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17. Match List-I with List-II:

List-I (Branding Strategy)List-II (Meaning)
(a) Line Extension(i) New product category and existing brand
(b) Brand Extension(ii) Existing product category and existing brand name
(c) Multi Brands(iii) Existing product category and new brand names
(d) Co-branding(iv) Putting two established brand names of different companies on the same product
Choose the correct option from those given  below:

  • Option : B
  • Explanation : Branding Strategies: When a company manages its brands it has a number of strategies it can use to further increase its brand value. These are:
    Line extension: This is where an organization adds to its current product line by introducing, versions with new features, an example could be a Crisp manufacturer extending its line by adding more exotic flavours.
    Brand extension: If your current brand name is successful, you may use the brand name to extend into new or existing areas. For example, Virgin extending its brand from records to airlines, to mobiles.
    Multi-branding: The company decides to further introduce more brands into an already existing category. Kellogg’s, for example, have a number of brands in the cereal market and the cereal bar market. Multi-branding can allow an organization to maximize profits, but a company needs to be weary over their own brands competing with each other over market share.
    New Brands: An organization may decide to launch a new brand into a market. A new brand may be used to compete with existing rivals and may be marketed as something ‘new and fresh’.
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18. Theory of Comparative Advantage given by David Ricardo in 1817 is:

  • Option : D
  • Explanation : The great thinkers of liberal economics believed that free trade would benefit all parties through the mechanism of what they termed “comparative advantage.” The Scottish economist David Ricardo established comparative advantage as the logical basis for free trade as long ago as 1817. He showed that everyone would enjoy higher incomes and a better standard of living if every producer, be they country, company, or individual concentrated their activity in areas where they had the greatest cost advantage (or the smallest cost disadvantage) over their competitors.
    To illustrate his theory, he took the example of two countries, Britain and Portugal, and two products, wine, and cloth. In the early nineteenth-century Britain was the most technologically advanced economy in the world, but Portugal has a much better climate for grapes, so Ricardo argued that the welfare of both would be maximized if Britain stuck to making cloth and imported Portuguese wine. Any other arrangement would be a waste of time and money.
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19. An MNC wants to invest in India. Of the following entry modes, select the right order in terms of increasing risk?
(a) Co-operative joint venture
(b) Branch office
(c) Portfolio investment
(d) Wholy owned subsidiary
(e) Equity joint venture
Select correct option:

  • Option : B
  • Explanation : FDI-related Entry Modes: There are at least four modes of entry that come under the above headline. One thing common to all the five modes is that there is an investment by an MNC in the host country. This feature contrasts with earlier modes of entry which generally involved only trade agreements without equity investment. The four FDIrelated entry modes are:
    Branch office
    Co-operative joint-venture
    Equity joint venture
    Portfolio investment
    Wholly owned subsidiary
    Branch Office: An MNC opens a branch office in a host country. The branch may be required to engage in production and operating activities, but fully monitored by the parent company. Branch offices are particularly opened by international banks, law firms, accounting, and consulting firms. British Standard Bank, for example, has more than 1000 branches in South Africa. It also has branches in 14 other sub-Saharan countries.
    Co-operative joint-venture: Strategic alliance is another name for cooperative joint-venture. This is a co-operative agreement between firms that go beyond normal company to company dealings. Alliances can involve joint research efforts, technology sharing, joint use of production facilities, marketing one another’s products, or joining forces to manufacture components or assemble finished products. Cooperative ventures may be equity or non-equity based. In a non-equity alliance, co-operating firms agree to work together to carry on activities, but do not take equity positions in each other or form an independent organization to manage their co-operative efforts. These non-equity alliances are managed through contracts that may be either trade-related or transfer related entry modes. In an equity alliance, co-operating firms supplement contracts with equity holdings.
    Portfolio Investments: This involves investments in the equity of another company or lending money to it in the form of bonds or bills. They are important for many companies with extensive international operations, and except for equity, they are used mainly for short-term financial gain—as a relatively safe means of earning more money on a company’s investment. To earn higher yields on short term investments, companies routinely move funds from country to country.
    Equity Joint-Venture: Equity joint venture is a shared ownership in a foreign business. Generally, the venture is a 50-50 ownership firm in which there are two (or more) parties, each holding a 50 percent ownership stake. The venture is together managed by the alliance partners. Host countries generally prescribe investment limits on alliance partners. The Government of India had put ceilings on foreign investments in India but now has relaxed in many industries.
    Lack of trust between the two partners makes life short-lived. It is observed that the partners do not share trade secrets with each other. The exception to this perception is the collaboration between Tatas and Starbucks. Starbucks shared with Tatas some of the roasting secrets, which the MN Chad perfected for over four decades and guarded very closely.
    On the plus side, Joint-ventures facilitate easy access into host markets; local partners are familiar with wishes and dislikes of host country citizens; and host partner’s distribution networks, brand image and managerial skills are made available to the joint-venture
    Wholly-owned subsidiary: As the title itself suggests this entry mode involves 100 per cent ownership by an MNC in a venture located in a host country. Such a firm can come into being in either of two ways: setting up a totally new project or acquisition of an existing company. The MNC can establish a totally new facility in which case it is called a greenfield project and the finance is called greenfield investment. The ‘green’ is appended for the reason that such a venture is a set up in a green agricultural field. In the alternative, the MNC can acquire an existing company located in the host country outright.
    Developing countries prefer greenfield investments because they generate employment opportunities, add to the existing manufacturing capacities and bring new technology.
    Compared to greenfield investment, a crossborder acquisition benefits the MNC in at least two ways. First, the acquisition is quicker than establishing a firm. Second, the acquisition may be a cost-effective way of gaining competitive advantage such as technology, brand name, and logistical and distribution advantages, while simultaneously eliminating any local competitor. There are problems associated with the acquisition. There may be the possibility of paying too high a price. Meshing different cultures can be a traumatic experience. Managing the post-acquisition the process is generally characterized by downsizing to minimize costs. This leaves bitterness in the host country's citizens. Host governments may interfere in matters relating to pricing, financing, employee hiring, and other activities.
    Greenfield or acquisition, wholly-owned the subsidiary route represents fully blown crossborder transactions. In fact, such entry modes manifest the true spirit of international business.
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20. ‘Collusion’ is one of the co-operative strategies in a business combination that:
(a) may be explicit
(b) may be tacit
(c) may reduce technological risk
(d) may be illegal in many countries
Which of the following option is correct?

  • Option : D
  • Explanation : Common and more direct competition reducing cooperative strategy is collusion. Collusive strategies often are illegal. There are two types of collusive strategies—explicit collusion and tacit collusion. Explicit collusion means that two or more competing firms negotiate directly to jointly agree about the amount to produce as well as the prices that will be charged for what is produced. Explicit collusion strategies are illegal in the The United States and most developed economies (except in regulated industries). Therefore, firms that use such strategies may face litigation and may be found guilty of noncompetitive actions.
    Tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other’s competitive actions and responses. Firms that engage in tacit collusion recognize that they are interdependent and that they're competitive actions and responses significantly affect competitors’ behaviors toward them. Tacit collusion results in less than fully competitive production levels and prices that are higher then they might otherwise be. Firms engaging in tacit collusion do not directly negotiate output and pricing decisions, as they do in explicit collusion. This type of competition reducing the strategy is more com m on in industries that are highly concentrated, such as breakfast cereals and airlines.
    A mutual forbearance is a form of tacit collusion in which competition is reduced because firms fear responses to competitive attacks from competitors with whom they compete in multiple markets.
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