IBUS Ch8
Tracking its expenditures and its receipts from other countries occurs in a country's -of- accounts. (Enter one word in each blank.)
balance payments
Kennedy Construction Corp. wants to create a presence internationally but does not want to establish operations in a foreign country. What could the company do to accomplish this?
exporting
Kimberly's company produces body lotion in the United States and ships it overseas to retail stores that sell the product. Her company is delivering product through ______.
exporting
When a company produces a good in the home country and then ships it to another country for sale it is called ______.
exporting
One reason Toyota does NOT make licensing agreements is because its management and process capabilities have been developed over many years and are a part of the organization. In other words, Toyota's _____ cannot be licensed.
organizational culture
FDI ______ describe the flow of FDI out of a country.
outflows
What are two current trends in FDI?
An increase in FDI aimed at countries that have liberalized their FDI regimes An increase in the volume of FDI
Which country has shown steady and dramatic growth as a source of FDI since 2010 and has now turned their attention to more advanced nations?
China
______ has become a major recipient of FDI and hit a record of $149 billion in 2020.
China
Until the collapse of between 1989 and 1991, the countries of eastern Europe were opposed to FDI.
Communism
According to internalization theory, a company would rather gain entrance into a foreign market by using ______.
FDI
When a firm invests directly in a foreign market to produce or market a product, it is called ______.
FDI
True or false: Knickerbocker was concerned with the effect of licensing on industries composed of a limited number of large firms.
False
True or false: The pragmatic nationalism view contends that FDI has no costs, but many benefits.
False
True or false: When FDI occurs through greenfield investment, this will lower competition in a market and decrease economic welfare.
False
Along with the United States, which five countries accounted for 60% of all FDI outflows from 2000-2020?
France The Netherlands Germany Japan The United Kingdom
Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?
Free market
A(n) investment occurs when a firm goes to a foreign market and establishes a new operation.
Greenfield
Which theory BEST explains why the first firm in an oligopoly decides to undertake foreign direct investment rather than exporting or making a licensing agreement?
Internalization theory
What are two examples of location-specific advantages as categorized by the eclectic paradigm?
Natural resources Human resources
A country's ______ account tracks the country's payments to and receipts from other countries.
balance-of-payments
The 2,000 employees working in Toyota's factory in France are an example of the ______ effect of FDI on employment, while the 2,000 new jobs that were created in support industries are an example of the ______ effect of FDI on employment.
direct, indirect
Most economists ______ the idea that FDI is usually accompanied by some loss of economic independence.
dismiss
Establishing a new operation in a foreign market and acquiring or merging with a foreign business are examples of ______.
foreign direct investment
Grant's company has given a company in Japan the right to produce and sell its line of active wear. For every article of clothing the Japanese company sells, it pays Grant's company a fee. This is an example of ______.
licensing
Internalization theory tries to explain why firms often prefer FDI over ______ as a method for getting into foreign markets.
licensing
Greenfield investing spurs competition by increasing the number of players in a market and this will tend to ______ prices and ______ economic welfare
lower, increase
What is a potential adverse impact on competition when a foreign entity acquires firms in a host country?
monopoly
The basis in Marxist politics is evident when radical writers argue that ______ enterprises are an instrument of imperialist domination.
multinational
Once a business undertakes foreign direct investment it becomes a(n) ______.
multinational enterprise
Pre-1980, Japan blocked the majority of potential foreign investments. Yet, if a company that had cutting edge technology wanted to invest in Japan, they were allowed to undertake FDI. This is an example of ______.
pragmatic nationalism
The only way a country can support a current account deficit, also known as a trade deficit, in the long-run is to ______.
sell off assets to foreigners
What two factors cause major adverse effects on a host country's balance of payments?
-The outflow of earnings from a foreign subsidiary to its parent company -A foreign subsidiary importing a large number of inputs from abroad
What name is given to the advantages that coincide with utilizing resource endowments or assets tied to a specific area?
Location-specific
Past activity of FDI shows that the majority of it has been directed at ______.
developed nations
True or false: When RCA licensed its color television product to a number of Japanese companies in the 1960s, these companies turned around and entered the US to directly compete with RCA and diminished its role in the market. In this situation, licensing resulted in RCA giving away proprietary information to a potential competitor.
true
A study of FDI by the Organization for Economic Cooperation and Development (OECD) found what two resource-transfer effects?
-Foreign investors transferred technology to countries in which they invested. -Foreign investors invested significant amounts of capital in R&D in the countries in which they had invested.
What are two characteristics of an oligopoly?
-What are two characteristics of an oligopoly? -large firms
What are the two types of FDI?
-establishing a new operation in a foreign market -acquisition or merger with an existing foreign firm
What are two limitations of licensing?
-firm does not have tight control over producing, marketing and strategy in a foreign country -gives away valuable know-how to a potential competitor
The increase in competition in the national telecommunications market that resulted from the 1997 World Trade Organization agreement resulted in what two benefits?
-modernization of telephone networks -lower prices
Identify the three costs of FDI to a home country.
-Balance of payments negatively affected initially from the capital outflow to fund FDI -Balance of payments negatively affected if purpose of FDI is to develop a low-cost production location -Balance of payments negatively affected if FDI is a substitute for direct exports
The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons? (Check both reasons.)
-Even though trade barriers are diminishing, firms still fear protectionist pressures. -FDI has been driven by political and economic changes in developing nations.
When a firm invests in plants, equipment, and R&D as a result of increased competition, it is engaging in ______ investment.
capital
The concern that an MNE could drive local firms out of business, monopolize the market, and raise prices above those that would prevail in competitive markets is a worry for economies. (Choose developing or advanced.)
developing
FDI has a positive ______ impact on host countries as a result of technology transfers.
economic
A key benefit of FDI to a home country is from the inward flow of ______ earnings.
foreign
One potential benefit to consumers related to offshore production is ______.
lower prices for goods
One result of ______ effects is that the net number of new jobs created by FDI may not be as large as initially claimed.
substitution
Inflows of FDI are described as ______.
the flow of FDI into a country
What is a benefit of inward FDI for a host country?
Employment effect
What are two alternatives to FDI?
Licensing Exporting
Knickerbocker argued that firms follow the same imitative behavior in their FDI strategies as ______ follow.
oligopolies
For which of these products does the attractiveness of exporting decrease relative to either FDI or licensing?
A product that can be produced almost anywhere
What country has been the largest source of FDI since World War II?
United States
A(n) ______ can be set by the government in order to limit the number of imports. This increases the attractiveness of FDI and licensing.
quota
The 1997 World Trade Organization agreement opened the telecommunications market to foreign competitors and exemplifies how ______ are impacted by FDI.
services
The ______ of FDI measures the total accumulated value of a company's foreign-owned assets at a specific time.
stock
Critics argue that not all new jobs created by FDI represent net additions in employment. This is due to the ______ effect where some jobs created are offset by jobs lost elsewhere.
substitution
It would be more common for a(n) ______ to agree to market aggressively as a way of keeping foreign competitors in check.
wholly owned subsidiary
What is the name of a business venture where finances are used to create a new physical facility for a business in a foreign location where the company currently does not have existing facilities?
Greenfield
What two countries have shifted to a more hostile approach to FDI?
Venezuela Bolivia
Economists refer to knowledge "spillovers" as ______, and there is a theory that suggests firms can benefit from these "spillovers" by locating close to their source.
externalities
China's FDI efforts have typically been toward less developed nations and directed at ______ industries.
extractive
The main reason why businesses prefer acquisition as a means of FDI is because acquisitions are ______ than greenfield investments.
faster to execute
By placing tariffs on imported goods, governments can ______.
increase the cost of exporting relative to foreign direct investment and licensing
Toyota prefers direct investment in a foreign entity rather than licensing. This decision stems from the fact that Toyota pioneered ______ production, which enables it to produce higher quality automobiles at a lower cost than global rivals.
lean
Dunning's eclectic paradigm is seen as a useful addition to explaining patterns of FDI because it explains how ______ factors affect the direction of FDI.
location
Many of the world's oil companies have to invest where oil is located in order to combine their technological and management capabilities with the actual product. This demonstrates the idea of a ______-specific advantage.
location
True or false: Direct effects of FDI 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 multinational enterprise
False
Increased competition could ______ capital investments by firms in plants, equipment, and R&D as firms try to gain a competitive advantage over their rivals
increase
True or false: Jim's US-based paper products company sources paper from a plant in Brazil that takes advantage of the available forestry near the plant. This is an example of a location-specific advantage.
True
Which country was a favorite target for FDI inflows during the 1980s and 1990s?
United States
One key factor that leads to adverse effects on a host country's ______ accounts is when a foreign subsidiary imports a substantial number of inputs from abroad, which results in a debit on the current account.
balance of payment
Dell moved its assembly operations for many of its personal computers to Mexico to take advantage of lower labor costs. The view of FDI states that overall efficiency of resource utilization increases
free market
The ______ view of FDI states that international production should be allocated based on the theory of comparative advantage.
free market
The radical view toward FDI argues that ______ extract profits from the host country and take them back to their home country.
multinational enterprises
The situation where multiple firms encounter each other in different regional markets, national markets or industries is called ______.
multipoint competition
What are the three potential costs of FDI to host countries?
-Adverse effects on competition -Perceived loss of national sovereignty & autonomy -Adverse effects on balance of payments
Critics argue that not all new jobs created by FDI represent net additions in employment. This is due to the ______ effect where some jobs created are offset by jobs lost elsewhere
substitution
How has the flow of FDI compared to the growth in world trade since 1990?
The flow of FDI has accelerated faster than the growth in world trade.
True or false: Acquisitions are the preferred method of FDI because global markets evolve very rapidly and acquisitions are quicker to execute.
True
Historically countries like Iran and India that are more ______ than ______ have favored the radical position that FDI is bad.
nationalistic, socialistic
A(n) ______ is an industry made up of a limited number of large firms where there is an interdependence of the major players.
oligopoly
What is a company participating in when it directly invests in facilities to produce or market a product in a foreign country?
foreign direct investment
The stock of foreign direct investment refers to the total ______
accumulated value of foreign-owned assets at a given point in time
The ______ combines the various perspectives of foreign direct investment into a holistic theory.
eclectic paradigm
A(n) ______ strategy is favored over exporting when transportation costs or trade barriers are prohibitive.
foreign direct investment
A host country cost of FDI could be the of sovereignty and autonomy. (Choose gain or loss.)
loss
Exporting strategy does not work for a ______ value-to-weight ratio product that can be produced anywhere.
low
The various theories of FDI try to explain the ______ of FDI flows, which deals with why certain locations are favored as targets of FDI.
pattern
True or false: When tight control over a foreign entity is the goal of a company, it is in the best interest of that company to forge a licensing agreement rather than use foreign direct investment.
False
What are two benefits of FDI for a host country? (Check all that apply.)
Resource-transfer effects Economic growth
The ______ account tracks goods and services exports and imports in balance-of-payments accounting.
current
Based on standards set by the US Department of Commerce, a firm is engaging in FDI when it takes an interest of ______ or more in a foreign business entity.
10%
What country in Latin America has been the highest recipient of inward FDI in recent years?
Brazil
What is an accurate summary of the rationale behind the free market view?
FDI is a benefit to both the source country and the host country.
What are three advantages of FDI? (Check all that apply.)
It allows for tight control over a firm's operations. It helps overcome high transportation costs. It allows a firm to maintain control over technological know-how.
______ allows a company to collect a royalty fee from a foreign firm that it has granted the right to produce and sell its product.
Licensing
An example of ______ is when firms benefit from each other's knowledge generation.
externalities
