Question 1

According to the internalization theory of FDI

Accepted Answer

The answer of According to the internalization theory of FDI
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Question 2

According to Raymond Vernon (1966),

Accepted Answer

Raymond Vernon's product life cycle theory suggests that U.S. firms undertake foreign direct investment (FDI) at a particular stage in the life cycle of the products that they initially introduced (A). The theory also states that the majority of new products, such as computers, televisions, and mass-produced cars, were developed by U.S. firms and first marketed in the United States (B). Furthermore, in the early stage of the product life cycle, the demand for the new product is relatively insensitive to the price and thus the pioneering firm can charge a relatively high price, thus making it easier for them to recover their research and development costs (C). Therefore, all three options are correct (D).

Question 3

Also, MNCs often find it profitable to locate manufacturing/processing facilities near

Accepted Answer

It is often profitable for MNCs to locate manufacturing/processing facilities near the natural resources they need in order to save transportation costs. This is because transporting raw materials or finished products can be very expensive, so locating facilities near the source of these resources can reduce costs significantly. Locating near the home office or a competitor's manufacturing plant may not always be the most profitable option.

Question 4

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms

Accepted Answer

The answer of Coca-Cola has invested in bottling plants all...

Question 5

In the 1960s, Coca-Cola, which had bottling plants in India, faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India. As a result,

Accepted Answer

Coca-Cola withdrew from the Indian market rather than reveal their formula to the Indian government.

Question 6

MNCs may undertake overseas investment projects in a foreign country, despite the fact that local firms may enjoy inherent advantages. This implies that

Accepted Answer

MNCs should have significant advantages over local firms such as comparative advantages due to intangible assets. These intangible assets could include brand recognition, technology, marketing expertise, and access to financial resources. Additionally, MNCs may have economies of scale that enable them to produce at a lower cost than local competitors. These advantages can help MNCs overcome any inherent advantages enjoyed by local firms and succeed in their overseas investment projects.

Question 7

The boomerang effect

Accepted Answer

The boomerang effect refers to the possibility that if a firm's secret formula were leaked, other firms would come up with similar products and hurt the firm's sales.

Question 8

FDI vertical integration is backward

Accepted Answer

FDI vertical integration is backward when the foreign investment involves an industry abroad that produces inputs for MNCs. This means that the MNC is investing in the upstream stage of the supply chain, which is considered backward integration. In contrast, if the FDI involves an industry abroad that sells the MNC's outputs, it would be considered forward integration. However, this is not considered backward integration. Therefore, choice B is incorrect, and the answer is A.

Question 9

What kind of integration is vertical integration?

Accepted Answer

Vertical integration refers to the ownership by a firm of inputs (such as raw materials) and/or distribution channels (such as retail outlets) for its products. Option C perfectly defines vertical integration, as a plywood manufacturer owning a logging company are related in the production process, and by owning both, the plywood manufacturer has control over its input.

Option A describes a policy decision that prohibits discrimination, while option B describes a conglomerate merger, which could be horizontal or conglomerate integration, but not vertical. Therefore, options A and B are not valid choices for vertical integration.

Question 10

Examples of intangible assets include

Accepted Answer

Intangible assets include a variety of non-physical assets such as technology, managerial and marketing know-how, superior R&D capabilities, and brand names. Therefore, option D is the best choice as it includes all of the mentioned intangible assets.

Question 11

Firms that have intangible assets with a public good property tend to invest directly in foreign countries. This is because

Accepted Answer

Firms invest directly in foreign countries to both utilize their intangible assets on a larger scale and to prevent misappropriation that can occur when using market mechanisms.

Question 12

The conflicts between the upstream and downstream firms can be resolved,

Accepted Answer

Vertical integration would allow the upstream and downstream firms to merge and operate as a single entity, thus resolving conflicts between them. Horizontally integrated and linearly integrated firms may not necessarily resolve conflicts between the two types of firms.

Question 13

Which of the following statements is true about product life cycle theory?

Accepted Answer

Product life cycle theory suggests that new products are initially produced and exported by the country of innovation (often the U.S.) and over time, production shifts to other countries, making the U.S. an importer. It also describes the demand and pricing strategy in the early stages and is often represented by an "S" shaped curve.

Question 14

Many MNCs involved in extractive/natural resources industries

Accepted Answer

MNCs involved in extractive/natural resources industries tend to directly own oil fields, mine deposits, and forests. This is because these industries involve high capital investments and long-term commitments, and owning the resources gives the MNCs more control over their operations and profits. Leasing and partnering with other firms may not provide the MNCs with the same level of control and ownership.

Question 15

Intangible assets are often hard to package and sell to foreigners

Accepted Answer

Intangible assets are difficult to protect due to challenges in establishing property rights, leading to more FDI as firms prefer to maintain control over their assets rather than licensing them.

Question 16

U.S. car makers were forced to build their own network of dealerships to enter the Japanese market.

Accepted Answer

Forward vertical integration is when a company moves closer to the end consumer by acquiring or establishing distribution channels, such as building their own network of dealerships. In this case, U.S. car makers had to enter the Japanese market and build their own dealerships, which is an example of forward vertical integration. Backward vertical integration would be if U.S. car makers decided to acquire suppliers of raw materials or components, while sideways vertical integration would be if U.S. car makers acquired or merged with competitors at the same level of the supply chain.

Question 17

The product life-cycle theory predicts that

Accepted Answer

The product life-cycle theory suggests that as a country develops and its products mature, it will shift from being an exporter of new products to an importer of those same products. This is because other countries with lower labor costs can produce the same products more cheaply. This has been observed in the United States, which has shifted from being a major exporter of manufactured goods to a major importer.

Question 18

The majority of foreign vertical integration is

Accepted Answer

The majority of foreign vertical integration is in the form of backward integration where the foreign firm acquires or merges with a supplier to control the supply of raw materials or components. This allows the firm to ensure the quality and availability of inputs for its production process. Forward integration is less common as it involves acquiring or merging with customers or distributors, which may pose risks in terms of demand and market conditions. Sideways integration is not a commonly used term in the context of vertical integration.

Question 19

An example of forward vertical FDI

Accepted Answer

U.S. car makers building their own network of dealerships in Japan is an example of forward vertical FDI, because they are investing in the distribution channel in their host country, rather than just sourcing parts or partnering with local firms. This allows them to have greater control over the sales of their products in Japan.

Question 20

Which of the following statements is true about product life cycle theory?

Accepted Answer

A) The product life cycle theory was developed in the 1960s when the U.S. was the leader in R&D.
B) The international system of production is becoming too complicated to be explained by a simple version of the product life cycle theory.
C) The theory predicts that over time the U.S. switches from an exporting country of new products to an importing country.

Quiz 16: Foreign Direct Investment and Cross-Border Acquisitions

According to the internalization theory of FDI

According to Raymond Vernon (1966) ,

Also, MNCs often find it profitable to locate manufacturing/processing facilities near

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms

In the 1960s, Coca-Cola, which had bottling plants in India, faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India. As a result,

MNCs may undertake overseas investment projects in a foreign country, despite the fact that local firms may enjoy inherent advantages. This implies that

The boomerang effect

FDI vertical integration is backward

What kind of integration is vertical integration?

Examples of intangible assets include

Firms that have intangible assets with a public good property tend to invest directly in foreign countries. This is because

The conflicts between the upstream and downstream firms can be resolved,

Which of the following statements is true about product life cycle theory?

Many MNCs involved in extractive/natural resources industries

Intangible assets are often hard to package and sell to foreigners

U.S. car makers were forced to build their own network of dealerships to enter the Japanese market.

The product life-cycle theory predicts that

The majority of foreign vertical integration is

An example of forward vertical FDI

Which of the following statements is true about product life cycle theory?