1. When a firm exports its products to a foreign country, foreign direct investment occurs.
2. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen,
organization, or affiliated group takes an interest of 10 percent or more in a foreign business
entity.
3. Greenfield investment involves the establishment of a new operation in a foreign country.
4. The flow of foreign direct investment refers to the number of countries a firm is investing
in at any given point in time.
5.
(p. 243)
The stock of foreign direct investment refers to the total accumulated value of foreign–
owned assets at a given time.
6. The globalization of the world economy is having a negative effect on the volume of FDI.
7. FDI has grown significantly slower than world trade and world output.
8. According to the United Nations, majority of changes made worldwide between 1992 and
2008 in the laws governing foreign direct investment have created a more favorable environment
for FDI.
9. Historically, most FDI has been directed at the least developed nations of the world.
10. Since World War II, the United States has been the largest source country for FDI, a
position it retained during the late 1990s and early 2000s.
11.
(p. 246)
Greenfield investments are quicker to execute than mergers and acquisitions.
12. When a firm allows another enterprise to produce its products under license, the licensee
bears the costs or risks.
13. The attractiveness of exporting increases in comparison to FDI or licensing
when products have a low value–to-weight ratio.
14. By placing tariffs on imported goods, governments can increase the cost of exporting
relative to foreign direct investment and licensing.
15. By limiting imports through quotas, governments reduce the attractiveness of FDI and
licensing.
16. A critical competitive feature of an oligopoly is independence of the major players.
17. Multipoint competition arises when two or more enterprises encounter each other in
different regional markets, national markets, or industries.
18. Economists refer to knowledge “spillovers” as externalities, and there is a well–
established theory suggesting that firms can benefit from such externalities by locating close to
their source.
19. According to the extreme version of radical view, no country should ever permit foreign
corporations to undertake FDI, because they can never be instruments of economic development,
only of economic domination.
20. By the early 1990s, the radical position toward FDI was in retreat due to the rise of
communism in eastern Europe.
21. According to the free market view, countries should specialize in the production of those
goods and services that they can produce most efficiently.
22. According to the pragmatic nationalist view, no country should ever permit foreign
corporations to undertake FDI.
23. World trade has been growing twice as fast as the growth in the volume of FDI
worldwide.
24. The indirect employment effects of FDI are often as large as, if not larger than, the direct
effects.
25. Services, such as telecommunications, retailing, and many financial services, where the
service has to be produced where it is delivered, lend themselves well to exporting.
26. An acquisition does not result in a net increase in the number of players in a market.
27.
(p. 265)
Offshore production refers to FDI undertaken to serve the host market.
28.
(p. 265)
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.
29.
(p. 266)
Ownership restraints and performance requirements are the two most common ways in
which host governments restrict FDI.
30.
(p. 267)
Performance requirements are controls over the behavior of the MNE’s local subsidiary.
31.
(p. 267)
The WTO embraces the promotion of international trade in services.
32.
(p. 268)
The location-specific advantages argument associated with John Dunning helps explain
why firms prefer FDI to licensing or to exporting.
33.
(p. 267)
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.”
34.
(p. 270)
Franchising is essentially the service-industry version of licensing, although it normally
involves much longer-term commitments than licensing.
35.
(p. 270)
Despite the move toward a free market stance in recent years, many countries still have a
rather pragmatic stance toward FDI.
36.
(p. 270)
A firm’s bargaining power is low when the host government places a low value on what
the firm has to offer.