END-OF-CHAPTER GUIDE
*Review Questions and Answers
*Critical Discussion Questions and Answers
*Global Action
*Closing Case
REVIEW QUESTIONS AND ANSWERS
1. What is the primary difference between FDI and FPI?
Foreign direct investment (FDI) is investing in, controlling, and managing value-added
2. Why does the resource-based view suggest that the key word of FDI is direct?
3. How does horizontal FDI compare to vertical FDI?
Horizontal FDI: a type of FDI in which a firm duplicates its home country-based
Vertical FDI: a type of FDI in which a firm moves upstream or downstream at different
4. How does internationalization help combat market imperfections and failures?
5. Briefly summarize each of the three OLI advantages.
OLI advantages: ownership (O) advantages, location (L) advantages, and internalization
(I) advantages.
Ownership refers to an MNE’s possession and leveraging of certain valuable, rare,
Location refers to advantages enjoyed by firms operating in a certain location.
6. Discuss the pros and cons of FDI versus licensing.
FDI reduces dissemination risks, provides tight control over foreign operations, and
7. Identify your own example of agglomeration that demonstrates your understanding of the
concept.
Agglomeration is the clustering of economic activities in certain locations. In regards to
8. Compare and contrast the three political views of FDI.
The radical view is hostile to FDI. Tracing its roots to Marxism, the radical view treats
FDI as an instrument of imperialism and as a vehicle for exploitation of domestic
resources by foreign capitalists and firms.
9. Describe two benefits and two costs to a host country of FDI and to a home country of
FDI.
Host country benefits include the capital inflow that can help improve a host country’s
balance of payments and technology spillovers (from foreign technology) that are
Home country benefits include repatriated earnings from FDI, increased exports of
10. Given that outsourcing is a viable alternative to FDI, what issues should be considered
before a firm decides between the two?
The answer boils down to (1) how critical the activity being considered to perform
11. ON CULTURE: Many people in the United States are opposed to both outsourcing and
FDI. Would it be easier to get such people to accept one of these alternatives, and if so,
which one? Why or why not?
The important thing is not so much the answer as the extent to which the student
12. Why do some countries object to inbound FDI?
13. In the United States, many states and cities deliberately seek investment in their states
and communities by firms from other parts of the country. Why are some of those who
seek investment from elsewhere in the U.S. worried about investment from overseas?
The important thing is not so much the answer as the extent to which the student
14. What issues should a savvy manager consider when evaluating a particular location for
FDI?
The quest for location advantages has to fit with the firm’s strategic goals. A given
location that might seem to be advantageous due to low labor costs might not be
15. Some Americans feel that U.S.-based firms should not undertake FDI in other countries
because it results in expanding business opportunities in those countries and does not
benefit the United States. How may the data on PengAtlas Map 2.3 be used to refute that
view?
16. Consider PengAtlas Map 2.3 showing U.S. FDI, and then look at PengAtlas Maps 2.1
and 2.2. Given the possibility that some U.S. imports are from operations in which U.S.
firms have made FDI, how does that affect your view of the US trade deficit? Does it
make the deficit seem like less of a problem or greater? Explain your answer.
The important thing is not so much the answer as the extent to which the student
In questions 12, 13, and 15, we have noted controversies regarding FDI in terms of both inflows
and outflows. Regarding PengAtlas Map 2.3, public concern about FDI often focuses on the FDI
of U.S.-based companies, and some argue that investment going overseas may otherwise have
occurred within the U.S. However, the map also shows that the U.S. is a major recipient of such
investment from overseas—but some who oppose FDI outflows also oppose FDI inflows. They
fear that the United States is losing control over its economy as a result of such inflows. Do you
think the two views are compatible? Why or why not?
The important thing is not so much the answer as the extent to which the student
demonstrates thought in providing the answer. Those who view exports, imports and
CRITICAL DISCUSSION QUESTIONS AND ANSWERS
1. Identify the top five (or ten) source countries of FDI into your country. Then identify the
top ten (or 20) foreign MNEs that have undertaken inbound FDI in your country. Why do
these countries and companies provide the bulk of FDI into your country?
2. Identify the top five (or ten) recipient countries of FDI from your country. Then identify
the top ten (or 20) MNEs headquartered in your country that have made outbound FDI
elsewhere. Why do these countries attract FDI from the top MNEs from your country?
3. ON ETHICS: Undertaking FDI, by definition, means not investing in the MNE’s home
country. What are the ethical dilemmas here? What are your recommendations, as (1)
MNE executives, (2) labor union leaders of your domestic (home country) labor forces,
or (3) host country officials?
Again, this is a question in which the answer is not as important as the thought process
GLOBAL ACTION
1. Your MNE is looking to evaluate the industrial capability of various locations
worldwide. Based on readily available data concerning the potential and performance of
different countries, the information you provide will drive future investment by your
company. Choose a country from Asia, Europe, North America, and South America and
summarize your findings about each.
Of the four countries from four continents, how would you rank them? Why?
Exercise 1 Answers
One resource which can be used is “Global-production.com”. This website can be found
by entering the search term “global production” at the globalEDGE™ Resource Desk
2. The main premise for development at your company in the coming years is to
shift its offshore services to Africa. As such, you have been asked to develop
a report that evaluates which African countries have increased the possibility
of creating a long-term advantage for your company. Also, be sure to include
the African countries that have decreased their capacity to create a long-term
advantage. Can you generate a top-five list and a bottom-five list from
Africa for this purpose?
Exercise 2 Answers
One resource which can be used is “A.T. Kearney: The Global Services Location Index”.
CLOSING CASE DISCUSSION GUIDE AND ANSWERS
Emerging Markets: Automobile FDI in Braziland Mexico
1. What are the costs and benefits of FDI inflows for a host country such as Brazil and
Mexico?
Brazil cost: high cost of living; expensive to conduct business; automobile industry can’t
2. If you were an executive working for an emerging automaker from China or India,
assuming your firm only has the ability to enter one Latin American country for the time
being, which country would you recommend: Brazil or Mexico?
3. The automobile industry in both Brazil and Mexico is thriving. If you were a government
official from an African country (such as Morocco, Nigeria, or South Africa) who has
visited both countries and has been very impressed, which approach would you
recommend to your own government interested in attracting FDI from global automakers:
the Brazilian approach or the Mexican approach? Why?