Chapter 8
According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.
False
Historically, most FDI has been directed at the least developed nations of the world.
False
Offshore production refers to FDI undertaken to serve the host market.
False
Services such as telecommunications, retailing, and many financial services, where the service has to be produced where it is delivered, lend themselves well to exporting.
False
The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.
False
The globalization of the world economy is having a negative effect on the volume of FDI.
False
The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting.
False
When a firm exports its products to a foreign country, foreign direct investment occurs.
False
Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?
It drives down prices and increases the economic welfare of consumers.
Which of the following reflects internalization theory?
Licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.
Which of the following indicates that a firm has a full outright stake in an acquisition?
Maximus Corporation acquires 100 percent of a company
Which of the following is true regarding the pragmatic nationalist view of FDI?
One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
QFresh, a brand for energy drinks, launched a healthy lime-based drink without preservatives. Immediately after this, another brand, Fast Fizz, which manufactures energy drinks, also announced the launch of a new refreshing drink without preservatives. Then Ignite, a third brand of energy drinks, reduced the price of its apple-based drink. Which of the following is most likely to happen in this oligopolistic market setup?
QFresh and Fast Fizz will reduce the prices of their respective drinks.
The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.
True
When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.
True
Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?
When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.
The idea behind multipoint competition is to ensure that
a rival does not dominate one market and use the profits from there to drive competition attacks elsewhere
If one firm in an oligopoly cuts prices, then most likely, its competitors will
also respond with similar price cuts
Which of the following are national accounts that track both payments to and receipts from other countries?
balance-of-payments
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
Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's
balance-of-payments position
Which account in the balance of payments records transactions involving the export and import of goods and services?
current
When a country is importing more goods and services than it is exporting, it is incurring a(n)
current account deficit
When it comes to FDI, Granular Holdings, Inc. makes greenfield investments in various foreign countries and fully manages all foreign operations on its own. Granular Holdings' FDI approach is risky because of the problems associated with
doing business in a different culture where the rules of the game may be very different
When it comes to foreign markets, Matthews Toys identifies licensees in various countries who produce and sell the company's products in their countries in return for a royalty fee on every unit sold. Matthews Toys' approach is risky because of the problems associated with
doing business in a different culture where the rules of the game may be very different
Coca-Cola and PepsiCo compete against each other not only in the U.S., but also all across Europe, Asia, and Africa. Coca-Cola and PepsiCo are
engaged in multipoint competition
The strategic behavior theory is used to
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 tapes in St. Paul, Minnesota, and ships the tapes to South Korea for sale. According to this information, which of the following is being done by 3M?
exporting
Omega, Inc. produces an entire line of stationery products at its manufacturing facility in the U.S. and then ships all over Europe for sale. Omega, Inc. is
exporting
Sphericals, Inc. approach to international markets is to grant a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold. Sphericals, Inc.'s approach is called
exporting
The top management team at the Kentucky-based Mumford Products collectively support the market imperfections approach. This means Mumford Products' top management team is most likely to
express a preference for FDI over licensing as a strategy to enter foreign markets
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, thus offering the location-specific advantage of
externalities
Which of the following refers to the amount of FDI undertaken over a given period (normally a year)?
flow
A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of
foreign direct investment
According to the U.S. Department of Commerce, which of the following, 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
Omega, Inc., a U.S. business entity took a 27 percent equity interest in Almodovar Holdings, a Spanish family business. According to the U.S. Department of Commerce, this would be an example of
foreign direct investment
Which view argues that international production should be distributed among countries according to the theory of comparative advantage?
free market
General Electric (GE) built an operation from scratch in Nigeria. This is an example of a(n)
greenfield investment
Rather than acquiring Almodovar Holdings in Spain, Omega, Inc. chose to establish new operations in that country. This form of FDI is called
greenfield investment
Which of the following is most likely to involve establishment of a new operation in a foreign country?
greenfield investment
Dunning's theory helps explain
how location factors effect the direction of FDI
The interdependence between firms in an oligopoly leads to
imitative behavior
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
A critical competitive feature of an oligopoly is the
interdependence of the major players
The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the
internalization theory
The difference between internalization theory and imitative theory is that
internalization theory addresses the issue of efficiency of FDI over exporting or licensing.
Why has FDI grown more rapidly than world trade?
Executives of business firms see FDI as a way of circumventing future trade barriers.
Incandescent Lightings, a U.S.-based firm does not want to bear the costs of establishing production facilities in a foreign country. Incandescent Lightings should avoid
FDI
Radical writes argue that
FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward.
The pragmatic nationalist view is that
FDI has both benefits and costs
Which of the following statements is true regarding foreign direct investment?
FDI has grown more rapidly than world trade and world output
The Spanish company, Almodovar Family Holdings obtained the right to produce and sell the U.S.-based Omega, Inc.'s products in Spain in return for a royalty fee to Omega, Inc. on every unit it sells in Spain. Almodovar Family Holdings is Omega, Inc.'s
licensee
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
licensing
Arnold & Sons, a leading manufacturer of cement in the U.S is considering exporting as its FDI strategy. Exporting may not be a good option for Arnold & Sons because of cement's
low value-to-weight ratio
Jingo Products is a market leader in playground equipment which is typically large and bulky and weighs a lot. Because of competitive reasons, Jingo Products sells its entire line at very low prices. Although its products can be produced anywhere, it is considering exporting as a way to grow in overseas markets. The viability of Jingo Products' exporting strategy could be constrained by transportation costs, particularly of products that can be produced in almost any location and have a
low value-to-weight ratio
Ohio Manufacturing prefers FDI over licensing to retain control over know-how, manufacturing, and marketing. Ohio Manufacturing's stance constitutes the
market imperfections approach
The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of
pragmatic nationalism
According to the _____, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.
pragmatic nationalist view
Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?
presence or threat of trade barriers
Which view of FDI traces its roots to Marxist political and economic theory?
radical
Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of
resource transfer effects
Which of the following is the only way to support a current account deficit in the long run?
selling assets to foreigners
The United States has been an attractive target for FDI partly because of its
stable and dynamic economy
At the end of 2015, companies from the country of Erithrea collectively owned $37 billion in assets in its neighboring country of Outflowia. The $37 billion is Erithrea's _______ of FDI.:
stock
Which of the following is a reason for the decline in the popularity of the radical view of FDI?
strong economic performance of those developing countries that embraced
A firm is most likely to favor foreign direct investment over exporting when
the firm wishes to maintain control over its operations and business strategy.
The market imperfections approach seeks to explain
the preference for FDI over licensing by firms as a strategy to enter foreign markets.
The main benefits of inward FDI for a host country arise from
the resource-transfer effect, the employment effect, and the balance-of-payments effect.
A firm will favor FDI over exporting as an entry strategy when
the transportation costs or trade barriers are high
A current account deficit is also known as a(n)
trade deficit
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.
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.
A critical competitive feature of an oligopoly is independence of the major players.
False
Which of the following is true regarding the inflow of FDI?
There has been an increase in the importance of China as a recipient of FDI.
A firm's bargaining power is low when the host government places a low value on what the firm has to offer.
True
According to the extreme version of radical view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination.
True
According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.
True
An acquisition does not result in a net increase in the number of players in a market.
True
By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing.
True
Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI.
True
Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing.
True
Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.
True
Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.
True
Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.
True
Performance requirements are controls over the behavior of the MNE's local subsidiary.
True
The WTO embraces the promotion of international trade in services.
True
The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.
True
Which of the following concepts helps explain how location factors affect the direction of FDI?
eclectic paradigm
Direct effects of FDI on employment in the host country arise when a foreign MNE
employs a number of host country citizens
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.
Indirect effects of FDI on employment in a host country arise when
jobs are created because of increased local spending by employees of an MNE
Which of the following statements is most likely to be true regarding the effects of FDI on employment?
A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there.
Which of the following is true about Dunning's arguments?
Dunning argues that it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes, since labor is not internationally mobile.
According to the free market view, how does FDI increase the efficiency of the world economy through MNEs?
The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.
Which of the following statements regarding the free market view is true?
The free market view argues that FDI is a benefit to both the source country and the host country.
Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints."
True
Once it undertakes FDI, a firm becomes a(n)
multinational enterprise
Which of the following arises when two or more enterprises encounter each other in different regional markets, national markets, or industries?
multipoint competition
The cement market in Erbia is dominated by four firms. These firms control 85 percent of selling and buying of the domestic market. Which of the following terms explains the market structure of the cement industry in Erbia?
oligopoly
