Chapter 8 INTRO TO INT BUS

A country that relies on the pragmatic nationalist view would say that A) international production should be distributed among countries according to the theory of comparative advantage. B) FDI should be allowed so long as the benefits outweigh the costs. C) no country should ever permit foreign corporations to undertake FDI. D) FDI is a benefit to both the source country and the host country. E) the multinational enterprise (MNE) is an instrument of imperialist domination.

B) FDI should be allowed so long as the benefits outweigh the costs.

Fast Tracker Inc., a U.S.-based company, makes custom wearable fitness trackers in Oregon, which are then shipped to Europe for sale there. Based on this information, Fast Tracker Inc. is involved in A) licensing. B) exporting. C) franchising. D) outsourcing. E) using a greenfield investment.

B) exporting.

When a nation puts government-backed insurance programs in place to cover major types of foreign investment risk, it has the effect of A) encouraging inward FDI by a host country. B) restricting inward FDI by a host country. C) encouraging outward FDI by a home country. D) restricting outward FDI by a home country. E) restricting outward FDI by a host country.

C) encouraging outward FDI by a home country. - Such programs are particularly useful in encouraging firms to undertake investments in politically unstable countries.

Dipper Donuts licenses its brand name to foreign firms as long as they agree to run their restaurants on exactly the same lines as Dipper Donuts restaurants elsewhere in the world. In return, the foreign firms have to pay Dipper Donuts a percentage of their profits. This is an example of A) exporting. B) strategic alliance. C) franchising. D) a greenfield investment. E) offshoring.

C) franchising.

According to the eclectic paradigm, __________ is/are of considerable importance in explaining both the rationale for and the direction of foreign direct investment. A) supply and demand B) multipoint competition C) location-specific advantages D) internalization theory E) human rights

C) location-specific advantages

Licensing is a good option to enter a foreign market when A) transportation costs are minor. B) the technical know to be shared is extremely valuable. C) tight control of the foreign operation is not required. D) the competitive advantage of a firm is based upon managerial knowledge that is embedded in the routines of the firm. E) trade barriers between countries are trivial in nature.

C) tight control of the foreign operation is not required.

A country that imports more goods than it exports experiences a A) first-mover advantage. B) current account surplus. C) trade deficit. D) factor endowment. E) late-mover advantage.

C) trade deficit.

Dolby Fashion House, an Italian manufacturer of evening dresses, granted U.S. company On the Runway Inc. the right to produce and sell Dolby Fashion's products in the United States. In return, On the Runway Inc. has to pay a royalty fee on every unit sold. According to this information, what form of FDI is Dolby Fashion House using? A) franchising B) outsourcing C) exporting D) licensing E) insourcing

D) licensing

Internalization theory is used to explain why a company prefers FDI over __________ as a way to enter a foreign market. A) exporting B) franchising C) a greenfield investment D) licensing E) acquisitions

D) licensing

Which political ideology reflects the idea that a multinational enterprise is an instrument of imperialist domination? A) free market B) mercantilism C) pragmatic nationalism D) radical view E) planned economy

D) radical view

A firm might justify a preference for licensing over FDI because licensing A) results in the licensor retaining control over technical know-how. B) gives the licensor tight control over the operations of the licensee in the foreign nation. C) allows the firm to take advantage of differences in factor costs across countries. D) reduces the potential risks of creating a future competitor. E) results in the licensee bearing the costs and risks.

E) results in the licensee bearing the costs and risks.

T/F Over the last decade, there has been an increase in FDI directed at the developed nations of the world.

F Explanation Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in the others' markets. However, over the last decade, FDI inflows directed at developing nations and the transition economies of eastern Europe and the old Soviet Union have increased markedly.

T/F Offshore production refers to FDI undertaken to serve the host market.

F Explanation International trade theory tells us that home-country concerns about the negative economic effects of offshore production may be misplaced. The term offshore production refers to FDI undertaken to serve the home market.

T/F The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting.

F Explanation The implications of the theories of FDI for business practice are straightforward. First, the location-specific advantages argument associated with John Dunning does help explain the direction of FDI. However, the location-specific advantages argument does not explain why firms prefer FDI to licensing or to exporting.

T/F The process of exporting grants a foreign entity the right to produce and sell a firm's product.

F Exporting involves producing goods at home and then shipping them to the receiving country for sale. Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

T/F A resource-transfer effect of FDI is that it can result in a positive contribution to a host economy by supplying capital and technology which boost the country's economy.

T Explanation Foreign direct investment can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate.

One of the main benefits that FDI provides to the home country is A) the home country's balance of payments benefits from the inward flow of foreign earnings. B) FDI benefits the home country by substituting domestic production. C) FDI increases employment in the home country in the short run. D) the balance of payments position improves from the initial capital outflow required to finance the FDI. E) the demand for exports from the home country will reduce in the long run.

A) the home country's balance of payments benefits from the inward flow of foreign earnings.

T/F Assume that there are only four firms that control 90 percent of the cell phone service industry in the U.S. This would be an example of an oligopoly.

T

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

T Explanation An acquisition does not result in a net increase in the number of players in a market; the effect on competition may be neutral. When a foreign investor acquires two or more firms in a host country, and subsequently merges them, the effect may be to reduce the level of competition in that market, create monopoly power for the foreign firm, reduce consumer choice, and raise prices

T/F Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI.

T Explanation Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI. In such cases, a firm considering FDI must often negotiate the specific terms of the investment with the country's government.

T/F A firm's bargaining power is low when the host government places a low value on what the firm has to offer.

T Explanation From the perspective of a firm negotiating the terms of an investment with a host government, the firm's bargaining power is high when the host government places a high value on what the firm has to offer, the number of comparable alternatives open to the firm is greater, and the firm has a long time in which to complete the negotiations. The converse also holds. The firm's bargaining power is low when the host government places a low value on what the firm has to offer, the number of comparable alternatives open to the firm is fewer, and the firm has a short time in which to complete the negotiations.

T/F Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints."

T Explanation Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints." This would seem to be the case for firms based in a fairly wide range of industries.

T/F 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.

T Explanation Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk. The types of risks insurable through these programs include the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home. Such programs are particularly useful in encouraging firms to undertake investments in politically unstable countries.

T/F The flow of foreign direct investment refers to the amount of FDI undertaken over a given period of time—normally a year.

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

T/F A country that follows the pragmatic nationalist view would agree that FDI can benefit a host country through capital, skills, and jobs but these come at a cost.

T Explanation 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.

T/F A business that allows franchising licenses its brand name to a foreign firm in return for a percentage of the profits.

T Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing. With franchising, the firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits. The franchising contract specifies the conditions that the franchisee must fulfill if it is to use the franchisor's brand name.

T/F In terms of employment, the indirect effects of FDI are often as large as, if not larger than, the direct effects.

T The effects of FDI on employment are both direct and indirect. Direct effects arise when a foreign MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. The indirect employment effects are often as large as, if not larger than, the direct effects.

T/F According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.

T The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently.