IB-Ch 09

Chapter 9—Growing and Internationalizing the Entrepreneurial Firm
TRUE/FALSE
1. Firms with fewer than 500 employees in the United States are considered small- and medium-sized
enterprises.
ANS: T PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 9-1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge
2. Individuals who discover, evaluate, and exploit previously unexplored opportunities are referred to as
entrepreneurs.

3. The word “entrepreneurs” mostly refers to founders and owners of new businesses or managers of
existing firms.

4. SMEs are the exclusive domain of entrepreneurship.
ANS: F PTS: 1 DIF: Difficulty: Easy

5. Whether entrepreneurship is facilitated or retarded significantly depends on formal institutions

governing how entrepreneurs start up new firms.

6. International entrepreneurship is defined as “a combination of innovative, proactive, and risk-seeking

behavior that crosses national borders and is intended to create wealth in organizations.”

7. SMEs tend to be less entrepreneurial than large firms.

8. Cultural values and norms are examples of informal institutions.

OBJ: LO: 9-2 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge
9. In general, governments in developed economies impose more procedures to start a company than
those in poorer countries.
10. Both formal and informal institutional constraints, as rules of the game, affect entrepreneurship.

11. According to the resource-based view, the entrepreneurial resources must have inimitable resources to
be successful.

12. An institution-based view suggests that firm-specific resources and capabilities largely determine
entrepreneurial success and failure.

13. One hallmark of entrepreneurial growth is a dynamic, flexible, guerrilla strategy.

14. The growth of an entrepreneurial firm can be viewed as an attempt to more fully use currently
underutilized resources and capabilities.

15. Owners, managers, and employees at large firms tend to be more innovative and take more risks than
those at entrepreneurial firms.

16. Firms that are first to introduce new goods or services are likely to earn “monopoly profits” until
competitors emerge.

17. Compared to large firms, innovators at SMEs have limited ability to personally profit from their
innovations because property rights usually belong to the corporation.

18. Brazil has the lowest level of informal investment in the world.

19. Sweden has the lowest venture capitalist investment in the world.

20. In entrepreneurial firms, an innovation strategy allows a potentially more sustainable basis for
competitive advantage.

21. Microfinance emerged in response to the lack of financing for entrepreneurial opportunities in many
developing countries.

22. Entrepreneurial opportunities exist to lower transaction costs and bring distant groups of people, firms,
and countries together.

23. Foreign direct investment is the only way in which SMEs can enter foreign markets.

24. Domestic transaction costs are qualitatively higher than international transaction costs.

25. Direct exports are the sale of products made through export intermediaries.

26. A letter of credit increases transaction costs by increasing transaction risks.

27. Licensing is mostly used in the service industries.

28. Franchising is typically used in manufacturing industries.

29. Franchising is a type of internationalizing business model.

30. Foreign firms interested in becoming licensees or franchisees have to put their own capital up front.

31. Foreign acquisitions are an example of an FDI entry into foreign markets.

32. Entrepreneurial firms can internationalize while staying in domestic markets through indirect exports.

33. Indirect export is one of the strategies used by entrepreneurial SMEs to internationalize without
leaving their home country.

34. A firm can internationalize by becoming a supplier for a foreign firm that is doing business in the
domestic market.

35. Becoming a licensee or franchisee of a foreign brand does not internationalize the licensee or
franchisee firm.

36. Family background and educational attainment correlate with entrepreneurship.

37. Entrepreneurs need to cultivate strong informal norms granting legitimacy to entrepreneurs.

38. It is impossible to internationalize without venturing abroad.

MULTIPLE CHOICE
1. In the United States, small- and medium-sized enterprises (SMEs) are defined as firms with less than
_____.
a. 20 employees
b. 250 employees
c. 1000 employees
d. 500 employees
ANS: D PTS: 1 DIF: Difficulty: Easy
2. Which of the following is a defining characteristic of entrepreneurship?

a. Size of the firm
b. Market share of the firm
c. Ability to exploit opportunity
d. Nationality of the individual or firm
ANS: C PTS: 1 DIF: Difficulty: Easy
3. Which of the following is true of SMEs?

a. They are less entrepreneurial than large firms, on average.
b. They account for over 95 per cent of total firms around the world.
c. They generate less employment than larger firms around the world.
d. They generally have more than a thousand employees per firm.
ANS: B PTS: 1 DIF: Difficulty: Easy
4. In the European Union, small and medium-sized enterprises (SMEs) are defined as firms with less than
_____.
a. 500 employees
b. 250 employees
c. 1000 employees
d. 750 employees
5. _____ is defined as the identification and exploitation of previously unexplored opportunities.

a. Distributorship
b. Dealership
c. Vendorship
d. Entrepreneurship
6. Founders and/or owners of new businesses or managers of existing firms who identify and exploit new
opportunities are called _____.
a. bloggers
b. entrepreneurs
c. adjudicators
d. arbitrators
7. Which of the following types of societies would most likely foster more entrepreneurship?
a. Individualistic and high uncertainty-avoidance
b. Collectivistic and high uncertainty-avoidance
c. Collectivistic and low uncertainty-avoidance
d. Individualistic and low uncertainty-avoidance
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 9-2 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension
8. Which of the following is a part of the VRIO framework?

a. Value
b. Reliability
c. Impulse
d. Orientation
9. Among developed countries, _____ has the lowest rate of start-ups.

a. United Kingdom
b. United States
c. Russia
d. Japan
10. Which of the following is one of the four major characteristics associated with a growing
entrepreneurial firm?
a. Monotonousness
b. Internationalization
c. Inimitability
d. Informality
11. ____ is at the fundamental component required for an entrepreneurial mindset.

a. Firm size
b. Leadership
c. Innovation
d. Financing
12. With regard to investment in start-ups, investment by _____ is considered as informal investment.
a. foreign entrants
b. friends
c. venture capitalists
d. banks
13. Which of the following nations has the lowest level of VC investment, as a percentage of GDP, in the
world?
a. Sweden
b. The United States
c. Greece
d. South Africa
14. Which of the following nations has the highest level of informal investment, as a percentage of GDP,
in the world?
a. Sweden
b. China
c. Greece
d. Japan
15. Microfinance provides micro loans used to:

a. pay mortgages.
b. pay car loans.
c. start small businesses.
d. start subsidiaries.
16. Which of the following supports the notion that most new ventures in China are financed by friends
and family?
a. Informal investments are outlawed in China.
b. China lacks formal market-supporting institutions.
c. Credit reporting agencies are abundant in China.
d. Venture capitalists are the biggest investors for entrepreneurship in China.
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 9-3 NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension
17. The term for a global movement to help eradicate poverty by lending small sums used to start small
businesses is referred to as _____.
a. foreign direct investments
b. microfinance
c. venture capital investment
d. preferred financing
18. International new ventures are also referred to as _____.

a. born global firms
b. microfinance firms
c. greenfield subsidiaries
d. conglomerates
ANS: A PTS: 1 DIF: Difficulty: Easy
19. Which of the following is one of the methods by which entrepreneurial firms internationalize by
entering foreign markets?
a. Harvest and exit
b. Indirect exports
c. Microfinancing
d. Franchising
20. ____ is the sale of products made by entrepreneurial firms in their home country to customers in other
countries.
a. Direct exports
b. Letters of credit
c. Licensing
d. Indirect exports
21. ____ is a way to reach overseas customers by exporting through domestic-based export intermediaries.
a. Direct exports
b. Licensing
c. Indirect exports
d. Letters of credit
22. In a manufacturing industry, _____ refers to firm A’s agreement to give firm B the rights to use A’s
proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid
to A by B.
a. franchising
b. bailment
c. adverse possession
d. licensing
23. In a service industry, _____ refers to firm A’s agreement to give Firm B the rights to use A’s
proprietary assets for a royalty fee paid to A by B.
a. adverse possession
b. franchising
c. bailment
d. licensing
24. Which of the following is a popular way to enter into international service markets?
a. Licensing
b. Harvest and exit
c. Franchising
d. Indirect exporting
25. Relative to licensing and franchising, _____ allow a firm to have better control of how its proprietary
technology is used while entering foreign markets.
a. harvest and exit methods
b. foreign direct investments
c. indirect exports
d. direct exports
26. Which of the following is one of the methods by which entrepreneurial firms internationalize by
staying in domestic markets?
a. Through harvest and exit sell-offs to foreign entrants
b. Through direct exports
c. Through strategic alliances by FDI
d. Through greenfield wholly owned subsidiaries abroad
27. ____ perform an important "middleman" function by linking sellers and buyers overseas.
a. Export intermediaries
b. Indirect exporters
c. Sporadic exporters
d. Alliance partners
28. A ____ is a financial contract that states that the importer's bank will pay a specific sum of money to
the exporter upon delivery of the merchandise.
a. bill of lading
b. deed
c. letter of credit
d. bill of exchange
OBJ: LO: 9-4 NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge
29. Which of the following types of contracts are used between exporters and importers to reduce
transaction risks?
a. Letter of credit
b. Articles of incorporation
c. License
d. Bill of lading
30. Entrepreneurs selling an equity stake or the entire firm to foreign entrants are using a(n) ____ strategy
to internationalize.
a. export
b. franchising
c. licensing
d. harvest and exit
31. Which of the following types of entrepreneurs are best described as people who start, grow, and sell
several businesses throughout their career?
a. Social entrepreneurs
b. Lifestyle entrepreneurs
c. Serial entrepreneurs
d. Cooperative entrepreneurs
32. Model of internationalization that portrays the slow step-by step process an SME must go through to
internationalize its business is referred to as the:
a. indirect model.
b. stage model.
c. franchising model.
d. direct export model.
ESSAY
1. Explain the institution-based views in light of their effect on entrepreneurial success.
ANS:
Institutions offer the rules that entrepreneurs must follow. Both formal and informal institutional
constraints, as rules of the game, affect entrepreneurship. Although entrepreneurship is thriving around
the globe in general, its development is uneven. Whether entrepreneurship is facilitated or retarded
significantly depends on formal institutions governing how entrepreneurs start up new firms.
In addition to formal institutions, informal institutions such as cultural values and norms also affect
entrepreneurship. For example, because entrepreneurs necessarily take more risks, individualistic and
low uncertainty-avoidance societies tend to foster relatively more entrepreneurs, whereas collectivistic
and high uncertainty-avoidance societies may result in relatively fewer entrepreneurs.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2

NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension
2. Explain the resource-based views in light of their effect on entrepreneurial success.
ANS:
The resource-based view sheds considerable light on entrepreneurship, with a focus on its value, rarity,
imitability, and organizational (VRIO) aspects. First, entrepreneurial resources must create value.
Second, resources must be rare. The best-performing entrepreneurs tend to have the rarest knowledge
and deeper insights about business opportunities. Third, resources must be inimitable. They shouldn’t
be easily replicable by competitors or new entrants. Fourth, entrepreneurial resources must be
organizationally embedded. In sum, the resource-based view suggests that firm-specific (and in many
cases, entrepreneur-specific) resources largely determine entrepreneurial success and failure.

3. Identify the three advantages offered by the innovation strategy used in a growing entrepreneurial firm.
ANS:
An innovation strategy offers three advantages. First, it allows a potentially more sustainable basis for
competitive advantage. Firms that are first to introduce new goods or services are likely to earn (quasi)
“monopoly profits” until competitors emerge. If entrepreneurial firms come up with “disruptive
technologies,” then they may redefine the rules of competition, thus wiping out the advantages of
incumbents.
Second, innovation should be regarded broadly. Not only are technological breakthroughs innovations,
less novel but still substantially new ways of doing business are also innovations. Most start-ups
reproduce existing organizational routines but recombine them to create some novel product/service
offerings.
Third, entrepreneurial firms tend to be uniquely ready for innovation. Owners, managers, and
employees at entrepreneurial firms tend to be more innovative and risk-taking than those at large firms.
In fact, many SMEs are founded by former employees of large firms who were frustrated by their
inability to translate innovative ideas into realities at those firms.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3

NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge
4. Explain the concept of microfinance.
ANS:
Microfinance has emerged in response to the lack of financing for entrepreneurial opportunities in
many developing countries. Microfinance involves lending small sums ($50–$300) used to start small
businesses with the intention of ultimately lifting them out of poverty. Starting in the 1970s in
countries such as Bangladesh and India, microfinance has now become a global movement and has
become controversial lately.

5. Identify and explain the dilemma behind transaction costs and international entrepreneurial
opportunities.
ANS:
The costs of doing business internationally are much higher than doing domestic business. This is
because there are often numerous formal and informal institutional differences. There are also greater
levels of opportunism that are difficult to detect but necessary to plan for.
Many small firms tend to view the costs as too high compared to the benefits. Due to higher
transaction costs, many firms may choose not to pursue international opportunities. A few firms,
however, think innovatively and add international dimensions to their businesses without totally going
abroad. These include direct exports, licensing, and franchising.
6. Discuss direct exporting, licensing, and franchising as strategies for entering a foreign market. Explain
each, and detail strengths and weaknesses.
ANS:
Direct export involves the sale of products made by entrepreneurial firms in their home country to
customers in other countries. This strategy is attractive because entrepreneurial firms are able to reach
foreign customers directly. When domestic markets experience some downturns, sales abroad may
compensate for such drops. However, one major drawback is that SMEs may not have enough
resources to turn overseas opportunities into profits.
Another way to enter international markets is through licensing and/or franchising. Licensing refers to
Firm A’s agreement to give Firm B the rights to use A’s proprietary technology (such as a patent) or
trademark (such as a corporate logo) for a royalty fee paid to A by B. Franchising is essentially the
same idea, except it is typically used in service industries, such as fast food. One great advantage is
that SME licensors and franchisers can expand abroad while risking relatively little of their own
capital. Foreign firms interested in becoming licensees or franchisees have to put their own capital up
front.

7. Is successful entrepreneurship based more on the “traits” of the entrepreneur or on the “institutions” at
work in his or her environment?
ANS:
“Traits” advocates say successful entrepreneurs have certain traits that set them apart from other
workers. Critics, however, argue that some of these traits, such as a strong achievement orientation, are
not necessarily limited to entrepreneurs, but instead are characteristic of many successful individuals.
The diversity among entrepreneurs makes any attempt to develop a standard psychological or
personality profile futile.
“Institution” advocates argue that rather than traits of individuals, it is the formal and informal
institutions, which set the rules of the game, that directly influence the success or failure of firms.

8. What is the stage model? Can SMEs internationalize faster than what is suggested by the stage model?
ANS:
The stage model posits that SMEs internationalize through a slow, stage-bay-stage process. Firms
move from direct exports to licensing/franchising and finally to FDI gradually, due to the level of
complexity and resources required to internationalize.
However, enough counterexamples of rapidly internationalizing entrepreneurial firms, known as born
global, exist to challenge stage models. Opponents of stage model argue that every industry has
become "global" and that entrepreneurial firms need to go after these opportunities rapidly.
A key issue, therefore, is whether it is better for entrepreneurs to start the internationalization process
soon after founding (as “born global” firms do) or to postpone until the firm has accumulated
significant resources. Firms following the prescription of stage models, when eventually
internationalizing, must overcome substantial inertia because of their domestic orientation. In contrast,
firms that internationalize earlier have fewer of these barriers to overcome. Therefore, SMEs without
an established domestic orientation (such as Logitech) may outperform their rivals that wait longer to
internationalize. On the other hand, opponents of rapid globalization argue that foreign sales during the
first few years of the new venture may reduce its chances for survival.
Given the split findings, there are no hard and fast rules on whether entrepreneurial firms should
rapidly internationalize or not.


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Chapter 9—Growing and Internationalizing the Entrepreneurial Firm

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

4. SMEs are the exclusive domain of entrepreneurship.

ANS: F PTS: 1 DIF: Difficulty: Easy

5. Whether entrepreneurship is facilitated or retarded significantly depends on formal institutions

ANS: T PTS: 1 DIF: Difficulty: Easy

6. International entrepreneurship is defined as “a combination of innovative, proactive, and risk-seeking

ANS: T PTS: 1 DIF: Difficulty: Easy

7. SMEs tend to be less entrepreneurial than large firms.

ANS: F PTS: 1 DIF: Difficulty: Easy

8. Cultural values and norms are examples of informal institutions.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

13. One hallmark of entrepreneurial growth is a dynamic, flexible, guerrilla strategy.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

26. A letter of credit increases transaction costs by increasing transaction risks.

ANS: F PTS: 1 DIF: Difficulty: Easy

27. Licensing is mostly used in the service industries.

ANS: F PTS: 1 DIF: Difficulty: Easy

28. Franchising is typically used in manufacturing industries.

ANS: F PTS: 1 DIF: Difficulty: Easy

29. Franchising is a type of internationalizing business model.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

36. Family background and educational attainment correlate with entrepreneurship.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

38. It is impossible to internationalize without venturing abroad.

ANS: F PTS: 1 DIF: Difficulty: Easy

2. Which of the following is a defining characteristic of entrepreneurship?

3. Which of the following is true of SMEs?

5. _____ is defined as the identification and exploitation of previously unexplored opportunities.

8. Which of the following is a part of the VRIO framework?

9. Among developed countries, _____ has the lowest rate of start-ups.

11. ____ is at the fundamental component required for an entrepreneurial mindset.

15. Microfinance provides micro loans used to:

18. International new ventures are also referred to as _____.

1. Explain the institution-based views in light of their effect on entrepreneurial success.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2

2. Explain the resource-based views in light of their effect on entrepreneurial success.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 9-2

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 9-3