Question 1

Market-seeking FDI attempts to secure market share and sales growth in the target foreign market. Apart from market size and the prospects for market growth, the reasons for market-seeking FDI include situations in which
A) the firm's main suppliers or customers have set up foreign producing facilities abroad and the firm needs to follow them overseas.
B) the firm's products need to be adapted to local tastes or needs, and to indigenous resources and capabilities.
C) the firm considers it necessary, as part of its global production and marketing strategy, to maintain a physical presence in the leading markets served by its competitors.
D) all of the above.

Accepted Answer

All the options (A, B and C) are situations in which a firm might consider market-seeking FDI as a strategy to secure market share and sales growth in a foreign market. These situations may arise due to various reasons such as following key customers or suppliers, adapting products to local needs or maintaining a presence in leading markets. Therefore, the best choice is D as it includes all the possible scenarios.

Question 2

Resource-seeking FDI
A) attempts to acquire particular resources at a higher real cost than could be obtained in the home country.
B) attempts to acquire particular resources at a lower real cost than could be obtained in the home country.
C) attempts to acquire particular resources at a lower real cost than could be obtained in the host country.
D) all of the above

Accepted Answer

Resource-seeking FDI attempts to acquire particular resources at a lower real cost than could be obtained in the home country. This is usually done to access resources that are not available in the home country or are available at a higher cost. For example, a company that specializes in producing computer chips may invest in a country rich in rare earth metals to gain access to these metals at a lower cost than they could get them in their home country.

Question 3

AOL incurred above anticipated costs when they started their business in to South America. This is an example of _____.
A) Vertical FDI
B) Horizontal FDI
C) Liability of Foreignness
D) Liability of FDI

Accepted Answer

The unexpected incurred costs suggest that AOL faced challenges related to the liability of foreignness, which refers to the additional costs and challenges experienced by firms operating in a foreign market due to unfamiliarity with the local culture, regulations, and business practices. This is not related to the type of FDI, nor does it indicate a liability of FDI.

Question 4

_______ occurs when the MNE enters a foreign country to produce intermediate goods that are intended for use as inputs in its home country (or in other subsidiaries) production process to market its homemade products overseas, or to produce final outputs in a host country using its home-supplied intermediate goods or materials.
A) Vertical FDI
B) Horizontal FDI
C) Backward FDI
D) Horizontal Integration

Accepted Answer

Vertical FDI occurs when a multinational enterprise enters a foreign country to produce intermediate goods that are intended for use as inputs in its home country or in other subsidiaries' production process to market homemade products overseas or to produce final outputs in a host country using its home-supplied intermediate goods or materials.

Question 5

_______________ is investment by individuals, firms, or public organs (e.g., governments or non-profit organizations) in foreign financial instruments such as government bonds, corporate bonds, mutual funds, and foreign stocks.
A) Foreign portfolio investment
B) Outflow of FDI
C) Inflow of FDI
D) None of the above

Accepted Answer

Foreign portfolio investment refers to investment in foreign financial instruments, while outflow and inflow of FDI refer to direct investment in foreign countries either by a domestic firm or a foreign firm in the domestic market. None of the options is the correct answer.

Question 6

The __________ refers to the total accumulated value of foreign owned assets at a given time (which takes into account possible divestment along the way)
A) stock of FDI
B) outflow of FDI
C) inflow of FDI
D) None of the above

Accepted Answer

The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time, taking into account possible divestment along the way. The outflow of FDI refers to the amount of FDI that flows out of a country to foreign locations, while the inflow of FDI refers to the amount of FDI that flows into a country from foreign locations.

Question 7

Honda has created a subsidiary in the United States for auto parts. This is an example of
A) foreign subsidiary.
B) affiliates.
C) joint venture.
D) both a and b.

Accepted Answer

A foreign subsidiary is a company owned in a foreign country by another company, called the parent company. Affiliates can also refer to company relationships where the parent company owns less than a majority of the subsidiary. Since Honda, a Japanese company, has created a subsidiary in the United States for auto parts, it can be considered both a foreign subsidiary and an affiliate, depending on the ownership percentage and the nature of the control Honda exercises over it.

Question 8

________________ occurs when a firm invests directly in production or other facilities in a foreign country over which it has effective control.
A) Foreign Direct Investment
B) Partnership
C) Joint Venture
D) Foreign Deposit Investment

Accepted Answer

Foreign Direct Investment (FDI) occurs when a firm invests directly in production or other facilities in a foreign country over which it has effective control. This can involve acquiring an existing business or establishing a new one, and FDI is often characterized by significant ownership and long-term involvement in the foreign market. Choices B, C, and D do not accurately describe this type of investment.

Question 9

An example of _____ is that McDonald's overseas success had been built on the firm's ability to rapidly transfer the capacity to operate its entire complex business system to foreign entrepreneurs.
A) location advantages
B) culture advantages
C) transferability
D) none of the above

Accepted Answer

The example given in the sentence demonstrates the concept of transferability, as it highlights McDonald's ability to transfer its complex business system to foreign entrepreneurs and achieve success overseas. The other options (location advantages and culture advantages) are not relevant in this context.

Question 10

IBM's breakthrough development in voice recognition system did not generate much income until this system was deployed and adapted to such markets as Singapore, Hong Kong, Taiwan, China, and Korea through its subsidiaries there. This is an example of ____.
A) transferability
B) dynamic capability perspective
C) the eclectic paradigm
D) the evolutionary perspective

Accepted Answer

The answer of IBM's breakthrough development in voice recognition system...

Question 11

IBM generates significant income from its voice recognition software used by many Chinese. This software, first developed in the U.S., actually did not generate sizable income until a Chinese version was developed by the company's subsidiary in Beijing. This is an example of _____.
A) location advantages
B) ownership advantages
C) both a & b
D) none of the above

Accepted Answer

The answer of IBM generates significant income from its voice...

Question 12

An example of ____ that Compaq undertook FDI in the Middle East, Latin America, and Europe because the competition in the computer industry overseas is less intense than that in the US.
A) location advantages
B) structural discrepancies
C) both a & b
D) none of the above

Accepted Answer

The answer of An example of ____ that Compaq undertook...

Question 13

PepsiCo Inc., for example, invested heavily in Brazil, Argentina, and Mexico to seek out benefits resulting from economic liberalization in these economies. What term was illustrated here?
A) culture advantages
B) monopolistic advantages
C) location advantages
D) none of the above

Accepted Answer

The term illustrated here is location advantages, as PepsiCo Inc. is investing in specific geographical locations (Brazil, Argentina, and Mexico) to take advantage of the economic liberalization in those countries.

Question 14

Which advantages are benefits derived from the proprietary knowledge, resources, or assets possessed only by the owner (MNE)?
A) location advantages
B) ownership advantage
C) monopolistic advantage
D) none of the above

Accepted Answer

Ownership advantage is the benefit derived from the proprietary knowledge, resources, or assets possessed only by the owner (MNE). Location advantage is based on the favorable location of the MNE's operations, and monopolistic advantage is based on the MNE's unique market power. None of these options fully match the provided definition.

Question 15

Identify the term "It is defined as the benefits arising from a host country's comparative advantages accrued for foreign direct investors."
A) location advantages
B) custom advantages
C) culture advantages
D) currency advantages

Accepted Answer

The term describing benefits arising from a host country's comparative advantages accrued for foreign direct investors is location advantages. These advantages can include access to resources or markets, favorable labor conditions, and favorable tax or regulatory policies.

Question 16

Internalization theory advocates that the available external market does not provide an efficient environment in which the firm can profit by using its technology or production resources.

Accepted Answer

Internalization theory suggests that firms may need to internalize certain functions or processes in order to fully capture the benefits of their technology or resources, rather than relying on external markets.

Question 17

According to the monopolistic theory the two sources of advantages are superior knowledge and economies of scale.

Accepted Answer

According to the monopolistic theory, both superior knowledge and economies of scale can provide advantages to a monopolistic firm.

Question 18

Ownership advantages are benefits derived from the proprietary knowledge, resources, or assets possessed only by the owner.

Accepted Answer

Ownership advantages refer to the advantages that a company gains from its proprietary knowledge, resources, or assets that are not available to its competitors. These advantages can give the company a competitive edge in the market.

Question 19

Core competence is skills within the firm that competitors can easily match or imitate.

Accepted Answer

The answer of Core competence is skills within the firm...

Question 20

Entry mode refers to how a country chooses to enter a foreign market.

Accepted Answer

Entry mode is the strategy or process by which a company expands its business into a new market.

Quiz 3: Foreign Direct Investment Theory and Application

Market-seeking FDI attempts to secure market share and sales growth in the target foreign market. Apart from market size and the prospects for market growth, the reasons for market-seeking FDI include situations in which

Resource-seeking FDI

AOL incurred above anticipated costs when they started their business in to South America. This is an example of _____.

_______________ is investment by individuals, firms, or public organs (e.g., governments or non-profit organizations) in foreign financial instruments such as government bonds, corporate bonds, mutual funds, and foreign stocks.

The __________ refers to the total accumulated value of foreign owned assets at a given time (which takes into account possible divestment along the way)

Honda has created a subsidiary in the United States for auto parts. This is an example of

________________ occurs when a firm invests directly in production or other facilities in a foreign country over which it has effective control.

An example of _____ is that McDonald's overseas success had been built on the firm's ability to rapidly transfer the capacity to operate its entire complex business system to foreign entrepreneurs.

IBM's breakthrough development in voice recognition system did not generate much income until this system was deployed and adapted to such markets as Singapore, Hong Kong, Taiwan, China, and Korea through its subsidiaries there. This is an example of ____.

IBM generates significant income from its voice recognition software used by many Chinese. This software, first developed in the U.S., actually did not generate sizable income until a Chinese version was developed by the company's subsidiary in Beijing. This is an example of _____.

An example of ____ that Compaq undertook FDI in the Middle East, Latin America, and Europe because the competition in the computer industry overseas is less intense than that in the US.

PepsiCo Inc., for example, invested heavily in Brazil, Argentina, and Mexico to seek out benefits resulting from economic liberalization in these economies. What term was illustrated here?

Which advantages are benefits derived from the proprietary knowledge, resources, or assets possessed only by the owner (MNE) ?

Identify the term "It is defined as the benefits arising from a host country's comparative advantages accrued for foreign direct investors."

Internalization theory advocates that the available external market does not provide an efficient environment in which the firm can profit by using its technology or production resources.

According to the monopolistic theory the two sources of advantages are superior knowledge and economies of scale.

Ownership advantages are benefits derived from the proprietary knowledge, resources, or assets possessed only by the owner.

Core competence is skills within the firm that competitors can easily match or imitate.

Entry mode refers to how a country chooses to enter a foreign market.