HW 4 Foreign Direct Investment

The amount invested by U.S. firms in foreign markets between 1998 and 2014 was about

$4 trillion

Burberry's current investment in Japan can best be characterized as

A greenfield investment

All of the countries below are considered to be significant investors in foreign markets over the last 20 years except

Canada

The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.

Exporting

If consumers in different countries desire different product attributes, it would be best to engage in

Foreign Direct Investment

In 2015, Burberry, the British luxury apparel company, opened a limited number of wholly owned stores in Japan with a goal of having 35 to 50 stores by 2018. Burberry's stores in Japan can best be described as

Foreign direct investment

According to the ________ view, international production should be distributed among countries according to the theory of comparative advantage.

Free market

Host Country Cost

Outflow of earnings from a foreign subsidiary, Loss of economic independence, Loss of local entrepreneurship

The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.

Stock

_______ has been the world's foreign largest investor since World War II.

The United States

Entry Strategy: FDI Benefits

Tight control

Toyota produces 1.2 million vehicles per year in the United States. Which best explains why Toyota has chosen to produce its vehicles in the United States rather than exporting from Japan?

Toyota is concerned that its ability to export from Japan could be compromised by U.S. tariffs and quotas.

In which of the following situations would FDI deteriorate the current account of the host country's balance of payments?

When a foreign subsidiary imports a substantial number of its inputs from abroad

In the balance of payments, how does a country record transactions involving the export and import of goods and services?

Current account

If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) _______ strategy.

Exporting

If your proprietary know-how of "green" processes is difficult to transfer to other firms, the most effective approach would be

Exporting or Foreign Direct Investment

Toyota's $25 billion investment in the U.S. market indicates that the Japanese company believes that the United States is a strategically important market. When considering future international expansion, if Toyota has valuable know-how that cannot be protected with a licensing contract and also faces high transportation costs, Toyota should

Invest directly in target markets

The United States is an attractive destination for foreign investment for all of the following reasons except

Its favorable military power

If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be

Licensing

After licensing its brand in Japan for a number of years, Burberry decided to open its own stores in the country. Which disadvantage of licensing best explains Burberry's decision to end its licensing agreements in Japan?

Licensing does not give a firm the tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability

Entry Strategy: Exporting Benefits

Location economies

Entry Strategy: Licensing Drawbacks

Lose control over manufacturing

Entry Strategy: Licensing Benefits

Low development cost risks

Burberry originally entered Japan via a licensing contract with a Japanese retailer. A key advantage of this type of strategy is that

The licensee bears the cost and risk of developing the market

A Chinese petroleum company sets up a crude oil refining facility in Vietnam. This is an example of a greenfield investment.

True

According to the radical political ideology view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

True

Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens.

True

Which of the following is not a potential benefit to Japan from Burberry's decision to invest in the country?

FDI may be accompanied by some loss of economic independence

The world flow of foreign direct investment between 1990 and 2017 increased 600 percent. If a company decides to establish a new operation in a foreign country, that company has engaged in

Greenfield Investment

Entry Strategy: FDI Drawbacks

High set up costs

Entry Strategy: Exporting Drawbacks

High transportation costs

Home Country Cost

Host country limits profit expatriation, Loss of jobs

Host Country Benefit

Increase in direct and indirect employment, Transfer of new technology, Substitute for imports

Home Country Benefit

Inflows of foreign earnings, Skills that can be leveraged internationally

The United States benefits as a recipient of foreign investment in which of the following ways?

Influx of capital and technology

________ theory is also known as the market imperfections theory.

Internalization

According to the video, Japan's Toyota has invested $25 billion in production facilities in the United States. Which is not a correct match between an action occurring because of Toyota's investment in the United States and the effect on the host country?

New jobs in Japan are created to facilitate U.S. investment. Effect on host country: employment effect.