Chapter 6 Peng

Question 1

Downstream vertical FD

Answer 1

expanding through the stages of production and distribution toward distribution.

Question 2

FDI flow

Answer 2

is the amount of FDI moving in a given period (usually a year) in a certain direction.

Question 3

FDI inflow

Answer 3

usually refers to inbound FDI moving into a country in a year.

Question 4

FDI outflow

Answer 4

typically refers to outbound FDI moving out of a country in a year.

Question 5

FDI stock

Answer 5

is the total accumulation of inbound FDI in a country or outbound FDI from a country.

Question 6

Foreign direct investment (FDI)

Answer 6

is defined as directly investing in activities that control and manage value creation in other countries.

Question 7

Foreign portfolio investment (FPI)

Answer 7

FPI refers to investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets.

Question 8

Horizontal FDI

Answer 8

when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.

Question 9

Management control rights

Answer 9

namely, the rights to appoint key managers and establish control mechanisms.

Question 10

Multinational enterprise (MNE)

Answer 10

Multinational enterprise (MNE)

Question 11

Upstream vertical FDI:

Answer 11

expanding back through the stages of production and distribution toward production.

Question 12

Vertical FDI

Answer 12

a firm through FDI moves upstream or downstream in different value chain stages in a host country.

Question 13

FDI

Answer 13

refers to directly investing in activities that control and manage value creation in other countries. MNEs are firms that engage in FDI. FDI can be classified as horizontal FDI and vertical FDI.

Question 14

resource-based view

Answer 14

suggests that the key word of FDI is D (direct), which reflects firms’ interest in directly managing, developing, and leveraging their firm-specific resources and capabilities abroad.

Question 15

institution-based view

Answer 15

A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions

Question 16

Internalization

Answer 16

efers to the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries.

Question 17

Licensing

Answer 17

selling technology for a fee, a non-FDI-based market entry mode.

Question 18

Location

Answer 18

refers to advantages enjoyed by firms operating in certain areas.

Question 19

Market imperfection (market failure)

Answer 19

imperfect rules governing international transactions.

Question 20

OLI advantages

Answer 20

ownership (O) advantages, location (L) advantages, and internalization (I) advantages.

Question 21

Ownership

Answer 21

efers to MNEs’ possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas.

Question 22

Dissemination risks

Answer 22

defined as the risks associated with unauthorized diffusion of firm-specific know-how.

Question 23

LOCATION ADVANTAGES

Answer 23

Location refers to certain locations’ advantages that can help MNEs attain strategic goals.

Question 24

Agglomeration

Answer 24

the clustering of economic activities in certain locations.

Question 25

Knowledge spillover

Answer 25

knowledge diffused from one firm to others among closely located firms that attempt to hire individuals from competitors.

Question 26

Oligopoly

Answer 26

industries populated by a small number of players.

Question 27

Internalization

Answer 27

refers to the replacement of cross-border market relationship with one firm (the MNE) locating in two or more countries. Internalization helps combat market imperfections and failures.

Question 28

Intrafirm trade

Answer 28

involves trade between two subsidiaries in two countries controlled by the same MNE.

Question 29

radical view is hostile to FDI

Answer 29

and the free market view calls for minimum intervention in FDI.

Question 30

Contagion (imitation effect)

Answer 30

Local rivals, after observing foreign technology, may recognize its feasibility and strive to imitate it.

Question 31

Demonstration effect

Answer 31

(sometimes also called the contagion or imitation): local rivals, after observing technology, may recognize its feasibility and strive to imitate it.

Question 32

Free market view

Answer 32

suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services.

Question 33

Pragmatic nationalism

Answer 33

views FDI as having both pros and cons and only approving FDI when its benefits outweigh costs.

Question 34

Radical view

Answer 34

treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources, industries, and people by foreign capitalists and firms.

Question 35

Technology spillover

Answer 35

foreign technology diffused domestically that benefits domestic firms and industries.

Question 36

Bargaining power

Answer 36

Bargaining power of both sides—the ability to extract a favorable outcome from negotiations due to one party’s strengths.

Question 37

Expropriation

Answer 37

Expropriation: confiscating foreign assets.

Question 38

Obsolescing bargain

Answer 38

Obsolescing bargain: the deal struck by MNEs and host governments which change their requirements after the initial FDI entry.

Question 39

Sunk costs

Answer 39

Sunk costs: the MNE has already invested substantial sums of resources and often has to accommodate some new demands.

Question 40

Sovereign wealth fund

Answer 40

A state owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets.

Question 41

MANAGEMENT SAVVY

Answer 41

Managers should carefully assess whether FDI is justified, in light of other options such as outsourcing and licensing. Pay careful attention to the location advantages in combination with the firm’s strategic goals. Be aware of the institutional constraints governing FDI and enhance legitimacy in host countries.