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.