I Bus 300- Chapter 8
internalization theory
why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets
Flow of FDI
The amount of foreign direct investment undertaken over a given time period (normally one year).
outflows of FDI
the flow of FDI out of a country
one of the main benefits that FDI provides to the home country is
the home country's balance of payments benefit from the inward flow of foreign earnings
Licensing is a good option to enter a foreign market when
tight control of the foreign operation is not required
stock of FDI
total accumulated value of foreign-owned assets at a given time
Stock of FDI refers to
total accumulated value of foreign-owned assets at a given time.
current account
tracks the export and import of goods and services
Multipoint Competition
Arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. Firms will try to match each other's moves in different markets to try to hold each other in check.
A country that relies on the pragmatic nationalist view would say that
FDI should be allowed so long as the benefits outweigh the costs
One form of FDI is _______, which involves the establishment of a new operation in a foreign country.
Greenfield investment
Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did concrete forms decide to make this purchase?
Mergers and acquisitions are quicker to execute than Greenfield investments.
location-specific advantages
advantages that arise from using 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.
Eclectic Paradigm
argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located.
One example of a _______ effect of foreign direct investment is when a foreign MNE employs a number of host-country citizens.
direct
According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.
eclectic paradigm
Greenfield Investment
establishment of a new operation in a foreign country.
TickTock Inc., an American watchmaker, makes custom watches in California, which it then ships to Brazil for sale. mBased on this information, TickTock Inc. is involved in
exporting
It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the __________.
flow
inflows of FDI
flow of FDI into a country
Burger King licenses its brand name to foreign firms as long as the agree to run the restaurants on exactly the same lines as burger king restaurants elsewhere in the world. In return, the foreign firms have to pay Burger King a percentage of their profits. This is an example of
franchising
the ________ view argues that international production should be distributed among countries according to the theory of comparative advantage and countries should specialize in the production of goods they can produce most efficiently.
free market
Licensing
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.
market imperfections
imperfections in the operation of the market mechanism
oligopoly
industry composed of a limited number of large firms (4 firms control 80 percent of domestic market)
Internalization theory is used to explain why a company prefers FDI over ________ as a way to enter a foreign market.
licensing
Royal Chocolatier, a British manufacturer of chocolates, branded U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States. In return, American candy inc. has to pay a royalty fee on every unit sold. According to this, what is being done by royal chocolatier?
licensing
______ arises when two or more enterprises encounter each other in different regional market, national markets, or industries.
multipoint competition
balance-of-payment accounts
national accounts that track both payments to and receipts from foreigners.
SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the marker. Whenever SmileBright raises or lowers the price of products, the other three companies quickly imitate its action. What is the market structure of this industry in India.
oligopoly
Which political ideology reflects the idea that a multinational enterprise in an instrument of imperialist domination?
radical view
offshore production
refers to FDI undertaken to serve the home market. U.S> automobile companies investing in auto parts production in Mexico, reducing home-country employment. Can boost employment by allowing resources in home country to focus on activities that have comparative advantage.
ownership restraint is a method of
restricting inward FDI by a host country
Externalities
sheer concentration of intellectual talent in an area, resulting in knowledge spillovers that firms can benefit form if they locate it close to their source.
