Question 1

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

Accepted Answer

A)   possible loss of quality control
B)   establishment of a potential competitor in third-country markets
C)   possible improvement of the technology by the local licensee, which then enters the original firm's home market
D)   All of the above are potential disadvantages to licensing. D

Question 3

The owner-specific advantages of OLI must be ________.

Accepted Answer

A)   firm-specific
B)   not easily copied
C)   transferable to foreign subsidiaries
D)   all of the above D

Question 4

FDI is

Accepted Answer

A)   investment in real assets in foreign countries.
B)   foreign direct investment.
C)   influenced by behavioral factors.
D)   all of the above.

Question 5

Which of the following modes of serving foreign markets requires the least capital investment by the MNE but risks the loss of key technological or managerial expertise to the marketplace?

Accepted Answer

A)   acquisition
B)   licensing
C)   Greenfield investment
D)   portfolio investment

Question 6

Joint ventures are motivated only by takeover defenses.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT a form of FDI?

Accepted Answer

A)   wholly-owned affiliate
B)   joint venture
C)   exporting
D)   Greenfield investment

Question 8

The OLI paradigm is an attempt to create a framework to explain why MNEs choose ________ rather than some other form of international venture.

Accepted Answer

A)   licensing
B)   joint ventures
C)   foreign direct investment
D)   strategic alliances

Question 9

With licensing the ________ is likely to be lower than with FDI because of lower profits; however, the ________ is likely to be higher due to a greater return per dollar invested.

Accepted Answer

A)   IRR; NPV
B)   NPV; IRR
C)   cost of capital; NPV
D)   IRR; cost of capital

Question 10

Joint ventures are a more common FDI than wholly owned subsidiaries.

Accepted Answer

A) True 
 B)False

Question 11

All of the following may be justification for a strategic alliance EXCEPT:

Accepted Answer

A)   takeover defense.
B)   a joint venture to pool resources for research and development.
C)   joint marketing and serving agreements.
D)   All of the above are legitimate reasons for strategic alliances.

Question 12

MNEs typically used licensing with independent firms rather than with their own foreign subsidiaries.

Accepted Answer

A) True 
 B)False

Question 13

A MNE can choose all of the following modes of entry for FDI EXCEPT:

Accepted Answer

A)   a joint venture with a local partner.
B)   a 100%-owned greenfield subsidiary.
C)   merger with or acquisition of an existing local firm.
D)   exporting products to a local firm.

Question 14

Licensing is a popular form of foreign investment because it does not need a sizable commitment of funds, and political risk is often minimized.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Accepted Answer

A)   fewer agency costs
B)   fewer direct advantages from research and development
C)   a greater risk of losing markets to copycat goods producers
D)   an inability to exploit R&D as effectively as if also invested abroad

Question 16

Which of the following is NOT an advantage to a joint venture?

Accepted Answer

A)   The local partner's reputation enhances access to local financial markets.
B)   The local partner possesses technology that is advantageous in their market and perhaps beyond.
C)   Higher agency costs than with a purely domestic firm.
D)   The local partner's public image may enhance local sales.

Question 17

A/n ________ would be an example of an owner-specific advantage for an MNE.

Accepted Answer

A)   patent
B)   economy of scale
C)   economy of scope
D)   all of the above

Question 18

A ________ is establishing a production or service facility from the ground up.

Accepted Answer

A)   joint venture
B)   licensing agreement
C)   greenfield investment
D)   wholly-owned facility

Question 19

Which of the following is NOT a potential advantage to a cross-border acquisition compared to a Greenfield investment?

Accepted Answer

A)   Market imperfections may under-price local assets and allow the purchase of assets at significant discount.
B)   Cross-border acquisitions take longer, thus allowing the firm a better understanding of the local market before attempting sales.
C)   Acquisitions may be a cost-effective way of gaining competitive advantages such as technology or brand names.
D)   All of the above are advantages of acquisition over green field investment.

Question 20

The authors cite China-based Haier as an example of a firm following the strategy of ________. Haier is shown to have firmly established themselves as the top producer of home appliances in China and then using their economies of scale in an attempt to gain market share globally.

Accepted Answer

A)   acquiring offshore assets
B)   taking brands global
C)   targeting a niche
D)   engineering to innovation

Exam 17: Foreign Direct Investment Theory and Strategy

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

The owner-specific advantages of OLI must be ________.

FDI is

Which of the following modes of serving foreign markets requires the least capital investment by the MNE but risks the loss of key technological or managerial expertise to the marketplace?

Joint ventures are motivated only by takeover defenses.

Which of the following is NOT a form of FDI?

The OLI paradigm is an attempt to create a framework to explain why MNEs choose ________ rather than some other form of international venture.

With licensing the is likely to be lower than with FDI because of lower profits; however, the is likely to be higher due to a greater return per dollar invested.

Joint ventures are a more common FDI than wholly owned subsidiaries.

All of the following may be justification for a strategic alliance EXCEPT:

MNEs typically used licensing with independent firms rather than with their own foreign subsidiaries.

A MNE can choose all of the following modes of entry for FDI EXCEPT:

Licensing is a popular form of foreign investment because it does not need a sizable commitment of funds, and political risk is often minimized.

Which of the following is an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Which of the following is NOT an advantage to a joint venture?

A/n ________ would be an example of an owner-specific advantage for an MNE.

A ________ is establishing a production or service facility from the ground up.

Which of the following is NOT a potential advantage to a cross-border acquisition compared to a Greenfield investment?

The authors cite China-based Haier as an example of a firm following the strategy of ________. Haier is shown to have firmly established themselves as the top producer of home appliances in China and then using their economies of scale in an attempt to gain market share globally.