Question 1

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

Accepted Answer

FDI (Foreign Direct Investment) is not the least taxing entry strategy as it involves a higher level of investment and risks compared to other strategies such as exporting or licensing. Firms that choose FDI have to establish a physical presence in a foreign market, which requires significant resources and capital, and they may also face regulatory and political obstacles.

Question 2

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

Accepted Answer

The answer of Home Depot made a greenfield investment when...

Question 3

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 do allow partners to access licensed intellectual property developed by the other, but they do not necessarily have to be project-based or nonequity ventures. However, the statement's description of the terms for accessing the intellectual property is accurate.

Question 4

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 5

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

Accepted Answer

A market-seeking motive for FDI involves a firm seeking to enter a new market to access customers and increase sales. Following key customers abroad would align with this motive. Option A is an example of a resource-seeking motive, option C relates to knowledge-seeking motives, and option D is an example of efficiency-seeking motives.

Question 6

International portfolio investment refers to passive ownership of foreign securities.

Accepted Answer

International portfolio investment is a type of investment where investors own foreign securities passively, meaning they have no control over the management or operations of the securities they own.

Question 7

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

The statement is false. While an equity joint venture may have simpler management structures than other types of joint ventures, it still requires careful planning and coordination between the partners. Adjustments and modifications may still be difficult to make without proper communication and agreement between the partners.

Question 8

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.

Accepted Answer

The answer of Vertical integration is an arrangement in which...

Question 9

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

Accepted Answer

Firms from both advanced and emerging economies are now employing FDI. This trend is known as the globalization of the world economy, where firms from around the world invest in foreign countries to gain access to new markets and resources.

Question 10

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 11

The failure rate of collaborative ventures is higher in developing economies than in advanced economies.

Accepted Answer

The failure rate of collaborative ventures is generally higher in developing economies due to lack of institutional support, political instability, weaker market structures, and limited access to resources and capital. Advanced economies have more developed market structures, better infrastructure, and access to resources and capital, which reduces the risk of failure.

Question 12

Project-based, nonequity ventures are difficult to set up.

Accepted Answer

Project-based, nonequity ventures, such as collaborations or partnerships where resources are shared but not equity, can be easier to set up compared to equity-based ventures because they often require less legal and financial structuring.

Question 13

A merger is a special type of acquisition.

Accepted Answer

In a merger, two companies combine their operations and become one entity, while in an acquisition, one company purchases another. Therefore, a merger is a type of acquisition.

Question 14

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

Accepted Answer

Many international firms have recognized the importance of being socially responsible and are investing in local communities and setting global standards for fair treatment of workers.

Question 15

While franchising facilitates rapid internationalization, compared to FDI, it affords the firm less control over its foreign operations.

Accepted Answer

Franchising involves granting a third-party operator the right to use the company's brand, product, and business model in exchange for fees and royalties. While this facilitates rapid expansion, the franchisor has less control over the foreign operations since the franchisee is an independent operator who makes decisions about the day-to-day business operations. In contrast, FDI involves setting up a wholly-owned subsidiary or acquiring an existing firm in the foreign market, giving the parent company greater control over its foreign operations.

Question 16

Equity joint ventures have the simplest management structure.

Accepted Answer

Equity joint ventures typically have a more complex management structure as decision-making is shared between the partners and there may be cultural and communication differences to navigate.

Question 17

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

Accepted Answer

A greenfield investment is a direct investment to establish a new company or facility, not to purchase an existing one.

Question 18

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

Accepted Answer

By entering the home market of a foreign competitor, a firm can force the competitor to expend resources to defend its market, which can be beneficial for the entering firm. This strategy is often used to gain a foothold in a new market or to weaken a competitor's position. Options A, B, and D are not the typical reasons for a firm to enter a foreign competitor's market.

Question 19

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

Accepted Answer

The complexity of the tax system is a factor to be considered in selecting FDI locations because it affects the cost and ease of doing business in a particular location. Higher complexity can lead to increased administrative burden and costs for companies, which can make a location less attractive for FDI.

Question 20

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

Accepted Answer

The challenges faced due to FDI vary from country to country, depending on factors such as the regulatory environment, political stability, infrastructure, and skill availability. Thus, it cannot be said that the challenges are the same all over the world.

Quiz 15: Foreign Direct Investment and Collaborative Ventures