chapter 8 global business

Multipoint Competition

Arises when two or more enterprises encounter each other indifferent regional markets, national markets, or industries.

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

Externalities

Which of the following is a home-country policy for limiting outward FDI?

Manipulating tax rules to encourage the firms to invest at home

Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?

When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.

People with radical view toward FDI argue that _____ is an instrument of imperialist domination.

a multinational enterprise

The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:

Pragmatic nationalism

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

Risks of expropriation

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.

oligopoly

An industry composed of a limited number of large firms

Location-Specific Advantages

Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets.

A firm that does not want to bear the costs of establishing production facilities in a foreign country should avoid:

FDI

Inflows of FDI

Flow of foreign direct investment into a country.

Outflows of FDI

Flow of foreign direct investment out of a country.

Current Account

In the balance of payments, records transactions involving the export or import of goods and services

Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?

It drives down prices and increases the economic welfare of consumers.

According to the free market view, how does FDI increase the efficiency of world economy through MNEs?

The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe

Flow of FDI

The amount of direct investment into a country in a defined time period undertaken by foreign entities (FDI inflow), or the amount of direct investment into foreign countries made by entities resident in a country in a defined period of time (FDI outflow).

Stock of FDI

The cumulative value of direct investments that have been made by foreign entities in a country at a given point in time.

Offshore production refers to FDI undertaken:

To serve the home market

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

developed

The _____ states that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI and it also requires the firm to establish production facilities where those foreign assets or resource endowments are located.

eclectic paradigm

Direct effects of FDI on employment in the host country arise when a foreign MNE:

employs a number of host country citizens.

greenfield investments

establishing a new operation in a foreign country.

The _____ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year).

flow

The _____ view of FDI traces its roots to Marxist political and economic theory.

radical

The interdependence between firms in an oligopoly leads to _____.

imitative behavior

market imperfections

imperfections in the operation of the market mechanism

multinational enterprise

is an organization that owns or controls production of goods or services in one or more countries other than their home country.

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

Balance-of-Payments Accounts

nation accounts that track both payments to and receipts from foreigners

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

The strategic behavior theory:

seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.

Which of the following is the only way in which a current account deficit can be supported in the long run?

selling assets to foreigners.

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 firm is most likely to favor foreign direct investment over exporting when:

the firm wishes to maintain control over its operations and business strategy.

Mergers and acquisitions differ from greenfield investments in that:

the percentage of mergers and acquisitions is lower than greenfield investments in developing nations.