BUS 498 CH 8
What two positive contributions to a host country can FDI provide? (Check all that apply.)
Supply capital, technology & management resources Boost a country's economic growth rate
The radical view of FDI declined in popularity by the early 1990s because of
rising communism in Eastern Europe.
Licensing is a good option to enter a foreign market when
tight control of the foreign operation is not required. Correct
What two factors cause major adverse effects on a host country's balance of payments? (Check all that apply.)
A foreign subsidiary importing a large number of inputs from abroad The outflow of earnings from a foreign subsidiary to its parent company
Because of political unrest, armed conflict, and frequent changes in economic policy, this region has typically received the smallest amount of inward investment.
Africa
What are three advantages of FDI? (Check all that apply.)
Allows the firm to maintain control over technological know-how Overcomes high transportation costs Allows for tight control over the firm's operations
Identify two costs of FDI to a home country. (Check all that apply.)
Balance of payments are negatively affected if FDI is a substitute for direct exports. Balance of payments are negatively affected if purpose of FDI is to develop a low-cost production location.
What are two reasons businesses prefer acquisition as a means of FDI over a greenfield investment? (Check all that apply.)
Businesses believe they can increase the efficiency of the acquired unit. Acquisitions are faster to execute than greenfield investments.
Which country has a policy that encourages FDI?
Country A has a government-backed insurance program to protect against the risk of expropriation.
When Crane Automotive Group developed operations in Italy, it not only built a manufacturing plant there but also imported parts from several other European nations. Which home country benefit of FDI does this represent?
Employment effects
Identify two benefits of FDI to a home country. (Check all that apply.)
Foreign subsidiary creates demand for home-country exports MNE learns skills from exposure to foreign market
The pragmatic nationalist view regarding FDI is that
FDI has both benefits and costs.
The World Trade Organization has been successful in its efforts to establish a universal set of rules governing the liberalization of FDI.
False
True or false: When FDI occurs through greenfield investment, it will increase competition in a market and decrease economic welfare.
False
What are two long-term effects from increased competition? (Check all that apply.)
Increased productivity growth Product and process innovations
Which concept BEST explains why the first firm in an oligopoly decides to undertake foreign direct investment rather than exporting or making a licensing agreement?
Internalization theory
Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?
Mergers and acquisitions are quicker to execute than greenfield investments.
What two measures can countries employ to restrict foreign direct investment? (Check all that apply.)
Performance requirements Ownership restraints
True or false: A company would favor FDI over exporting when trade barriers are in place.
True
What international organization is involved in the governing of FDI?
WTO
One way to describe the free market view is to say that
a country should focus on importing goods that it can also produce if those goods are produced at a higher cost elsewhere.
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 most important concerns regarding the costs of FDI for the home country center on the
balance-of-payments and employment effects of outward FDI.
When a firm invests in plant, equipment, and R&D as a result of increased competition, this is referred to as a(n) ______ investment.
capital
Earnings from a foreign subsidiary to the parent company are recorded as ______ on the balance-of-payments accounts.
capital outflow
Business executives view foreign direct investment as a way to
circumvent future trade barriers.
What three reasons are used to explain the retreat of the radical position by the early 1990s?
collapse of communism in eastern Europe generally poor economic performance of those countries that embraced radical position generally strong performance of the developing countries that embraced capitalism
When a country in Central America is importing more goods and services than it is exporting, it is incurring a(n)
current account deficit.
In the past, most foreign direct investment has been directed at _____ nations.
developed
The concern that an MNE could drive local firms out of business, monopolize the market, and raise prices above those that would prevail in competitive markets is more of a worry for Blank 1Blank 1 advanced , Incorrect Unavailable economies. (Choose developing or advanced.)
developing
One example of a(n) ________ effect of foreign direct investment is when a foreign MNE employs a number of host-country citizens.
direct
The 2,000 employees working in Toyota's factory in France are an example of the ______ effect of FDI on employment, while the 2,000 new jobs that were created in support industries are an example of the ______ effect of FDI on employment.
direct, indirect
The ______ effects of FDI come when a multinational enterprise hires host-country citizens and ______ effects come when local suppliers hire workers as a result of the FDI.
direct; indirect
A possible effect of FDI in the form of a greenfield investment in a host country is that it
drives down prices and increases the economic welfare of consumers.
As an incentive to encourage domestic firms to undertake FDI, many advanced countries have
eliminated double taxation of foreign income.
interdependence of the major players.
employs a number of host country citizens.
The strategic behavior theory is used to
explain how greenfield investments are better than FDI at determining strategic competition and dominance.
Simple Services Corp. is considering FDI in Japan. However, Simple Services wants to keep tight control over the foreign entity to ensure it will achieve maximum earnings in Japan. Which form of FDI would be better for the company to use?
exporting
What form of FDI is NOT an option in the service industry, due to the fact that many services have to be produced where they are sold?
exporting
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 there. This provides the location-specific advantage of
externalities.
The idea that an MNE could come into a country and monopolize a market tends to be a greater concern in countries that have
few large firms of their own.
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
flow of FDI.
According to the U.S. Department of Commerce, what occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity?
foreign direct investment
Burger King licenses its brand name to foreign firms as long as they agree to run their restaurants on exactly the same lines as Burger King restaurants elsewhere in the world. In return, the foreign firms have to pay Burger King a percentage of their profits. This is an example of
franchising.
The ______ view of FDI states that international production should be allocated based on the theory of comparative advantage.
free market
A low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?
greenfield investment
Compared to the growth in world trade and world output, FDI has
grown more rapidly.
According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be
immediately nationalized.
Governments impose quotas to limit
importing.
Over the past few years, more and more companies are investing in businesses in Scandinavia. These investments represent the _____ of FDI for the Scandinavian countries.
inflow
A critical competitive feature of an oligopoly is the
interdependence of the major players.
According to internalization theory, one of the drawbacks of licensing is that
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.
ABC Co. should choose exporting over licensing as a form of FDI if it has ______ transportation costs and is facing ______ trade barriers.
low; low
Internalization theory is used to explain why a company prefers FDI over ________ as a way to enter a foreign market.
licensing
Royal Chocolatier, a British manufacturer of chocolates, granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?
licensing
Internalization theory promotes the idea that
licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor.
Greenfield investing spurs competition by increasing the number of players in a market and this will tend to _____ prices and ______ economic welfare
lower, increase
One example of a home-country policy for restricting outward FDI is
manipulating tax rules to encourage the firms to invest at home.
When two or more enterprises encounter each other in different regional markets, national markets, or industries it creates
multipoint competition.
Ownership restraints on FDI are often put into place by a host country based on concerns of
national security.
Historically, countries like Iran and India that are more ______ than ______ have favored the radical position that FDI is bad.
nationalistic; socialistic
SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India?
oligopoly
According to the _____ view, a country would be willing to offer subsidies in the form of tax breaks to foreign companies because it believes it to be in the national interest.
pragmatic nationalism
Pre-1980, Japan blocked the majority of potential foreign investments. Yet, if a company that had cutting edge technology wanted to invest in Japan, they were allowed to undertake FDI. This is an example of the ______ view.
pragmatic nationalism
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?
resource-transfer effects
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
resource-transfer effects.
Ownership restraint is a method of
restricting inward FDI by a host country.
An example of the pragmatic nationalist view is that the host country can gain in jobs and skills and the profits go to the ______ country.
source
The United States has been an attractive target for FDI partly because of its
stable and dynamic economy.
When a country maintains a current account________ 1 deficit , Incorrect Unavailable (deficit or surplus?), it is unlikely to have to sell off assets in order to balance
surplus
Firms for which licensing is not a good option include those
that have valuable know-how.
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.
The World Trade Organization has based the majority of its efforts on pushing for the liberalization of regulations governing ______.
the service industry
A firm will favor FDI over exporting as an entry strategy when
the transportation costs or trade barriers are high.
A country that imports more goods than it exports experiences a
trade deficit.
Countries such as the United States, the United Kingdom, 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 they
were the most developed countries postwar and home to the largest and best capitalized enterprises.
The theories of FDI try to show: (Check all that apply.)
why firms use a combination of avoiding exporting and licensing and entering the same markets as their competitors. why firms don't use exporting and licensing to enter foreign markets. why competitive firms often enter the same markets at the same time.
