Deck 14: Foreign Direct Investment and Collaborative Ventures

Question 1

Firms that anticipate close public scrutiny of their foreign operations often avoid potential difficulties by ________.

A)locating in culturally similar countries
B)investing in international securities
C)hiring additional local personnel
D)diversifying their corporate activities

Answer 1

A

Question 2

Explain why FDI is a particularly risky foreign entry strategy. How is FDI different from international portfolio investment?

Answer 2

Foreign direct investment (FDI)is an internationalization strategy where the firm establishes a physical presence abroad through direct ownership of productive assets such as capital, technology, labor, land, plant, and equipment.
FDI is the most advanced and complex foreign market entry strategy. It entails establishing manufacturing plants, marketing subsidiaries, or other facilities in target countries. Because this involves investing substantial resources to establish a physical presence abroad, FDI is riskier than other entry strategies.
International portfolio investment refers to passive ownership of foreign securities, such as stocks and bonds, for the purpose of generating financial returns. International portfolio investment is a form of international investment, but it is not FDI, which seeks ownership control of a business abroad and represents a long-term commitment. The United Nations uses the benchmark of at least 10 percent ownership in the enterprise to differentiate FDI from portfolio investment. However, this percentage may be misleading, because control is not usually achieved unless the investor owns at least 50 percent of a foreign venture.

Question 3

Which of the following questions would most likely be important for ABC managers to evaluate as they consider expanding into the Asian market?

A)What U.S. firms have successfully partnered with Asian companies?
B)Where will ABC management locate the staff needed to oversee an Asian plant?
C)How much control does ABC management want to have over their Asian operations?
D)What are the pricing strategies followed by competitor firms in Asia?

Answer 3

C

Question 4

Which of the following represents a human resource factor that firms must consider when selecting an FDI location?

A)intellectual property protection
B)transparency and corruption
C)extent of bureaucracy and red tape
D)involvement of labor unions

Question 5

International portfolio investment is characterized by ________.

A)short-term foreign market speculation
B)long-term administration of MNE stocks
C)active control of a foreign business
D)passive ownership of foreign stocks and bonds

Question 6

The rate of inflation is a(n)________ factor to be considered while selecting the location for FDI.

A)profit retention
B)market
C)infrastructural
D)human resource

Question 7

FDI is the most advanced and complex foreign market entry strategy.

Question 8

The level of taxes in a country is a part of the ________ factor that is considered when selecting an FDI location.

A)political
B)profit retention
C)market
D)infrastructural

Question 9

Which of the following is a trend seen in the modern international economy?

A)Firms from both advanced and emerging economies employ FDI.
B)Emerging markets are the sole recipient countries for FDI.
C)Companies primarily use acquisitions to enter foreign markets.
D)Firms in the service sector use e-commerce exclusively to enter foreign markets.

Question 10

International portfolio investment refers to passive ownership of foreign securities.

Question 11

Which of the following best exemplifies corporate social responsibility?

A)a computer firm charging a high fee for recycling old computers
B)an automobile manufacturer selling low-fuel economy cars and trucks
C)a telecommunications firm charging high-rates to low-income customers
D)an automotive battery firm offering free technical training to students of a deprived community

Question 12

Which of the following best explains why some service industry firms most likely enter foreign markets through FDI?

A)The market abroad is saturated, therefore, the other entry strategies are most likely to fail.
B)The service of the firm requires tough intellectual property laws.
C)The service offered by the firm requires direct contact with customers.
D)The firm's service is not successful domestically, so globalization is required.

Question 13

Which of the following most likely supports a decision to enter the Asian market through a project-based, non-equity collaborative venture with an Asian appliance manufacturer to create an environmentally-friendly dishwasher?

A)Asian firms have offered to pool their resources with ABC to create a new legal entity.
B)Managers of both firms have decided not to seek ownership, rather they have decided to pool resources.
C)ABC managers have the financial resources to quickly build a new Asian plant.
D)The Asian government has offered incentives to ABC if the firm builds a plant.

Question 14

A form of collaboration between two firms to form a new, jointly owned enterprise is defined as a joint venture.

Question 15

International portfolio investment refers to a firm's direct control of foreign operations and is an equity-based method of foreign market entry.

Question 16

Which of the following represents an infrastructural factor that firms must consider when selecting an FDI location?

A)size and growth of national market
B)political stability
C)availability and quality of local manufacturing
D)stability of currency

Question 17

Which of the following most likely supports a decision to enter the Asian market by building a factory near Tokyo?

A)Executives at ABC want the firm to have the flexibility to reconfigure operations at the Japanese plant.
B)The Japanese yen has been fluctuating over the last year and analysts do not anticipate it settling down.
C)ABC managers want to delegate responsibility of much of the Japanese plant to local intermediaries.
D)The CEO of ABC is willing to invest a large amount of capital and other assets to ensure success in Japan.

Question 18

Which of the following must be considered in selecting foreign direct investment locations?

A)rate of inflation
B)tax rates for profit repatriation
C)stability of currency
D)all of the above

Question 19

FDI is also known as international portfolio investment.

Question 20

Foreign direct investment is the least risky entry strategy.

Question 21

New markets, new resources, and improved efficiency are the three main motives for firms to enter foreign markets through FDI.

Question 22

Which of the following industries considers proximity to customers especially important in the decision to enter a foreign market?

A)fashion
B)automotive
C)biotechnology
D)mining

Question 23

Which of the following questions is most important for Ciao managers to evaluate in their decision regarding the location of the new manufacturing facility?

A)What would be the costs and availability of skilled labor in Canada and Russia?
B)What other industries manufacture products in Canada and Russia?
C)How much time will it take to train managers in Canada and Russia?
D)How should the current marketing strategies be modified to serve markets in Canada and Russia?

Question 24

FDI is the least taxing entry strategy that a firm can choose.

Question 25

Many international firms are investing in local communities and establishing global standards of fair treatment for workers in an effort to be socially responsible.

Question 26

Which of the following most likely supports the decision by Ciao managers to build a plant in Russia?

A)The Russian government is transparent and totally corruption-free.
B)Ciao would be able to take advantage of the North American Free Trade Agreement.
C)Intellectual property lawsuits are common in Russia.
D)Land and construction costs are relatively inexpensive in Russia.

Question 27

Which of the following is an example of a market-seeking motive for FDI?

A)a firm wishes to gain access to raw materials
B)a firm follows its key customers abroad
C)a company wishes to gain access to knowledge
D)a company intends to avoid trade barriers

Question 28

The challenges faced due to FDI are the same all over the world.

Question 29

The complexity of the tax system is one of the factors to be considered in selecting FDI locations.

Question 30

Avoiding trade barriers is classified as a market-seeking motive for FDI.

Question 31

A firm most likely enters the home market of a foreign competitor in order to ________.

A)enter a collaborative venture with the competitor
B)gain access to the competitor's government contracts
C)force the competitor to expend resources to defend its market
D)interfere with the competitor's marketing campaign

Question 32

Which of the following should most likely be considered in making the decision to expand ABC operations into the Asian market?

A)How will domestic competitors of ABC react to an international expansion?
B)What technological and managerial know-how can ABC gain from an Asian expansion?
C)How many managers will need to relocate to Asia to oversee the Asian project?
D)How will ABC utilize the Internet to achieve success in the Asian market?

Question 33

Firms often follow their key customers abroad to preempt other vendors from serving them.

Question 34

What makes China popular for FDI? What factors contribute to the long-term popularity of FDI in advanced economies?

Question 35

The strategic purpose behind firms competing with rivals in their own market is to force them to expend resources and thus, defend the firm's own market.

Question 36

Which of the following is the most likely motive behind firms in the mining industry wanting to enter new foreign markets?

A)access to natural resources
B)availability of excessive non-skilled labor force
C)increase in refining capacity
D)payment of wages remain the same in both the new market as well as the existing market

Question 37

A firm that pursues foreign direct investment to take advantage of government incentives is demonstrating a(n)________ motive.

A)efficiency-seeking
B)novelty-seeking
C)asset-seeking
D)market-seeking

Question 38

Which of the following should be considered in the decision regarding where to build a new Ciao plant?

A)How many Ciao cars are sold in Italy and Spain each year?
B)What U.S. automakers are the biggest competitors of Ciao?
C)How politically stable are the governments of Russia and Canada?
D)How will Ciao managers handle the language barriers in foreign markets?

Question 39

A firm that pursues a collaborative venture to access raw materials is demonstrating a(n)________ motive.

A)efficiency-seeking
B)novelty-seeking
C)asset-seeking
D)market-seeking

Question 40

The existence of a substantial market motivates many firms to produce offerings at or near customer locations.

Question 41

In the fashion industry, customer needs change rapidly and managers often locate factories or assembly operations near important customers.

Question 42

Compared to small firms, large companies usually can access capital at lower cost.

Question 43

The purchase of an existing company or facility is known as a(n)________.

A)greenfield investment
B)licensing
C)acquisition
D)equity joint venture

Question 44

Companies opt for FDI to obtain advantages associated with locating at the hub of knowledge development and innovation in a given industry.

Question 45

Economies of scale are decreases in per-unit cost of production resulting from decreasing output.

Question 46

Governments encourage inward FDI because it transfers skill and technologies.

Question 47

International expansion invariably results in a decrease in a firm's economies of scale.

Question 48

How does the acquisition of a foreign company most likely benefit a focal firm in the foreign market?

A)The focal firm can extend its market reach through readily available distribution networks.
B)The MNE avoids domestic and foreign taxation, which enables the firm to invest more resources in the foreign market.
C)Firm managers can reduce their workload by ensuring that all decision-making responsibilities are taken up by foreign managers.
D)The firm eliminates the need to train its own employees by utilizing the workers previously hired by the foreign firm.

Question 49

A(n)________ is the purchase of an existing company or facility.

A)greenfield investment
B)outsourcing arrangement
C)acquisition
D)offshoring arrangement

Question 50

An arrangement whereby the firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product or service is termed as ________.

A)vertical integration
B)horizontal integration
C)decentralization
D)centralization

Question 51

Discuss resource and asset-seeking motives for FDI. Why might a company favor acquisition over greenfield investment as an FDI approach?

Question 52

By establishing a physical presence inside a country or an economic bloc, the foreign company obtains the same advantages as local firms.

Question 53

Which of the following terms is used to refer to a focal firm's partial ownership of an existing firm?

A)turnkey operation
B)greenfield investment
C)direct investment
D)equity participation

Question 54

Tariff and other trade barriers for exports and FDI are identical.

Question 55

Collaborative ventures benefit SMEs by providing them with ________.

A)better trained employees
B)increased amount of capital
C)larger and newer facilities
D)more advanced technology

Question 56

Firms that engage in FDI avoid problematic trade barriers because the physical presence of a foreign firm earns it the same privileges as a local firm.

Question 57

A(n)________ is a special type of acquisition in which two companies join to form a larger firm.

A)merger
B)acquisition
C)wholly owned direct investment
D)greenfield investment

Question 58

Discuss three reasons for firms seeking new market opportunities. Illustrate each with an example of a firm that sought a new foreign market for that particular motive.

Question 59

A firm that builds a new manufacturing facility in a foreign market is participating in a(n)________.

A)acquisition
B)merger
C)greenfield investment
D)equity participation

Question 60

In the context of attaining economies of scope, using individual managers in each European country is more efficient that using the same base of managers all over Europe.

Question 61

During his presentation, Manu describes how a large U.S. retailer entered the Mexican market by purchasing the stores and assets of a Mexican retailer. Which of the following topics was most likely assigned to Group B?

A)merger
B)turnkey operation
C)acquisition
D)collaborative venture

Question 62

Vertical integration is an arrangement in which the firm owns, or seeks to own, the activities performed in a single stage of its value chain.

Question 63

Explain why MNEs prefer acquisition instead of greenfield FDI. Why do foreign governments encourage greenfield FDI?

Question 64

One of the key advantages to an equity joint venture is that the management structure is very simple which allows for easy adjustments and modifications.

Question 65

During his presentation, Mario describes how a large Japanese automaker built a factory in Kentucky. Which of the following topics was most likely assigned to Group C?

A)horizontal integration
B)equity joint venture
C)greenfield investment
D)consortium

Question 66

A firm that owns the activities performed in a single stage of its value chain is demonstrating ________.

A)centralization
B)decentralization
C)horizontal integration
D)reverse integration

Question 67

A consortium is defined as ________.

A)the purchase of an existing company or facility
B)two partners forming a new legal entity
C)an equity venture to consolidate the value chain
D)multiple partners participating on a large-scale project

Question 68

A greenfield investment is a direct investment to purchase an existing company or facility.

Question 69

Which of the following is a key reason that a focal firm would most likely enter a collaborative venture with a foreign firm?

A)the foreign firm can fill an important gap in the focal firm's value chain
B)the foreign firm requires the focal firm's financial resources to compete locally as well
C)the focal firm wants to duplicate a competitor's marketing strategies abroad
D)the market abroad is saturated; there is no scope for the focal firm's products or services

Question 70

A merger is a special type of acquisition.

Question 71

A new legal entity is created during the formation of a project-based, nonequity venture.

Question 72

Home Depot made a greenfield investment when it entered the Mexican market by purchasing Home Mart, a domestic store chain.

Question 73

Which of the following is a disadvantage of equity joint ventures?

A)termination difficulties
B)lesser control over future directions
C)imbalanced relationship
D)vague contractual partnership

Question 74

A firm that develops the capacity to sell its products by investing in marketing and selling operations is ________.

A)acquiring downstream value-chain facilities
B)acquiring upstream value-chain facilities
C)engaging in centralization
D)engaging in decentralization

Question 75

During her presentation, Jessica describes how two automakers joined forces and formed a separate firm by pooling their assets. Which of the following topics was most likely assigned to Group A?

A)equity joint venture
B)acquisition
C)greenfield investment
D)vertical integration

Question 76

Host-country governments often pressure MNEs to undertake acquisition over greenfield investments.

Question 77

Which of the following is a characteristic of an equity joint venture?

A)simple management structure
B)facilitates knowledge transfer between partners
C)easy to terminate
D)lesser exposure to political risk

Question 78

A(n)________ is a project-based, usually nonequity venture initiated by multiple partners to fulfill a large-scale project.

A)greenfield investment
B)acquisition
C)merger
D)consortium

Question 79

Explain the difference between vertical FDI and horizontal FDI. Provide an example that illustrates the difference between vertical and horizontal integration

Question 80

Which of the following is a characteristic of project-based, non-equity ventures?

A)a broad scope of product development
B)a specific agenda and timeframe
C)long-term sharing of resources
D)formation of a new legal entity