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Global Business Today Charles Hill 11e

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  • ISBN-10 ‏ : ‎ 1260088375
  • ISBN-13 ‏ : ‎ 978-1260088373

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Global Business Today Charles Hill 11e

Global Business Today, 11e (Hill)

Chapter 8 Foreign Direct Investment

1) When a firm exports its products to a foreign country, foreign direct investment occurs. 2) The flow of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time. 3) The globalization of the world economy is having a negative effect on the volume of FDI. 4) Historically, most FDI has been directed at the developed nations of the world. 5) Mergers and acquisitions take longer to execute than a greenfield investment. 6) The process of exporting grants a foreign entity the right to produce and sell a firm’s product. 7) The attractiveness of exporting is reduced when a product can easily be produced in almost any location. 8) According to internalization theory, one drawback of licensing is that it might result in a firm giving away technological know-how to a competitor. 9) There are at least 30 firms that control 70 percent of the computer printer business in Europe. This is an example of an oligopoly. 10) The eclectic paradigm is based on the idea that intellectual property is of considerable importance in explaining the direction of FDI. 11) According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently. 12) A country that follows the pragmatic nationalist view would agree that FDI can benefit a host country through capital, skills, and jobs but these come at a cost. 13) In terms of employment, the indirect effects of FDI are often as large as, if not larger than, the direct effects. 14) FDI can result in a positive contribution to a host economy by supplying capital and technology which boost the country’s economy. 15) An acquisition does not result in a net increase in the number of players in a market. 16) Offshore production refers to FDI undertaken to serve the host market.   17) Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home. 18) Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home. 19) Performance requirements are controls over the behavior of the MNE’s local subsidiary. 20) The United Nations was the first multinational institution to govern FDI beginning in the 1930s. 21) The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting. 22) Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a “book of blueprints.” 23) A business that allows franchising licenses its brand name to a foreign firm in return for a percentage of the profits. 24) Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI. 25) A firm’s bargaining power is low when the host government places a low value on what the firm has to offer. 26) A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of A) an absolute advantage. B) stock consolidation. C) foreign direct investment. D) product differentiation. E) market segmentation. 27) According to the U.S. Department of Commerce, what occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity? A) multilateral investment B) foreign direct investment C) privatization D) an absolute advantage E) isolationism   28) CopperCore Inc., a U.S. business, took a 31 percent equity interest in Javier Holdings, a family business based in Spain. According to the U.S. Department of Commerce, this would be an example of A) multilateral investment. B) foreign direct investment. C) reciprocal foreign investment. D) international divestment. E) asset divestment. 29) Once it undertakes FDI, a firm becomes a(n) A) outsourcer. B) retail chain. C) offshore company. D) multinational enterprise. E) national corporation. 30) Renata asked her assistant to determine the amount of foreign direct investment the company had taken over the past year. Renata is interested in the A) state of GNI. B) flow of FDI. C) flow of GDP. D) stock of FDI. E) status of JIT. 31) Rather than acquire an existing textile manufacturer in Jakarta, FauxFabric Inc. chose to establish new operations in Indonesia. This form of FDI is called A) consolidation. B) a greenfield investment. C) an acquisition. D) a licensing agreement. E) mass customization. 32) DiamondPlus Jewelers currently has $583,000 in foreign-owned assets. This represents the ________ of the company. A) net value B) gross national income C) flow of FDI D) stock of FDI E) gross domestic product   33) The ________ of FDI refers to the amount of FDI undertaken over a given period (normally a year). A) portfolio B) flow C) status D) stock E) fragment 34) At the end of 2017, companies from one country collectively owned $22 billion in assets in its neighboring country. The $2 billion represents the ________ of FDI. A) stock B) flow C) outflow D) trend E) exchange 35) Compared to the growth in world trade and world output, FDI has A) grown at about the same rate. B) grown more rapidly. C) failed to match the growth of world trade. D) grown at a slower rate. E) remained stagnant. 36) Business executives view foreign direct investment as a way to A) erase the fear of protectionist pressures. B) circumvent future trade barriers. C) promote totalitarian political institutions. D) diminish privatization. E) shift toward centrally planned command economies. 37) The United States has been an attractive target for FDI partly because of its A) abundance of cheap and skilled labor. B) stable and dynamic economy. C) commitment to environmental issues. D) low corporate tax rates. E) high trade barriers. 38) Which two nations have historically been the largest recipients of inward FDI? A) Japan and China B) Italy and Germany C) Argentina and Brazil D) the United Kingdom and France E) the United States and Canada   39) Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world’s largest multinationals because they A) were the most developed countries postwar and home to the largest and best capitalized enterprises. B) pursued a policy of blocking or restricting FDI inflow into their own economies. C) provided subsidies for their domestic firms to protect them from foreign competition. D) control much of the operating structure of the WTO which governs international trade. E) were the governing body of the International Monetary Fund. 40) General Electric (GE) built an operation from scratch in Nigeria. This is an example of a(n) A) merger. B) acquisition. C) strategic alliance. D) FDI stock. E) greenfield investment. 41) WoodCore Inc. produces an entire line of office furniture at its manufacturing facility in the United States and then ships its products for sale to various companies in Europe. WoodCore Inc. is involved in A) outsourcing. B) licensing. C) franchising. D) exporting. E) diversifying. 42) SmartStuff Inc. grants a foreign entity the right to produce and sell the firm’s microprocessors in return for a royalty fee on every product sold. SmartStuff Inc.’s approach is called A) outsourcing. B) licensing. C) franchising. D) exporting. E) diversifying. 43) Kim’s GymJam Inc., based in Australia, obtained the right to produce and sell a U.S.-based company’s boxing gloves. Kim’s GymJam has to pay a royalty fee to the U.S. company for every pair of gloves it sells. In this example, Kim’s GymJam Inc is the A) franchisor. B) franchisee. C) licensor. D) licensee. E) competitor.   44) 3M, an American firm, manufactures adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea for sale. According to this information, 3M uses ________ to deliver this product. A) exporting B) licensing C) franchising D) insourcing E) outsourcing 45) As a company policy, Alberton Consumer Products periodically grants foreign entities the right to produce and sell its products in return for a royalty fee on every unit sold. Alberton Consumer Products’ approach is A) outsourcing. B) exporting. C) licensing. D) diverging. E) hedging. 46) When it comes to FDI, JogRight Corp. makes greenfield investments in various foreign countries and fully manages all foreign operations on its own. This approach to FDI is risky because of the problems associated with A) sharing a valuable technological know-how with a potential competitor. B) an increase in transportation costs, especially for those products that have a low value-to-weight ratio. C) doing business in a different culture where the rules of the game may be very different. D) the possibility of an increase in trade barriers such as import tariffs or quotas. E) increased production costs. 47) Gibson Electronics 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. Gibson Electronics’ approach is risky because of the problems associated with A) sharing valuable technological know-how with a potential competitor. B) an increase in transportation costs, especially for those products that have a low value-to-weight ratio. C) doing business in a different culture where the rules of the game may be very different. D) the possibility of an increase in trade barriers such as import tariffs or quotas. E) increased production costs.   48) JumpIn Products is a market leader in playground equipment, which is typically large, bulky, and very heavy. In order to compete, JumpIn 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 JumpIn Products’ exporting strategy could be constrained by transportation costs, particularly of products that can be produced in almost any location and have a A) high local content requirement. B) low total landed cost. C) low value-to-weight ratio. D) low licensing tariff. E) high marginal cost. 49) The ________ is one reason a company might prefer FDI over exporting. A) presence or threat of trade barriers B) costs of acquiring a foreign enterprise C) costs of establishing production facilities in a foreign country D) risk of giving away valuable technological know-how to a potential foreign competitor E) possibility of diminishing returns 50) A firm will favor FDI over exporting as an entry strategy when A) the costs of establishing production facilities are high. B) the transportation costs or trade barriers are high. C) there are problems associated with doing business in a different culture. D) the products involved have a high value-to-weight ratio. E) the firm wants to occupy a position that falls inside the efficiency frontier. 51) Pfingsten & Sons, a leading manufacturer of concrete blocks in the United States, is considering exporting as its FDI strategy. Exporting may not be a good option for Pfingsten & Sons because of the concrete blocks’ A) unattractiveness in foreign markets. B) high value-to-weight ratio. C) high cost of manufacture. D) low weight-to-value ratio. E) low value-to-weight ratio. 52) Incandescent Lightings, a U.S.-based firm, does not want to bear the costs of establishing production facilities in a foreign country. Incandescent Lightings should avoid A) exporting. B) FDI. C) licensing. D) franchising. E) outsourcing.   53) Governments impose quotas to limit A) FDI. B) importing. C) franchising. D) outsourcing. E) licensing. 54) The management team at Yum BBQ Brands has decided not to license its product because of concerns that this will create opportunities for another company to have access to their secret recipe. For this reason, the company decides that FDI is their best course of action. Which economic theory does their choice represent? A) comparative advantage B) distribution theory C) new trade theory D) internalization theory E) difference principle 55) Ohio Manufacturing prefers FDI over licensing to retain control over know-how, manufacturing, and marketing. Ohio Manufacturing’s stance constitutes the A) comparative advantage theory. B) distribution theory. C) new trade approach. D) market imperfections approach. E) licensing theory. 56) The market imperfections approach seeks to explain A) the disadvantages associated with the adoption of a completely free market view. B) why different nations import goods from other countries even when they are more capable of producing them efficiently. C) the preference for FDI over licensing by firms as a strategy to enter foreign markets. D) the benefits of exercising protectionism coupled with partial adoption of free market approach. E) the pattern of sale of products from one country to another. 57) The top management team at Kentucky-based Mumford Products collectively support the market imperfections approach. This means Mumford Products’ top management team is most likely to A) adopt a completely free market view. B) understand why different nations import goods from other countries even when they are more capable of producing them efficiently. C) express a preference for FDI over licensing as a strategy to enter foreign markets. D) propagate the benefits of exercising protectionism coupled with partial adoption of free market approach. E) abandon going overseas.   58) Internalization theory promotes the idea that A) licensing gives a firm tight control over manufacturing, marketing, and strategy in a foreign country. B) licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor. C) licensing has no major drawbacks as a strategy for exploiting foreign market opportunities. D) a problem with licensing arises when the firm’s competitive advantage is based on its products rather than on the manufacturing capabilities that produce those products. E) licensing is always more profitable than FDI. 59) According to internalization theory, one of the drawbacks of licensing is that A) it may result in a firm’s technological know-how being restricted to a limited knowledge base and stifles any future development. B) it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. C) when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. D) its use is restricted by the government through the imposition of tariffs and quotas. E) it is less cost-effective than FDI. 60) A firm is most likely to favor foreign direct investment over exporting when A) the firm wants its technological know-how to be widely disseminated. B) the firm wishes to maintain control over its operations and business strategy. C) the transportation costs are low. D) there are no trade barriers. E) the firm wants to customize its products as per the tastes and preferences of foreign consumers. 61) The strategic behavior theory is used to A) explain the constraints of exporting and licensing. B) explain the challenges faced by a firm during the establishment of a new operation in a foreign country. C) explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. D) review the theories that have been used to explain foreign direct investment. E) explain how greenfield investments are better than FDI at determining strategic competition and dominance. 62) The aluminum and steel industry in a foreign country is dominated by just three firms and these firms control at least 80 percent of the domestic market. The market structure in this country is a(n) A) perfect competition. B) democracy. C) oligopoly. D) monopoly. E) monarchy. 63) A critical competitive feature of an oligopoly is the A) lack of interaction among the major players. B) presence of a domestic market which is open for foreign firms. C) desire of all the major players to avoid the phenomenon of diminishing returns. D) interdependence of the major players. E) lack of imitative behavior among the major players. 64) The textile industry in a foreign country is controlled by four major companies. Last week, one of the companies decided to cut prices as a way to expand inventory. Since this industry is an oligopoly, what will be the likely response of the other three companies? A) They will increase production levels. B) They will make similar price cuts. C) They will raise prices. D) They will seek additional market share. E) They will not respond to the price cuts. 65) The interdependence between firms in an oligopoly leads to A) trade wars. B) a decrease in the supply. C) imitative behavior. D) higher demand. E) increased domestic consumption. 66) QFresh, a brand for energy drinks, launched a healthy lime-based drink without preservatives. Immediately after this, another brand, Fast Fizz, which manufactures energy drinks, also announced the launch of a new refreshing drink without preservatives. Then Ignite, a third brand of energy drinks, reduced the price of its apple-based drink. Which of the following is most likely to happen in this oligopolistic market setup? A) QFresh and Fast Fizz will reduce the prices of their respective drinks. B) Fast Fizz will launch another new drink. C) QFresh will link up with Ignite to launch a completely new product. D) Fast Fizz and Ignite will collaborate against QFresh. E) QFresh will have an increased domestic consumption. 67) When two or more enterprises encounter each other in different regional markets, national markets, or industries, it creates A) a monopoly. B) a planned economy. C) immediate trade wars. D) multipoint competition. E) the market imperfections approach.   68) Michelin and Goodyear compete against each other not only in the United States, but also all across Europe and Asia. These two tire companies are A) a monopoly. B) engaged in cooperation. C) a cartel. D) engaged in multipoint competition. E) an oligopsony. 69) Knickerbocker’s concept of multipoint competition enhances the strategic behavior theory by making sure that A) a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere. B) the competitors cooperate with each other to establish a cartel. C) no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers. D) growing technologies or business methods in new markets are transferred to established markets. E) the firms in an industry prefer FDI over licensing or exporting. 70) Some countries have oil as a natural resource and BronzePlate Inc., based in Illinois, is considering building a facility in one of those foreign countries since it does not have easy access to oil near its manufacturing plant. Which theory of foreign direct investment provides an explanation for this decision? A) eclectic paradigm B) protectionism argument C) product life-cycle theory D) new trade theory E) infant industry argument 71) Location-specific advantages for a firm are those that arise from A) acquiring the home markets of foreign firms that threaten a firm’s domestic market. B) gaining a commanding position in one market and using them to subsidize competitive attacks in other markets. C) preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy. D) utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm’s own unique assets. E) franchising and licensing.   72) ModShoes Inc. decides to move its manufacturing facility from Toledo, Ohio, to Jakarata, Indonesia, because it will have access to lower-cost but still highly skilled labor. This choice reflects the concept of A) a planned economy. B) supply-and-demand. C) location-specific advantages. D) an oligopoly. E) a comparative advantage. 73) Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world’s major computer and semiconductor companies located close to each other there. This provides the location-specific advantage of A) a multipoint competition. B) an oligopoly. C) first movers. D) externalities. E) free riders. 74) Dunning’s theory helps explain A) how firms try to match each other’s moves in different markets to try to hold each other in check. B) the prevalence of imitative behavior among rivals. C) why a greenfield investment in a new facility is better than an acquisition. D) the problems associated with doing business in a different culture. E) how location factors affect the direction of FDI. 75) The ________ view of FDI traces its roots to Marxist political and economic theory. A) radical B) free market C) pragmatic nationalism D) comparative advantage E) pluralist 76) Geoff works in the Lagos, Nigeria, office of KleenCorp., a Baltimore-based industrial cleaning products business. He is frustrated because he wanted to interview for a management position that recently opened up in his office, but the home-country office offered the job to a home-country employee. This isn’t the first time that host-country employees were bypassed for jobs. Which political ideology would be used to explain this decision? A) pragmatic nationalism B) comparative advantage C) mercantilism D) radical view E) free market   77) According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be A) immediately nationalized. B) made to pay higher taxes. C) converted into publicly traded companies. D) banned from obtaining finance from the financial institutions in the host country. E) immediately privatized. 78) The radical view of FDI declined in popularity by the early 1990s because of A) rising communism in Eastern Europe. B) generally steady economic growth in countries that embraced the radical position. C) a growing belief in many countries that FDI leads to loss of jobs. D) a strong economic performance in developing countries that embraced capitalism. E) the collapse of capitalism in the newly independent nations of Asia. 79) Which political view argues that international production should be distributed among countries according to the theory of comparative advantage? A) conservative B) pragmatic nationalism C) free market D) radical E) planned 80) One way to describe the free market view is to say that A) a country should specialize in the production of a good that it can produce most efficiently. B) a country should focus on importing goods that it can also produce if those goods are produced at a higher cost elsewhere. C) an MNE is an instrument of imperialist domination. D) host-country nations of a company are never given the same consideration as a home-country nation. E) less-developed nations are kept relatively backward and dependent on advanced capitalist nations for employment. 81) The free market view would argue that A) MNEs decrease the overall efficiency of the world economy. B) FDI is a benefit to both the source country and the host country. C) MNEs can never be instruments of economic development, only of economic domination. D) FDI is beneficial to the host country of an MNE but it is harmful for the home country of the MNE. E) FDI in a mercantilist society would not benefit the home country.   82) The pragmatic nationalist view regarding FDI is that A) FDI benefits only the host country. B) FDI does not make any positive contribution to the host economy. C) every country should adopt the free market view. D) FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development. E) FDI has both benefits and costs. 83) A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as A) both home and host country benefit. B) it takes place within a planned economy. C) the benefits outweigh the costs. D) location-specific advantages are available. E) there is evidence of a comparative advantage. 84) According to the ________ view, a country would be willing to offer subsidies in the form of tax breaks to foreign companies because it believes it to be in the national interest. A) pragmatic nationalism B) radical C) nationalism D) imitative theory E) eclectic paradigm 85) Camille told the management team that investing capital in the Swaziland-based manufacturing plant would not only benefit their company in terms of labor costs but would also promote significant economic development in Swaziland. What type of host-country benefit is Camille referring to? A) resource-transfer effect B) balance-of-payments effect C) effects on competition D) effects on foreign exchange rate E) technology effect 86) Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in a host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of A) employment effects. B) balance-of-payments effects. C) effects on competition. D) resource-transfer effects. E) autonomy effects.   87) Most developing countries do not have access to the technology available in developed nations, but these developing nations need technology to create new jobs and stimulate the economy. Which aspect of inward FDI do these developing nations rely on to have access to needed technology? A) balance-of-payments effects B) employment effects C) effects on foreign exchange rate D) effects on competition E) resource-transfer effects 88) Direct effects of FDI on employment in the host country arise when a foreign MNE A) brings in managers trained in the latest management techniques from the home country. B) creates jobs because of increased local spending by employees of the MNE. C) employs a number of host country citizens. D) causes local suppliers to hire more people. E) creates jobs in the supporting industries. 89) Which situation represents an indirect effect of FDI on employment in a host country? A) Jasper Inc. is a foreign MNE and employs a number of host-country citizens. B) The employees of ShrillPlans Corp. have more money to spend and as a result, more home construction jobs are being created in the country. C) DynaDigs brought in managers from the home country for its operations in the host country. D) RaceandRoll Corp. recruits people from the host country for research and development. E) Mills Rite Inc. sends home country employees to host countries for training. 90) A(n) ________ account is a national account that tracks both payments to and receipts from other countries. A) equity B) dematerialized C) balance of trade D) asset E) balance-of-payments 91) Kendrik needs to track which goods have been exported by the United States and which goods have been imported. To learn this, he should use the ________ account. A) current B) payments C) internal D) tariff E) savings   92) A current account deficit is also known as a(n) ________ deficit. A) stock B) inventory C) external D) tariff E) trade 93) When a country in Central America is importing more goods and services than it is exporting, it is incurring a(n) A) trade surplus. B) current account deficit. C) positive balance of payment. D) outward FDI. E) net capital inflow. 94) A current account surplus is favored over a deficit. If a country is faced with a current account deficit it would have to ________ in order to support this situation. A) borrow from the IMF B) sell assets to foreigners C) divest stock in domestic corporations D) purchase stocks, bonds, and real estate in other countries E) issue negotiable instruments like bills of exchange 95) A possible effect of FDI in the form of a greenfield investment in a host country is that it A) drives down prices and increases the economic welfare of consumers. B) raises unemployment levels. C) causes firms to fight for scarce capital investments. D) leads to an oligopolistic market and unfair pricing. E) leads to decreased productivity, product and process innovations, and lesser economic growth. 96) The most important concerns regarding the costs of FDI for the home country center on the A) balance-of-payments and employment effects of outward FDI. B) technology capture effect and the perceived loss of national sovereignty. C) reverse-resource transfer effect and the exposure to foreign markets caused by FDI. D) import of substantial input from abroad and being held to “economic ransom.” E) exposure to foreign markets and the decreased costs of production. 97) If the United States invests in breakfast cereal production facilities in Canada, it would be engaging in A) a domestic transfer. B) offshore production. C) franchising. D) the difference principle. E) an acquisition.   98) MedFirst Instruments, a U.S. company, invests in a manufacturing facility in Mexico. The production from the Mexican facility is used entirely to serve the company’s U.S. customers. MedFirst Instruments’ activity is called A) onboard production. B) offshore production. C) licensing. D) contract manufacturing. E) vertical integration. 99) ________ are a major type of foreign investment risk that is insurable through government-backed programs. A) Lack of funds B) Risk of transaction loss C) Poor strategic tie-ups D) Risks of expropriation E) Losses due to natural calamities 100) As an incentive to encourage domestic firms to undertake FDI, many advanced countries have A) eliminated double taxation of foreign income. B) started imposing local content requirements. C) imposed higher import tariffs. D) abolished the use of custom duties. E) eliminated subsidies. 101) One example of a home-country policy for restricting outward FDI is A) eliminating double taxation of foreign income. B) manipulating tax rules to encourage the firms to invest at home. C) withdrawing government-backed insurance programs provided to local investors. D) reducing interest rates earned on domestic investments. E) prohibiting organizations from entering into an oligopoly. 102) The Canadian government decides to offer tax concessions to foreign companies that agree to build a manufacturing facility in Canada. This tax concession is a way to A) encourage inward FDI. B) discourage inward FDI. C) encourage outward FDI. D) discourage outward MNE. E) discourage inward MNE.   103) Host governments use a range of controls to restrict inward FDI. The two most common are A) monetary restraints and prohibition on investing in certain countries. B) voluntary export restrictions and employment restraints. C) ownership restraints and performance requirements. D) tax concessions and government-backed insurance. E) employment restraints and tax deductions. 104) What form of FDI is NOT an option in the service industry, due to the fact that many services have to be produced where they are sold? A) FDI B) franchising C) greenfield investment D) exporting E) outsourcing 105) Firms for which licensing is NOT a good option include those A) based in low-technology industries. B) that have valuable know-how. C) characterized by low cost pressures. D) where transportation costs are high. E) which need to have low control over foreign operations. 106) Although it normally involves much longer-term commitments, franchising is essentially the service industry version of A) exporting. B) licensing. C) foreign direct investment. D) greenfield investment. E) diversifying. 107) Describe the difference between the flow of foreign direct investment and the stock of foreign direct investment. 108) Explain why FDI has grown more rapidly than world trade and world output. 109) Despite its advantages, FDI has been described as an “expensive” and “risky” international growth strategy. Other things being equal, why is FDI expensive and risky when compared to licensing and exporting? 110) Discuss the most common limitations of exporting as compared to FDI. 111) Discuss the three major drawbacks identified by the internationalization theory regarding licensing as a method of FDI. 112) Describe the circumstances that lead to a firm favoring foreign direct investment over exporting as an entry strategy. 113) Discuss location-specific advantages and provide an example of this advantage. 114) In the context of FDI, compare and contrast the political ideologies of the radical view, the free market view, and pragmatic nationalism. 115) Briefly describe how Bolivia and Venezuela have taken steps that indicate a hostile approach to FDI. 116) Briefly describe the benefits of inward FDI for a host country that arise from employment effects and balance-of-payments effects. 117) What are the benefits of FDI to the home (source) country? 118) Describe the role of the WTO in the liberalization of FDI. 119) Identify which types of industries should not rely on licensing as a form of FDI. 120) Explain why franchising is a logical choice for FDI in the fast-food industry.


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