Chapter 6 Global Business

_____ knowledge can be written down and transferred without losing much of its richness. (A) Explicit (B) Implicit (C) Tacit (D) Inherent

(A) Explicit

_____ is a type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country. (A) Horizontal FDI (B) Vertical FPI (C) Backward vertical FDI (D) Platform FDI

(A) Horizontal FDI

_____ refers to international transactions between two subsidiaries in two countries controlled by the same MNE. (A) Intrafirm trade (B) Oligopoly (C) Agglomeration (D) Monopolization

(A) Intrafirm trade

_____ refers to the deal struck by MNEs and host governments, which change their requirements after the initial FDI entry. (A) Obsolescing bargain (B) Integrative bargain (C) Automated bargain (D) Ongoing bargain

(A) Obsolescing bargain

Which of the following political perspectives maintains the view that FDI has both pros and cons and can only be approved when its benefits outweigh costs? (A) Pragmatic nationalism (B) Protectionism (C) The radical view of FDI (D) The free market view of FDI

(A) Pragmatic nationalism

Which of the following statements best describes an FDI? (A) Setting up subsidiaries in foreign locations to do in-house work (B) Turning over an organizational activity to an outside supplier to perform on behalf of the firm (C) Outsourcing an in-house activity to another domestic firm (D) Assigning firm activities to foreign firms in neighboring countries

(A) Setting up subsidiaries in foreign locations to do in-house work

If Apple invests in iPhone dealerships in Asia but does not engage in distribution in the United States (Apple's host country), then Apple's Asian investment would be considered a(n) _____. (A) downstream vertical FDI (B) upstream vertical FDI (C) horizontal FDI (D) FPI

(A) downstream vertical FDI

A firm establishing a manufacturing plant in a foreign country due to the cheap labor costs in that country is an example of the _____ advantage that the firm enjoys. (A) location (B) ownership (C) internalization (D) externalization

(A) location

A(n) _____ refers to an industry dominated by a small number of players. (A) oligopoly (B) monopoly (C) perfect competition (D) free market

(A) oligopoly

_____ refers to the ability to extract favorable outcome from negotiations due to one party's strengths. (A) Expropriation (B) Bargaining power (C) Compromising power (D) Accommodating power

(B) Bargaining power

_____ refers to the problems associated with unauthorized diffusion of firm-specific know-how. (A) Knowledge spill (B) Dissemination risk (C) Market imperfection (D) Technological spill

(B) Dissemination risk

_____ is the amount of FDI moving in a given period (usually a year) in a certain direction. (A) FDI stock (B) FDI flow (C) Horizontal FDI (D) Vertical FDI

(B) FDI flow

_____ refers to the total accumulation of inbound FDI in a country or outbound FDI from a country. (A) FDI flow (B) FDI stock (C) Horizontal FDI (D) Vertical FDI

(B) FDI stock

_____ knowledge is noncodifiable and its acquisition and transfer requires hands-on practice. (A) Explicit (B) Tacit (C) Lucid (D) A priori

(B) Tacit

_____ suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods or services. (A) The radical view (B) The free-market view (C) Pragmatic nationalism (D) The monopolistic view

(B) The free-market view

MNEs' possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI refer to _____. (A) location (B) ownership (C) internalization (D) market imperfections

(B) ownership

_____ refers to the clustering of economic activities in certain locations. (A) Internalization (B) Expropriation (C) Agglomeration (D) Intrafirm trade

(C) Agglomeration

Which of the following is a primary cost of FDI to home countries? (A) Loss of sovereignty (B) Increase in local competition (C) Capital outflow and job loss (D) Increased exports of components and services to host countries

(C) Capital outflow and job loss

_____ refers to the replacement of cross-border markets with one firm locating in two or more countries. (A) Location advantage (B) Ownership advantage (C) Internalization (D) Agglomeration

(C) Internalization

Which of the following is a benefit of FDI to home countries? (A) Decrease in competition between local firms (B) Capital outflow (C) Learning from operations (D) Creation of new jobs

(C) Learning from operations

If a firm engages in final assembly in its home operations, then which of the following operations of the firm in a foreign country would be considered a downstream vertical FDI? (A) Research and development (B) Components procurement (C) Marketing (D) Final assembly

(C) Marketing

Which of the following political views treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms? (A) Pragmatic nationalism (B) The free-market view (C) The radical view (D) The monopolistic view

(C) The radical view

A vertical FDI refers to a type of FDI in which _____. (A) a firm duplicates its home country-based activities at the same value chain stage in a host country (B) a firm invests in a portfolio of foreign securities but without active management of those foreign assets (C) a firm moves upstream or downstream at different value chain stages in a host country (D) a firm produces the same products or services in a host nation as it does at home

(C) a firm moves upstream or downstream at different value chain stages in a host country

Government's confiscation of foreign assets is known as _____. (A) obsolescing bargains (B) sunk costs (C) expropriation (D) conflicting interests

(C) expropriation

Knowledge spillover refers to _____. (A) the risk associated with unauthorized diffusion of firm-specific know-how (B) a violation of the knowledge and IP rights secured by a copyright (C) knowledge diffused from one firm to others among closely located firms (D) the imperfect rules governing international transactions

(C) knowledge diffused from one firm to others among closely located firms

Harton, a car manufacturer based in UK, only assembles cars and does not manufacture components in the UK. But in France, Harton enters into components manufacturing through FDI. Harton's investment in France would be an example of a(n) _____. (A) FPI (B) downstream vertical FDI (C) upstream vertical FDI (D) horizontal FDI

(C) upstream vertical FDI

_____ refers to the reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation. (A) Bandwagon effect (B) Domino effect (C) Dissemination risk (D) Contagion effect

(D) Contagion effect

Which of the following is a primary cost of FDI to host countries? (A) Capital inflow (B) Increase in competition between local firms (C) Capital and job loss (D) Loss of sovereignty

(D) Loss of sovereignty

Which of the following economic perspectives on FDI has its principles rooted in Marxism? (A) Pragmatic nationalism (B) Laissez-faire (C) The free market view (D) The radical view

(D) The radical view

FPI refers to the _____. (A) direct, hands-on management of foreign assets (B) amount of FDI moving in a given period in a certain direction (C) ability of a firm to engage in downstream stage of the value chain in a host country (D) investment in a portfolio of foreign securities that do not entail the active management of foreign assets

(D) investment in a portfolio of foreign securities that do not entail the active management of foreign assets

The television industry in the United States is controlled by seven giant corporations: The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation. Thus, the television industry in the U.S. is a typical _____ industry. (A) agglomeration (B) free market (C) monopolistic (D) oligopolistic

(D) oligopolistic

OLI advantages refer to a firm's quest for _____via FDI. (A) oligopolistic advantages, laissez-faire advantages, and intrafirm trade advantages (B) outsourcing advantages, licensing advantages, and importing advantages (C) organization advantages, leadership advantages, and innovation advantages (D) ownership advantages, location advantages, and internalization advantages

(D) ownership advantages, location advantages, and internalization advantages

Firms prefer FDI to licensing because FDI_____. (A) increases the chances of opportunism when dealing with a host nation entity (B) requires complete dissemination of technological know-how to host nation entity (C) protects the firm from economic agglomeration (D) provides the firm with direct ownership to its foreign assets

(D) provides the firm with direct ownership to its foreign assets

Costs that a firm has to endure even when its investment turns out to be unsatisfactory are referred to as _____. (A) switching costs (B) replacement costs (C) cost overruns (D) sunk costs

(D) sunk costs

In Round Two of FDI negotiation process between MNEs and host governments, _____. (A) the government may demand renegotiations of the deal (B) the MNE is not willing to enter in the absence of some government assurance (C) the previous deal becomes obsolete (D) the MNE enters the host market and earns profits

(D) the MNE enters the host market and earns profits

A firm manufacturing clocks in its home country and through FDI is an example of downstream vertical FDI.

False

A type of FDI in which the firm moves upstream or downstream in different value chain stages in a host country is called horizontal FDI.

False

Compared to licensing, FDI increases dissemination risks.

False

Dissemination risk refers to the cost that a firm has to endure even when its investment turns out to be unsatisfactory.

False

Domestic transaction costs tend to be higher than international transaction costs.

False

Explicit knowledge is noncodifiable and its transfer requires hands-on practice.

False

Expropriation refers to the knowledge diffused from one firm to others among closely located firms.

False

Expropriation refers to the rewarding of property rights and incentives to MNEs from the host country.

False

FDI is more suitable if the activity is marginal and common across multiple end-user industries.

False

Horizontal FDI refers to the amount of FDI moving out of a country in a year.

False

Intrafirm trade refers to international transactions between two subsidiaries in a country controlled by two different MNEs.

False

OLI advantages refers to a firm's quest for outsourcing (O) advantages, licensing (L) advantages, and importing (I) advantages.

False

Oligopoly happens when an industry is dominated by one company.

False

Repatriated earnings from profits of MNEs benefit the host country financially.

False

Technology spillovers are harmful to host firms and industries.

False

The demonstration effect refers to the ability of a firm to engage in an upstream stage of the value chain in a host country.

False

The free market type of FDI is the most prevalent type of FDI practiced.

False

The resource-based view argues that internalization is a response to the imperfect rules governing international transactions.

False

An FDI investment is not considered a zero-sum game.

True

An FPI does not provide management control rights to the investing firm.

True

Capital inflow can help improve a host country's balance of payments.

True

Compared to licensing, FDI provides more direct and tighter control over foreign operations.

True

Economic agglomeration is an example of a location advantage.

True

FDI stock refers to the accumulation of inbound FDI in a country or outbound FDI from a country.

True

FPI refers to investment in a portfolio of foreign securities that do not entail the active management of foreign assets.

True

Firms become MNEs because FDI provides OLI advantages that they otherwise would not obtain.

True

In order to become an MNE, an exporter has to undertake FDI.

True

In the context of FDI, ownership refers to MNEs' possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas.

True

Internalization can help reduce opportunistic behavior in international trade.

True

Internalization refers to the replacement of cross-border markets with one firm locating in two or more countries.

True

Intrafirm trade enables MNEs to better coordinate cross-border activities.

True

Investing in FDI will increase the home firm's exports of components and services.

True

MNEs encounter sunk costs when they face an obsolescing bargain with the host country.

True

The benefit of ownership lies in the combination of equity ownership rights and management control rights.

True

The radical view treats FDIs as an instrument of imperialism.

True