BUSI 610 Chapter 8 Exam Questions and Correct Answers Latest Update 2024

BUSI 610 Chapter 8 Exam Questions and Correct Answers Latest Update 2024 foreign direct investment (FDI) - Answers -when a firm invests directly in new facilities to produce or market in a foreign country -involves ownership of entity abroad for: production, marketing/service, R&D, access of raw materials or other resources forms of FDI - Answers -purchase of assets (mergers and acquisitions) -new investment (greenfield investments) -international joint-venture why or why not might a firm choose purchase of assets for FDI? - Answers -quick entry -local market know-how -local financing may be possible -eliminate competitor why or why not might a firm choose new investment for FDI? - Answers -no local entity is available for sale -local financing incentives -no inherited problems -long lead time to generation of sales why or why not might a firm choose international joint-venture for FDI? - Answers -shared ownership with local and/or other non-local partner -shared risk results of FDI* - Answers -the firm has significant control of its foreign operation -the firm can affect managerial decisions of the foreign operation *depending on its extent of ownership and other contractual terms of the FDI portfolio investment - Answers when FDI has no managerial involvement FDI flow - Answers amount of FDI over a period of time (one year) FDI stock - Answers total accumulated value of foreign owned assets at a given point in time why is FDI important? - Answers -firms want a presence in foreign markets -firms want control over growth of these foreign markets why would firms want control over over growth of foreign markets? - Answers -to gain first mover advantages -to ward off competitors -to determine locations for production, advertising, and other related strategic decisions in the firm's interest trends in FDI - Answers -flow and stock increased in the last 35 years -in spite of decline of trade barriers, FDI has grown more rapidly than world trade why has FDI grown more rapidly than world trade? - Answers -businesses fear protectionist pressures -FDI is seen as a way of circumventing trade barriers -the shift toward democratic political institutions and free market economies encourages FDI -globalization is prompting firms to ensure they have a significant presence in many regions of the world what happened to US FDI outflows in 2001? - Answers Fell because of 9/11, reflecting hesitancy of business world direction of FDI - Answers -historically, most FDI has been directed at the developed nations of the world (US and EU countries seen as favorite targets) -more recently, developing nations have been the recipients of FDI (Asia, China, and Latin America are receiving at lot of inflows and attention) source of FDI - Answers -since WWII, the US has been the largest source country for FDI -other important source countries include the UK, Netherlands, France, Germany, and Japan -Chinese firms have recently emerged as major foreign investors why do firms prefer FDI to either exporting or licensing? - Answers because of limitations to exporting and licensing limitations of exporting - Answers -the viability of an exporting strategy can be constrained by transportation costs and trade barriers -FDI may be undertaken as a response to actual or threatened trade barriers such as import tariffs or quotas limitations of licensing - Answers -licensing may result in a firm's giving away valuable technical knowledge to a potential foreign competitor -licensing does not give a firm the tight control of manufacturing, marketing, and strategy in a foreign country that may be required for its profitability -a problem arises with licensing when the firm's competitive advantage is based not on its products but on the management, marketing, and manufacturing capabilities that the product produces advantages of FDI that exporting and licensing lack - Answers -a firm will favor FDI over exporting as an entry strategy when transportation costs or trade barriers make exporting unattractive -a firm will favor FDI over licensing when it wishes to maintain control over its technological know-how, or over its operations and business strategy, or when the firm's capabilities are simply not amenable to licensing types of views on government policy and FDI - Answers -radical view -free market view -pragmatic nationalism -shifting ideology radical view on government policy and FDI - Answers the MNE is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries the radical view on government policy and FDI has been in retreat because of - Answers -the collapse of communism in Eastern Europe -the poor economic performance of those countries that had embraced the policy -the strong economic performance of developing countries that had embraced capitalism free market view on government policy and FDI - Answers -international production should be distributed among countries according to the theory of comparative advantage (countries should specialize in the production of goods and services they can produce most efficiently) -the MNE increases the overall efficiency of the world economy pragmatic nationalism view on government policy and FDI - Answers -FDI has benefits and costs -FDI should be allowed only if the benefits outweigh the costs