Question 1

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

Accepted Answer

Horizontal integration occurs when a firm owns multiple entities at the same stage of the production process, thereby consolidating activities within the same level of its value chain. This strategy can lead to increased market power and efficiencies.

Question 2

A consortium is defined as ________.

Accepted Answer

A consortium typically refers to a group or association of multiple companies, organizations, or entities that come together to participate in a large-scale project or venture, pooling resources to achieve a common goal.

Question 3

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

Accepted Answer

In a project-based, nonequity venture, the parties collaborate on a specific project without forming a new legal entity; instead, they maintain their separate legal statuses.

Question 4

A merger is a special type of acquisition.

Accepted Answer

A merger is a type of acquisition where two companies combine to form a new entity, often with mutual agreement, whereas acquisitions can also involve one company taking over another.

Question 5

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

Accepted Answer

The answer of Explain why MNEs prefer acquisition instead of...

Question 6

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

Accepted Answer

A consortium is a collaborative arrangement where multiple partners come together, often without forming a new legal entity, to work on a large-scale project, typically one that is too complex, costly, or risky for a single entity to handle alone.

Question 7

Vertical integration is 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.

Accepted Answer

Vertical integration involves a company expanding its operations into different stages of production or distribution within its industry, effectively controlling more than one stage of the supply chain, from manufacturing to sales.

Question 8

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

Accepted Answer

Equity joint ventures often involve collaboration between companies, which can facilitate the sharing and transfer of knowledge, expertise, and technology between the partners. This is a key advantage of forming such partnerships.

Question 9

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

Accepted Answer

Equity joint ventures often face termination difficulties due to the complex nature of shared ownership and the need for mutual agreement to dissolve the partnership.

Question 10

International Business Class (Scenario)
Students in Professor Manning's international business class have been assigned the task of explaining the different types of FDI. Professor Manning formed groups among students. The groups are to research their assigned topic and present their information to the class using examples of real-world firms for illustration. Jessica Hanson is the leader of Group A; Manu Patel is the leader of Group B; and Mario Witherspoon is the leader of Group C.
-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?

Accepted Answer

Jessica's description of two automakers joining forces to form a separate firm by pooling their assets is a classic example of an equity joint venture. This type of FDI involves two or more companies creating a new, jointly owned enterprise.

Question 11

International Business Class (Scenario)
Students in Professor Manning's international business class have been assigned the task of explaining the different types of FDI. Professor Manning formed groups among students. The groups are to research their assigned topic and present their information to the class using examples of real-world firms for illustration. Jessica Hanson is the leader of Group A; Manu Patel is the leader of Group B; and Mario Witherspoon is the leader of Group C.
-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?

Accepted Answer

Acquisition is the correct answer because it involves one company purchasing the stores and assets of another company, as described in Manu's presentation.

Question 12

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

Accepted Answer

Host-country governments usually prefer greenfield investments over acquisitions because greenfield projects often bring more economic benefits such as new employment opportunities and technology transfer, whereas acquisitions may not create new jobs and can sometimes lead to monopolistic market structures.

Question 13

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

Accepted Answer

The answer of Explain the difference between vertical FDI and...

Question 14

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

Accepted Answer

A greenfield investment refers to a foreign direct investment where a parent company builds its operations in a foreign country from the ground up, including constructing new facilities and buildings, rather than purchasing or investing in existing ones.

Question 15

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

Accepted Answer

Project-based, nonequity ventures typically have a specific agenda and timeframe, focusing on achieving particular project goals without the long-term commitment or resource sharing associated with equity-based partnerships.

Question 16

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

Accepted Answer

Home Depot entered the Mexican market by acquiring the Home Mart chain in 2001, marking its first foray into Mexico.

Question 17

Cross-licensing agreements are a type of project-based, nonequity venture in which the partners agree to allow access to licensed intellectual property developed by the other on preferential terms.

Accepted Answer

Cross-licensing agreements involve two or more companies granting each other the rights to use certain intellectual property, including patents, trademarks, or copyrights, under agreed terms, without necessarily involving equity stakes or the formation of a separate entity. This allows each company to benefit from the other's innovations, often leading to a synergistic partnership where both parties can enhance their products or services.

Question 18

International Business Class (Scenario)
Students in Professor Manning's international business class have been assigned the task of explaining the different types of FDI. Professor Manning formed groups among students. The groups are to research their assigned topic and present their information to the class using examples of real-world firms for illustration. Jessica Hanson is the leader of Group A; Manu Patel is the leader of Group B; and Mario Witherspoon is the leader of Group C.
-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?

Accepted Answer

Mario's description of a large Japanese automaker building a factory in Kentucky is an example of a greenfield investment, which involves a parent company starting a new venture in a foreign country by constructing new operational facilities from the ground up.

Question 19

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

Accepted Answer

Collaborative ventures often aim to leverage the strengths of each partner. A foreign firm can provide local expertise, resources, or capabilities that the focal firm lacks, effectively filling a gap in the focal firm's value chain and enabling it to operate more effectively in a new market.

Question 20

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.

Accepted Answer

Equity joint ventures often involve complex management structures due to the need to balance the interests, goals, and operational practices of two or more independent entities, making adjustments and modifications potentially challenging.

Quiz 14: Foreign Direct Investment and Collaborative Ventures