Int Bus Chapter 8

A country that relies on the pragmatic nationalist view would say that -international production should be distributed among countries according to the theory of comparative advantage. -the multinational enterprise (MNE) is an instrument of imperialist domination. -FDI should be allowed so long as the benefits outweigh the costs. -FDI is a benefit to both the source country and the host country. -no country should ever permit foreign corporations to undertake FDI.

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

Luxury Leather Group is one of four major companies that control the leather industry in a foreign country. Luxury Leather wants to deplete some of its inventory and has cut all prices by 20 percent. Since the company is part of an oligopoly, how will the other three companies probably respond to this decision? -They will increase production levels. -They will not respond to the price cuts. -They will make similar price cuts. -They will seek additional market share. -They will raise prices.

They will make similar price cuts.

Yum Tum, a brand of low-fat yogurt, launched a drinkable yogurt. Immediately after this, another brand, Looking Good, also announced the launch of a new drinkable yogurt. Then Spoon Fulls, a third brand of yogurt, reduced the price of its product. What is most likely to happen in this oligopolistic market setup? -Looking Good and Spoon Fulls will collaborate against Yum Tum. -Yum Tum will have an increased domestic consumption. -Yum Tum will link up with Spoon Fulls to launch a completely new product. -Looking Good will launch another new drink. -Yum Tum and Looking Good will reduce the prices of their respective drinks.

Yum Tum and Looking Good will reduce the prices of their respective drinks.

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 -false

true

Ownership restraints are one method host countries use to restrict FDI. -true -false

true

The flow of foreign direct investment refers to the amount of FDI undertaken over a given period of time—normally a year. -true -false

true

Akansha Floor Coverings, a U.S.-based firm does not want to bear the costs of establishing production facilities in a foreign country. For this reason, the company should avoid -licensing. -franchising. -exporting. -FDI. -outsourcing.

FDI

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? -FDI flows are similar between developed and developing nations. -A greenfield investment will provide quickest access to the steel forms. -Mergers and acquisitions are quicker to execute than greenfield investments. -It is easier and less risky for a firm to build up through a greenfield investment rather than through acquisitions. -The higher percentage of mergers and acquisitions in developing nations compared to developed nations indicate the low valuation of target firms in developing countries.

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. -Monopoly -Cartel -Perfect competition -Collusion -Multipoint competition

Multipoint competition

One form of FDI is __________, which involves the establishment of a new operation in a foreign country. -merging -licensing -an acquisition -a greenfield investment -a joint venture

a greenfield investment

When it comes to FDI, Morrison Lighting Inc. makes greenfield investments in various foreign countries and fully manages the established foreign operations on its own rather than relying on host-country staff. This approach to FDI is risky because of the problems associated with -an increase in transportation costs, especially for those products that have a low value-to-weight ratio. -increased production costs. -sharing a valuable technological know-how with a potential competitor. -the possibility of an increase in trade barriers such as import tariffs or quotas. -doing business in a different culture where the rules of the game may be very different.

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

The top management team at Missouri-based Parker Products collectively support the market imperfections approach. This means Parker Products' top management team is most likely to -express a preference for FDI over licensing as a strategy to enter foreign markets. -adopt a completely free market view. -understand why different nations import goods from other countries even when they are more capable of producing them efficiently. -abandon going overseas. -propagate the benefits of exercising protectionism coupled with partial adoption of free market approach.

express a preference for FDI over licensing as a strategy to enter foreign markets.

Mergers and acquisitions take longer to execute than a greenfield investment. -true -false

false

Offshore production refers to FDI undertaken to serve the host market. -true -false

false

Over the last decade, there has been an increase in FDI directed at the developed nations of the world. -true -false

false

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

false

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

false

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

false

The process of exporting grants a foreign entity the right to produce and sell a firm's product. -true -false

false

When a firm exports its products to a foreign country, foreign direct investment occurs. -true -false

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. -stock -bundle -flow -ratio -portfolio

flow

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. -exporting. -offshoring. -strategic alliance.

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. -conservatist -free market -pragmatic nationalist -mercantilist -radical

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 -monopoly -direct -first-mover advantage -late-mover advantage

indirect

The management team at Pass the Ketchup 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? -comparative advantage -distribution theory -difference principle -new trade theory -internalization theory

internalization theory

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? -exporting -outsourcing -licensing -franchising -insourcing

licensing

Internalization theory is used to explain why a company prefers FDI over __________ as a way to enter a foreign market. -acquisitions -exporting -franchising -licensing -a greenfield investment

licensing

According to the eclectic paradigm, __________ is/are of considerable importance in explaining both the rationale for and the direction of foreign direct investment. -human rights -multipoint competition -supply and demand -internalization theory -location-specific advantages

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? -pure competition -perfect competition -oligopoly -monopoly -fair market

oligopoly

Which political ideology reflects the idea that a multinational enterprise is an instrument of imperialist domination? -pragmatic nationalism -free market -radical view -planned economy -mercantilism

radical view

Solar Power Inc. identifies licensees in various countries who produce and sell the company's solar panels in their countries in return for a royalty fee on every unit sold. Solar Power's approach is risky because of the problems associated with -sharing valuable technological know-how with a potential competitor. -doing business in a different culture where the rules of the game may be very different. -increased production costs. -an increase in transportation costs, especially for those products that have a low value-to-weight ratio. -the possibility of an increase in trade barriers such as import tariffs or quotas.

sharing valuable technological know-how with a potential competitor.

One of the main benefits that FDI provides to the home country is -FDI increases employment in the home country in the short run. -FDI benefits the home country by substituting domestic production. -the balance of payments position improves from the initial capital outflow required to finance the FDI. -the demand for exports from the home country will reduce in the long run. -the home country's balance of payments benefits from the inward flow of foreign earnings.

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 -the technical know to be shared is extremely valuable. -trade barriers between countries are trivial in nature. -tight control of the foreign operation is not required. -the competitive advantage of a firm is based upon managerial knowledge that is embedded in the routines of the firm. -transportation costs are minor.

tight control of the foreign operation is not required.

Licensing is a good option to enter a foreign market when -trade barriers between countries are trivial in nature. -tight control of the foreign operation is not required. -the technical know to be shared is extremely valuable. -the competitive advantage of a firm is based upon managerial knowledge that is embedded in the routines of the firm. -transportation costs are minor.

tight control of the foreign operation is not required.

The stock of FDI refers to the -inflows of FDI into a country. -outflows of FDI from a country. -net position of FDI flows after comparing inflows and outflows during a period. -amount of FDI undertaken over a given time period. -total accumulated value of foreign-owned assets at a given time.

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

According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently. -true -false

true

An acquisition does not result in a net increase in the number of players in a market. -true -false

true

Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI. -true -false

true

Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home. -true -false

true

In terms of employment, the indirect effects of FDI are often as large as, if not larger than, the direct effects. -true -false

true

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 -false

true

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. -restricting outward FDI by a host country. -encouraging inward FDI by a host country. -restricting inward FDI by a host country. -restricting outward FDI by a home country.

encouraging outward FDI by a home country.

A firm might justify a preference for licensing over FDI because licensing -allows the firm to take advantage of differences in factor costs across countries. -results in the licensor retaining control over technical know-how. -gives the licensor tight control over the operations of the licensee in the foreign nation. -results in the licensee bearing the costs and risks. -reduces the potential risks of creating a future competitor.

results in the licensee bearing the costs and risks.

A country that imports more goods than it exports experiences a -trade deficit. -first-mover advantage. -factor endowment. -current account surplus. -late-mover advantage.

trade deficit.

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

true