariffs they impose on products and services brought into their
border and rely on other ________.
A) nontariff structure as protectionist trade barriers
B) taxes
C) duty fees
D) dumping
Answer: A
Diff: 2
global economy.
89) Malcolm won a contract to provide nuts, bolts, and washers to a small African country's
military. Unfortunately, neither his bankers nor venture capitalists would provide the loans
needed to buy the material to produce the order. The bank did not do international loans. Which
barrier to international trade is Malcolm experiencing?
A) Financing
B) Information
C) Cultural
D) Attitude
Answer: A
Diff: 1
global economy.
24
90) A tariff is ________.

A) a law that a government uses to regulate products that are imported into the country
B) the maximum amount of a product that can be imported or exported
C) a prohibition or suspension of foreign trade of specific imports or exports
D) a duty, or tax, that a government puts on products that are imported into the country
Answer: D
Diff: 1
global economy.
91) The small country of Bascovina wanted to protect its infant basket industry and imposed a
400 percent tariff on all imported baskets. The high tariff dropped the bottom out of imported
basket sales, and imports of baskets stops. Why did this happen?
A) The citizens realized that because the government imposed the tariff, imported basket
purchases were undesirable.
B) The tariff reduced the price of imported baskets and consumers felt that because of the low
prices, the baskets were of low quality and stopped their purchases.
C) The tariff barred all shipments of baskets to Bascovina.
D) The tariff makes the price of imported baskets so high that they are not competitive.
Answer: D
Diff: 2
global economy.
92) John wants to expand into the foreign markets, but he cannot convince his partners. They
believe that international markets are the domain of large corporations. John is facing which
barrier to international trade?
A) Financing
B) Political
C) Cultural
D) Attitude
Answer: D
Diff: 1
global economy.
25
93) A quota is ________.

A) a duty or tax that a government puts on products that are imported into the country
B) the maximum amount of a product that can be imported into a country
D) a law that a government uses to regulate products that are imported into the country
Answer: B
Diff: 2
global economy.
94) An embargo is ________.
A) a duty, or tax, that a government puts on products that are imported into the country
B) the maximum amount of a product that can be imported or exported
D) a law that a government uses to regulate products that are imported into the country
Answer: C
Diff: 2
global economy.
95) ________ is the practice of selling substantial quantities of a product in a foreign market at
prices that are below either the home-market price or below the full cost of producing it.
A) Exporting
B) Bartering
C) Dumping
D) Price discrimination
Answer: C
Diff: 1
global economy.
96) An American executive went to a foreign country to sign a business contract. While there,
she/he found that there were numerous complex government regulations her/his company needed
to meet before closing the deal. This executive was experiencing which barrier to international
trade?
A) Tariff
B) Political
C) Cultural
D) Domestic
Answer: B
Diff: 1
global economy.
26
97) Business owners new to international business are sometimes shocked ________.
A) by the wide range of labor costs they encounter
B) that practices common in the United States (e.g., overtime, women workers, and employee
benefits) are restricted, disfavored, or forbidden in other cultures
C) that what appear to be "bargain" labor rates turn out to be excessively high after accounting
for the quality of the labor force and the benefits their governments mandate
D) All of the above
Answer: D
Diff: 2
global economy.
98) The ________ of a nation includes the belief, values, views, and mores that its inhabitants
share.
A) political atmosphere
B) culture
C) tariffs
D) free trade area
Answer: B
Diff: 2
global economy.
99) An American executive went to a Middle Eastern country to sign an oil contract. Before the
contract was signed, the American and the Arab official met for tea. Relaxing, the American put
her/his feet up on a table. The official became angry and left the room. Later it was found that
showing the soles of shoes was a serious insult. This represents which barrier to international
trade?
A) Tactical
B) Political
C) Strategic
D) Cultural
Answer: D
Diff: 1
global economy.
100) Among major industrialized nations, the United States spends the greatest amount per capita
to promote exports.
Answer: FALSE
Diff: 2
global economy.
27
101) The U.S. Department of Commerce and the International Trade Administration have the
market research available for locating the best target markets for a particular company and
specific customers in those markets.
Answer: TRUE
Diff: 2
global economy.
102) The Foreign Corrupt Practice Act, passed in 1977, considers bribing foreign officials to be a
criminal act.
Answer: TRUE
Diff: 1
AACSB: Ethical Understanding and Reasoning
global economy.
103) Most small businesses begin their global ventures by establishing international locations.
Answer: FALSE
Diff: 2
global economy.
104) The government of Palmeria placed a high import tariff on steel from Dano. Dano's steel is
higher in quality and cheaper. Palmeria's actions result in higher prices for their consumers.
Answer: TRUE
Diff: 2
global economy.
105) The most frequently encountered impediments to international trade for small and mediumsized manufactures relates to U.S. regulations.
Answer: FALSE
Diff: 2
global economy.
106) A tariff is a limit on the amount of a product imported into a country.
Answer: FALSE
Diff: 1
global economy.
28
107) The three biggest domestic barriers to exporting facing small businesses are attitude,
information, and financing.
Answer: TRUE
Diff: 2
global economy.
108) The biggest barrier facing companies that have never exported is not knowing where or how
to start.
Answer: TRUE
Diff: 2
global economy.
109) The first and most difficult step to exporting for the small business is breaking the
psychological barrier, "My company is too small to export."
Answer: TRUE
Diff: 2
global economy.
110) Even the smallest businesses have the potential to export.
Answer: TRUE
Diff: 1
global economy.
111) The key to success in international markets is choosing the correct target market and
designing a strategy to reach it.
Answer: TRUE
Diff: 1
global economy.
112) A quota is a limit on the amount of certain products imported into a country, while an
embargo is a total ban on imports of certain products.
Answer: TRUE
Diff: 1
global economy.
29
113) Dumping involves selling large quantities of a product in a foreign market below cost.
Answer: TRUE
Diff: 1
global economy.
114) Selling large quantities of a product in a foreign market below cost is the best way for a
small company to begin its export program.
Answer: FALSE
Diff: 2
global economy.
115) To prove a charge of dumping under the U.S. Antidumping Act, a company must prove that
a foreign company's prices on a product are lower here than in the home country and that U.S.
companies are directly harmed.
Answer: TRUE
Diff: 2
global economy.
116) The only cultural barrier an American small business manager must overcome when
conducting business internationally is the language gap.
Answer: FALSE
Diff: 1
global economy.
117) Learning the habits and the customs of the cultures in which they do business is essential
for small business managers trying to go global.
Answer: TRUE
Diff: 1
global economy.
30
118) American business people can be on their best American behavior and go overseas and
offend the locals. This is, in part, due to the fact that business customs that are acceptable, or
even expected, in one country may be taboo in another.
Answer: TRUE
Diff: 1
global economy.
119) Fortunately for U.S. business owners, American customs and habits have become the
standard for proper business behavior around the world.
Answer: FALSE
Diff: 2
global economy.
120) Identify and discuss the domestic barriers to trade.
Answer: Three major domestic barriers to international trade are common:
1. AnAttitude of "I'm Too Small to Export"
The first step to building an export program is recognizing that the opportunity to export exists.
2. Lack of Information
Entrepreneurs should thoroughly research the possibility of going global and use every possible
resource available to them (government and private organizations' international exporting and
marketing information) to make valid decisions. In addition, companies must be willing to make
the necessary adjustments to their products and services, promotional
campaigns,
packaging, and sales techniques in foreign markets.
3. Lack of Available Financing
Many entrepreneurs cite lack of financing as a major barrier to international trade. Before
embarking on an export program, entrepreneurs should have available financing lined up.
Diff: 2
global economy.
31
121) Identify and discuss the international barriers to trade.

Answer: International barriers include the following:
Tariffs
A tax, or duty, that a government imposes on goods and services imported into that country.
Imposing tariffs raises the price of the imported goods (making them less attractive to
consumers) and protects the makers of comparable domestic products and services.
Quotas
A limit on the amount of a product imported into a country, which helps to protect domestic
markets by limiting opportunities for foreign competitors.
Embargoes
A total ban on imports of certain products, which helps to protect domestic markets by keeping
foreign competitors out.
Dumping
Selling large quantities of a product in foreign countries below cost. Under the U.S. Antidumping
Act, a company must prove that the foreign company's prices are lower here than in the home
country and that U.S. companies are directly harmed.
Diff: 2
global economy.
32
122) Describe the other barriers to trade, including political, business, and cultural.
Answer:
Political Barriers
Although many U.S. business owners complain of excessive government regulation in the United
States, they are often astounded by the complex web of governmental and legal regulations and
barriers they encounter in foreign countries. Companies doing business in politically-risky lands
face the very real dangers of government takeovers of private property; attempts at coups to
overthrow ruling parties; kidnapping; bombings; other violent acts against businesses and their
employees; and other threatening events. Their investments of millions of dollars may evaporate
overnight in the wake of a government coup or the passage of a law nationalizing an industry
(giving control of an entire industry to the government).
Business Barriers
American companies doing business internationally quickly learn that business practices and
regulations in foreign lands can be quite different from those in the United States. Simply
duplicating the practices they have adopted (and have used successfully) in the domestic market
and using them in foreign markets is not always a good idea. Perhaps the biggest shock comes in
the area of human resources management, where international managers discover that practices
common in the United States, such as overtime, women workers, and employee benefits are
restricted, disfavored, or forbidden in other cultures. Business owners new to international
business sometimes are shocked at the wide range of labor costs they encounter and the
accompanying wide range of skilled labor available. In some countries, what appear to be
"bargain" labor rates turn out to be excessively high after accounting for the quality of the labor
force and the benefits their governments mandate. In many nations, labor unions are present in
almost every company, yet they play a very different role from the unions in the United States.
Although management-union relations are not as hostile as in the United States and strikes are
not as common, unions can greatly complicate a company's ability to compete effectively.
Cultural Barriers
The culture of a nation includes the beliefs, values, views, and mores that its inhabitants have.
Differences in cultures among nations create another barrier to international trade. The diversity
of languages, business philosophies, practices, and traditions make international trade more
complex than selling to the business down the street. The assumption that the American way of
doing things is universal is false. Many international business deals fail because businesspersons
do not understand the importance of valuing diversity, or being sensitive and respectful to
different ways of doing business. Entrepreneurs who want to be successful in international
markets must understand the culture in which they plan to do business and adapt their business
styles and their products to suit that culture.
Diff: 3
global economy.
33
123) Currently, the World Trade Organization (WTO) had 155 member countries that represent
over ________ percent of all world trade.
A) 97
B) 39
C) 76
D) 52
Answer: A
Diff: 3
Learning Obj: 15-4 Describe the trade agreements that will have the greatest influence on
foreign trade in the twenty-first century.
124) The North American Free Trade Agreement (also known as NAFTA) served to ________.
A) bring South America, Mexico, the U.S., and Canada together as one market
B) eliminate all tariffs among member nations, effective immediately, and raise them to
nonmembers
C) mostly benefit the trading relationship between Canada and the United States
D) create a unified market of 465 million people and $18.1 trillion in goods and services
Answer: D
Diff: 2
125) The North American Free Trade Agreement (NAFTA) created a free trade area among
________.
A) Canada, Mexico, and the United States
B) Japan, Mexico, and Canada
C) Mexico, Japan, and the United States
D) None of the above
Answer: A
Diff: 2
126) The North American Free Trade Agreement has which of the following provisions?
A) The immediate elimination of all tariff and quota barriers on all goods.
B) The elimination of tariffs on most goods.
C) A lowering of safety and air quality standards.
D) The formation of a North American Trade Organization.
Answer: B
Diff: 2
34
127) Which of the following is a guideline for becoming a successful international competitor?
A) Make yourself at home in all of the world's key markets North America, Europe, and Asia.
B) Become familiar with foreign customs and languages.
C) Consider using partners and joint ventures to break into foreign markets you cannot penetrate
on your own.
D) All of the above
Answer: D
Diff: 1
128) While the World Trade Organization had 155 member countries which represent over 97
percent of all world trade, the market formed by NAFTA has more than 465 million people and
an annual output of $18.1 trillion in goods and services.
Answer: TRUE
Diff: 2
129) A free trade area is an association of countries that have agreed to knock down trade
barriers (both tariff and nontariff) among partner nations.
Answer: TRUE
Diff: 1
130) NAFTA is an agreement among the U.S., Canada, Mexico, Argentina, and Chile, forming a
free trade area among these countries.
Answer: FALSE
Diff: 2
131) NAFTA includes provisions reducing tariff and nontariff barriers and toughening health and
safety standards.
Answer: TRUE
Diff: 2
35
132) An important guideline for companies wanting to successfully compete internationally is to

appeal to the similarities within the various regions in which you operate, but recognize the
differences in their specific cultures.
Answer: TRUE
Diff: 2
133) An important guideline for companies wanting to successfully compete internationally is to
familiarize yourself with foreign customs, languages, and cultures, including their lifestyles,
values, customs, and business practices.
Answer: TRUE
Diff: 2
36

Chapter 15 Global Opportunities: Essentials of Entrepreneurship and Small Business Management, 8e (Scarborough)

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Essentials of Entrepreneurship and Small Business Management, 8e (Scarborough)

Chapter 15 Global Opportunities

24) Which of the following is a common problem in joint ventures?

28) Foreign licensing is ________.

32) The drawbacks of countertrading include which of the following?

36) Small businesses contribute ________ percent of U.S. export sales.

Establishing International Locations

Becoming overly dependent on the partner

8. Ship Your Goods

86) Which of the following is a domestic barrier to small business exporting?

90) A tariff is ________.

93) A quota is ________.

121) Identify and discuss the international barriers to trade.

132) An important guideline for companies wanting to successfully compete internationally is to

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