Test 3

Question 1

Horizontal FDI

Answer 1

Producing the same products in a host country as firms do at home.

Question 2

Vertical FDI

Answer 2

Firm moves upstream or downstream in different value chain stages in a host country.

Question 3

Why do firms become MNEs to engage in FDI?

Answer 3

OLI advantages:
Ownership
Location
Internalization

Question 4

Ownership

Answer 4

MNE’s possession and leveraging of certain VRIO assets.

Question 5

Location

Answer 5

Natural or labor resources, close to certain markets, etc.

Question 6

Internalization

Answer 6

Replacement of cross-border markets with one firm operating in two countries.

Question 7

Agglomeration (economic clusters) stem from….

Answer 7

1. Knowledge spillover from other firms
2. Industry demand creates a skilled labor force
3. Specialized suppliers and buyers

Question 8

Why do firms prefer FDI to licensing?

Answer 8

1. Reduces dissemination risks (ex: company secrets)
2. Tight control over foreign operations (ex: quality control)
3. Facilitates transfer of tactic knowledge through “learning by doing”

Question 9

Political views on FDI:

Answer 9

1. Radical
2. Free-Market
3. Pragmatic Nationalism

Question 10

Three Cs of negotiating with host countries

Answer 10

1. Common interests
2. Conflicting interests
3. Compromises

Question 11

Positive effects of FDI on host countries:

Answer 11

Capital inflow
Technology
Management
Job creation

Question 12

Negative effects of FDI on host countries:

Answer 12

Loss of sovereignty
Competition
Capital outflow

Question 13

Positive effects of FDI on home countries:

Answer 13

Earnings
Exports
Learning from abroad

Question 14

Negative effects of FDI on home countries:

Answer 14

Capital outflow

Job loss

Question 15

Natural resource-seeking firms

Answer 15

Have to go to a particular foreign location where those resources are found.
Ex: oil in the Middle East and Russia

Question 16

Market-seeking firms

Answer 16

Go to countries that have a strong market demand for their products.
Ex: GM in China

Question 17

Efficiency-seeking firms

Answer 17

Single out the most efficient locations featuring a combination of scale economies and cost factors.
Ex: manufacturing in China

Question 18

Innovation-seeking firms

Answer 18

Target countries and regions renowned for world-class innovations.
Ex: IT in Silicon Valley

Question 19

First-mover advantages:

Answer 19

• Proprietary leadership
• Pre-emption of scarce resources
• Establishment of entry barriers
• Avoidance of clash with dominant firms at home
• Relationships with key stakeholders such as gov’ts

Question 20

Late-mover advantages:

Answer 20

• Opportunity to free ride on first-mover advantages
• Resolution of tech and market uncertainty
• First mover’s difficulty to adapt to market changes

Question 21

Equity entry examples

Answer 21

JVs and WOS

Question 22

Non equity entry examples

Answer 22

Exports and contractual agreements

Question 23

Turnkey project

Answer 23

Clients pay contractors to design and construct new facilities.

Question 24

Build-operate-transfer (BOT)

Answer 24

Non equity mode used to build a longer term presence by building then operating a facility for a period of time before transferring operations to a domestic agency or firm.

Question 25

Co-marketing

Answer 25

Efforts among a number of firms to jointly market their products or services.

Question 26

Joint venture

Answer 26

New corporate entity created and jointly owned by two or more parent companies.

Question 27

Wholly owned subsidiary (WOS)

Answer 27

Subsidiary located in a foreign country that is entirely owned by the parent multinational.

Question 28

Green-field operations

Answer 28

Building factories and offices from scratch on a piece of “green field” formerly used for agricultural purposes.