Question 1

An industry composed of a limited number of large firms (i.e.an industry in which four firms control 80 percent of a domestic market)is referred to as a(n):
A) syndicate
B) cartel
C) oligopoly
D) monopoly
E) stratified polity

Accepted Answer

An industry composed of a limited number of large firms controlling a substantial portion of the market is referred to as an oligopoly. In an oligopoly, the limited number of large firms available in the industry compete against each other, and their actions have a significant impact on the market. A cartel refers to a group of firms that work together to control the market, while a monopoly refers to a single firm controlling the entire market. Syndicate and stratified polity are not terms used in the context of market structures.

Question 2

FDI is often undertaken as a response to:
A) exporting
B) FDI outflows
C) FDI inflows
D) threatened import tariffs
E) high GDP levels

Accepted Answer

FDI is often undertaken as a response to threatened import tariffs, as companies may choose to invest overseas in order to bypass the tariffs and have greater control over their production and distribution channels.

Question 3

High transportation costs and/or tariffs imposed on imports help explain why many firms prefer _____________ over _____________.
A) foreign direct investment or licensing; exporting
B) foreign direct investment or licensing; joint ventures
C) exporting; foreign direct investment or licensing
D) strategic alliances; foreign direct investment or licensing
E) licensing; foreign direct investment

Accepted Answer

High transportation costs and tariffs make exporting less attractive, so firms often prefer to invest directly in foreign markets through foreign direct investment or licensing agreements. Joint ventures may also be a viable option in some cases, but it is not mentioned as a preferred alternative in the question. Strategic alliances and licensing alone may not provide enough control over production, distribution, and marketing activities to justify the costs and risks associated with foreign expansion.

Question 4

According to internalization theory,licensing has three major drawbacks as a strategy for exploiting foreign market opportunities.Each of the following is a drawback of licensing except:
A) licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.
B) licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
C) licensing helps a firm avoid making a direct foreign investment in a foreign country.
D) when a firm's competitive advantage is based not so much on its products as on the management, marketing, and manufacturing capabilities that produce those produces, licensing fails to capture those advantages.
E) none of these answers is correct.

Accepted Answer

The other options (A, B, and D) are all drawbacks of licensing according to internalization theory. However, option C is not a drawback but rather a benefit of licensing – it allows a firm to avoid making a direct foreign investment in a foreign country.

Question 5

According to the textbook,a firm will favor _____________ over _______________ when it wishes to maintain control over its technological know-how,or over its operations and business strategy.
A) foreign direct investment; exporting
B) licensing; foreign direct investment
C) foreign direct investment; licensing
D) exporting; foreign direct investment
E) exporting; licensing

Accepted Answer

A firm will favor foreign direct investment over licensing when it wishes to maintain control over its technological know-how or over its operations and business strategy. This is because foreign direct investment involves the firm directly investing in and owning facilities in the foreign country, allowing it to maintain greater control over its operations and protect its intellectual property more effectively than through licensing, which involves granting another company the rights to use its intellectual property.

Question 6

When ________________,a firm will favor FDI over exporting as an entry strategy,according to the textbook.
A) interest rates or government policy make exporting unattractive
B) transportation costs or trade barriers make exporting unattractive
C) cultural barriers or trade barriers make exporting unattractive
D) cultural barriers or government policy make exporting unattractive
E) internalization theory is not applicable

Accepted Answer

According to the textbook, when transportation costs or trade barriers make exporting unattractive, a firm will favor FDI as an entry strategy. This is because FDI allows the firm to have more control over production and distribution, thus reducing the impact of transportation costs and trade barriers.

Question 7

According to the textbook,FDI is expensive because
A) a firm must pay a high franchising fee to participate in foreign direct investment in most countries.
B) a firm must pay the transportation costs to ship domestically produced products overseas.
C) a firm must establish production facilities in a foreign country or acquire a foreign enterprise.
D) a firm must pay a high licensing fee to participate in foreign direct investment in most countries.
E) a firm must pay taxes in both countries.

Accepted Answer

FDI involves establishing production facilities in a foreign country or acquiring a foreign enterprise, which can be a very expensive process. This includes costs such as purchasing land, building facilities, acquiring equipment, and hiring and training local employees. Additionally, there may be costs associated with complying with local laws and regulations, such as environmental and labor standards.

Question 8

If one firm in a(n)_______________ cuts prices,this can take market share away from its competitors,forcing them to respond with similar price cuts in order to retain their market share.
A) monopoly
B) oligopoly
C) multipoint competition
D) cartel
E) price fixing agreement

Accepted Answer

In an oligopoly market structure, a few large firms dominate the market, which leads to intense competition. If one firm in an oligopoly cut its price, it can effectively take market share away from its competitors. The competitors are then forced to respond with similar price cuts to retain their market share. This is because firms in an oligopoly are interdependent and closely monitor each other's actions, especially regarding pricing.

Question 9

_______________,a branch of economics,seeks to explain why firms often prefer foreign direct investment to licensing as a strategy for entering foreign markets.
A) Comparative advantage theory
B) Globalization theory
C) Cosmopolitan theory
D) Internalization theory
E) Patterns of FDI

Accepted Answer

Internalization theory explains why firms tend to prefer foreign direct investment (FDI) to licensing as a strategy for entering foreign markets. This theory suggests that firms prefer FDI because it allows them to have greater control over their operations in the foreign market and to protect their technology and other proprietary assets. FDI also allows firms to better coordinate their activities across borders and to take advantage of economies of scale and scope that may not be available through licensing.

Question 10

_______________ involves producing goods at home and then shipping them to the receiving country for sale.
A) Foreign direct investment
B) Licensing
C) Franchising
D) Exporting
E) Offshoring

Accepted Answer

Exporting involves producing goods in one country and then shipping them to another country for sale. This can be done by the producer themselves, or by using a third-party exporter. It is often used by smaller companies who are looking to expand their markets without having to make significant investments in facilities or operations in other countries.

Question 11

Some of Toyota's competitive advantage is due to its superior ability to manage the design,engineering and manufacturing of its automobiles.Despite the fact that some of its products could be licensed for production by another company it does not do so because _____________.
A) Toyota does not want to lose control over its technology
B) Toyota are strong believers in the internalization theory
C) Toyota does not want to share profits and it is a large enough company to enter every market
D) another company could not be as efficient a producer of cars as Toyota
E) all of these answers are correct

Accepted Answer

The answer of Some of Toyota's competitive advantage is due...

Question 12

Much foreign direct investment is undertaken as a response to actual or threatened
A) trade barriers.
B) economic sanctions.
C) legal action.
D) international appeals.
E) market opportunities.

Accepted Answer

Foreign direct investment is often used to bypass trade barriers, allowing companies to produce and sell goods within a country without facing import restrictions.

Question 13

When transportation costs are added to production costs,it becomes unprofitable to ship some products over a large distance.This is particularly true of products that have a(n):
A) high value-to-weight ratio
B) moderate value-to-weight ratio
C) low value-to-weight ratio
D) extremely high value-to-weight ratio
E) value to weight ratio

Accepted Answer

Products with a low value-to-weight ratio like rocks, sand, or bricks are cheaper to produce but expensive to transport because of their weight. Adding transportation costs to production costs increases the overall cost, which can make it unprofitable to transport them over long distances. On the other hand, products with a high value-to-weight ratio, such as jewelry or gold, are more expensive to produce but cheaper to transport because they are lightweight and compact. Therefore, it is profitable to transport them over long distances.

Question 14

Four Seasons Hotels and Resorts has shifted their focus from the acquisition of foreign properties to offering management contracts for local owners of hotel properties.This shift has taken place,because __________________.
A) the FDI climate is less favourable to hotel developments
B) the low Canadian dollar in the early 2000s made foreign acquisitions prohibitively expensive
C) they preferred to license their business system
D) international travel and tourism went into a steep decline after the terrorist attacks of 9/11
E) service was such an important component of their brand and because it ensured a steady income

Accepted Answer

Four Seasons Hotels and Resorts shifted focus to management contracts because service is crucial to their brand and it ensures a steady income.

Question 15

Control over manufacturing,marketing,and strategy is granted to a licensee in return for:
A) increased taxation.
B) decreased taxation.
C) a royalty fee.
D) company stock given to the government.
E) profit sharing.

Accepted Answer

Control over manufacturing, marketing, and strategy is granted to a licensee in return for a royalty fee. This fee is typically a percentage of the licensee's sales or profits, and it compensates the licensor for granting the licensee permission to use their intellectual property and business practices. Increased or decreased taxation, company stock given to the government, and profit sharing are not typical forms of compensation for licensing agreements.

Question 16

Studies of U.S.enterprises suggest that firms based in _____________ industries tend to imitate each other's foreign direct investment patterns.
A) oliogopolistic
B) monopolistic
C) syndicated
D) munificent
E) related

Accepted Answer

Oligopolistic industries are characterized by a small number of large firms, which often observe and imitate each other's strategies, including foreign direct investment patterns, to maintain competitive parity.

Question 17

If 3M,an American firm,produces adhesive tape in St.Paul,Minnesota,and ships the tape to South Korea to be sold,that is an example of:
A) exporting
B) licensing
C) franchising
D) cross-border investing
E) international trade

Accepted Answer

Exporting refers to the process of selling goods or services produced in one country to another country. In this scenario, 3M is producing adhesive tape in the United States and selling it to South Korea, which qualifies as exporting. Licensing involves granting permission to another company to use a firm's intellectual property. Franchising is a form of licensing in which a company allows another party to use its business model and branding in exchange for fees and royalties. Cross-border investing usually involves investing in companies or assets in foreign countries, while international trade refers to the exchange of goods and services between countries.

Question 18

The _______________ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.
A) versatile model
B) internationalization model
C) globalization paradigm
D) eclectic paradigm
E) unified theory of FDI

Accepted Answer

The eclectic paradigm is a theory of foreign direct investment that combines the ownership, location, and internalization perspectives into a single holistic explanation of FDI.

Question 19

The licensor _____________ in return for licensing one of its products to a foreign firm.
A) gets preferential trade treatment from the country of the licensee
B) gets a special subsidy from the country of the licensee
C) collects a royalty fee on every unit the licensee sells
D) gets a one time payment from the licensee
E) protects their local market

Accepted Answer

The licensor collects a royalty fee on every unit that the licensee sells. This is the most common form of payment for licensing agreements, where the licensor earns a percentage of the revenue generated by the licensee's sales of the licensed product. The other options, such as preferential trade treatment, subsidies, or one-time payments, are not typically associated with licensing agreements.

Question 20

Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?
A) franchising
B) exporting
C) licensing
D) foreign direct investment
E) merger

Accepted Answer

Licensing involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold. Franchising also involves granting the right to sell the firm's product, but the franchisor provides significant support and control over the franchisee's operations. Exporting involves selling a firm's product directly to foreign customers, while foreign direct investment involves establishing a physical presence in a foreign market, such as by building a factory or acquiring a local company. A merger involves the combination of two or more companies into a single entity.

Quiz 7: Foreign Direct Investment

An industry composed of a limited number of large firms (i.e.an industry in which four firms control 80 percent of a domestic market) is referred to as a(n) :

FDI is often undertaken as a response to:

High transportation costs and/or tariffs imposed on imports help explain why many firms prefer _ over _.

According to internalization theory,licensing has three major drawbacks as a strategy for exploiting foreign market opportunities.Each of the following is a drawback of licensing except:

According to the textbook,a firm will favor _ over ___ when it wishes to maintain control over its technological know-how,or over its operations and business strategy.

When ________________,a firm will favor FDI over exporting as an entry strategy,according to the textbook.

According to the textbook,FDI is expensive because

If one firm in a(n) _______________ cuts prices,this can take market share away from its competitors,forcing them to respond with similar price cuts in order to retain their market share.

_______________,a branch of economics,seeks to explain why firms often prefer foreign direct investment to licensing as a strategy for entering foreign markets.

_______________ involves producing goods at home and then shipping them to the receiving country for sale.

Some of Toyota's competitive advantage is due to its superior ability to manage the design,engineering and manufacturing of its automobiles.Despite the fact that some of its products could be licensed for production by another company it does not do so because _____________.

Much foreign direct investment is undertaken as a response to actual or threatened

When transportation costs are added to production costs,it becomes unprofitable to ship some products over a large distance.This is particularly true of products that have a(n) :

Four Seasons Hotels and Resorts has shifted their focus from the acquisition of foreign properties to offering management contracts for local owners of hotel properties.This shift has taken place,because __________________.

Control over manufacturing,marketing,and strategy is granted to a licensee in return for:

Studies of U.S.enterprises suggest that firms based in _____________ industries tend to imitate each other's foreign direct investment patterns.

If 3M,an American firm,produces adhesive tape in St.Paul,Minnesota,and ships the tape to South Korea to be sold,that is an example of:

The _______________ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.

The licensor _____________ in return for licensing one of its products to a foreign firm.

Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?