HTM 2314 Chapter 8

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.

true

t/f: An acquisition does not result in a net increase in the number of players in a market.

true

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

true

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

results in the licensee bearing the costs and risks.

The stock of FDI refers to the

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

Which political ideology reflects the idea that a multinational enterprise is an instrument of imperialist domination?

radical view

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

true

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.

true

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

true

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.

true

t/f: According to internalization theory, one drawback of licensing is that it might result in a firm giving away technological know-how to a competitor.

true

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.

true

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

true

t/f: Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home.

true

t/f: Offshore production refers to FDI undertaken to serve the host market.

false

A country that imports more goods than it exports experiences a

trade deficit

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

false

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

false

t/f: The eclectic paradigm is based on the idea that intellectual property is of considerable importance in explaining the direction of FDI.

false

t/f: The globalization of the world economy is having a negative effect on the volume of FDI.

false

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

false

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

false

It is one of Sanjay's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Sanjay reports the __________ of FDI.

flow

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

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

Custom Cabinetry International needs immediate access to wood in order to produce an order of 50,000 high-end retail display cases by the end of next year. It cannot afford to wait and establish a new operation in a foreign country where this species of wood is prevalent, so it decides to purchase an existing company instead. Why did Custom Cabinetry decide to make this purchase?

Mergers and acquisitions are quicker to execute than greenfield investments.

__________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

Multipoint competition

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."

true

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.

true

t/f: Ownership restraints are one method host countries use to restrict FDI.

true

t/f: The attractiveness of exporting is reduced when a product can easily be produced in almost any location.

true

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

true

t/f: When a firm exports its products to a foreign country, foreign direct investment occurs.

false

One form of FDI is __________, which involves the establishment of a new operation in a foreign country.

a greenfield investment

t/f: Mergers and acquisitions take longer to execute than a greenfield investment.

false

When a nation puts government-backed insurance programs in place to cover major types of foreign investment risk, it has the effect of

encouraging outward FDI by a home country.

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

exporting.

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

franchising.

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

free market

One example of a(n) __________ effect of foreign direct investment is when jobs are created because of increased local spending by employees of an MNE.

indirect

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?

licensing

Internalization theory is used to explain why a company prefers FDI over __________ as a way to enter a foreign market.

licensing

According to the eclectic paradigm, __________ is/are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

location-specific advantages

Solar Chemical, an industrial cleaning products manufacturing company, has a market share of 30 percent in Brazil. Three of its competitors together control 55 percent of the market. Whenever Solar Chemical raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in Brazil?

oligopoly

One of the main benefits that FDI provides to the home country is

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

Licensing is a good option to enter a foreign market when

tight control of the foreign operation is not required.