B) False
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A) it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development.
B) it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
C) when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.
D) its use is restricted by the government through the imposition of tariffs and quotas.
E) it is less cost-effective than FDI.
G) C) and E)
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The eclectic paradigm was championed by the British economist John Dunning. Dunning argued that location-specific advantages were also of considerable importance in explaining both the rationale for and the direction of foreign direct investment. By location specific advantages, Dunning meant the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management capabilities). Dunning accepted the argument of internalization theory that it is difficult for a firm to license its own unique capabilities and know-how. Therefore, he argued that combining location-specific assets or resource endowments with the firm's own unique capabilities often requires foreign direct investment. That is, it requires the firm to establish production facilities where those foreign assets or resource endowments are located. An obvious example of Dunning's arguments are natural resources, such as oil and other minerals, which are-by their character-specific to certain locations. Dunning suggested that to exploit such foreign resources, a firm must undertake FDI.
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The viability of an exporting strategy i...View Answer
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A) lack of interaction among the major players.
B) presence of a domestic market which is open for foreign firms.
C) desire of all the major players to avoid the phenomenon of diminishing returns.
D) interdependence of the major players.
E) lack of imitative behavior among the major players.
G) A) and C)
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A) exporting
B) licensing
C) franchising
D) insourcing
E) outsourcing
G) B) and D)
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A) outsourcer.
B) retail chain.
C) offshore company.
D) multinational enterprise.
E) national corporation.
G) All of the above
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A) eliminating double taxation of foreign income.
B) manipulating tax rules to encourage the firms to invest at home.
C) withdrawing government-backed insurance programs provided to local investors.
D) reducing interest rates earned on domestic investments.
E) prohibiting organizations from entering into an oligopoly.
G) B) and C)
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B
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A) exporting.
B) FDI.
C) licensing.
D) franchising.
E) outsourcing.
G) D) and E)
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A) multilateral investment
B) foreign direct investment
C) privatization
D) an absolute advantage
E) isolationism
G) A) and E)
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A) outsourcing.
B) exporting.
C) licensing.
D) diverging.
E) hedging.
G) C) and D)
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B) False
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The benefits of FDI to the home (source)...View Answer
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A) the costs of establishing production facilities are high.
B) the transportation costs or trade barriers are high.
C) there are problems associated with doing business in a different culture.
D) the products involved have a high value-to-weight ratio.
E) the firm wants to occupy a position that falls inside the efficiency frontier.
G) A) and B)
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A) high local content requirement.
B) low total landed cost.
C) low value-to-weight ratio.
D) low licensing tariff.
E) high marginal cost.
G) B) and E)
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B) False
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A) rising communism in Eastern Europe.
B) generally steady economic growth in countries that embraced the radical position.
C) a growing belief in many countries that FDI leads to loss of jobs.
D) a strong economic performance in developing countries that embraced capitalism.
E) the collapse of capitalism in the newly independent nations of Asia.
G) C) and D)
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A) explain the constraints of exporting and licensing.
B) explain the challenges faced by a firm during the establishment of a new operation in a foreign country.
C) explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.
D) review the theories that have been used to explain foreign direct investment.
E) explain how greenfield investments are better than FDI at determining strategic competition and dominance.
G) A) and C)
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Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing. With franchising, a firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits. The franchising contract specifies the conditions that the franchisee must fulfill if it is to use the franchisor's brand name.
A good example of the franchising strategy is McDonald's, which allows foreign firms to use its brand name so long as they agree to run their restaurants on exactly the same lines as McDonald's restaurants elsewhere in the world. This strategy makes sense for McDonald's because (1) like many services, fast food cannot be exported, (2) franchising economizes the costs and risks associated with opening up foreign markets, (3) unlike technological know-how, brand names are relatively easy to protect using a contract, (4) there is no compelling reason for McDonald's to have tight control over franchisees, and (5) McDonald's know-how, in terms of how to run a fast-food restaurant, is amenable to being specified in a written contract (e.g., the contract specifies the details of how to run a McDonald's restaurant).
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B) False
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