Chapter 8 International Business Quiz

acquiring or merging

(Second type of FDI)acquiring or merging with an existing firm in the foreign country (quicker to execute)

Limitations of Exporting

-constrained by transportation costs and trade barriers.

internalization theory

-explains the limitations on licensing -According to internalization theory, licensing has three major drawbacks as a strategy for exploiting foreign market opportunities. 1. may result in a firm's giving away valuable technological know-how to a potential foreign competitor 2. licensing 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 3. such capabilities are often not amenable to licensing

THE PATTERN OF FOREIGN DIRECT INVESTMENT (two theories)

1. One theory is based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. (FDI and rivalry in oligopolistic industries) 2. THE ECLECTIC PARADIGM- argues that in addition to the various factors discussed earlier, location-specific advantages are also of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

HOME-COUNTRY BENEFITS home (source) country

1. the home country's balance of payments benefits from the inward flow of foreign earnings 2.benefits to the home country from outward FDI arise from employment effects. 3, benefits arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country.

Two Alternatives to FDI

Exporting- involves producing goods at home and then shipping them to the receiving country for sale 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

HOST-COUNTRY BENEFITS

The main benefits of inward FDI for a host country arise from resource-transfer effects, employment effects, balance-of-payments effects, and effects on competition and economic growth.

HOME-COUNTRY COSTS

The most important concerns center on the balance-of-payments and employment effects of outward FDI.

HOST-COUNTRY COSTS

Three costs of FDI concern host countries. They arise from possible adverse effects on competition within the host nation, adverse effects on the balance of payments, and the perceived loss of national sovereignty and autonomy.

Location-specific advantages,

advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management capabilities)

Foreign direct investment (FDI)

occurs when a firm invests directly in facilities to produce or market a good or service in a foreign country.

offshore production

refers to FDI undertaken to serve the home market

flow of FDI

refers to the amount of FDI undertaken over a given time period (normally a year).

stock of FDI

refers to the total accumulated value of foreign-owned assets at a given time

greenfield investment,

which involves the establishment of a new operation in a foreign country (One type of FDI)