Chapter 8 IBusiness

The main benefits of inward FDI for a host country arise from:

the resource-transfer effect, the employment effect, and the balance-of-payments effect.

A firm will favor FDI over exporting as an entry strategy when:

the transportation costs or trade barriers are high.

A firm's bargaining power is low when the host government places a low value on what the firm has to offer.

true

According to the extreme version of radical view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination.

true

By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing

true

Economists refer to knowledge "spillovers" as externalities, and there is a well-established theory suggesting that firms can benefit from such externalities by locating close to their source.

true

Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing.

true

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.

true

Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.

true

Performance requirements are controls over the behavior of the MNE's local subsidiary.

true

Which of the following refers to the amount of FDI undertaken over a given period (normally a year)?

flow

A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of:

foreign direct investment.

Which view argues that international production should be distributed among countries according to the theory of comparative advantage?

free market

According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be:

immediately nationalized.

A critical competitive feature of an oligopoly is the:

interdependence of the major players.

According to internalization theory, one of the drawbacks of licensing is that:

it 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.

Indirect effects of FDI on employment in a host country arise when:

jobs are created because of increased local spending by employees of an MNE.

Which of the following statements is true regarding foreign direct investment?

FDI has grown more rapidly than world trade and world output.

The pragmatic nationalist view is that:

FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development.

Which of the following indicates that a firm has a full outright stake in an acquisition?

Maximus Corporations acquires 100 percent of a company.

Which of the following statements regarding the free market view is true?

The free market view argues that FDI is a benefit to both the source country and the host country.

Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?

When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.

The idea behind multipoint competition is to ensure that:

a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere.

Which of the following products has a low value-to-weight ratio?

computer software

FDI is risky because of the problems associated with:

doing business in a different culture where the rules of the game may be very different.

M, an American firm, manufactures adhesive tapes in St. Paul, Minnesota, and ships the tapes to South Korea for sale. According to this information, which of the following is being done by 3M?

exporting

Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other, thus offering the location-specific advantage of:

externalities.

A critical competitive feature of an oligopoly is independence of the major players.

false

According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

false

By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing.

false

By the early 1990s, the radical position toward FDI was in retreat due to the rise of communism in eastern Europe.

false

Historically, most FDI has been directed at the least developed nations of the world.

false

Offshore production refers to FDI undertaken to serve the host market.

false

The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.

false

The globalization of the world economy is having a negative effect on the volume of FDI.

false

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

false

Firms for which licensing is not a good option include those in:

global oligopolies.

Once it undertakes FDI, a firm becomes a(n):

multinational enterprise.

Host governments use a range of controls to restrict inward FDI. The two most common are:

ownership restraints and performance requirements.

The strategic behavior theory:

seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.

A firm that does not want to bear the costs of establishing production facilities in a foreign country should avoid:

FDI

If one firm in an oligopoly cuts prices, then most likely, its competitors will:

also respond with similar price cuts.

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.

Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's:

balance-of-payments position.