Global Environment Chapter 7
FDI was governed by the GATT until the 1990s.
FALSE
Offshore production refers to FDI undertaken to serve the host market
FALSE
Executives of foreign firms see FDI as a way of circumventing future trade barriers.
TRUE
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.
TRUE
Many firms believe that if they do not acquire a desirable target firm, their global rivals will.
TRUE
The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.
TRUE
The location-specific advantages argument associated with John Dunning does help explain the direction of FDI.
TRUE
Under the pragmatic nationalism view, no country should ever permit foreign corporations to undertake FDI.
FALSE
Virtually all investor countries, including the United States, have exercised some control over outward FDI from time to time.
TRUE
3M, an American firm, produces adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea to be sold. This is an example of: A. exporting. B. licensing. C. franchising. D. globally dispersed production.
A
According to the free market view, how does FDI by the MNE increase the efficiency of world economy? A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. B. MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale. C. When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate. D. A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country.
A
According to the text, the most important concerns regarding the costs of FDI for the home-country center on: A. the balance-of-payments and employment effects of outward FDI. B. the technology capture effect and the perceived loss of national sovereignty. C. the reverse-resource transfer effect and the exposure to foreign markets caused by FDI. D. the import of substantial input from abroad and being held to "economic ransom."
A
According to the text, which of the following is a home-country benefit source to FDI? A. Home country MNE learns valuable skills from its exposure to foreign markets. B. It raises the ethnic profile of a country by assimilating a diverse group of employees into production facilities in the home country. C. It can be assured of reciprocal FDI from the host countries. D. Migration of skilled labor from host-countries improves the available pool of human resources and creates new jobs.
A
As a further incentive to encourage domestic firms to undertake FDI, many countries have eliminated double taxation of foreign income, or the: A. taxation of income in both the host country and the home country. B. tax on the amount of earnings of the firm and tax on interest earned from such earnings. C. tax on the income of the corporate workforce and the tax on the dividend earned by shareholders. D. taxation of an MNE's employee's salary in both the host- and home-country.
A
As of 2009, 2676 bilateral trade treaties involved more than 180 countries, a 12-fold increase from the 181 treaties that existed in 1980. These statistics prove that: A. governments are increasingly facilitating FDI to protect and promote investment with other countries. B. more governments are erecting restrictive trade barriers focused on extractive industries, such as oil and gas. C. government intervention in the process of foreign direct investment has hindered economic growth over the past 30 years. D. the increasing red-tape involved in conducting international trade between any two countries has created frictions.
A
Britain reserves the right to intervene in FDI by: A. reserving the right to block foreign takeovers of domestic firms in certain situations. B. prohibiting FDIs over and above a certain fixed annual amount. C. nationalizing certain industries that provide essential goods and services. D. imposing economic sanctions against specific countries.
A
By limiting imports through quotas and tariffs, governments increase the attractiveness of : A. FDI and licensing. B. low value-to-weight ratio products. C. globally dispersed production. D. outsourcing and off-shoring.
A
Countries such as the U.S., the U.K., France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because: A. they were the most developed countries postwar and home to the largest and best-capitalized enterprises. B. they pursued a policy of blocking or restricting FDI inflow into their own economies. C. they provided subsidies for their domestic firms to protect them from foreign competition. D. they control much of the operating structure of the WTO which governs international trade.
A
FDI by Japanese auto companies in the United States has resulted in U.S.-owned auto companies losing market share to their Japanese competitors. This forms the basis for critics of employment benefits of FDI to argue that: A. jobs created by this FDI have been more than offset by the jobs lost in U.S. auto firms. B. direct employment effects of FDI are far larger than the indirect effects. C. majority of employees of an MNE in a host country migrate to more developed countries, thereby bringing down the net employment statistics. D. most jobs in MNEs are of a contract nature and hence, cannot be counted as actual employment statistics.
A
How does increased competition through FDI in the form of greenfield investments impact the host country? A. It drives down prices and increases the economic welfare of consumers. B. It raises retrenchments and unemployment levels. C. It causes firms to fight for scarce capital investments. D. It leads to a monopolistic market and unfair pricing.
A
In 1995, the OECD initiated talks between its members with the aim of drafting a multilateral agreement on investment (MAI) that would: A. liberalize rules governing FDI between OECD states. B. contain environmental and labor agreements that were binding on the signatories. C. free signatory states to pick and choose their individual FDI policies. D. make it legal for signatory states to discriminate against foreign investors.
A
In the balance of payments, which of the following records transactions involving the export and import of goods and services? A. Current account B. Foreign account C. Internal account D. Tariff account
A
Set against the initial capital inflow that comes with FDI must be the subsequent outflow of earnings from the foreign subsidiary to its parent company. Such outflows show up as capital outflow on balance-of-payments accounts. Some governments have responded to such outflows by restricting the amount of earnings that can be: A. repatriated to a foreign subsidiary's home country. B. reinvested in the host-market. C. earned by the foreign subsidiaries. D. invested in businesses concerning national security and sovereignty.
A
The _____ view of FDI traces its roots to Marxist political and economic theory. A. radical B. free market C. pragmatic nationalism D. comparative advantage
A
The idea behind multipoint competition is to ensure that: A. a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere. B. the competitors cooperate with each other to establish a duopolistic regime, in much the same way as Boeing and Airbus have done in the aircraft industry. C. no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers. D. the main competitors can incubate growing technologies or business methods in new markets and transfer the gains to established markets.
A
The radical view propounds the idea that multinational enterprises (MNEs) that already exist in a country should be immediately ______. A. nationalized B. derecognized C. illegalized D. expatriated
A
The stock of foreign direct investment refers to: A. the total accumulated value of foreign-owned assets at any time. B. the number shares of the foreign firm held by local investors. C. the amount of FDI undertaken over a given time period. D. the dividend amount paid by the foreign firm to local investors.
A
The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of: A. pragmatic nationalism. B. the radical view. C. mercantilism. D. socialism.
A
To encourage inward FDI, it is increasingly common for governments to: A. offer tax concessions to firms that invest in their countries. B. exclude foreign companies from specific industries. C. require that local investors own significant proportion of the equity. D. establish control over the behavior of the MNE's local subsidiary.
A
When FDI takes the form of an acquisition of an established enterprise in the host economy, research suggests that once the initial period of restructuring is over, enterprises acquired by foreign firms tend to: A. grow their employment base at a faster rate than domestic rivals. B. engage in downsizing and retrenchment. C. reduce their pay scales to match those of local companies. D. reduce employment to cut costs and control prices.
A
Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting? A. The presence or threat of trade barriers B. The costs of acquiring a foreign enterprise C. The costs of establishing production facilities in a foreign country D. The risk of giving away valuable technological know-how to a potential foreign competitor
A
Which of the following sets form three of the main benefits of inward FDI for a host country? A. The resource-transfer effect, the employment effect, and the balance-of-payments effect B. The labor-transfer effect, the technology effect, and the currency-exchange effect C. The cultural awareness effect, first-mover advantage effect, and economic development effect D. The foreign exchange reserves effect, knowledge flow effect, and the reverse resource transfer effect
A
Which theory helps explain how location factors affect the direction of FDI? A. The eclectic paradigm B. The theory of pragmatic nationalism C. The product life-cycle theory D. The new trade theory
A
_____ summarizes the total amount of capital invested in factories, stores, office buildings, and the like. A. Gross fixed capital formation B. Gross foreign direct investment C. Net overhead investment D. Net infrastructure investment
A
When a country is importing more goods and services than it is exporting, it is incurring a(n): A. trade surplus. B. current account deficit. C. positive balance of payment. D. economic recession.
B
According to the product life-cycle theory, pioneering firms shift production to _____ countries when product standardization and market saturation give rise to price competition and cost pressures. A. other advanced countries B. industrialized C. developing D. free market
C
Direct effects of FDI on employment in the host country arise when a foreign MNE: A. brings in managers trained in the latest management techniques from the home country. B. creates jobs because of increased local spending by employees of the MNE. C. employs a number of host country citizens. D. causes local suppliers to hire more people.
C
Historically, most FDI has been directed at the _____ nations of the world. A. underdeveloped B. developing C. developed D. emerging
C
Host governments use a range of controls to restrict inward FDI. The two most common are: A. monetary restraints and prohibition on investing in certain countries. B. voluntary export restrictions and employment restraints. C. ownership restraints and performance requirements. D. tax concessions and government-backed insurance.
C
In the 1960s, RCA licensed its leading-edge color television technology to a number of Japanese companies, which later took over the market. This demonstrates that licensing: A. is a better alternative to help companies from emerging economies to enhance their competitiveness and achieve growth. B. subscribes to the open source ideology which aids the development of technology unencumbered by market dynamics and fluctuations. C. may result in a firm's giving away valuable technological know-how to a potential foreign competitor. D. 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.
C
In the context of costs to a host country from FDI, while _____ should increase competition, it is less clear that this is the case with _____ in the host nation. A. subsidies; tariffs B. import quotas; local content requirements C. greenfield investments; acquisitions of established firms D. mergers with domestic firms; government-backed insurance programs
C
Some host countries fear a loss of economic independence through FDI as key decisions that can affect their economies will be made by foreign parents that have no: A. profitable returns on their investments. B. economic interest in their host countries. C. real commitment to their host countries. D. investment in the education and health of the population.
C
The U.S., the U.K., France, Germany, the Netherlands, and Japan account for more than half of the global stock of FDI. As might be expected, these countries also: A. did not look at foreign markets to fuel their economic expansion. B. have cumbersome regulations against FDI inflows into their own economies. C. predominate in the rankings of the world's largest multinationals. D. express similar FDI inflows as a percentage of gross fixed capital formation.
C
The market imperfections approach seeks to explain: A. the disadvantages associated with the adoption of a completely free market view. B. why different nations import goods from other countries even when they are more capable of producing them efficiently. C. the preference for FDI over licensing by firms as a strategy to enter foreign markets. D. the benefits of exercising protectionism coupled with partial embrace of free market approach.
C
The viability of an exporting strategy is often constrained by transportation costs, particularly of products that have a _____ and that can be produced in almost any location. A. high local content requirement B. low total landed cost C. low value-to-weight ratio D. low licensing tariff
C
Until the 1980s, Japan perceived direct entry of foreign (especially U.S.) firms with ample managerial resources into the Japanese markets as detrimental to the development and growth of their own industry and technology, leading Japan to block the majority of applications to invest in Japan. However, there were always exceptions to this policy, where, from the perspective of the Japanese government, the benefits of FDI outweighed the perceived costs. From this, it can be inferred that, Japan adopted the _____ view of FDI. A. radical B. free market C. pragmatic nationalist D. eclectic
C
Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold? A. Outsourcing B. Exporting C. Licensing D. Product divestment
C
Which of the following is NOT one of the factors that a party's bargaining power depends upon when negotiating? A. Each party's time horizon. B. The value each side places on what the other has to offer. C. The number of people on the negotiation panel. D. The number of comparable alternatives available to each side.
C
Which of the following is a reason for the decline in the popularity of the radical view? A. The rise of communism in Eastern Europe. B. The generally steady economic growth of those countries that embraced the radical position. C. The growing belief in many countries which embraced radicalism that FDI can stimulate growth. D. The strong economic performance of those developing countries that embraced mercantilism.
C
Which of the following is a risk associated with FDI? A. Giving away valuable technological know-how to a potential competitor B. High transportation costs, especially of products that have a low value-to-weight ratio C. Doing business in a different culture where the rules of the game may be very different D. Actual or threatened trade barriers such as import tariffs or quotas
C
ith regard to employment effects in home countries, the most serious concerns arise when FDI is seen as a substitute for _____. A. capital investments B. licensing C. domestic production D. greenfield investments
C
Economists refer to knowledge "spillovers" that occur when companies in the same industry are located in the same area as: A. technology flows. B. overlaps. C. corporate espionage. D. externalities.
D
In 1995, the OECD initiated talks between its members with the aim of drafting a multilateral agreement on investment (MAI) that would make it illegal for signatory states to discriminate against foreign investors. These talks broke down in early 1998, primarily because _____ refused to sign the agreement. A. Malaysia and India B. Germany C. Japan D. the United States
D
In Europe in 2006, there was a hostile political reaction to the attempted takeover of Europe's largest steel company, Arcelor, by Mittal Steel, a global company controlled by the Indian entrepreneur Lakshmi Mittal. In mid-2005 China National Offshore Oil Company withdrew a takeover bid for Unocal of the United States after highly negative reactions in Congress about the proposed takeover of a "strategic asset" by a Chinese company. These incidents are evidence to the fact that: A. FDI flow from developing countries to developed ones is largely unwelcome. B. developed countries do not feel the need to court FDIs. C. developed nations, to a far greater extent, are hostile to FDI than developing nations. D. hostile reactions to inward FDI are not restricted to developing nations.
D
Location-specific advantages for a firm are those that arise from: A. acquiring the home markets of foreign firms that threaten a firm's domestic market. B. gaining a commanding position in one market and using them to subsidize competitive attacks in other markets. C. preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy. D. utilizing resource assets tied to host countries and valuable enough to be combined with the firm's own unique assets.
D
Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk. One of the types of risks insurable through these programs is the risk of: A. substitution of domestic production. B. domestic competition. C. poor strategic tie-ups. D. the inability to transfer profits back home.
D
Many services have to be produced where they are sold; hence _____ is not an option. A. FDI B. franchising C. greenfield investment D. exporting
D
Once a firm undertakes FDI, it becomes a(n) _____. A. outsourcer B. retail chain C. offshore company D. multinational enterprise
D
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: A. multi-point competition. B. an oligopoly. C. first movers. D. externalities.
D
The argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located, constitutes the _____ of FDI. A. disparate elements approach B. integration approach C. scramble theory D. eclectic paradigm
D
The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the _____. A. comparative advantage theory B. distribution theory C. new trade theory D. internalization theory
D
When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment, the immediate effect may be to _____ as the multinational tries to restructure the operations of the acquired unit to improve its operating efficiency. A. aggressively recruit local personnel B. install local personnel in key management positions C. apply for public funding through an initial public offering D. reduce employment
D
Which of the following is a possible adverse effect of FDI on a host country's balance-of-payments position? A. A foreign subsidiary exports a substantial number of its outputs abroad. B. A foreign subsidiary gets a substantial number of its inputs from the host country. C. Increased competition in the domestic markets. D. Subsequent outflow of earnings from the foreign subsidiary to its parent company.
D
Which of the following theories concerning FDI ignores alternatives such as exporting and licensing and fails to identify when it is profitable to invest abroad? A. Investment theory B. Multipoint competition theory C. Eclectic paradigm D. Product life-cycle theory
D
Xerox first introduced the photocopier into the U.S. market, and then set up production facilities in Japan and Great Britain. This pattern of FDI is explained by the: A. internalization theory. B. paradigm of pragmatic internationalism. C. absolute advantage theory. D. product life-cycle theory.
D
_____ accounts are national accounts that track both payments to and receipts from other countries. A. Greenfield investment B. Dematerialized C. Capitalized D. Balance-of-payments
D
_____ involves producing goods at home and then shipping them to the receiving country for sale. A. Outsourcing B. Licensing C. Franchising D. Exporting
D
A critical competitive feature of an oligopoly is the independence of the major players.
FALSE
The flow of foreign investment refers to the number of countries a firm is investing in at any given point in time.
FALSE
When a firm exports to a foreign country, foreign direct investment occurs.
FALSE
With developed nations still accounting for the largest share of FDI inflows, FDI into developing nations has steadily decreased over the past decade
FALSE
The only way in which a current account deficit can be supported in the long run is by: A. borrowing from the IMF. B. selling assets to foreigners. C. divesting stock in domestic corporations. D. purchasing stocks, bonds, and real estate in other countries.
B
Which of the following is NOT a common incentive that governments offer foreign firms to invest in their countries? A. Grants or subsidies B. Ownership restraints C. Low-interest loans D. Tax concessions
B
Which of the following is a home-country policy for limiting outward FDI? A. Eliminating double taxation of foreign income B. Manipulating tax rules to encourage their firms to invest at home C. Withdrawing government-backed insurance programs to local investors D. Reducing interest rates earned on domestic investments
B
Why has FDI grown more rapidly than world trade? A. Decline in trade barriers has made the fear of protectionist pressures redundant. B. Executives of business firms see FDI as a way of circumventing future trade barriers. C. There has been a general shift toward radical and totalitarian political institutions. D. Privatization has made developing nations less attractive for MNEs.
B
With respect to foreign direct investment, during the past 30 years, there has been a: A. higher increase in world trade than FDI. B. marked increase in both the flow and stock of FDI in the world economy. C. steady increase in the erection of trade barriers to FDI in the form of tariffs and subsidies. D. gradual shift toward mercantile market economies that oppose FDI in those countries.
B
Data suggest the majority of cross-border investment is in the form of _____ for developed nations. A. greenfield investments B. exports C. franchising D. mergers and acquisitions
D
A hardware manufacturing firm from the United States invests directly in an assembling plant for laptops in Taiwan. This is an example of: A. insourcing. B. stock consolidation. C. foreign direct investment. D. product takeover.
C
According to Dunning, it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes because: A. they can thus avoid the pitfall of knowledge "spillovers." B. this would ensure goodwill and support from the local community. C. labor is not internationally mobile. D. it is part of the social responsibility of businesses.
C
According to the _____ view, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs. A. eclectic B. free market C. pragmatic nationalism D. radical
C
An industry composed of a limited number of large firms is referred to as a(n): A. syndicate. B. monopoly. C. oligopoly. D. mushrooming industry.
C
The United States refused to sign the multilateral agreement on investment (MAI) in 1998 because it: A. would not have allowed restricting foreign television programs and music in the name of preserving culture. B. contained binding environmental and labor agreements that the U.S. found to be too restrictive. C. contained too many exceptions that would weaken its powers. D. would have barred discriminatory taxation of foreign-owned companies.
C
The _____ view argues that international production should be distributed among countries according to the theory of comparative advantage. A. conservative B. pragmatic nationalism C. free market D. radical
C
The interdependence between firms in an oligopoly leads to _____. A. trade wars B. lowered supply C. imitative behavior D. higher demand
C
The strategic behavior theory seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of _____ between firms in the global marketplace. A. strategic trade B. technological exchange C. strategic rivalry D. corporate espionage
C
A critical competitive feature of oligopolistic industries is the _____ of the major players. A. lack of interaction B. collaboration C. cooperation D. interdependence
D
A firm has full outright stake in an acquisition when it acquires: A. at least 38 percent of a company. B. at least 60 percent of a company. C. at least 98 percent of a company. D. 100 percent of a company.
D
A(n) _____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A. monopoly B. oligopoly C. cartel D. multipoint competition
D
According to Raymond Vernon, firms that have pioneered a product undertake FDI in other advanced countries when: A. the product is saturated in markets in the developing world. B. they wish to dump excessive production capacity in foreign markets. C. product standardization gives rise to price competition and cost pressures. D. local demand in those countries grows large enough to support local production.
D
According to the pragmatic nationalistic view, 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 _____. A. free trade B. inward FDI C. sovereignty D. balance-of-payments position
D
According to the radical view, which of the following countries would benefit the most from FDI? A. Host countries B. Third world countries C. Less developed FDI destinations D. Advanced, capitalist home countries
D
According to the text, other things being equal, the greater the _____ in an economy, the more favorable its future growth prospects are likely to be. A. governmental regulation B. nationalization of loss making firms C. costs of manufacturing D. capital investment
D
Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments. This constitutes a benefit of FDI related to _____. A. employment effects B. balance-of-payments effects C. effects on competition D. resource transfer effects
D
If Kodak enters a particular market, Fuji is not far behind, and vice versa. Kodak and Fuji are: A. FDI pioneers. B. first-movers. C. global partners. D. multipoint competitors.
D
By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing.
FALSE
Developing nations such as Poland and Ukraine were the largest national recipients of inward investments within the EU in 2007.
FALSE
Employment restraints and profit requirements are the two most common ways host governments restrict FDI.
FALSE
FDI has grown significantly slower than world trade and world output
FALSE
In 1995, the OECD initiated talks to draft a multilateral agreement on investment that legalized discrimination against foreign investors by signatory states.
FALSE
Products with low value-to-weight ratios are the most viable for exporting
FALSE
Raymond Vernon's product life-cycle theory offers clear explanations for why it is profitable for a firm to undertake FDI rather than continuing to export from its home base or licensing a foreign firm to produce its product.
FALSE
Services, such as telecommunications, retailing, and many financial services, where the service has to be produced where it is delivered, lend themselves well to exporting.
FALSE
The data suggest the majority of cross-border investment in developing countries is in the form of mergers and acquisitions
FALSE
The inability of Africa to attract greater investment is in part a reflection of the rigid and unchanging economic policy in the region.
FALSE
The largest source country for FDI is Japan
FALSE
World trade has been growing twice as fast as the growth in volume of FDI worldwide.
FALSE
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 United Nations, majority of changes made worldwide between 1992 and 2008 in the laws governing foreign direct investment have created a more favorable environment for FDI.
TRUE
Granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit the foreign entity sells is called licensing.
TRUE
Greenfield investment involves the establishment of a new operation in a foreign country.
TRUE
Gross fixed capital formation summarizes the total amount of capital invested in factories, stores, office buildings, and the like.
TRUE
Historically, most FDI has been directed at the developed nations of the world
TRUE
One problem of licensing is that it does not give the firm tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
TRUE
The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.
TRUE
Under the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.
TRUE
According to the text, which of the following statements regarding the free market view is true? A. Free market view has been endorsed by fewer countries in the last decade than in the 1990s. B. No country has adopted the free market view in its pure form. C. Free market view has helped liberate inward FDI but restrictions on outward FDI have largely remained unaffected. D. Free market view advances the idea that FDI is beneficial to the host country, but fails to address the benefits of FDI for the home country.
B
Although it normally involves much longer-term commitments, franchising is essentially the service industry version of: A. exporting. B. licensing. C. foreign direct investment. D. greenfield investment.
B
Countries such as the U.S., the U.K., the Netherlands, and Germany had a long history as _____ and naturally looked to foreign markets to fuel their economic expansion. A. mercantilist economies B. trading nations C. protectionist cultures D. imperialist countries
B
Firms for which licensing is not a good option include: A. low-technology industries. B. global oligopolies. C. industries characterized by low cost pressures. D. industries where transportation costs are high.
B
If one firm in an oligopolistic industry cuts prices, its competitors: A. will make profits. B. will also respond with similar price cuts. C. will correspondingly raise prices. D. will fill the gap by capturing market share.
B
In its extreme version, the radical view advances the idea that foreign direct investment can only ever be an instrument of _____, never of _____. A. cultural impoverishment; national integration B. economic development; economic domination C. political division; international peace D. corruption; democracy
B
In the case of developing nations, about _____ of FDI is in the form of cross-border mergers and acquisitions. A. three-fourths B. one-third C. one-half D. two-thirds
B
Most recent inflows of FDI into developing nations have been targeted at: A. impoverished nations in Africa. B. the emerging economies of South, East, and Southeast Asia. C. Latin American countries. D. post-Communist Eastern European countries.
B
Offering subsidies to foreign MNEs in the form of tax breaks or grants is one way of: A. adopting a retaliatory stance in bilateral trade. B. courting FDI believed to be in national interest. C. adopting a radical stance to FDI. D. blocking FDI inflows into the country.
B
Offshore production refers to FDI undertaken: A. with focus on extractive industries, such as oil and gas. B. to serve the home market. C. in shipping industries. D. in service industries with a large migrant employee base.
B
One of the concerns harbored by host nations regarding FDI is that foreign firms will: A. aggressively court domestic investment. B. transfer profits to their home countries. C. take skilled workers out of the country. D. aggressively compete to invest in the country.
B
One of the indirect effects of FDI on employment in a host country arises when: A. a foreign MNE employs a number of host-country citizens. B. jobs are created because of increased local spending by employees of the MNE. C. the MNE brings in managers from the home country for its operations. D. a number of employees of the MNE are deputed in subsidiaries in other countries.
B
The United States has been an attractive target for FDI partly because of its: A. abundance of cheap and skilled labor. B. stable and dynamic economy. C. commitment to environmental issues. D. economic colonization of much of the world.
B
The _____ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year). A. portfolio B. flow C. status D. stock
B
The establishment of a wholly new operation in a foreign country is referred to as a(n): A. consolidation. B. greenfield investment. C. acquisition. D. licensing agreement.
B
When a firm exports, it need not bear the costs associated with FDI, and it can reduce the risks associated with selling abroad by using a native sales agent.
TRUE
A firm wanting to avoid bearing the costs of establishing production facilities in a foreign country would do well to avoid: A. exporting. B. FDI. C. licensing. D. franchising.
B
A potentially major negotiating point between an MNE wishing to undertake FDI and the host government is the issue of: A. level of involvement of host government in top management decisions of the MNE. B. likely net gain in employment in the host country. C. technology flow between MNEs and their domestic competitors. D. use of profits earned in the host country to subsidize competitive attacks elsewhere
B
A study of FDI by the Organization for Economic Cooperation and Development (OECD) found that foreign investors invested significant amounts of capital in R&D in the countries in which they had invested. According to the text, this finding of the study suggests that: A. R&D opportunities in less developed countries are more profitable than those in developed countries. B. foreign firms are transferring, upgrading, or creating new technology in those countries. C. technology has ensured that R&D is much less skill-intensive than it was two decades ago. D. developed countries lack the R&D resources and skills required to develop their own indigenous technology.
B
According to internalization theory, one of the drawbacks of licensing is that: A. it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development. B. 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. C. when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. D. a firm's competitive advantage is based entirely on its products with management, marketing, and manufacturing capabilities playing nominal roles.
B
According to the U.S. Department of Commerce, in the United States _____ occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. A. multilateral investment B. foreign direct investment C. reciprocal foreign investment D. international divestment
B
According to the text, a firm will favor FDI over exporting as an entry strategy when: A. the costs of establishing production facilities are high. B. the transportation costs or trade barriers are high. C. there are problems associated with doing business in a different culture. D. products with a high value-to-weight ratio are involved.
B