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