Chapter 9 International Factor Movements and Multinational Enterprises Flashcards
What is a key operational feature of a Multinational Corporation (MNCs)?
It operates in multiple countries under centralized strategic planning
How do Multinational Corporations (MNCs) organize their value chain globally?
They conduct R&D, manufacturing, and services across borders.
What ownership and management trait signals a Multinational Corporation (MNC)?
Multinational stock ownership and management teams
Which financial ratio indicates strong global integration?
A high share of foreign sales in total revenue
What is vertical integration abroad?
Producing inputs/components overseas for home‑country assembly
Define horizontal integration abroad
Producing the same finished product in a foreign location
What is conglomerate integration?
Investing in unrelated industries overseas to diversify
List three economic motives for firms to pursue Foreign Direct Investment (FDI)
-Higher returns
-Boost local productivity
-Job creation
How does Foreign Direct Investment (FDI) benefit the home country’s exports?
It stimulates exports of capital goods and intermediate inputs
Which entry mode suits a small foreign market with low barriers—exporting, licensing, or Foreign Direct Investment (FDI)?
Direct exporting (or licensing if IP is key).
When do firms favor Foreign Direct Investment (FDI) over exporting?
Large markets or high transport/trade barriers
In the Anheuser-Busch in Canada example, when is licensing cheaper than FDI?
When sales are below ~400 units (small market)
In the Anheuser-Busch in Canada example, when does FDI become cost‑efficient?
Above ~400 units, where fixed costs are spread over more output.
Name the three pillars of country risk.
Political, financial, and economic risk.
What do high composite scores (e.g., Switzerland) indicate?
Low overall risk for foreign investors.
How are countries like the U.S. or China usually rated?
Moderate risk—generally stable but not risk‑free
How does FDI help host nations avoid tariffs?
By producing inside the market, eliminating import duties
Give an example of tariff‑avoiding FDI in the U.S.
Japanese automakers building assembly plants in the U.S.
Why do firms form joint ventures?
To share risk/resources and enter markets that limit full foreign ownership
How can a Joint Venture (JV) raise national welfare despite higher prices?
Cost savings can exceed consumer losses, yielding net welfare gains
Which FDI type creates new local jobs directly?
Greenfield investment (new plants)
What offsetting effect can offshoring have?
Domestic low‑skill job losses but potential high‑skill gains over time
How can Multinational Enterprises (MNEs) undermine host sovereignty?
By influencing policy, shifting profits, or bypassing sanctions
Why do Multinational Enterprises (MNEs) use transfer pricing?
To shift profits to low‑tax jurisdictions and cut tax bills
