International Business Chapter 8

Because of political unrest, armed conflict, and frequent changes in economic policy, this region has typically received the smallest amount of inward investment.

Africa

What are two reasons businesses prefer acquisition as a means of FDI over a greenfield investment? (Check all that apply.)

Businesses believe they can increase the efficiency of the acquired unit. Acquisitions are faster to execute than greenfield investments.

Which country has shown a marked increase in FDI inflows since 2004?

China

What is a feature of an oligopoly?

Interdependence of major players

Which concept 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 characteristics of the eclectic paradigm? Choose all that apply.

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

______ 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

Based on the internalization theory, what are the three major drawbacks to licensing? (Check all that apply.)

Licensing does not allow a firm tight control over basic business operations which is necessary to maximize profitability. Licensing does not account for capabilities in management, marketing, and manufacturing. Licensing may give away valuable technological know-how to a potential foreign competitor.

______ of FDI refers to the value of outward direct investment made by the residents of the reporting economy to external economies.

Outflows

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

Skilled labor Natural resources

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

True or false: A company would favor FDI over exporting when trade barriers are in place.

True

True or false: Acquisitions are the preferred method of FDI because global markets evolve very rapidly and acquisitions are quicker to execute.

True

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

What country has been the largest source of FDI since World War II?

United States

While the radical view has been in retreat since the early 1990s, ______ continues to follow this philosophy under the government of Hugo Chavez.

Venezuela

The stock of foreign direct investment refers to the total

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

A form of FDI, other than greenfield investments, is to

acquire or merge with an existing company in the foreign country.

Knickerbocker would say that in an oligopoly, if one firm decides to raise prices, then other firms would

also raise prices.

When a company moves operations overseas to take advantage of lower labor costs, this strategy increases the overall efficiency of resource utilization in the global economy. According to the free market view of FDI, this benefits

both the source and the host countries.

Until the fall of ______ between 1989 and 1991, Eastern European countries were opposed to FDI.

communism

In the past, most foreign direct investment has been directed at _____ nations.

developed

The _____ paradigm is based on the way location affects the direction of a company's foreign direct investment.

eclectic

A drawback of Knickerbocker's theory is its failure to address

efficiency.

When Crane Automotive Group developed operations in Italy, it not only built a manufacturing plant there but also imports parts from several other European nations. Which home country benefit of FDI does this represent?

employment effects

The shift toward more democratic political institutions and free market economies has _____ foreign direct investment.

encouraged

Producing a good at home and then shipping it to another country for sale is called _______.

exporting

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

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

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

flow

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

free market

What three reasons are used to explain the retreat of the radical position by the early 1990s?

generally strong performance of the developing countries that embraced capitalism generally poor economic performance of those countries that embraced radical position collapse of communism in eastern Europe

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.

A low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?

greenfield investment

Foreign direct investment can be in the form of a(n) ______ which occurs when a firm establishes a new operation in a foreign market.

greenfield investment

FDI occurs when a company invests in facilities

in a foreign country.

Over the past few years, more and more companies are investing in businesses in Scandinavia. These investments represent the _____ of FDI for the Scandinavian countries.

inflow

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

internalization

Toyota prefers direct investment in a foreign entity rather than licensing. This decision stems from the fact that Toyota pioneered ______ which enables it to produce higher quality automobiles at a lower cost than global rivals.

lean production

Allowing a foreign firm to produce and sell your product for a royalty fee is called ______.

licensing

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

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(n) _____ advantage.

location-specific

The ability of an individual, company, or economy to conduct an activity better than another for reasons related to location is called a(n)

location-specific advantage.

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

location-specific advantages

Exporting strategy does not work for a(n) (low or high?) value-to-weight ratio product that can be produced anywhere.

low

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

multi-point competition.

Griffin Labs and Sequence Labs are in competition in the same seven regional markets. This is an example of

multipoint competition.

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

nationalistic; socialistic

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

oligopoly

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

According to the US Department of Commerce, an interest of ______ in a foreign business is needed to achieve FDI.

over 10%

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

profits

One way a government can limit the amount of imports coming into a country is by imposing

quotas.

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

stable economy large domestic markets

What two factors would indicate that a firm has little bargaining power when considering FDI in a nation?

the firm has only a short period of time to complete the negotiations the host government places a low value on what the firm has to offer

What are two limitations on exporting?

trade barriers transportation costs

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

why competitive firms will often enter the same markets as the same times. 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.

What are the two main types of FDI? (Check all that apply.)

Establishing a new operation in a foreign market Acquisition or merger with an existing foreign firm

______ refers to shipping goods and services out of the jurisdiction of a country.

Exporting

What are two alternatives to FDI? (Check all that apply.)

Exporting Licensing

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

Externalities

When a firm invests directly in a business or venture in another country, it is called ______.

FDI

When a firm participates in ______, it evolves into a multinational enterprise.

FDI

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.