IBUS 330: Chapter 8

A company wishing to engage in foreign direct investment must evaluate all its options. Which statement is an important consideration for the modern firm wishing to expand into new markets?

Mergers and acquisitions are quicker to execute than greenfield investments.

________ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management.

Performance requirements

A Korean petroleum company sets up a crude oil refining facility in Thailand. This is an example of a greenfield investment.

True

A U.S.-based furniture manufacturer invests in textile production facilities in China. This is an example of offshore production undertaken to serve the home market.

True

According to the radical political ideology view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

True

Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens.

True

According to the ______ view, international production should be distributed among countries according to the theory of comparative advantage

free market

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

internalization

Speedy Sneakers has given a foreign entity the right to produce and sell its running shoes in return for a royalty fee on every unit sold. This is called

licensing

Tree street plants control 90 percent of the steel production sector of a country. The street industry in the country would be an example of a(n)

oligopoly

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are __________ and performance requirements.

ownership restraints

The _______ view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.

pragmatic nationalist

FDI's effect on a country's balance-of-payments accounts is an important policy issue for most governments. This is why a government would typically prefer to

see a current account surplus rather than a deficit.

The total accumulated value of foreign-owned assets at a given time is called the _______ of FDI.

stock

In which situation would FDI deteriorate the current account of the host country's balance of payments?

when a foreign subsidiary imports number of its inputs from abroad

The fast-food industry is a good example of a business sector where licensing is a poor option for FDI.

False

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

False

Maribel's company has made a greenfield investment. What does this mean?

It established a new operation in a foreign country

A home country wants to limit outward FDI flow. What policy should the country implement?

It should limit capital outflows.

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

False