IR 324 Midterm
Review
1. How can MNEs' investments abroad benefit local firms?: MNEs can create
infrastructure and enhance local firms' capabilities through foreign direct investment (FDI), leading to improved
business environ- ments and potential collaboration.
2. How can MNEs' investments abroad harm local firms?: Increased competition from
MNEs can lead to reduced market share for local firms, resulting in fewer consumers purchasing local goods and
potential business closures.
3. Who typically has more power in the relationship between an investing firm
and a host government?: The host government usually holds more power, but a large and influential MNE
can exert significant influence over government policies due to its economic contributions.
4. What role does the home government play in the power dynamics between
an MNE and a host government?: The home government protects MNE investments through trade
pressure, tax regulations, subsidies, and negotiating taritts, influencing the MNE's operations abroad.
5. What are the three variables that determine the power relationship
between a host government and an MNE?: The three variables are 'smart' (intelligence and
strategy), 'strong' (economic and political power), and 'hot' (geopolitical relevance).
6. How do bilateral investment treaties affect the power relationship between
MNEs and host governments?: Bilateral investment treaties limit MNEs' ability to dominate host gov-
ernment policies, requiring adherence to agreed-upon regulations and reducing negotiation leverage.
7. What is liability of foreignness?: Liability of foreignness refers to the disadvantages faced by
firms operating outside their home country, including regulatory challenges and lack of local legitimacy.
8. How does a fraught political relationship between host and home govern-
ments affect liability of foreignness?: Political turmoil can lead to stricter regulations from the host
government, increasing the liability of foreignness for MNEs and making it harder for them to operate ettectively.
9. What strategies can MNEs use to mitigate the risks associated with liability of
foreignness?: MNEs can build strong local partnerships, localize operations, and engage in corporate diplomacy to
enhance their legitimacy and improve relations with host governments.
10. How do tariffs create economic winners and losers within a state?: Taritts
benefit local producers by making imported goods more expensive, while consumers and foreign exporters face higher
costs, leading to a redistribution of economic benefits.
11. How do tariffs influence MNE investment strategies?: High taritts can deter
MNEs from investing in certain markets, while some may choose to invest in local production facilities to bypass
taritts and reduce costs.
, IR 324 Midterm
Review
12. Under what conditions should a firm invest abroad?: A firm should invest abroad
after analyzing economic, political, and international factors, ensuring alignment with its strategic goals.
13. What is the OLI framework?: The OLI framework stands for Ownership, Location, and
Internalization advantages, helping firms determine the optimal conditions for foreign investment.
14. What are the potential benefits of investing abroad?: Benefits include
access to new markets, diversification of revenue streams, and potential cost advantages through economies
of scale.
15. What are the risks associated with investing abroad?: Risks include political
instability, regulatory changes, cultural misunderstandings, and potential backlash against foreign firms.
16. What forms of political risk can affect MNE investments?: Forms of political risk
include expropriation, changes in tax policy, political violence, and unfavorable regulatory changes.
17. How can an MNE minimize political risk in overseas investments?: MNEs
can minimize political risk by conducting thorough risk assessments, engaging in local partnerships, and obtaining
political risk insurance.
18. What is risk insurance?: Risk insurance provides coverage against potential losses from political
risks, helping MNEs safeguard their investments abroad.
19. What is the Springboard Theory of investment?: The Springboard Theory
suggests that firms from emerging markets invest abroad to gain advanced capabilities and access to new
technologies, dittering from traditional investment patterns.
20. What are the differences in investments from Global North and Global
South MNEs?: Global North MNEs often focus on advanced markets and technology, while Global South MNEs
may target emerging markets for growth and resource acquisition.
21. What is the tight-loose management model of the British East India
Com- pany?: The model involved tight controls for employee loyalty while allowing localized flexibility for
international partners, influencing modern multinational management practices.
22. What was the relationship between the British East India Company
and South Asia?: Initially positive, the relationship deteriorated due to cultural and religious tensions, leading to the
Sepoy Mutiny and eventual British government control.
23. What was the Sepoy Mutiny?: The Sepoy Mutiny was a violent uprising against British rule in
India, sparked by cultural insensitivity and rumors about ammunition, leading to significant changes in governance.
24. How do tariffs affect FDI decisions?: High taritts can deter FDI as MNEs seek to avoid
additional costs, while some may invest in local production to bypass taritts and remain competitive.
Review
1. How can MNEs' investments abroad benefit local firms?: MNEs can create
infrastructure and enhance local firms' capabilities through foreign direct investment (FDI), leading to improved
business environ- ments and potential collaboration.
2. How can MNEs' investments abroad harm local firms?: Increased competition from
MNEs can lead to reduced market share for local firms, resulting in fewer consumers purchasing local goods and
potential business closures.
3. Who typically has more power in the relationship between an investing firm
and a host government?: The host government usually holds more power, but a large and influential MNE
can exert significant influence over government policies due to its economic contributions.
4. What role does the home government play in the power dynamics between
an MNE and a host government?: The home government protects MNE investments through trade
pressure, tax regulations, subsidies, and negotiating taritts, influencing the MNE's operations abroad.
5. What are the three variables that determine the power relationship
between a host government and an MNE?: The three variables are 'smart' (intelligence and
strategy), 'strong' (economic and political power), and 'hot' (geopolitical relevance).
6. How do bilateral investment treaties affect the power relationship between
MNEs and host governments?: Bilateral investment treaties limit MNEs' ability to dominate host gov-
ernment policies, requiring adherence to agreed-upon regulations and reducing negotiation leverage.
7. What is liability of foreignness?: Liability of foreignness refers to the disadvantages faced by
firms operating outside their home country, including regulatory challenges and lack of local legitimacy.
8. How does a fraught political relationship between host and home govern-
ments affect liability of foreignness?: Political turmoil can lead to stricter regulations from the host
government, increasing the liability of foreignness for MNEs and making it harder for them to operate ettectively.
9. What strategies can MNEs use to mitigate the risks associated with liability of
foreignness?: MNEs can build strong local partnerships, localize operations, and engage in corporate diplomacy to
enhance their legitimacy and improve relations with host governments.
10. How do tariffs create economic winners and losers within a state?: Taritts
benefit local producers by making imported goods more expensive, while consumers and foreign exporters face higher
costs, leading to a redistribution of economic benefits.
11. How do tariffs influence MNE investment strategies?: High taritts can deter
MNEs from investing in certain markets, while some may choose to invest in local production facilities to bypass
taritts and reduce costs.
, IR 324 Midterm
Review
12. Under what conditions should a firm invest abroad?: A firm should invest abroad
after analyzing economic, political, and international factors, ensuring alignment with its strategic goals.
13. What is the OLI framework?: The OLI framework stands for Ownership, Location, and
Internalization advantages, helping firms determine the optimal conditions for foreign investment.
14. What are the potential benefits of investing abroad?: Benefits include
access to new markets, diversification of revenue streams, and potential cost advantages through economies
of scale.
15. What are the risks associated with investing abroad?: Risks include political
instability, regulatory changes, cultural misunderstandings, and potential backlash against foreign firms.
16. What forms of political risk can affect MNE investments?: Forms of political risk
include expropriation, changes in tax policy, political violence, and unfavorable regulatory changes.
17. How can an MNE minimize political risk in overseas investments?: MNEs
can minimize political risk by conducting thorough risk assessments, engaging in local partnerships, and obtaining
political risk insurance.
18. What is risk insurance?: Risk insurance provides coverage against potential losses from political
risks, helping MNEs safeguard their investments abroad.
19. What is the Springboard Theory of investment?: The Springboard Theory
suggests that firms from emerging markets invest abroad to gain advanced capabilities and access to new
technologies, dittering from traditional investment patterns.
20. What are the differences in investments from Global North and Global
South MNEs?: Global North MNEs often focus on advanced markets and technology, while Global South MNEs
may target emerging markets for growth and resource acquisition.
21. What is the tight-loose management model of the British East India
Com- pany?: The model involved tight controls for employee loyalty while allowing localized flexibility for
international partners, influencing modern multinational management practices.
22. What was the relationship between the British East India Company
and South Asia?: Initially positive, the relationship deteriorated due to cultural and religious tensions, leading to the
Sepoy Mutiny and eventual British government control.
23. What was the Sepoy Mutiny?: The Sepoy Mutiny was a violent uprising against British rule in
India, sparked by cultural insensitivity and rumors about ammunition, leading to significant changes in governance.
24. How do tariffs affect FDI decisions?: High taritts can deter FDI as MNEs seek to avoid
additional costs, while some may invest in local production to bypass taritts and remain competitive.
