Tutorial+solutions+Week+10 - Chapter 13 Foreign Market...

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Chapter 13 Foreign Market Entry and Country Risk Management Answers to Conceptual Questions 13.1 Describe five modes of entry into international markets. Which of these modes requires the most resource commitment on the part of the MNC? Which has the greatest risks? Which offers the greatest growth potential? Entry modes into foreign markets include export-based entry, import-based entry, contract- based entry, investment-based entry, and entry through a strategic alliance. Investment entry requires the most resource commitment and exporting the least. The other side of the coin is that expected returns are often higher with investment-based entry than with exporting (so long as the project is positive-NPV and the MNC can pull it off). The advantages and disadvantages of contract-based entry depend on the particular contract. A strategic alliance refers to any collaborative agreement that is designed to achieve some strategic goal. Strategic alliances often combine elements of other market entry modes. 13.2 What are the relative advantages and disadvantages of foreign direct investment, international acquisitions/mergers, and international joint ventures? The resource commitments of FDI and foreign acquisition are generally higher than joint ventures. a. FDI allows the MNC relatively permanent access to foreign product and factor markets. The cost of a new investment in an unfamiliar business culture can be high. b. Acquisitions of stock or of assets may be difficult or impossible in countries with investment restrictions or ownership structures (such as the German banking system or the Japanese keiretsu industrial structure) that impede foreign acquisitions. Acquisition premiums can also be prohibitive. c. Joint ventures can allow the MNC to gain quick access to foreign markets and to new production technologies. It can also come with risks, such as the risk of losing control of the MNC’s intellectual property rights to the joint venture partner. 13.3 Define country risk? Define political risk? Define financial risk? Give an example of each different type of country risk. Country risk refers to the political and financial risks of conducting business in a particular foreign country. Political risk is the risk that a host government will unexpectedly change the rules of the game under which businesses operate, such as through an election outcome. Financial risk refers to unexpected events in a country’s financial, economic, or business life that impact financial prices, such as an oil price shock in an oil-producing country. 13.4 What factors might contribute to political and to financial risk in a country according to the ICRG country risk rating system? Political Risk Services’
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Tutorial+solutions+Week+10 - Chapter 13 Foreign Market...

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