Question 1

A subsidiary built abroad from the ground up is called a(n)________.

Accepted Answer

A greenfield investment refers to building or establishing a subsidiary from scratch in a foreign country. It involves purchasing land, constructing buildings, and acquiring equipment and technology to start a new business.

Question 2

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

Accepted Answer

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

Question 3

Which of the following is an example of a greenfield investment?

Accepted Answer

A greenfield investment is when a company builds an entirely new subsidiary or facility in a foreign country from the ground up. This is different from a merger or acquisition, where an existing company is bought or merged with. Option A describes an acquisition, Option C describes a merger, and Option D describes the purchase of an existing business. Therefore, Option B is the only example of a greenfield investment.

Question 4

According to the international product life cycle theory,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

According to the international product life cycle theory, in the new product stage, 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 is uncertainty about its demand in foreign markets, thus it is safer to produce it in the home country where the research and development team is located. As the product becomes established in the market, production is moved to foreign countries where labor costs are lower.

Question 5

The appeal of purchasing existing facilities is reduced by the potential for each of the following EXCEPT ________.

Accepted Answer

Low wages for local workers would actually increase the appeal of purchasing existing facilities as it would reduce labor costs. Obsolete equipment, unsuitable location, and poor relations with workers all represent potential downsides to purchasing existing facilities.

Question 6

Canadian government exercises a high degree of control over the broadcasting sector because it ___________________.

Accepted Answer

The Canadian government exercises a high degree of control over the broadcasting sector because it wants to control the type of programming offered. The Canadian Radio-television and Telecommunications Commission (CRTC) regulates and supervises all aspects of the broadcasting industry, including the content that is broadcasted to ensure that it aligns with Canadian values and culture. Therefore, option C is the best choice. The other options are not entirely accurate in explaining the government's regulatory control over the broadcasting sector in Canada.

Question 7

________ is the advantage of conducting a particular economic activity in a specific area because of the characteristics of that place.

Accepted Answer

Location advantage refers to the benefits derived from conducting a particular economic activity in a specific area because of its unique characteristics, such as access to raw materials, skilled labor, infrastructure, and proximity to markets. The location advantage can help businesses increase efficiency, lower costs, and gain a competitive edge in the market.

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 involves expanding a company's activities into stages of production that provide a firm's inputs or absorb its outputs. Horizontal integration refers to the acquisition of companies at the same stage of production or in the same industry. Market penetration involves increasing market share through increased marketing efforts, while collaborative diversification involves partnering with other companies for joint venture or diversification purposes.

Question 9

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, explains why firms engage in foreign direct investment. It suggests that firms will seek to invest in foreign countries when they possess ownership advantages (such as proprietary technology or managerial expertise), location advantages (such as natural resources or a skilled workforce), and internalization advantages (such as the ability to maintain control over their operations and protect their intellectual property). The other options (A, B, C) are other theories of FDI that do not fully encompass the three advantages mentioned in the eclectic theory.

Question 10

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

Accepted Answer

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

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 where there is a high level of competition, no barriers to entry or exit, perfect information, and where goods and services are readily available. This market is said to be efficient because all buyers and sellers have access to the same information and there are no artificial barriers in place to distort the pricing of goods and services.

Question 12

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

Accepted Answer

The market power theory, also known as the industrial organization theory, proposes that firms invest in foreign markets to establish a dominant position and gain market power. This is achieved by increasing market share, reducing competition, and increasing profits. The other options are not directly related to this theory.

Question 13

Which of the following statements is true regarding complete ownership of a business in another country?

Accepted Answer

Complete ownership of a business in another country does not guarantee control as there may be legal, political, and cultural barriers that limit the owner's decision-making and ability to operate the business as they please. Profitability and government support are also not guaranteed with complete ownership.

Question 14

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

The answer of In the ________ product stage of the...

Question 15

A company that integrates backward or forward can achieve market power through ________.

Accepted Answer

Vertical integration refers to a company's expansion into different stages of the supply chain, either through backward integration (towards suppliers) or forward integration (towards customers). By integrating vertically, a company can achieve market power through ownership advantages, such as access to key inputs, greater coordination and control of production processes, and the ability to capture a greater share of the value chain. This can result in increased efficiency, cost savings, and improved bargaining power with suppliers or customers.

Question 16

The theory that a company will begin by exporting its products and later undertake foreign direct investment is referred to as the _______________ theory.

Accepted Answer

The theory that a company will begin by exporting its products and later undertake foreign direct investment is referred to as the international product life cycle theory. This theory suggests that a product goes through different stages of development, beginning with domestic production and then moving towards exporting, foreign production, and finally foreign direct investment.

Question 17

According to the eclectic theory,each of the following advantages must be present for a company to undertake foreign direct investment EXCEPT ________.

Accepted Answer

The eclectic theory lists three advantages that must be present for a company to undertake foreign direct investment: ownership-specific advantages (such as proprietary technology or management expertise), location-specific advantages (such as access to natural resources or strategic markets), and internalization advantages (the ability to coordinate and control operations across borders). "Localization" is not mentioned as one of these advantages, so it is the exception.

Question 18

________ is the advantage that arises when a company exhibits superior technical knowledge.

Accepted Answer

The advantage that arises when a company exhibits superior technical knowledge is known as ownership advantage. This advantage allows companies to control, protect and leverage their expertise and technology to gain a competitive advantage in the global market. This could lead to patents, copyrights, and other proprietary technologies used to create a monopoly or oligopoly in specific industries.

Question 19

The ________ theory states that when an aspect of 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 efficiency reducing aspect.

Accepted Answer

The given theory is called market imperfections theory. It suggests that market imperfections, such as high transportation costs, communication costs, trade barriers, and lack of local knowledge, can cause transaction costs and reduce efficiency. To overcome these inefficiencies, a company may opt for foreign direct investment to internalize the transaction and ensure greater control, thereby removing the efficiency-reducing aspect. The other options, such as market power, perfect market, and international product life cycle, do not explain the process of internalizing transactions due to market inefficiencies.

Question 20

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

Accepted Answer

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

Quiz 7: Foreign Direct Investment

A subsidiary built abroad from the ground up is called a(n) ________.