International Business Ch 7
Making investments in distribution in order to leapfrog channels of distribution that are tightly controlled by competitors is an example of ________.
Forward integration
Which of the following statements is true of rationalized production?
It can bring the entire production process to a standstill, if work is stopped in one country.
Which of the following is true of a "follow the leader" scenario in the context of foreign direct investment?
It is a frequent practice in industries with a limited number of large firms.
Exports and imports of computer software, electronic components, and apparel are included in the ________ account of a country's balance of payments.
Merchandise
________ is an investment that does not involve obtaining a degree of control in a company.
Portfolio investment
________ are those that use outdated and obsolete technologies or employ low-wage workers with few skills.
Sunset industries
Which of the following countries would a watchmaker most prefer to manufacture its watches in, in order to capitalize on buyer perceptions of high quality?
Switzerland
Which of the following is true of foreign direct investment?
The desire to increase a firm's global competitiveness drives many cross-border mergers and acquisitions.
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. Blickinstock has identified a company that it can acquire or merge with. Which of the following statements would represent the least likely reason for Blickinstock to go ahead with the merger? If board members ask about the maquiladora industry, Keith would explain that it refers to ________.
The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.
________ is the extension of company activities into stages of production that provide a firm's inputs or absorb its outputs.
Vertical integration
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. GMI's purchase of the Brazilian company is best classified as a(n) ________.
acquisition
A country's ________ is a national accounting system that records all monetary transactions to entities in other countries and all receipts coming into the nation.
balance of payments
If a Japanese citizen invests in the Australian stock market, the transaction would show up on the capital account in the balance of payments of ________.
both Japan and Australia
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. If Happyland is successful in attracting foreign direct investment, transactions involving those investments would appear in the country's ________ account.
capital
Which of the following accounts of a country's balance of payments records transactions involving the export of services?
current account
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Happyland's international trade situation illustrates that the country is experiencing a ________.
current account surplus
Which of the following occurs in a country's balance of payments when a country exports more goods and services and receives more income from abroad than it imports and pays abroad?
current account surplus
Which of the following is used by home country governments to limit outbound foreign direct investment?
differential tax rates
Which of the following theories states that firms undertake foreign direct investment, when the features of a particular location combine with ownership and internalization advantages, to make the location appealing for investment?
eclectic theory
Which of the following methods is being used when a host country provides lower tax rates and low-interest loans to firms from abroad for encouraging inflows of foreign direct investment?
financial incentives
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. GMI's investments are examples of ________.
foreign direct investment
The purchase of physical assets or a significant amount of ownership of a company in another country to gain a measure of management control is called ________.
foreign direct investment
Which of the following is recorded in the capital account of a country's balance of payments?
foreign official assets
The extension of a company's activities into stages of production that absorb the company's outputs is known as ________.
forward integration
Which of the following is a major driver of foreign direct investment?
globalization
A firm's subsidiary built abroad from the ground up is called a(n) ________.
greenfield investment
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. GMI's subsidiary for component B in Thailand is best described as a(n) ________.
greenfield investment
Tax breaks on profits earned abroad and political pressures are used by ________.
home countries to promote FDI
Ownership restrictions and performance demands are used by ________.
host countries to restrict FDI
The ________ account within the United States' current account includes financial gains compensated to entities in other nations that is earned on assets they hold in the United States.
income payments
Which of the following accounts within the current account of the United States' balance of payments includes financial gains earned on U.S. assets held abroad?
income receipts account
When a U.S. subsidiary in another country remits profits back to its parent company in the U.S., the receipt of profits is recorded in the ________.
income receipts account and given a plus sign
Partnerships between a government and a host company in the context of foreign direct investment lead to ________.
increased market access for the host company
A(n) ________ advantage is the one that a company gains from incorporating a business activity within itself rather than leaving it to a relatively inefficient market.
internalization
A(n) ________ advantage is the advantage of conducting a particular economic activity in a specific area because of the characteristics of that area.
location
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n) ________ that can encourage FDI.
market imperfection
The requirement that a sufficient portion of a product's content must originate within a certain market to escape tariff charges is an example of a(n) ________.
market imperfection
The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.
market imperfections
The ________ theory states that a firm tries to establish a dominant presence in an industry by undertaking foreign direct investment.
market power
According to the international product life cycle theory, in which stage of a product's life cycle does a company directly invest in production facilities in countries where demand is great enough to warrant production facilities?
maturing product stage
Exports and imports of tangible goods are included in the ________ account of a country's balance of payments.
merchandise
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Transactions involving the export of Happyland's textile and computer products are included in its ________ account.
merchandise
According to the international product life cycle theory, in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?
new product stage
The realization that companies can start production in the most efficient and productive locations in the world and export to markets worldwide led to a new surge of foreign direct investment into ________.
newly industrialized nations
When a U.S. company buys shares of stock in a French company on France's stock market, the U.S. balance of payments records the transaction as an ________.
outflow of capital with a minus sign
A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a(n) ________ market.
perfect
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Which of the following methods will Happyland use to discourage foreign direct investment inflows?
performance demands
Which of the following methods is used by a host country to restrict incoming foreign direct investment?
performance demands
Which of the following is used by home-country governments to promote outbound foreign direct investment?
political pressure
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. If Blickinstock's home government tries to stop the company from investing in Latin America, the government is most likely trying to ________.
protect its balance of payments
A system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest is called ________ production.
rationalized
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. Which of the following systems of production is used by GMI?
rationalized
Which of the following is the type of production illustrated in the automobile industry?
rationalized production
Home nations discourage foreign direct investment outflows because it ________.
replaces jobs in the home nation
Exports and imports of tourism and business consulting are included in the ________ account of a country's balance of payments.
services
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. If Happyland advertises its beaches and attracts tourists, the tourism-related income would be recorded in its ________ account.
services
In the ________ product stage of the international product life cycle theory, increased competition pressurizes a company to build production facilities in low-cost developing nations.
standardized
The difference between the balances of the current and capital accounts of a country's balance of payments caused by errors in recording methods is called a(n) ________.
statistical discrepancy
Firms engage in FDI when the firms they supply have already invested abroad. This practice of "following clients" is observed in industries having ________.
suppliers who have close working relationships with producers
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Which of the following methods will Happyland use to encourage foreign direct investment inflows?
tax incentives
A home country encourages outflows of foreign direct investment because it ________.
tends to increase the long-term competitiveness of firms
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. In which of the following accounts would GMI's purchase of the company in Brazil appear?
the capital accounts of Brazil and the United States
Which of the following is an example of a greenfield investment?
the construction of an entirely new steel manufacturing subsidiary overseas
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. If board members ask about the maquiladora industry, Keith would explain that it refers to ________.
the low-wage, 130-mile-wide strip along the U.S.-Mexico border that comprises a special economic region
Which of the following is a reason behind intervention by a host country on matters related to FDI?
to keep their balance of payments under control
Which of the following is least likely a reason for companies to seek cross-border mergers and acquisitions?
to raise company budgets for increased research and development activities
A company can achieve market power through ________.
vertical integration
