Deck 6: Investing Abroad Directly

Question 1

Citronix Inc.is a semiconductor manufacturing company with its headquarters in Bigania.In its venture to expand business,the company sets up manufacturing units in five other countries where semiconductors are produced and manufactured.In this scenario,Citronix Inc.is engaged in _____.

A) foreign portfolio investment (FPI)
B) outsourcing
C) franchising
D) foreign direct investment (FDI)

Answer 1

D

Question 2

Most countries embrace the free market view on FDI.

Answer 2

False

Question 3

A non-multinational enterprise (non-MNE)firm can do business abroad by exporting.

Answer 3

True

Question 4

Foreign direct investment (FDI)stock is the total accumulation of inbound FDI in a country or outbound FDI from a country.

Question 5

_____ refers to holding securities,such as stocks and bonds,of companies in countries outside one's own but does not entail the active management of foreign assets.

A) Foreign portfolio investment (FPI)
B) Foreign direct investment (FDI)
C) Internalization
D) Licensing

Question 6

Technology spillover from FDI is typically beneficial to domestic firms and industries.

Question 7

Location advantage refers to possession and leveraging by a multinational enterprise (MNE)of certain valuable,rare,hard-to-imitate,and organizationally embedded (VRIO)assets overseas.

Question 8

Internalization is a way to combat market failure.

Question 9

Foreign direct investment (FDI)results in the loss of some economic sovereignty in a host country.

Question 10

A multinational enterprise (MNE),by definition,is a firm that engages in foreign direct investment when doing business abroad.

Question 11

The quest for location advantages has to fit with a firm's strategic goals.

Question 12

OLI advantages refer to the advantages of ownership (O),location (L),and internalization (I)that come from engaging in foreign direct investment.

Question 13

In the long run,the interests of multinational enterprises (MNEs)in host countries can be best safeguarded if MNEs neglect the interests of host countries.

Question 14

Rayato Inc.is a cell phone manufacturing company headquartered in Swinland.The company designs,manufactures,and markets cell phones in Swinland.It has recently engaged in foreign direct investment (FDI),setting up its manufacturing units in three other countries.Rayato Inc.has decided to follow the same value-chain stage in the host countries as in Swinland.In this scenario,Rayato Inc.has engaged in:

A) horizontal FDI.
B) upstream vertical FDI.
C) downstream vertical FDI.
D) platform FDI.

Question 15

International transaction costs tend to be lesser than domestic transaction costs.

Question 16

Home countries often reap benefits and endure costs associated with FDI that are the same as those experienced by the host countries.

Question 17

A paper company is opening a new branch.In addition to providing the new branch manager and employees with handbooks detailing their jobs,the firm places experienced personal at the new branch for 6 months to teach hands-on skills and share their know-how.In this scenario,the handbooks transfer explicit knowledge,while the experienced personnel insure the acquisition of tacit knowledge.

Question 18

In the context of international investment,foreign portfolio investment (FPI)is an indirect investment.

Question 19

The United Nations defines FDI as an equity stake of 10% or more in a foreign-based enterprise.A lower percentage invested in a foreign firm is considered FPI.?

Question 20

Tacit knowledge is noncodifiable and its acquisition and transfer requires hands-on practice.

Question 21

_____ is defined as the possibility of unauthorized diffusion of firm-specific know-how.

A) Agglomeration
B) Dissemination risk
C) Market failure
D) Currency risk

Question 22

Which of the following statements is true of direct ownership?

A) It allows transfer of power and management to firms in host countries.
B) It provides a firm with equity ownership rights and management control rights.
C) It provokes protectionist responses from host countries.
D) It leads to the possibility of unauthorized diffusion of firm-specific know-how.

Question 23

Which of the following statements is true of internalization?

A) It involves direct exporting to host countries.
B) It is the cause of imperfect rules in the market.
C) It replaces internal market relationship with a firm.
D) It involves locating and operating in host countries.

Question 24

Sub Inc.is a sandwich company whose long time licensee operating in Brazil recently opened a direct competitor using the knowledge it gained through marketing the products of Sub Inc.This scenario represents which risk of licensing?

A) Agglomeration
B) Dissemination
C) Market failure
D) Intrafirm trade

Question 25

HiSpark Inc.,a leading sports accessories brand,believes that it has to possess rare,hard-to-imitate technology,valuable brand name,and organizationally embedded culture to achieve consistent success as a multinational enterprise.In this case,HiSpark Inc.is focusing on:

A) location advantage.
B) ownership advantage.
C) internalization advantage.
D) export advantage.

Question 26

Folexa is the largest producer of spices in the world,and its location is an added advantage to its business.It is surrounded by six trading countries.Besides,located close to the southern region of the continent,it attracts business from the neighboring continents as well.Such clustering of economic activities is referred to as _____.

A) agglomeration
B) internalization
C) the contagion effect
D) the demonstration effect

Question 27

Hisson Technologies,a computer manufacturing company headquartered in Lumberne,had recently undertaken foreign direct investment (FDI)by setting up its office in the Remfur Republic.The company did not engage in computer distribution in Lumberne,but it invested in computer dealership in the Remfur Republic.In this case,Hisson Technologies was engaged in _____.

A) upstream vertical FDI
B) downstream vertical FDI
C) platform FDI
D) horizontal FDI

Question 28

_____ is the amount of foreign direct investment (FDI)moving in a given period (usually a year)in a certain direction.

A) FDI flow
B) FDI stock
C) Horizontal FDI
D) Upstream vertical FDI

Question 29

Picnia Corp.,a leading automobile manufacturing company,assembles its cars in Deltaland,but the components are manufactured in Ristasia.In this scenario,Picnia Corp.has engaged in:

A) downstream vertical FDI.
B) upstream vertical FDI.
C) horizontal FDI.
D) platform FDI.

Question 30

A United States MNE decides to move operations to a developing nation in Central America to take advantage of the region's low labor costs.This is an example of an MNE in pursuit of _____ advantage.

A) franchising
B) ownership
C) location
D) internalization

Question 31

Knowledge that can be written down and transferred without losing much of its richness is called _____.

A) explicit knowledge
B) embodied knowledge
C) tacit knowledge
D) embedded knowledge

Question 32

From an institution-based view,internalization is a response to:

A) agglomeration.
B) dissemination risk.
C) market imperfections.
D) outsourcing.

Question 33

When one firm enters a foreign country through foreign direct investment (FDI),its rivals are likely to follow by undertaking additional FDI in a host country to:

A) make the host country entrepreneur friendly.
B) discover a new market for its goods.
C) acquire location advantages.
D) increase the first mover's location advantages.

Question 34

Within the context of FPI,_____ rights are the rights to appoint key managers and establish control mechanisms.

A) management control
B) internalization
C) foreign management
D) downstream vertical FDI

Question 35

_____ refers to a type of foreign direct investment (FDI)in which firms move upstream or downstream in different value chain stages in a host country.

A) Vertical FDI
B) Horizontal FDI
C) Platform FDI
D) Unilateral FDI

Question 36

In licensing,a firm that receives explicit knowledge is not likely to succeed because:

A) licensing involves only tacit knowledge transfer.
B) tacit knowledge is difficult to transfer and can be acquired only by practice.
C) the firm is excessively controlled by the licensing firm.
D) the firm does not have the liberty to disseminate information.

Question 37

In the context of foreign direct investment,which of the following statements is true of ownership advantages?

A) Firms can beat rivals abroad by acquiring the advantage of proprietary technology of manufacturing products.
B) Firms are able to engage in business abroad without setting up a manufacturing unit abroad.
C) Firms can engage in foreign business by selling a technology for a firm abroad.
D) Firms can trust foreign governments and stakeholders better than home country stakeholders.

Question 38

Bandoy Corp.,a renowned cell phone manufacturing company,decided to engage in international business.So,Bandoy Corp.sold its technology to several multinational enterprises in other countries.This market entry mode is an example of _____.

A) franchising
B) licensing
C) outsourcing
D) exporting

Question 39

Which of the following statements is true of agglomeration?

A) Agglomeration advantages stem from knowledge spillover from one firm to another.
B) Ownership advantages stem from agglomeration.
C) Agglomeration deprives a firm from enjoying ownership advantages.
D) Agglomeration creates a demand that forces a skilled labor force to move out of a region.

Question 40

In international business,when a host country firm acts opportunistically,_____.

A) the home country firm always receives compensation from the host country firm
B) markets function normally,transaction costs decrease,and both firms are profited
C) suing the opportunistic firm in a foreign country is costly and uncertain
D) competition increases in the market thereby increasing demand for products

Question 41

Bricklanes Inc.is a company that designs and manufactures materials for interior decorations.The company expands its business in Cronje Republic to gain the advantages of foreign direct investment.As a result,several companies in Cronje Republic have adopted new advancements that are introduced by Bricklanes Inc.in their processes.In this case,which of the following benefits has the host country acquired?

A) Technology spillover
B) Agglomeration
C) Cash outflow
D) Export

Question 42

The free market view on foreign direct investment (FDI):

A) leads to a win-win situation for both home and host countries.
B) considers FDI as an instrument of imperialism.
C) approves FDI only when its benefits outweigh its costs.
D) states that FDI enables countries to tap into their absolute advantages when unrestricted by government intervention.

Question 43

Which of the following is a cost of FDI to a host country?

A) Learning from abroad is minimized
B) Job losses
C) Locals serving as heads of MNE subsidiaries represent the interest of domestic firms
D) Decisions to produce and market products and services in a host country are being made by foreigners resulting in a loss of sovereignty.

Question 44

_____ refers to the domestic diffusion of foreign technical knowledge and processes.

A) Internalization
B) Agglomeration
C) Dissemination risk
D) Technology spillover

Question 45

Which of the following is a benefit of FDI for the host country?

A) job creation
B) capital outflow
C) earnings
D) learning from abroad

Question 46

The _____ is a political view that approves foreign direct investment (FDI)only when its benefits outweigh its costs.

A) radical view on FDI
B) pragmatic nationalism view on FDI
C) free market view on FDI
D) liberalistic view on FDI

Question 47

Explain location advantages for firms engaging in foreign direct investment (FDI)and agglomeration advantages.

Question 48

Which of the following statements is true of the radical view on foreign direct investment (FDI)?

A) Governments embracing this view consider both the pros and cons of FDI and approve only if benefits outweigh costs.
B) It believes FDI should lead to a win-win situation for both home and host countries.
C) It suggests that FDI will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services.
D) Governments embracing this view often nationalize multinational enterprise (MNE)assets or simply ban inbound MNEs.

Question 49

When market failure is minimized through internalization,_____.

A) a firm is forced to license its technology
B) a firm engages in indirect export
C) a single organization between two firms is established
D) the laws and regulations in a host country are changed

Question 50

Why do firms prefer foreign direct investment (FDI)to licensing?

Question 51

From resource-based and institution-based views,explain what determines success and failure of foreign direct investment (FDI)around the globe.

Question 52

Which of the following political views is hostile to foreign direct investment (FDI)?

A) The radical view on FDI
B) The pragmatic nationalism view on FDI
C) The free market view on FDI
D) The liberalistic view on FDI

Question 53

The international trade between two subsidiaries in two countries controlled by the same multinational enterprise (MNE)is called _____.

A) licensing
B) franchising
C) interfirm trade
D) intrafirm trade

Question 54

In the context of international business,market failure is most likely to result due to:

A) foreign direct investment.
B) opportunistic behavior of firms.
C) low transaction costs.
D) ownership equity.

Question 55

Analyze the process of overcoming market failure through foreign direct investment (FDI).

Question 56

Explain the different political views on foreign direct investment (FDI).

Question 57

Which of the following political views on foreign direct investment (FDI)does not exist in practice?

A) The pragmatic nationalism view on FDI
B) The free market view on FDI
C) The radical view on FDI
D) The liberalistic view on FDI

Question 58

Explain the advantages of firms when they become multinational enterprises (MNEs)by engaging in foreign direct investment (FDI).

Question 59

What are the implications of action when firms consider to engage in foreign direct investment (FDI)?