chapter 8 international business practice

13. Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

A. Internalization theory A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets (this approach is also known as the market imperfections approach).

18. Which branch of economic theory seeks to explain why firms often prefer FDI over licensing as a strategy for entering foreign markets?

A. Internalization theory A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as strategy for entering foreign markets.

6. _____ traces its roots to Marxist political and economic theory.

A. The radical view The radical view traces its roots to Marxist political and economic theory.

9. Recent years have seen a _____ in the number of countries that adhere to a radical ideology regarding FDI.

A. marked decline Recent years have seen a marked decline in the number of countries that adhere to a radical ideology regarding FDI.

19. According to pragmatic nationalist view, FDI should be allowed so long as:

A. the benefits outweigh the costs. The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost. According to this view, FDI should be allowed so long as the benefits outweigh the costs. Another 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.

5. _____ seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

B. Internalization theory Internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

16. Which political view allows FDI so long as the benefits outweigh the costs?

B. The pragmatic nationalist view The pragmatic nationalist view is that FDI has both benefits and costs. According to this view, FDI should be allowed so long as the benefits outweigh the costs.

10. The stock of FDI is the:

B. total accumulated value of foreign-owned assets at a given time. The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time.

7. The pragmatic nationalist view highlights _____ of FDI.

C. both the benefits and costs The pragmatic nationalist view is that FDI has both benefits and costs.

17. FDI undertaken to serve the home market is known as:

C. offshore production. The term offshore production refers to FDI undertaken to serve the home market.

12. When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?

D. Mergers and acquisitions are quicker to execute than greenfield investments. Mergers and acquisitions are quicker to execute than greenfield investments. This is an important consideration in the modern business world where markets evolve very rapidly.

14. In which of the following situations does the internalization theory recommend FDI as opposed to licensing?

D. When the firm needs tight control over a foreign entity Licensing 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. When tight control over a foreign entity is desirable, foreign direct investment is preferable to licensing.

11. The _____ of FDI refers to the amount of FDI undertaken over a year.

D. flow The flow of FDI refers to the amount of FDI undertaken over a given time period (normally a year).

4. The majority of cross-border investment in the developed world is in the form of _____.

D. mergers and acquisitions The majority of cross-border investment is in the form of mergers and acquisitions rather than greenfield investments.

8. An 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.

D. pragmatic nationalism An 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.

15. 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.

D. radical Radical writers see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

2. An oligopoly is an industry composed of a limited number of large firms.

TRUE An oligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly).

3. Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs.

TRUE Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs. According to this view, FDI should be allowed so long as the benefits outweigh the costs.

1. Mergers and acquisitions are quicker to execute than greenfield investments.

TRUE Mergers and acquisitions are quicker to execute than greenfield investments. This is an important consideration in the modern business world where markets evolve very rapidly.