RSM Internationalization 2 — Questions and Answers
Question 1: According to Dunning's OLI paradigm, which advantage explains why a firm chooses to produce abroad rather than export?
- Ownership advantage
- Location advantage (Correct answer)
- Internalization advantage
- Institutional advantage
Correct answer: Location advantage
Location (L) advantages—such as lower costs, natural resources, or market access—explain why production occurs in a foreign country rather than at home.
Question 2: The concept of 'liability of foreignness' refers to:
- Tariffs imposed on imported goods
- Additional costs firms face when operating in unfamiliar foreign markets (Correct answer)
- Legal penalties for violating host-country regulations
- Currency risk from operating in multiple countries
Correct answer: Additional costs firms face when operating in unfamiliar foreign markets
Liability of foreignness (Hymer, Zaheer) describes the extra costs and disadvantages MNEs face compared to local competitors due to unfamiliarity with the host environment.
Question 3: Which entry mode gives a firm the MOST control over its foreign operations but requires the HIGHEST resource commitment?
- Licensing
- Franchising
- Wholly owned subsidiary (Correct answer)
- Joint venture
Correct answer: Wholly owned subsidiary
A wholly owned subsidiary provides maximum control since the parent owns 100% equity, but demands the highest capital investment and management resources.
Question 4: In Hofstede's cultural dimensions, a country scoring HIGH on 'uncertainty avoidance' tends to:
- Embrace ambiguity and take risks readily
- Prefer structured rules, formality, and predictability (Correct answer)
- Favor individual achievement over group harmony
- Accept large power differences between social levels
Correct answer: Prefer structured rules, formality, and predictability
High uncertainty avoidance cultures (e.g., Greece, Portugal) rely on explicit rules and formal procedures to minimize ambiguous situations.
Question 5: Transaction Cost Theory applied to internationalization suggests firms internalize activities abroad when:
- Market transactions are cheaper than internal coordination
- The host country has favorable tax rates
- Market imperfections make external transactions costly or risky (Correct answer)
- The Uppsala model predicts low psychic distance
Correct answer: Market imperfections make external transactions costly or risky
Williamson's transaction cost logic holds that firms integrate foreign operations when market failures—opportunism, asset specificity, uncertainty—make arm's-length contracts inefficient.
Question 6: Which theory argues that firms from small, open economies internationalize early to overcome limited domestic market size?
- Uppsala model
- Born global / international new ventures theory (Correct answer)
- Diamond model
- Imitation lag theory
Correct answer: Born global / international new ventures theory
Born global research (Oviatt & McDougall) shows firms from small economies often target international markets from or near inception rather than following sequential stages.
Question 7: Porter's Diamond model identifies four determinants of national competitive advantage. Which is NOT one of them?
- Factor conditions
- Demand conditions
- Cultural distance (Correct answer)
- Related and supporting industries
Correct answer: Cultural distance
Porter's Diamond comprises factor conditions, demand conditions, related and supporting industries, and firm strategy/structure/rivalry—cultural distance is not a Diamond component.
RSM Internationalization 2
According to Dunning's OLI paradigm, which advantage explains why a firm chooses to produce abroad rather than export?