INB 300 Chapter 6

Which of the following statements is true of agglomeration?

Agglomeration advantages stem from knowledge spillover from one firm to another.

_____ is defined as the possibility of unauthorized diffusion of firm-specific know-how.

Dissemination risk

_____ is the amount of foreign direct investment (FDI) moving in a given period (usually a year) in a certain direction.

FDI flow

FDI inflow

FDI moving into a country in a year

FDI outflow

FDI moving out in a country in a year

In the context of foreign direct investment, which of the following statements is true of ownership advantages?

Firms can beat rivals abroad by acquiring the advantage of proprietary technology of manufacturing products.

_____ refers to holding securities, such as stocks and bonds, of companies in countries outside one's own but does not entail the active management of foreign assets.

Foreign portfolio investment (FPI)

Which of the following statements is true of the radical view on foreign direct investment (FDI)?

Governments embracing this view often nationalize multinational enterprise (MNE) assets or simply ban inbound MNEs.

Which of the following statements is true of internalization?

It involves locating and operating in host countries

Which of the following statements is true of direct ownership?

It provides a firm with equity ownership rights and management control rights.

_____ refers to the domestic diffusion of foreign technical knowledge and processes.

Technology spillover

Which of the following political views on foreign direct investment (FDI) does not exist in practice?

The free market view on FDI

Which of the following political views is hostile to foreign direct investment (FDI)?

The radical view on FDI

_____ refers to a type of foreign direct investment (FDI) in which firms move upstream or downstream in different value chain stages in a host country.

Vertical FDI

prgmatic nationlism view on FDI

a political view that approves FDI only when its benefits outweigh its costs

free market view on FDI

a political view that holds that FDI, unrestricted by the government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services

radial view on FDI

a political view that sees FDI as in instrument of imperialism and vehicle for foreign exploitation

When market failure is minimized through internalization, _____.

a single organization between two firms is established

sovereign wealth fund (SWF)

a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets

vertical fdi

a type of Fdi in which a firm moves upstream or downstream in different value chain stages in a host country

horizontal FDI

a type of fDI in which a firm produces the same products or offers the same products or services in a host country as at home

downstream vertical FDI

a type of vertical FDI in which a firm engages in a downstream stage of the value chain

upstream vertical FDI

a type of vertical FDI in which a firm engages in an upstream stage of the value chain

When one firm enters a foreign country through foreign direct investment (FDI), its rivals are likely to follow by undertaking additional FDI in a host country to:

acquire location advantages.

location

advantages enjoyed by a firm that derive from the places in which it operates

Folexa is the largest producer of spices in the world, and its location is an added advantage to its business. It is surrounded by six trading countries. Besides, located close to the southern region of the continent, it attracts business from the neighboring continents as well. Such clustering of economic activities is referred to as _____.

agglomeration

licensing

buying and selling technology and intellectual property rights

agglomeration

clustering of economic activities in certain locations

Hisson Technologies, a computer manufacturing company headquartered in Lumberne, had recently undertaken foreign direct investment (FDI) by setting up its office in the Remfur Republic. The company did not engage in computer distribution in Lumberne, but it invested in computer dealership in the Remfur Republic. In this case, Hisson Technologies was engaged in _____.

downstream vertical FDI

Knowledge that can be written down and transferred without losing much of its richness is called _____.

explicit knowledge

In the long run, the interests of multinational enterprises (MNEs) in host countries can be best safeguarded if MNEs neglect the interests of host countries.

false

International transaction costs tend to be lesser than domestic transaction costs.

false

Location advantage refers to possession and leveraging by a multinational enterprise (MNE) of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas.

false

Most countries embrace the free market view on FDI.

false

Citronix Inc. is a semiconductor manufacturing company with its headquarters in Bigania. In its venture to expand business, the company sets up manufacturing units in five other countries where semiconductors are produced and manufactured. In this scenario, Citronix Inc. is engaged in _____.

foreign direct investment (FDI)

FDI stock

he total accumulation of inbound FDI in a country or outbound FDI from a country across a given period of time (usually serveral years)

foreign portafolio investment

holdin securities, such as stocks and bonds, of firms in other countries but without a controlling interest

Rayato Inc. is a cell phone manufacturing company headquartered in Swinland. The company designs, manufactures, and markets cell phones in Swinland. It has recently engaged in foreign direct investment (FDI), setting up its manufacturing units in three other countries. Rayato Inc. has decided to follow the same value-chain stage in the host countries as in Swinland. In this scenario, Rayato Inc. has engaged in:

horizontal FDI..

intrafirm trade

international trade between two subsidiaries in tow countries controlled by the same MNE

The international trade between two subsidiaries in two countries controlled by the same multinational enterprise (MNE) is called _____.

intrafirm trade

The free market view on foreign direct investment (FDI):

leads to a win-win situation for both home and host countries.

Bandoy Corp., a renowned cell phone manufacturing company, decided to engage in international business. So, Bandoy Corp. sold its technology to several multinational enterprises in other countries. This market entry mode is an example of _____.

licensing

Within the context of FPI, _____ rights are the rights to appoint key managers and establish control mechanisms.

management control right

From an institution–based view, internalization is a response to:

market imperfections.

In the context of international business, market failure is most likely to result due to:

opportunistic behavior of firms.

HiSpark Inc., a leading sports accessories brand, believes that it has to possess rare, hard-to-imitate technology, valuable brand name, and organizationally embedded culture to achieve consistent success as a multinational enterprise. In this case, HiSpark Inc. is focusing on:

ownership advantage.

ownership

possessing and leveraging of certain valuable, rare, hard-to imitate, and organizationally embedded assets overseas in the context of FDI

The _____ is a political view that approves foreign direct investment (FDI) only when its benefits outweigh its costs.

pragmatic nationalism view on FDI

In international business, when a host country firm acts opportunistically, _____.

suing the opportunistic firm in a foreign country is costly and uncertain

Bricklanes Inc. is a company that designs and manufactures materials for interior decorations. The company expands its business in Cronje Republic to gain the advantages of foreign direct investment. As a result, several companies in Cronje Republic have adopted new advancements that are introduced by Bricklanes Inc. in their processes. In this case, which of the following benefits has the host country acquired?

technology spillover

Oli adavantanges

the advantages if ownership, location, and internalization that come from engaging in FDI

FDI Flow

the amount of FDI moving in a given period(usually a year) in a certain direction

technology spillover

the domestic diffusion of foreign technical knowledge and processes

demonstration effect

the effect that occurs when local rivals recognize the feasibility of foreign technology and imitate it

market imperfection

the imperfect rules governing international market transactions

disseminiation risk

the possibility of unauthorized diffusion of firm-specific know-how

internalization

the replacement of cross-border markets with one firm located in tow or more countries

management control right

the right to appoint key managers and establish control mechanisms

A multinational enterprise (MNE), by definition, is a firm that engages in foreign direct investment when doing business abroad.

true

A non-multinational enterprise (non-MNE) firm can do business abroad by exporting.

true

A paper company is opening a new branch. In addition to providing the new branch manager and employees with handbooks detailing their jobs, the firm places experienced personal at the new branch for 6 months to teach hands-on skills and share their know-how. In this scenario, the handbooks transfer explicit knowledge, while the experienced personnel insure the acquisition of tacit knowledge.

true

Foreign direct investment (FDI) results in the loss of some economic sovereignty in a host country.

true

Foreign direct investment (FDI) stock is the total accumulation of inbound FDI in a country or outbound FDI from a country.

true

In the context of international investment, foreign portfolio investment (FPI) is an indirect investment.

true

Internalization is a way to combat market failure.

true

Tacit knowledge is noncodifiable and its acquisition and transfer requires hands–on practice.

true

The quest for location advantages has to fit with a firm's strategic goals.

true

Picnia Corp., a leading automobile manufacturing company, assembles its cars in Deltaland, but the components are manufactured in Ristasia. In this scenario, Picnia Corp. has engaged in:

upstream vertical FDI.