ibus 330 ch. 8 quiz

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

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

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. Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

Three steel plants control 90 percent of the steel production sector of a country. The steel industry in the country would be an example of an...

oligopoly. An oligopoly is an industry composed of a limited number of large firms (ex: an industry in which four firms control 80 percent of a domestic market would be defined as an 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 two most common ways to restrict FDI are ownership restraints and performance requirements. Low-interest loans, subsidies, and tax concessions are all common forms of incentives governments offer to foreign firms to invest in their countries.

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 The pragmatic nationalist view is that FDI has both benefits and costs. When a foreign company rather than a domestic company produces products, the profits from that investment go abroad. Many countries are also concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's balance-of-payments position.

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

It established a new operation in a foreign country. Foreign direct investment takes on two main forms. The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in the foreign country.

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

When a foreign subsidiary imports a substantial number of its inputs from abroad. A concern arises when a foreign subsidiary imports a substantial number of its inputs from abroad, which results in a debit on the current account of the host country's balance of payments.

The ( ) theory is also known as the market imperfections theory.

internalization Internalization theory, also known as the market imperfections approach, seeks to explain why firms often prefer FDI over licensing as a strategy for entering foreign markets.

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

It should limit capital outflows. Virtually all investor countries, including the United States, have exercised some control over outward FDI from time to time. One policy has been to limit capital outflows out of concern for the country's balance of payments.

The fast food industry is a good example of a business sector where licensing is a poor option for FDI. T or F?

FALSE Licensing tends to be more common, and more profitable, in fragmented, low-technology industries in which globally dispersed manufacturing is not an option. a good example is the fast food industry. McDonald's has expanded, globally by using a franchising strategy, which is essentially the service industry version of licensing. With franchising, the firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits.

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. Mergers and acquisitions are quicker to execute than greenfield investments. This is an important consideration in the modern business world where markets evolve very rapidly. Additionally, foreign firms are acquired because those firms have valuable strategic assets and it is less risky for a firm to acquire those assets than to build them from the ground up through a greenfield investment.

( ) 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 These are performance requirements that are meant to help maximize the benefits and minimize the costs of FDI for the host country.

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

TRUE A greenfield investment involves the establishment of a new operation in a foreign country.

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

TRUE Direct effects arise when a foreign MNE employs some host-country citizens. Indirect effects arise when jobs are created in local suppliers because of the investment and when jobs are created because of increased local spending by employees of the MNE.

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. T or F?

TRUE Proponents of this view argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.

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. T or F?

TRUE 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.

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. FDI's effect on a country's balance-of-payments accounts is an important policy issue for most host governments. A country's balance-of-payments accounts track both its payments to and its receipts from other countries. Governments normally are concerned when their country is running a deficit on the current account of their balance of payments. The current account tracks the export and import of goods and services. A current account deficit, or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting. Governments 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 The flow of FDI refers to the amount of FDI undertaken over a given time period. The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time.

By limiting imports through quotas, governments decrease the attractiveness of FDI and licensing. T or F?

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

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

FALSE The location-specific advantages argument associated with John Dunning does help explain the direction of FDI. However, it does not explain why firms prefer FDI to licensing or to exporting.