International Business Chapter 8

three steel plants control 90 percent of the steel production sector of a country. the steel industry in the country would be an example of an

oligopoly an idustry composed of a limited number of large firms

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

stock: the flow of FDI refers to the amount of FDI undertaken over a given time period. the stock of FDI refers to the total accumulated value of foreign-owned assets at a given time.

in which situation 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. which results in a debit on the current account of the host country's balance of payments

______ are controls over the behavior of the MNE's local subsidiary. the most common of these are related to local content, exports, technology transfer, and local participation in top management.

Performance requirements. these are performance requirements that are meant to help maximize the benefits and minimize the costs of FDI for the host country.

True or False: 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: Proponents of this view argue that MNEs extract profits from the hsot country and take them to their home country, giving nothing of value to the host country in exchange.

True or False: a Korean petroleum company sets up a crude oil refining facility in Thailand. This is an example of a greenfield investment.

True: a greenfield investment involves the establishment of a new operation in a foreign country

true or false: Direct effects of FDI of unemployment arise when a foreign MNE employs a number of host-country citizens

True: direct effects arise when a foreign MNE employs some host-country citizens. Indirect effects arise when jobs are created in local suppliers because of the investment and when jobs are created because of increased local spending by employees of the MNE

a home country wants to limit outward FDI flow. What policy should the country implement

it should limit capital outflows. virtually all investor countries including the US, have exercised some control over outward FDI from time to time. one policy has been to limit capital outflows out of concern for the country's balance of payments.

the ______ view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.

pragmatic nationalist a view that FDI has both benefits and costs.

True or False: the fast-food industry is a good example of a business sector where licensing is a poor option for FDI

False: licensing tends to be more common, and more profitable, in gragmented, low-technology industries in which globally dispersed manufacturing is not an option. A good example is the fast-food industry. McDonald's has expanded globally using a franchising strategy, which is essentially the service-industry version of licensing. with franchising, the firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits.

True or False: The location-specific advantages argument associated with John Dunning explains ehy firms prefer FDI to licensing or to exporting

False: the location-specific advantages argument associated with John Dunning does help explain the direction of FDI. However, it does not explain why firms prefer FDI to licensing or to exporting.

True or False: a U.S. based furniture manufacturer invests in textile production facilities in China. This is an example of offshore production undertaken to serve the home market

True: the term offshore production refers to DFI undertaken to serve the home marker. far from reducing home-country employment, such FDI may actually stimulate economic growth in the home country by freeing home-country resources to concentrate on activities where the home country has a comparative advantage.

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

free market

the _____ theory is also known as the market imperfections theory

internalization it seeks to explian why firms often prefer foreign direct investment over liscensing as a strategy for entering foreign markets.

maribel's company has made a greenfield investment. what does this mean

it established a new operation in a foreign country. Foreign direct investment takes on two main forms. The first is a greenfield investment which involves the establishment of a new operation in a foreign country. the second involves acquiring or merging with an existing firm in a foreign country.

Speedy sneakers has given a foreign entity the right to produce and sell its running shoes in return for a royalty fee on every unit sold. this is called

licensing involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

a company wishing to engage in foreign direct investment must evaluate all its options. which statement is an important consideration for the modern firm wishing to expand into new markets?

mergers and acquisitions are quicker to execute than greenfield investments.

host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ______ and performance requirements.

ownership restraints

true or false: by limiting imports through quotas, governments decrease the attractiveness of FDI and licensing.

False. by limiting imports through quotas, governments increase the attractiveness of FDI and licensing.

FDI'S effect on a country's balance of payments accounts is an important policy issue for most governments. this is why a government would typically prefer to

see a current account surplus rather than a deficit