Exam 2 Retake
When a firm invests directly in a business or venture in another country, it is called ______.
FDI
True or false: Krugman advocates that it is logical to expect the US government to ignore special-interest politics when forming policy.
False
What are two alternatives to FDI?
Licensing Exporting
What are the two most common incentives governments offer to foreign firms to invest in their country?
Subsidies Low-interest loans
What two positive contributions to a host country can FDI provide?
Supply capital, technology & management resources Boost a country's economic growth rate
corporate social responsibility (CSR)
business people should consider the social consequences of economic actions when making business decisions and that there should be a presumption in favor of decisions that both good economic and social consequences
Young children are permitted to work in the manufacturing of soccer balls in Pakistan, but this would not be legal in the United States. However, a company wants to sell these soccer balls in the United States to Kick-Rite Sports Equipment and Kick-Rite is not sure it wants to sell these particular soccer balls. This is an example of a(n) ______ dilemma.
ethical
As an alternatives to FDI, firms could choose ______, which involves producing goods at home and shipping them overseas, or ______, which is granting a foreign firm the right to produce and sell a product in return for a royalty fee.
exporting; licensing
Member nations hoped that the WTO would do which two of the following?
facilitate future trade deals be effective at policing global trade
Businesses should seek out a country that has ______________________ policies toward FDI.
favorable
The _____________ flow, Correct Unavailable of FDI is the amount of FDI attempted over a period of time (usually one year).
flow
GATT was put into place by the US government as a way to
foster free trade
The ______ view of FDI states that international production should be allocated based on the theory of comparative advantage.
free market
Venezuela and Bolivia are examples of countries that have become more _______ to FDI
hostile
FDI occurs when a company invests in facilities
in a foreign country.
The European Union's support for the Common Agricultural Policy illustrates why strategic trade policy is problematic. In this instance, the government was influenced by ______ to the detriment of consumers.
interest groups
What are two reasons the United States has been an attractive target for FDI?
large domestic markets stable economy
John Dunning proposed that ______ are an important factor when explaining the nature of foreign direct investment.
location-specific advantages
A host country cost of FDI could be the ____________, (gain or loss?) of sovereignty and autonomy.
loss
As the text notes, Donald Trump appears to embrace which view on trade?
mercantilist
Reciprocal trade agreements between two or more partners are called _____ trade agreements.
multilateral
The stalled Doha Round has caused many nations to use _____ to foster trade.
multilateral trade agreements
balance-of-payments accounts
national accounts that track both payments to and receipts from foreigners
The radical view toward FDI argues that MNE's extract ______ from the host country and take them back to their home country.
profits
What are the four issues currently at the forefront of the WTO agenda?
protectionism in agriculture high tariffs on nonagricultural goods and services antidumping policies lack of intellectual property protection
The _____ view of foreign direct investment has its basis in Marxist theory.
radical
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
sustainable strategies
strategies that not only help the multinational firm make good profits but that do so without harming the enviroment
free trade
the absence of barriers to the free flow of goods and services between countries
TimeTurner Corp. is a company based in the United States that manufactures luxury wrist watches. By western standards, if the company uses sweatshop labor to make these watches it is most likely to be considered
unethical.
The theories of FDI try to show:
why firms don't use exporting and licensing to enter foreign markets. a combination of avoiding exporting and licensing and entering the same markets as their competitors. why competitive firms will often enter the same markets as the same times.
Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?
Free market
In the mid 1800s, ______ was the first nation to officially follow free trade.
Great Britian
What is a feature of an oligopoly?
Interdependence of major players
What are two characteristics of the eclectic paradigm?
It provides a single holistic explanation of foreign direct investment It combines the best aspects of other theories of foreign direct investment into a single explanation
Identify two benefits of FDI to a home country.
MNE learns skills from exposure to foreign market Foreign subsidiary creates demand for home-country exports
righteous moralist
One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries
internal stakeholder
People who work for or own the business such as employees, directors, and stockholders
Which view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI?
Pragmatic nationalism
The Uruguay Round started in 1986 and addressed which three issues?
Reducing tariffs on industrial goods Reducing tariffs on manufactured goods Reducing agricultural subsidies
As demonstrated by the Nike example in the text, which situation is generally MOST preferred when considering employment practices in international business?
Requiring good conditions in home and foreign operations even when this results in a smaller profit margin
______ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country.
Tariff barriers
What extended GATT rules to provide enhanced protection for intellectual property and significantly reduced barriers on trade in textiles?
The Uruguay Round
What are three reasons that the global trading system erected under GATT was strained during the 1980s and early 1990s?
The economic success of Japan The persistent trade deficit in the United States Countries finding ways to get around GATT regulations
What are two ways trade barriers hamper a firm's productive activities?
They raise the cost of exporting products. Quotas limit the ability to serve a country from outside locales.
The United States, the United Kingdom, the Netherlands, France, Germany, and Japan together have accounted for the majority of all FDI outflows for 1998-2018 for what two reasons?
They were the most developed nations with the largest economies in the postwar period. They provided the base for many of the largest and best-capitalized businesses.
Foreign Corrupt Practices Act (FCPA)
U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
rights theories
a twentieth-century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures
The stock of foreign direct investment refers to the total
accumulated value of foreign-owned assets at a given point in time.
A form of FDI, other than greenfield investments, is to
acquire or merge with an existing company in the foreign country.
first-mover advantages
advantages accruing to the first to enter the market
mercantilism
an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports
economies of scale
cost advantages associated with large-scale production
In the past, most foreign direct investment has been directed at _____ nations.
developed
To encourage FDI, many countries have eliminated ______ taxation of foreign income.
double
According to the text, what two world events imply that free trade is not a global consensus?
election of Donald Trump withdrawal of Britain from EU
When Crane Automotive Group developed operations in Italy, it not only built a manufacturing plant there but also imports parts from several other European nations. Which home country benefit of FDI does this represent?
employment effects
The shift toward more democratic political institutions and free market economies has _____ foreign direct investment.
encouraged
The WTO is more successful than GATT because the WTO has ______ mechanisms that make it more effective.
enforcement
current account
in the balance of payments , records transactions involving the export or import of goods and services
capital account
in the balance of payments, records transactions involving one- time changes in the stock of assets
financial account
in the balance of payments, transactions that involve the purchase or sale of assets
During the 1980s and early 1990s, protectionism around the world __________.
increased
external stakeholders
individuals or groups that have some claim on a firm such as customers, suppliers, and unions
General Agreement on Tariffs and Trade (GATT)
international treaty that commited signatories to lowering barriers to the free flow of goods across national borders and led to the WTO
FDI that serves the home market is called ______ production.
offshore
The board of directors of Green Garden Supply in Vermont voted to invest in a production facility in Mexico as a way to lower costs and free up financial resources for the company to grow in other areas. What form of FDI is this company using?
offshore production
A(n) ______ is a market form in which a market or industry has a limited number of large firms.
oligopoly
naive immoralist
one who asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either
Today, many nations are _____ new trade policies associated with the WTO.
opposed to
A key cost of FDI for the home country is when the balance of payments is adversely affected by the initial capital _____________ required to finance the FDI.
outflow
A(n) ______ effect has occurred when a company's FDI of capital, technology, and management resources create a positive contribution to a host country that might not otherwise be available.
resource transfer
cultural relativism
the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate
Kantian ethics
the belief that people should be treated as ends and never as means to the ends of others
current account surplus
the current account of balance of payments is in surplus when a country exports more goods, services, and income than it imports
current account deficit
the current account of the balance of payments is in deficit when a country imports more goods, services, and income than it imports
What two factors would indicate that a firm has little bargaining power when considering FDI in a nation?
the firm has only a short period of time to complete the negotiations the host government places a low value on what the firm has to offer
stakeholders
the individuals or groups that have an interest, stake, or claim in the actions and overall performance of a company
new trade theory
the observed pattern of trade in the world economy may be due in part to the ability of firms in a given market to capture first-mover advantages
constant returns to specialization
the units of resources required to produce a good are assumed to remain constant no matter where one is on a countrys production possibility frontier
organizational culture
the values and norms shared among an organizations employees
utilitarian approach to ethics
these hold that the moral worth of actions or practices is determined by their consequences
Universal Declaration of Human Rights
A United Nations document that lays down the basic principles of human rights that should be adhered to
code of ethics
A business's formal statement of ethical priorities
What are the two main types of FDI?
Acquisition or merger with an existing foreign firm Establishing a new operation in a foreign market
What are two potential costs of FDI to host countries?
Adverse effects on competition within the host nation Adverse effects on balance of payments
What are two current trends in FDI?
An increase in the volume of FDI An increase in FDI aimed at countries that have liberalized their FDI regimes
Identify two costs of FDI to a home country.
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.
Which country has a policy that encourages FDI?
Country A has a government-backed insurance program to protect against the risk of expropriation.
The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons?
Despite the decline in trade barriers, firms still fear protectionist pressures. FDI has been driven by political and economic changes in developing nations.
What country has been the largest source of FDI since World War II?
United States
What international organization is involved in the governing of FDI?
WTO
With the formation of the ______ in 1995, there now is a multinational institution that has become involved in regulations governing FDI.
WTO
absolute advantage
a country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it
factor endowments
a countrys endowment with resources such as land, labor, and capital
ethical strategy
a course of action that does not violate a company's business ethics
just distrubution
a distrubution of goods and services that is considered fair and equitable
zero-sum game
a situation in which a economic gain by one country results in an economic loss by another
ethical dilemma
a situation in which there is no ethically acceptable solution
business ethics
accepted principles of right or wrong governing the conduct of business people
