Chapter 8: Foreign Direct Investment

The indirect employment effects of FDI are often as large as, if not larger than, the direct effects. True False

True

The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time. True False

True

The strategic behavior theory is used to explain how greenfield investments are better than FDI. explain the constraints of exporting and licensing. review the theories that have been used to explain foreign direct investment. explain the challenges faced by a firm during the establishment of a new operation in a foreign country. explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.

explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.

3M, an American firm, manufactures adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea for sale. According to this information, which of the following is being done by 3M? exporting franchising licensing insourcing outsourcing

exporting

Which view argues that international production should be distributed among countries according to the theory of comparative advantage? free market conservative pragmatic nationalism radical Keynesian economic

free market

Rather than acquire an existing textile manufacturer in Jakarta, FauxFabric Inc. chose to establish new operations in Indonesia. This form of FDI is called consolidation greenfield investment acquisition licensing agreement mass customization

greenfield investment

Governments impose quotas to limit franchising. importing. FDI. licensing. outsourcing.

importing.

As a company policy, Alberton Consumer Products periodically grants foreign entities the right to produce and sell its products in return for a royalty fee on every unit sold. Alberton Consumer Products' approach is hedging. outsourcing. diverging. exporting. licensing.

licensing.

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting? costs of establishing production facilities in a foreign country risk of giving away valuable technological know-how to a potential foreign competitor possibility of diminishing returns costs of acquiring a foreign enterprise presence or threat of trade barriers

presence or threat of trade barriers

Location-specific advantages for a firm are those that arise from utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets. acquiring the home markets of foreign firms that threaten a firm's domestic market. gaining a commanding position in one market and using them to subsidize competitive attacks in other markets. franchising and licensing. preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy.

utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets.