Chapt 16 Flashcards
Involves the establishment of production facilities abroad.
Foreign Direct Investment
Involves building new facilities from ground up
Greenfield Investment
Involves the purchase of an existing business
Cross-Border acquisition
Why do Firms locate production overseas?
Shipping Costs
Firms seek to extend corporate control overseas
Imperfect Factor Markets
Why do firms invest overseas?
Trade barriers Labor market Imperfections Intangible Assets Vertical Integration Production life cycle Shareholder diversification
The theory that predicts that overtime the US switches from exporting country of new products to an importing country
Product Life Cycle
The biggest risk when investing abroad?
Unquestionably
Government action leads to market imperfections.
Tariffs, quotas, and other restrictions on the free flow of goods, services, and people.
Trade Barriers
MNCs may undertake FDI in countries where inputs are available in order to secure the supply of inputs at a stable accounting price.
Vertical Integration
A vertical integration is __________ when FDI involves an industry abroad that produces inputs for MNCs
Backward Integration
When a U.S. auto maker buying a Japanese auto dealership, this can be what type of vertical integration
Forward
The biggest risk when investing abroad
Political Risk
All foreign operations are put at risk due to adverse political developments.
Macro Risk
Selected foreign operations are put at risk due to adverse political developments
Micro Risk
Uncertainty regarding cross-border flows of capital
Transfer Risk
