global business chapter 8

________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. Perfect competition Collusion Monopoly Multipoint competition Cartel

Multipoint competition

Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in a host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of employment effects. balance-of-payments effects. effects on competition. resource-transfer effects. autonomy effects.

resource-transfer effects.

A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as both home and host country benefit. it takes place within a planned economy. the benefits outweigh the costs. location-specific advantages are available. there is evidence of a comparative advantage.

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A critical competitive feature of an oligopoly is the lack of interaction among the major players. presence of a domestic market which is open for foreign firms. desire of all the major players to avoid the phenomenon of diminishing returns. interdependence of the major players. lack of imitative behavior among the major players.

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Although it normally involves much longer-term commitments, franchising is essentially the service industry version of exporting. licensing. foreign direct investment. greenfield investment. diversifying.

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As an incentive to encourage domestic firms to undertake FDI, many advanced countries have eliminated double taxation of foreign income. started imposing local content requirements. imposed higher import tariffs. abolished the use of custom duties. eliminated subsidies.

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Licensing is a good option to enter a foreign market when transportation costs are minor. the technical know to be shared is extremely valuable. 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. trade barriers between countries are trivial in nature.

.tight control of the foreign operation is not required.

A current account deficit is also known as a(n) _____ deficit. stock inventory external tariff trade

.trade

The pragmatic nationalist view regarding FDI is that FDI benefits only the host country. FDI does not make any positive contribution to the host economy. every country should adopt the free market view. FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development. FDI has both benefits and costs.

FDI has both benefits and costs.

One way to describe the free market view is to say that a country should specialize in the production of a good that it can produce most efficiently. a country should focus on importing goods that it can also produce if those goods are produced at a higher cost elsewhere. an MNE is an instrument of imperialist domination. host-country nations of a company are never given the same consideration as a home-country nation. less-developed nations are kept relatively backward and dependent on advanced capitalist nations for employment.

a country should specialize in the production of a good that it can produce most efficiently.

When a country in Central America is importing more goods and services than it is exporting, it is incurring a(n) trade surplus. current account deficit. positive balance of payment. outward FDI. net capital inflow.

current account deficit.

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI. stock bundle flow portfolio ratio

flow

Renata asked her assistant to determine the amount of foreign direct investment the company had taken over the past year. Renata is interested in the state of GNI. flow of FDI. flow of GDP. stock of FDI. status of JIT.

flow of FDI.

The interdependence between firms in an oligopoly leads to trade wars. a decrease in the supply. imitative behavior. higher demand. increased domestic consumption.

imitative behavior.

According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be immediately nationalized. made to pay higher taxes. converted into publicly traded companies. banned from obtaining finance from the financial institutions in the host country. immediately privatized.

immediately nationalized.

According to internalization theory, one of the drawbacks of licensing is that it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development. 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. when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. its use is restricted by the government through the imposition of tariffs and quotas. it is less cost-effective than FDI.

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.

A current account surplus is favored over a deficit. If a country is faced with a current account deficit it would have to _____ in order to support this situation. borrow from the IMF sell assets to foreigners divest stock in domestic corporations purchase stocks, bonds, and real estate in other countries issue negotiable instruments like bills of exchange

sell assets to foreigners

A firm is most likely to favor foreign direct investment over exporting when the firm wants its technological know-how to be widely disseminated. the firm wishes to maintain control over its operations and business strategy. the transportation costs are low. there are no trade barriers. the firm wants to customize its products as per the tastes and preferences of foreign consumers.

the firm wishes to maintain control over its operations and business strategy.

Knickerbocker's concept of multipoint competition enhances the strategic behavior theory by making sure that a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere. the competitors cooperate with each other to establish a cartel. no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers. growing technologies or business methods in new markets are transferred to established markets. the firms in an industry prefer FDI over licensing or exporting.

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Most developing countries do not have access to the technology available in developed nations, but these developing nations need technology to create new jobs and stimulate the economy. Which aspect of inward FDI do these developing nations rely on to have access to needed technology? balance-of-payments effects employment effects effects on foreign exchange rate effects on competition resource-transfer effects

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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. FDI benefits the home country by substituting domestic production. FDI increases employment in the home country in the short run. 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.

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The United States has been an attractive target for FDI partly because of its abundance of cheap and skilled labor. stable and dynamic economy. commitment to environmental issues. low corporate tax rates. high trade barriers.

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The _____ of FDI refers to the amount of FDI undertaken over a given period (normally a year). portfolio flow status stock fragment

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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 mercantilist pragmatic nationalist conservatist radical

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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. technology capture effect and the perceived loss of national sovereignty. reverse-resource transfer effect and the exposure to foreign markets caused by FDI. import of substantial input from abroad and being held to "economic ransom." exposure to foreign markets and the decreased costs of production.

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The radical view of FDI declined in popularity by the early 1990s because of rising communism in Eastern Europe. generally steady economic growth in countries that embraced the radical position. a growing belief in many countries that FDI leads to loss of jobs. a strong economic performance in developing countries that embraced capitalism. the collapse of capitalism in the newly independent nations of Asia.

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The strategic behavior theory is used to explain the constraints of exporting and licensing. explain the challenges faced by a firm during the establishment of a new operation in a foreign country. 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. review the theories that have been used to explain foreign direct investment. explain how greenfield investments are better than FDI at determining strategic competition and dominance.

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Compared to the growth in world trade and world output, FDI has grown at about the same rate. grown more rapidly. failed to match the growth of world trade. grown at a slower rate. remained stagnant.

.h

Host governments use a range of controls to restrict inward FDI. The two most common are monetary restraints and prohibition on investing in certain countries. voluntary export restrictions and employment restraints. ownership restraints and performance requirements. tax concessions and government-backed insurance. employment restraints and tax deductions.

.ownership restraints and performance requirements.

Internalization theory promotes the idea that licensing gives a firm tight control over manufacturing, marketing, and strategy in a foreign country. licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor. licensing has no major drawbacks as a strategy for exploiting foreign market opportunities. a problem with licensing arises when the firm's competitive advantage is based on its products rather than on the manufacturing capabilities that produce those products. licensing is always more profitable than FDI.

licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor.

If the United States invests in breakfast cereal production facilities in Canada, it would be engaging in a domestic transfer. offshore production. franchising. the difference principle. an acquisition. Incorrect

offshore production. The term offshore production refers to FDI undertaken to serve the home market. Far from reducing home-country employment, such FDI may actually stimulate economic growth (and hence employment) in the home country by freeing home-country resources to concentrate on activities where the home country has a comparative advantage.

Ownership restraint is a method of encouraging inward FDI by a host country. restricting inward FDI by a host country. encouraging outward FDI by a home country. restricting outward FDI by a home country. restricting outward FDI by a host country.

restricting inward FDI by a host country.

DiamondPlus Jewelers currently has $583,000 in foreign-owned assets. This represents the _____ of the company. net value gross national income flow of FDI stock of FDI

stock of FDI

Firms for which licensing is not a good option include those based in low-technology industries. that have valuable know-how. characterized by low cost pressures. where transportation costs are high. which need to have low control over foreign operations.

that have valuable know-how.

Which two nations have historically been the largest recipients of inward FDI? Japan and China Italy and Germany Argentina and Brazil the United Kingdom and France the United States and Canada

the United Kingdom and France

Location-specific advantages for a firm are those that arise from acquiring the home markets of foreign firms that threaten a firm's domestic market. gaining a commanding position in one market and using them to subsidize competitive attacks in other markets. preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy. utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets. franchising and licensing.

utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets.