Intern. Bus. Chpt.8

What two factors cause major adverse effects on a host country's balance of payments? (Check all that apply.)

A foreign subsidiary importing a large number of inputs from abroad The outflow of earnings from a foreign subsidiary to its parent company

Identify two costs of FDI to a home country. (Check all that apply.)

Balance of payments are negatively affected if FDI is a substitute for direct exports. Balance of payments are negatively affected if purpose of FDI is to develop a low-cost production location.

_____ are a network of informal contacts that allow companies to benefit from each other's knowledge.

Externalities

The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons?

FDI has been driven by political and economic changes in developing nations. Despite the decline in trade barriers, firms still fear protectionist pressures.

A country that relies on the pragmatic nationalist view would say that

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

The United Nations was the first multinational institution to govern FDI beginning in the 1930s.

False

The of FDI is the amount of FDI attempted over a period of time (usually one year).

Flow

A study of FDI by the Organization for Economic Cooperation and Development (OECD) found which two results?

Foreign investors invested significant amounts of capital in R&D in the countries in which they had invested. Foreign investors transferred technology to countries in which they invested.

The United States, the United Kingdom, the Netherlands, France, Germany, and Japan together have accounted for the majority of all FDI outflows for 1998-2018 for what two reasons?

They were the most developed nations with the largest economies in the postwar period. They provided the base for many of the largest and best-capitalized businesses.

The stock of foreign direct investment refers to the total

accumulated value of foreign-owned assets at a given point in time.

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.

The _____ account tracks goods and services exports and imports in balance-of-payments accounting.

current

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

The ______ argues that combining location specific assets or resource endowments and the firm's own unique assets often requires FDI.

eclectic paradigm

As an alternatives to FDI, firms could choose ______, which involves producing goods at home and shipping them overseas, or ______, which is granting a foreign firm the right to produce and sell a product in return for a royalty fee.

exporting; licensing

The ______ view of FDI states that international production should be allocated based on the theory of comparative advantage.

free market

One reason for the wave of FDI into the United States by Japanese auto companies was partly in response to

government-imposed tariffs on Japanese auto imports.

The market imperfections approach is also known as the ______ theory.

internalization

The management team at Yum BBQ Brands has decided not to license its product because of concerns that this will create opportunities for another company to have access to their secret recipe. For this reason, the company decides that FDI is their best course of action. Which economic theory does their choice represent?

internalization theory

What are two reasons the United States has been an attractive target for FDI?

large domestic markets stable economy

Internalization theory is used to explain why a firm would prefer foreign direct investment over ______ as a strategy to enter a foreign market.

licensing

The limits of ______ include giving away valuable know-how to competitors and losing control over marketing, production and strategy.

licensing

Although it normally involves much longer-term commitments, franchising is essentially the service industry version of

licensing.

John Dunning proposed that ______ are an important factor when explaining the nature of foreign direct investment.

location-specific advantages

The situation where two or more firms encounter each other in different regional markets, national markets, or industries is called

multi-point competition.

Historically, countries like Iran and India that are more ______ than ______ have favored the radical position that FDI is bad.

nationalistic; socialistic

FDI that serves the home market is called ______ production.

offshore

A(n) ______ is a market form in which a market or industry has a limited number of large firms.

oligopoly

According to the _____ view, a country would be willing to offer subsidies in the form of tax breaks to foreign companies because it believes it to be in the national interest.

pragmatic nationalism

The radical view toward FDI argues that MNE's extract ______ from the host country and take them back to their home country.

profits

The _____ view of foreign direct investment has its basis in Marxist theory.

radical

A firm might justify a preference for licensing over FDI because licensing

results in the licensee bearing the costs and risks.

An example of the pragmatic nationalist view is that the host country can gain in jobs and skills and the profits go to the ______ country.

source

Critics argue that FDI by Japanese auto makers does not make up for the jobs lost in US-based auto manufacturers. These critics are concerned with the

substitution effect.

According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

the eclectic paradigm

The theories of FDI try to show: (Check all that apply.)

why firms use a combination of avoiding exporting and licensing and entering the same markets as their competitors. why firms don't use exporting and licensing to enter foreign markets. why competitive firms often enter the same markets at the same time.

_____ are a major type of foreign investment risk that is insurable through government-backed programs.

Risks of expropriation

What are two examples of location-specific advantages? (Check all that apply.)

Skilled labor Natural resources

______ theory of FDI suggests that firms imitate and react to each other's behavior.

Knickerbocker's

Green Organics Ltd. based in Phoenix, Arizona has given a British-based company the right to produce and sell their products. In return for this, the British company will pay Green Organics $1 for every unit it sells. What type of investment is Green Organics using?

Licensing

Which view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI?

Pragmatic nationalism

What are three advantages of FDI? (Check all that apply.)

Allows for tight control over the firm's operations Allows the firm to maintain control over technological know-how Overcomes high transportation costs

What is a feature of an oligopoly?

Interdependence of major players

What are two characteristics of the eclectic paradigm? Choose all that apply.

It provides a single holistic explanation of foreign direct investment It combines the best aspects of other theories of foreign direct investment into a single explanation