Chapter 8 Foreign Direct Investment
When a company brings capital and/or technology to a host country, the host country benefits from the
The resource transfer effect of FDI
The stock of FDI is
The total accumulated value of foreign owned assets at a given time
According to Knickerbocker,
when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments
The largest source country for FDI since World War II has been
The United States
The amount of FDI undertaken over a given time period is
The flow of FDI
According to ________ international production should be distributed among countries according to the theory of comparative advantage
The free market view
Which of the following is not a reason that the radical position of MNEs was in retreat by the end of the 1980s?
A growing belief in many capitalist countries that MNE's rightly controls key technology and that important jobs in the MNEs' foreign subsidiaries go to home-country nationals
The rise in FDI in the services sector is a result of the following, except:
Accelerating regulations of services
If four firms control 80 percent of a domestic market, then _______ exists
An oligopoly
A _______ keeps track of a country's payments to and its receipts from other countries
Balance of payments account
John Dunning, a champion of the eclectic paradigm, argues that
Combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI
The ______ tracks the export and import of goods and services. A current account deficit or trade deficit as it is often called, arises when a country is importing more goods and services that it is exporting
Current account
Three costs of FDI concerns of host countries arise from all of the following except
Debit on the current account of the home country's balance of payments
Historically, most FDI has been directed at the _______ nations of the world as firms based in advanced countries invested in
Developed; each other's markets
The ______ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located.
Eclectic paradigm
Which of the following is not a reason why firms prefer to acquire existing assets rather than undertake green-field investments
Even though Greenfield investments are comparatively less risky for a firm acquisitions always yield higher profits
When two or more enterprises encounter each other in different regional markets, national markets or industries, there is
Multipoint competition
FDI undertaken to serve the home market is known as
Offshore production
FDI has been rising for all of the following reasons, except:
The general increase in trade barriers over the past 30 years
FDI occurs when a
Firm invests directly in facilities to produce and/or market a product in a foreign country
________ is essentially the service industry version of licensing, although it normally involves much longer term commitments
Franchising
In developing nations most FDI inflows are in the form of
Greenfield investments
The total amount of capital invested in factories, stores, office buildings and the like is summarized by
Gross fixed capital formation
Identify the incorrect statement regarding the direction of FDI
Historically, most FDI has been directed at the developing nations of the world
Licensing would be a good option for firms in which of the following industries?
In fragmented, low technology industries in which globally dispersed manufacturing is not an option
When jobs are created in local suppliers as a result of the FDI and when jobs are created because of increased local spending by employees of the MNE, the MNE has a _______ effect on employment
Indirect
Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets
Internalization theory
___________ is also known as market imperfections theory
Internalization theory
The U.S. has been an attractive target for FDI because of all of the following reasons except
Its small and wealthy domestic markets
The eclectic paradigm was developed by
John Dunning
Africa is not a popular destination for FDI because of all the following reasons, except
Liberalization of FDI regulations
In a licensing arrangement, the _______ bears the risk and cost of opening a foreign market
Licensee
__________ 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
According to the internalization theory, all of the following are drawbacks of licensing as a strategy for exploiting foreign market opportunities, except
Licensing does not grant control over manufacturing, marketing and to a licensee in return for a royalty fee.
Advantages that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets are known as
Location specific advantages
Most cross-border investment is
Made via mergers and acquisitions
If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of
Majority Acquisition
When strategic assets such as brand loyalty, customer relationships or distribution systems are important, ______ investments are more appropriate
Merger and acquisition
______ are controls over the behavior of the MNE's local subsidiary
Performance requirements
A distinctive aspect of ________ 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
Pragmatic nationalism
According to the _________ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange
Radical
Double taxation is
Taxation of income in both home and host country
The sector composition of FDI shows that by 2004 approximately ________ of FDI stock was in the service industries
Two third
A Greenfield investment
is a form of FDI that involves the establishment of a new operation in a foreign country
The product life cycle suggests that
often the same firm that pioneer a product in their home markets undertake FDI to produce a product for consumption in foreign markets