International Management MANA 4321 Ch. 8

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 (such as the firm's technological, marketing, or management know-how).

Oligopoly

An industry composed of a limited number of large firms.

Eclectic Paradigm

Argument that combining locationspecific 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.

Multi-point Competition

Arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

Greenfield Investment

Establishing a new operation in a foreign country.

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.

Offshore Production

FDI undertaken to serve the home market.

According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

False

The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.

False

Inflows of FDI

Flow of foreign direct investment into a country.

Outflows of FDI

Flow of foreign direct investment out of a country.

Market Imperfections

Imperfections in the operation of the market mechanism.

Current Account

In the balance of payments, records transactions involving the export or import of goods and services.

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.

Externalities

Knowledge spillovers.

Internalization Theory

Marketing imperfection approach to foreign direct investment. (disadvantages of costs of licensing)

Licensing

Occurs when a firm (the licensor) licenses the right to produce its product, use its production processes, or use its brand name or trademark to another firm (the licensee). In return for giving the licensee these rights, the licensor collects a royalty fee on every unit the licensee sells.

Flow of FDI

The amount of foreign direct investment undertaken over a given time period (normally one year).

Stock of FDI

The total accumulated value of foreign owned assets at a given time.

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

Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing.

True

Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

True

The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting.

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 most important concerns regarding the costs of FDI for the home country center on the

balance-of-payments and employment effects of outward FDI.

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.

Which of the following is most likely to involve establishment of a new operation in a foreign country?

greenfield investment

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 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

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.

Once it undertakes FDI, a firm becomes a(n)

multinational enterprise.

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

sharing valuable technological know-how with a potential competitor.

A firm will favor FDI over exporting as an entry strategy when

the transportation costs or trade barriers are high.