Question 1

According to the international product life cycle, in which stage of a product's life does a company directly invest in production facilities in countries where demand is great enough to warrant production facilities?

Accepted Answer

In the maturing product stage, demand in foreign markets increases, leading companies to invest in production facilities abroad to meet local demand efficiently.

Question 2

A(n) ________ is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.

Accepted Answer

The advantage described in the question is the internalization advantage. This refers to the benefits that a firm gains by bringing an activity in-house instead of relying on an external market to provide that activity. By internalizing, a firm can gain greater control over the quality and timing of the activity, leading to improved efficiency and effectiveness. Ownership advantage (A) is a broader term that refers to any advantage that a firm has due to owning a particular asset or capability. Location advantage (C) refers to the benefits that arise from locating a business in a particular area, such as access to skilled labor or natural resources. Market power advantage (D) refers to the advantages that arise from a firm's ability to exert influence over its market, such as through price-setting power or control over distribution channels.

Question 3

The requirement that a sufficient portion of a product's content originate within a certain market to escape tariff charges is an example of a(n) ________.

Accepted Answer

The answer of The requirement that a sufficient portion of...

Question 4

Which of these created renewed determination to further reduce barriers to trade?

Accepted Answer

The Uruguay Round of trade negotiations, which took place from 1986 to 1994, resulted in the creation of the World Trade Organization and brought about a new wave of trade liberalization. The negotiations addressed a wide range of barriers to trade, including tariffs, non-tariff barriers, and intellectual property protection. This renewed determination to further reduce barriers to trade was a key factor in the growth of international trade in the decades that followed.

Question 5

The ________ theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for an investment.

Accepted Answer

The eclectic theory, also known as the OLI framework, argues that three types of advantages (ownership, location, and internalization) must be present for a firm to undertake foreign direct investment. The theory suggests that ownership advantages are possessed by firms that have superior technology, managerial skills, and other intangible assets that give them a competitive advantage in the global marketplace. The location advantage refers to factors such as market size, natural resources, labor costs, and political stability that make a particular location attractive for investment. Internalization advantages are those that arise when a firm chooses to internalize its operations rather than rely on markets or suppliers for certain inputs or outputs. According to the eclectic theory, foreign direct investment occurs when the combination of ownership, location, and internalization advantages is greater than the cost of doing business in a foreign market.

Question 6

One way a company can achieve market power is through ________.

Accepted Answer

The answer of One way a company can achieve market...

Question 7

According to the international product life cycle, in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?

Accepted Answer

In the new product stage of the international product life cycle, a good is produced in the home country because of uncertain domestic demand and to keep production close to the research department. This is because the product is new and there may be uncertainty about how well it will sell in foreign markets, so it is produced domestically to minimize risk.

Question 8

Which of the following is the extension of company activities into stages of production that provide a firm's inputs or absorb its outputs?

Accepted Answer

Vertical integration refers to when a company extends its activities into stages of production which provide its inputs, called backward integration, or absorb its outputs, called forward integration.

Question 9

Which of the following statements is NOT true?

Accepted Answer

The statement "Entrepreneurs and small businesses do not play an important role in expanding foreign direct investment flows" is not true. In fact, many small businesses and entrepreneurs engage in foreign direct investment to expand their international presence and reach new markets.

Question 10

Companies seek cross-border mergers and acquisitions to ________.

Accepted Answer

Companies seek cross-border mergers and acquisitions to achieve various objectives including getting a foothold in new geographic markets, increasing a firm's global competitiveness, and filling in gaps in companies' product lines in a global industry. Therefore, all of the options presented are valid reasons why companies seek cross-border mergers and acquisitions.

Question 11

A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a(n) ________.

Accepted Answer

A perfect market is one characterized by a large number of buyers and sellers, homogeneous products, perfect information, and where there are no barriers to entry or exit. In such a market, goods and services are readily available and the market operates at peak efficiency, resulting in lower costs to consumers and producers.

Question 12

Which of the following is NOT one of the four main theories that attempts to explain why companies engage in foreign direct investment?

Accepted Answer

The four main theories that attempt to explain why companies engage in foreign direct investment are international product life cycle theory, market imperfections theory, eclectic theory, and internalization theory. Mercantilism is not one of these four theories.

Question 13

A(n) ________ is the advantage of locating a particular economic activity in a specific location because of the characteristics of that location.

Accepted Answer

A location advantage is the advantage use of the attributes of a specific location due to factors such as proximity to resources or customers, accessibility, infrastructure, labor force, and government policies. It helps businesses to achieve cost savings, increase efficiency, and improve competitiveness. Industry advantage refers to the advantage gained by an industry in a particular location due to factors such as technology, knowledge, and skills, while production advantage refers to an advantage in producing goods or services efficiently. Comparative advantage is a broader concept that refers to a country's ability to produce goods or services at a lower opportunity cost than another country.

Question 14

The ________ theory states that a firm tries to establish a dominant market presence in an industry by undertaking foreign direct investment.

Accepted Answer

The market power theory suggests that firms engage in foreign direct investment to establish a dominant presence in an industry, thereby gaining control over resources, reducing competition, and increasing their market power.

Question 15

The ________ theory states that when an imperfection in the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the imperfection.

Accepted Answer

The theory described in the question pertains to market imperfections or internalization theory, as stated in option D. Option A refers to a situation where a company has power over the market, while option B describes an ideal scenario that rarely exists in reality. Option C refers to a theory that explains the evolution of a product over its life cycle, which is not relevant to the question.

Question 16

In the ________ product stage of the international product life cycle theory, increased competition pressures a company to produce in low-cost developing nations.

Accepted Answer

In the standardized product stage, the product becomes more common and competition increases, prompting companies to move production to low-cost developing nations to maintain profitability.

Question 17

Which of these refers to the theory that a company will begin by exporting its products and later undertake foreign direct investment as a product moves through its life cycle?

Accepted Answer

The international product life cycle theory suggests that as a product enters new markets, a company will initially export its products, then undertake foreign direct investment as the product moves through its life cycle. This theory explains how a product that is initially unique to a particular country eventually becomes standardized and can be produced in other countries, leading to foreign direct investment to take advantage of lower production costs. Option A (Eclectic life cycle) is not a recognized theory, option B (Market imperfections life cycle) refers to a theory of economic growth, and option D (Market power life cycle) is not related to this concept.

Question 18

Which of these theories states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for investment?

Accepted Answer

The Eclectic theory, also known as the OLI framework, states that firms undertake foreign direct investment when there is a combination of ownership advantages (O), internalization advantages (I), and location-specific advantages or attractiveness (L). The location-specific advantages, or the features of a particular location, are what make that location appealing for investment.

Question 19

According to the eclectic theory, which of the following advantages must be present for a company to undertake foreign direct investment?

Accepted Answer

According to the eclectic theory, a company must have ownership-specific advantages, location-specific advantages, and internalization advantages to undertake foreign direct investment. Therefore, all of the above advantages must be present for FDI to be feasible.

Question 20

When companies realized they could produce in the most efficient and productive locations in the world and simply export to markets worldwide, a new surge of foreign direct investment flowed into ________.

Accepted Answer

The statement suggests that companies started to invest in efficient and productive locations around the world and export to other markets. This points towards low-cost newly industrialized nations and emerging markets as ideal locations for foreign direct investment. Therefore, option A is the best choice. Option B, highly developed economies, does not fit the context of the statement. Option C, the automobile and computer industries, is too narrow and does not encompass the broader context of the statement. Option D, totalitarian and theocratic nations only, is not supported by the information provided in the statement.

Quiz 7: Foreign Direct Investment