Chapter 8

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?

The presence or threat of trade barriers

Which of the following concepts helps explain how location factors affect the direction of FDI?

The eclectic paradigm

A current account deficit is also known as a(n) _____ deficit.

trade

An acquisition does not result in a net increase in the number of players in a market.

True

By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing.

True

Greenfield investment involves the establishment of a new operation in a foreign country.

True

The most important concerns regarding the costs of FDI for the home-country center on:

the balance-of-payments and employment effects of outward FDI.

A critical competitive feature of an oligopoly is:

the interdependence of the major players.

The main benefits of inward FDI for a host country arise from:

the resource-transfer effect, the employment effect, and the balance-of-payments effect.

The stock of foreign direct investment refers to:

the total accumulated value of foreign-owned assets at a given time.

A firm will favor FDI over exporting as an entry strategy when:

the transportation costs or trade barriers are high.

Countries such as the U.S., the U.K., France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because:

they were the most developed countries postwar and home to the largest and best capitalized enterprises.

Offshore production refers to FDI undertaken to serve the host market.

False

Location-specific advantages for a firm are those that arise from:

utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets.

According to the radical view, which of the following countries would benefit the most from FDI?

Advanced, capitalist home countries of MNEs

_____ accounts are national accounts that track both payments to and receipts from other countries.

Balance-of-Payments

Which of the following statements regarding the free market view is true?

No country has adopted the free market view in its pure form.

A critical competitive feature of an oligopoly is independence of the major players.

False

According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

False

When a firm exports its products to a foreign country, foreign direct investment occurs.

False

World trade has been growing twice as fast as the growth in the volume of FDI worldwide.

False

According to the U.S. Department of Commerce, in the United States _____ occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity.

Foreign Direct Investment

The _____ view argues that international production should be distributed among countries according to the theory of comparative advantage.

Free Market

Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?

Licensing

Which of the following indicates that a firm has full outright stake in an acquisition?

Maximus Corporations acquires 100 percent of a company.

Which of the following is true regarding the pragmatic nationalist view of FDI?

One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.

Which of the following is a major type of foreign investment risk that is insurable through government-backed programs?

Risks of expropriation

Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.

True

Since World War II, the United States has been the largest source country for FDI, a position it retained during the late 1990s and early 2000s.

True

The WTO embraces the promotion of international trade in services.

True

During 1998 to 2010, which of the following countries had the highest FDI outflow?

United States

The idea behind multipoint competition is to ensure that:

a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere.

Offering subsidies to foreign MNEs in the form of tax breaks or grants is one way of:

courting FDI believed to be in national interest.

In the balance of payments, the _____ account records transactions involving the export and import of goods and services.

current

Historically, most FDI has been directed at the _____ nations of the world.

developed

3M, an American firm, manufactures adhesive tapes in St. Paul, Minnesota, and ships the tapes to South Korea for sale. According to this information, which of the following is being done by 3M?

exporting

Many services have to be produced where they are sold; hence _____ is not an option.

exporting

Economists refer to knowledge "spillovers" that occur when companies in the same industry are located in the same area as:

externalities

Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other, thus offering the location-specific advantage of:

externalities

The interdependence between firms in an oligopoly leads to _____.

imitative behavior

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the _____.

internalization theory

The difference between Internalization theory and imitative theory is that:

internalization theory addresses the issue of efficiency of FDI over exporting or licensing.

According to internalization theory, one of the drawbacks of licensing is that:

it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.

According to internalization theory:

licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.

The viability of an exporting strategy is often constrained by transportation costs, particularly of products that have a _____ and that can be produced in almost any location.

low value-to-weight ratio

To encourage inward FDI, it is increasingly common for governments to:

offer tax concessions to firms that invest in their countries.

According to the _____, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.

pragmatic nationalist view

The United States has been an attractive target for FDI partly because of its:

stable and dynamic economy.

Britain reserves the right to intervene in FDI by:

reserving the right to block foreign takeovers of domestic firms in certain situations.

Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of _____.

resource transfer effects