FINAL 3 2020, questions and answers PDF

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International Business: The New Realities, 4e (Cavusgil) Chapter 15 Licensing, Franchising, and Other Contractual Strategies 1) ________ is a fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset. A) Duty B) Residual C) Royalty D) Tariff Answer: C Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 2) When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ________. A) industrial design rights B) franchising C) joint venture D) equity venture Answer: B Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 3) A cross-border contractual relationship provides the focal firm with ________ over the foreign partner. A) a low level of control B) a moderate level of control C) a high level of control D) seldom any control Answer: B Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking

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4) Which of the following is characteristic of cross-border contractual relationships? A) When compared to FDI, they are less susceptible to volatility and risk, and tend to bring both parties a predictable stream of revenue. B) The focal firm attains maximum control by establishing a physical presence, and ownership of key assets, in the foreign market. C) It attracts high attention and criticism for the focal firm because of the local perception of foreign entities. D) They are governed by a contract that provides the focal firm with no control over the foreign partner. Answer: A Diff: 2: Moderate Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 5) Which of the following is true about cross-border contractual relationships? A) It is a more visible strategy than FDI and draws a lot of criticism from the local market. B) They are more susceptible to volatility and risk compared to FDI. C) A local firm allows the focal firm to blend into the local market, attracting less attention. D) Focal firms use contractual relationships as an advanced entry strategy in foreign markets. Answer: C Diff: 2: Moderate Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 6) Which of the following is an example of intellectual property? A) systems of measurement B) Volkswagen's logo C) an unpublished book D) a phone directory Answer: B Diff: 1: Easy Skill: Application Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 7) An industrial design is intended to ________. A) eliminate the possibility of the design being copied B) improve a product's performance and marketability C) protect firms from intellectual property theft D) protect information of commercial value Answer: B Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 2 Copyright © 2017 Pearson Education, Inc.

8) A collective mark ________. A) is intended to improve the product's aesthetics and usability as well as increase its production efficiency, performance, or marketability B) protects original works of authorship, giving the creator the exclusive right to reproduce the work, display and perform it publicly, and authorize others to perform these activities C) is a distinctive design, symbol, logo, word, or series of words placed on a product label D) is a logo belonging to an organization whose members use it to identify themselves and associate their products with a level of quality or accuracy, geographical origin, or other positive characteristic Answer: D Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 9) The purpose of intellectual property rights is to ________. A) prevent excessive regulation and government bureaucracy B) grant a firm permission to use another firm's proprietary names C) allow inventors monopoly advantage for a specified period of time D) allow a firm to use an entire business system in exchange for compensation Answer: C Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 10) Contractual entry strategies in international business are cross-border exchanges in which the relationship between the focal firm and its foreign partner is governed by an explicit contract. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 11) Exporting and foreign direct investing are two common types of contractual entry strategies. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking

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12) Patents provide inventors the right to prevent another person or company from selling or using an invention for up to twenty years. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 13) A patent exclusively refers to a distinctive design, symbol, logo, word, or series of words placed on a product label. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 14) An industrial design is a logo belonging to an organization whose members use it to identify themselves and associate their products with a level of quality. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking 15) Describe six unique qualities shared by all cross-border contractual relationships. Answer: Cross-border contractual relationships have six unique characteristics: ∙ First, they are governed by a contract that provides the focal firm a moderate level of control over the foreign partner. ∙ Second, the relationships typically involve the exchange of intangibles (intellectual property) and services. ∙ Third, contractual relationships can be pursued independently or in conjunction with other foreign market entry strategies. Their use is context specific; that is, a focal firm may pursue a contractual relationship with certain customers, countries, or products, but not others. ∙ Fourth, cross-border contractual relationships provide for a dynamic, flexible choice. Over time, the focal firm may switch to another way of servicing foreign markets. ∙ Fifth, the relationships often reduce local perceptions of the focal firm as a foreign enterprise. Since the focal firm partners with a local firm, it may be able to shield some of the criticism directed towards MNEs. ∙ Finally, cross-border contractual relationships generate a predictable level of earnings from foreign operations. In comparison to FDI, contractual relationships imply reduced volatility and risk. Diff: 2: Moderate Skill: Concept Objective: 15-1: Explain contractual entry strategies AACSB: Analytical Thinking

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16) Explain the role of intellectual property rights in foreign market contractual strategies. What constitutes the infringement of intellectual property? Answer: Intellectual property rights (IPRs) are the legal claims that protect the proprietary assets of firms and individuals from unauthorized use by other parties. They derive from patents, trademarks, copyrights, and other protections associated with intellectual property. IPRs provide inventors with a monopoly advantage for a specified period of time, so they can exploit their inventions not only to recoup their investment costs and create commercial advantage, but also to acquire power and market dominance free of direct competition. The availability and enforcement of these rights vary from country to country. Without such legal protection and the assurance of commercial rewards, most firms and individuals would have little incentive to invent. Infringement of intellectual property is the unauthorized use, publication, or reproduction of products and services protected by a patent, copyright, trademark, or other intellectual property right. Such a violation amounts to piracy and takes the form of production and distribution of counterfeit goods. For example, annual piracy losses in CDs and music exceed $100 million in Brazil, and losses in business software exceed $1 billion in Russia. Counterfeiters may use a product name that differs only slightly from that of a well-known brand; it is similar enough that buyers associate it with the genuine product but just different enough so that prosecution is hampered. While firms such as Rolex and Tommy Hilfiger are well-known victims, counterfeiting is also common in such industrial products as medical devices and car parts. Counterfeiters even have faked entire motor vehicles. Authorities uncovered 23 unauthorized Apple stores in southeast China, selling fake iPads and counterfeit smartphones. Diff: 2: Moderate Skill: Concept Objective: 15-1, 15-7: Explain contractual entry strategies, Understand infringement of intellectual property, a global problem AACSB: Analytical Thinking 17) Which of the following is an example of licensing? A) An American electronics firm has given the right to a new process for manufacturing e-book readers to an electronics manufacturer in Canada. B) An Indian automobile manufacturing company buys engines from a Japanese manufacturer for its environmentally-friendly cars. C) A South-Korean consumer electronics manufacturer produces the screens for its brand of television and sends orders to a factory in China to manufacture the casing for the television. D) A U.K-based motorcycle manufacturer, produces limited-edition customizations of the company's stock models and sells it to customers around the world. Answer: A Diff: 3: Hard Skill: Application Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking

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18) Which of the following is provided by the licensor in a licensing agreement? A) a monetary down-payment plus royalties for all products sold locally B) a combination of intellectual property and technical information and assistance C) a storefront or facility and the necessary materials to make the product D) a combination of a lump-sum payment and the intellectual know-how Answer: B Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 19) In a licensing agreement, the licensee provides ________. A) the rights to use its industrial design B) intellectual property, technical information and assistance C) a combination of down-payment plus royalty D) the know-how and supporting products such as, raw materials and components Answer: C Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 20) Which of the following is NOT provided by the licensor? A) ongoing managerial guidance B) technical information and assistance C) an advisory role D) trademark Answer: A Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 21) Which of the following is characteristic of exclusive licensing agreements? A) The licensor is not allowed to interfere with the production or marketing of the licensed asset. B) It ensures payment from the licensee to the licensor upon receipt of an export shipment. C) The licensee cannot cancel the contract with the licensor even if sales of the licensed asset are poor. D) The licensee is prohibited from sharing the licensed asset with another company within a specified region. Answer: D Diff: 2: Moderate Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking

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22) In a licensing agreement, ________ is responsible for local sales. A) the licensee B) patent owner C) the licensor D) copyright partner Answer: A Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 23) Which of the following is an example of trademark licensing agreement? A) a China based consumer electronic company that has invented a flexible casing for its MP3 players B) a Thailand-based pharmaceutical company that receives manufacturing knowledge from a U.S-based pharmaceutical C) a U.K.-based cosmetics manufacturer that is allowed to use an American cosmetics manufacturing firm's logo for its new line of "Titanium" makeup products D) a U.S.-based clothing company that opens a factory in Vietnam and Cambodia to utilize lowlabor costs Answer: C Diff: 3: Hard Skill: Application Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 24) Which of the following is protected under copyright laws? A) the Nike swoosh B) the art of Jackson Pollack C) McDonald's clown shaped man with puffed out costume legs D) Winnie the Pooh image Answer: B Diff: 2: Moderate Skill: Application Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 25) Which of the following is characteristic of a know-how agreement? A) exclusive rights to reproduce original art work B) permission to use manufacturing facilities for a fee C) exchanging technological or management information for royalties D) trading the use of a name brand for management advice Answer: C Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 7 Copyright © 2017 Pearson Education, Inc.

26) Cross-licensing often occurs in the semiconductor and chemical industries in order to ________. A) divide the costs of production and marketing between competing firms B) avoid research duplication and building on each other's innovations C) protect the inventions and designs of small firms from large MNEs D) decrease the likelihood of industrial spying and theft among firms Answer: B Diff: 2: Moderate Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 27) ________ is the world's leading licensing firm? A) Nickelodeon B) The Walt Disney Company C) Mattel D) Major League Baseball Answer: B Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 28) The greatest amount of licensing occurs in the ________ industries. A) pharmaceutical B) music C) toy D) mining Answer: C Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 29) In a licensing agreement, the licensee is both the owner and user of intellectual property. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking

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30) In a typical licensing agreement, after the relationship is established, the licensor is required to be directly involved in the market and provide ongoing managerial guidance. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 31) A know-how agreement grants a firm permission to use another firm's proprietary names, characters, or logos for a specified period of time in exchange for a royalty. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking 32) How are trademarks established in the United States and abroad? What are some of the difficulties faced by firms regarding the protection of trademarks? Explain with an example. Answer: In the United States and a number of other countries, firms acquire rights to trademarks through first use and continuous usage. However, in others, rights to trademarks are acquired through registration with government authorities, and many countries require local use of the registered mark to maintain the registration. When a firm registers its trademark, it formally notifies government authorities that it owns the trademark and is entitled to intellectual property protections. The convention of gaining ownership to a trademark simply through registration has caused concerns for many firms. For example, McDonald's was frustrated to learn, when it wanted to enter South Africa in 1993, that a local trader had already applied both to register the McDonald's trademark for his own use, and to have the company's rights to the trademark withdrawn. The South African Supreme Court actually ruled in favor of the local entrepreneur. McDonald's eventually won on appeal but only after spending a significant sum in legal fees. Diff: 2: Moderate Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking

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33) What is cross-licensing? Why does the pharmaceutical industry tend to favor cross-licensing arrangements? Explain your answer in a short essay. Answer: In some industries, such as pharmaceuticals, chemicals, and semiconductors, technology is acquired in reciprocal licensing arrangements among firms from the same or similar industries. This is known as cross-licensing. In industries where the rate of technological advances is rapid and where innovations often build on each other, technology licensing from competitors provides key advantages. It reduces the costs of innovation by avoiding duplication of research, while reducing the risk of excluding any one firm from access to new developments. The pharmaceutical industry tends to use cross-licensing agreements because R&D to develop a new drug can cost billions of dollars, and new drugs require long government approval processes, pharmaceutical firms want to launch their discoveries as quickly as possible. To reduce costs and increase the speed of new drug development, pharmaceutical firms license inventions to each other. Diff: 2: Moderate Skill: Concept Objective: 15-2: Understand licensing as an entry strategy AACSB: Analytical Thinking

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34) Explain how licensing works as an entry strategy into foreign markets. Describe the risks faced by technological firms that enter licensing agreements in foreign countries. Answer: A licensing agreement specifies the nature of the relationship between the owner of intellectual property, the licensor, and the user of the property, the licensee. High-technology firms routinely license their patents and know-how to foreign companies. For example, Germany's Cognitec licensed the use of its face recognition technology to U.S. chip manufacturer Intel, which will use the technology to control access to laptops, tablets, and similar devices. Upon signing a licensing contract, the licensee pays the licensor a fixed amount up front and an ongoing royalty of typically 2 to 5 percent of gross sales generated from using the licensed asset. The fixed amount covers the licensor's initial costs of transferring the licensed asset to the licensee, including consultation, training in how to deploy the asset, engineering, or adaptation. Certain types of licensable assets, such as copyrights and trademarks, may have lower transfer costs. The royalty percentage may escalate with increasing sales. A typical licensing contract runs five to seven years and is renewable at the option of the parties. Initially, the licensor provides technical information and assistance to the licensee. Once the relationship has been established and the licensee fully understands its role, the licensor usually plays an advisory role but has no direct involvement in the market and provides no ongoing managerial guidance. Most firms enter into exclusive agreements, in which the licensee is not permitted to share the licensed asset with any other company within a prescribed territory. In addition to operating in its domestic market, the licensee may also be permitted to export to other countries. If the licensor is an MNE, it may enter a licensing arrangement w...