Question 1

Firms that have intangible assets with a public good property tend to invest directly in foreign countries.This is because
A)in order to use these assets on a larger scale.
B)to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism.
C)all of the above

Accepted Answer

The answer of Firms that have intangible assets with a...

Question 2

MNCs may undertake overseas investment projects in a foreign country,despite the fact that local firms may enjoy inherent advantages.This implies that
A)MNCs are making a mistake in this case and will have to eventually withdraw.
B)MNCs should have significant advantages over local firms such as comparative advantages due to intangible assets.
C)the local firms will not have to compete due to their inherent advantages over the foreigners.
D)none of the above

Accepted Answer

MNCs may choose to undertake overseas investment projects despite local firms enjoying inherent advantages because MNCs may still have significant advantages over local firms such as access to intangible assets like technology, brand recognition, and management expertise. Therefore, they may still be able to compete effectively in the foreign market.

Question 3

The majority of foreign vertical integration is
A)backward.
B)forward.
C)sideways.
D)none of the above

Accepted Answer

The majority of foreign vertical integration is backward, meaning the acquiring company takes over a supplier or distributor in their supply chain to gain more control over their production process. This is common in industries such as electronics and automotive manufacturing. Forward integration, where the company acquires a customer or retailer, is less common in foreign vertical integration. Sideways integration is not a commonly recognized form of integration.

Question 4

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms
A)because the foreigners can't be trusted to follow the secret recipe.
B)because Coca-Cola wanted to protect the formula for its famous soft drink.
C)because of the internalization theory of FDI.
D)both b) and c)

Accepted Answer

The answer of Coca-Cola has invested in bottling plants all...

Question 5

Examples of intangible assets include
A)technological, managerial, and marketing know-how.
B)superior R&D capabilities.
C)brand names.
D)all of the above

Accepted Answer

Intangible assets are assets that lack physical presence but have value due to their ability to generate revenue and provide a competitive advantage. This includes technological, managerial, and marketing know-how, as well as superior R&D capabilities and brand names. Therefore, all of the above options are examples of intangible assets.

Question 6

U.S.car makers were forced to build their own network of dealerships to enter the Japanese market.
A)This is an example of backward vertical integration.
B)This is an example of forward vertical integration.
C)This is an example of sideways vertical integration.
D)None of the above

Accepted Answer

Forward vertical integration involves a company taking control of a downstream distribution channel, such as establishing its own retail outlets. In this case, U.S. car makers entered the Japanese market by building their own network of dealerships, which is a form of forward vertical integration.

Question 7

Many MNCs involved in extractive/natural resources industries
A)tend to directly own oil fields, mine deposits, and forests.
B)tend to lease their oil fields, mine deposits, and forests.
C)tend to partner with local firms, leveraging their intangible assets.
D)none of the above

Accepted Answer

Many MNCs involved in extractive/natural resources industries tend to directly own oil fields, mine deposits, and forests to maintain full control over the operations and generate maximum profits.

Question 8

FDI vertical integration is backward
A)when FDI involves an industry abroad that produces inputs for MNCs.
B)when FDI involves an industry abroad that sells the MNC's outputs.
C)none of the above

Accepted Answer

FDI vertical integration is considered backward when the MNCs invest in industries abroad that produce inputs for their own production processes. This is because the MNCs are essentially integrating backwards in the supply chain, starting from the production of inputs rather than the production of final goods for sale.

Question 9

According to Raymond Vernon (1966),
A)U.S.firms undertake FDI at a particular stage in the life cycle of the products that they initially introduced.
B)the majority of new products, such as computers, televisions, and mass-produced cars, were developed by U.S.firms and first marketed in the United States.
C)in the early stage of the product life cycle, the demand for the new product is relatively insensitive to the price and thus the pioneering firm can charge a relatively high price.
D)all of the above

Accepted Answer

Raymond Vernon's theory of the product life cycle states that U.S. firms undertake FDI at a particular stage in the life cycle of the products that they initially introduced, such as computers, televisions, and mass-produced cars. In the early stage of the product life cycle, the demand for the new product is relatively insensitive to the price, and thus the pioneering firm can charge a relatively high price. Therefore, all three statements (A, B, and C) are true according to Vernon's theory.

Question 10

According to the internalization theory of FDI
A)firms that have intangible assets with a public good property tend to invest directly in foreign countries.
B)property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available.
C)both b) and a)
D)none of the above

Accepted Answer

The answer of According to the internalization theory of FDI
A)firms...

Question 11

Also,MNCs often find it profitable to locate manufacturing/processing facilities near
A)the home office to exploit their assets in place.
B)the natural resources in order to save transportation costs.
C)their competitor's manufacturing plant to even out the playing field with regard to shipping costs.
D)none of the above

Accepted Answer

Locating manufacturing/processing facilities near natural resources such as raw materials can save transportation costs for MNCs as they can source these resources locally instead of importing them from other regions. This can make the entire supply chain cost-effective and efficient.

Question 12

The conflicts between the upstream and downstream firms can be resolved,
A)if the two firms form a horizontally integrated firm.
B)if the two firms form a vertically integrated firm.
C)if the two firms form a linearly integrated firm.
D)none of the above

Accepted Answer

Vertical integration involves the combination of firms from different stages of the production and distribution process into a single entity. By doing so, the potential for conflicts between upstream and downstream firms is greatly reduced as they are now part of the same organization and have common goals. This allows for better coordination and cooperation in the supply chain.

Question 13

In the 1960s,Coca-Cola,which had bottling plants in India,faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India.As a result,
A)Coke agreed to reveal the formula to the Indian government, which has maintained it as a state secret to this day.
B)instead of revealing the formula, Coke withdrew from the Indian market.
C)Coke was able to successfully lobby the government to withdraw this demand.
D)none of the above

Accepted Answer

Coca-Cola did withdraw from the Indian market in the 1970s due to issues with the Indian government demanding access to their formula.

Question 14

An example of forward vertical FDI
A)U.S.car makers built their own network of dealerships in Japan to help sell their cars.
B)U.S.car makers began to source parts in Japan to lower the cost of their cars.
C)U.S.car makers entered into joint partnerships with car makers in Japan to help sell their cars.
D)None of the above

Accepted Answer

U.S. car makers building their own network of dealerships in Japan is an example of forward vertical FDI because it involves investing in the distribution or marketing channels of the foreign market. By establishing dealerships in Japan, U.S. car makers are able to sell their cars directly to Japanese consumers and gain a foothold in the Japanese market. This type of FDI is also known as market-seeking FDI. B is an example of backward vertical FDI, as it involves investing in the production or supply chain of the foreign market to lower costs. C is an example of horizontal FDI, which involves investing in similar businesses in foreign markets.

Question 15

Intangible assets are often hard to package and sell to foreigners
A)because they usually default on the contracts that they sign.
B)as a result, there is more FDI than there might otherwise be.
C)because property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available.
D)both b) and c)

Accepted Answer

Intangible assets are hard to package and sell due to difficulties in establishing and protecting property rights, leading to more FDI as firms prefer to maintain control over their intangible assets.

Question 16

Which of the following statements is true about product life cycle theory?
A)In the early stages of the product life cycle, the demand for the new product is relatively insensitive to the price and thus a pioneering firm can charge a relatively high price.
B)It predicts that over time the U.S.switches from an exporting country of new products to an importing country.
C)It has an "S" shaped curve when plotting "quantity sold" versus "time".
D)All of the above

Accepted Answer

The answer of Which of the following statements is true...

Question 17

What kind of integration is vertical integration?
A)When the government outlaws discrimination against both short and tall people.
B)When two firms join together in a conglomerate merger.
C)When two firms related in the production process are owned by the same firm, as in a plywood manufacturer owning a logging company.
D)All of the above

Accepted Answer

Vertical integration refers to the ownership of multiple entities that exist along the production process of a product. In this case, the plywood manufacturer owning a logging company is an example of vertical integration. The other options - outlawing discrimination and conglomerate mergers - do not involve multiple entities in the production process and do not fit the definition of vertical integration.

Question 18

The product life-cycle theory predicts that
A)over time the United States switches from an exporting country of new products to an importing country.
B)over time the United States switches from a comparative advantage in R&D to a service economy.
C)over time the United States education system maintains the country's dominant position in the world economy.
D)none of the above

Accepted Answer

The product life-cycle theory suggests that over time, a country will transition from being an exporter of new products to an importer of those same products as they become mature and widely adopted. This is due to other countries catching up in terms of technology and production capabilities, leading to competition and lower prices. The United States has gone through this process in many industries, including automobiles and electronics.

Question 19

The boomerang effect
A)the possibility that if the secret formula of Coca-Cola were leaked, that other firms would come up with similar products and hurt Coca-Cola's sales.
B)the possibility that FDI in an undeveloped nation will lead to a group of workers who have enough money to afford the firm's products, leading to an increase of sales and increase of workers and so on.
C)the possibility that FDI in an undeveloped nation will lead to a group of domestic workers no longer have enough money to afford the firm's products, leading to an decrease of sales.
D)none of the above

Accepted Answer

The answer of The boomerang effect
A)the possibility that if the...

Question 20

Which of the following statements is true about product life cycle theory?
A)The theory was developed in the 1960s when the U.S.was the leader in R&D.
B)The international system of production is becoming too complicated to be explained by a simple version of the product life cycle theory.
C)It predicts that over time the U.S.switches from an exporting country of new products to an importing country.
D)All of the above

Accepted Answer

Option A is correct as the product life cycle theory was developed by Raymond Vernon in the 1960s when the United States was one of the main leaders in R&D.

Option B is correct as the current international system of production is very complex, which has led to the development of more sophisticated models to explain it.

Option C is correct as the product life cycle theory predicts that over time, the U.S. would shift from being an exporter of new products to being an importer.

Quiz 16: Foreign Direct Investment and Cross-Border Acquisitions

Firms that have intangible assets with a public good property tend to invest directly in foreign countries.This is because

MNCs may undertake overseas investment projects in a foreign country,despite the fact that local firms may enjoy inherent advantages.This implies that

The majority of foreign vertical integration is

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms

Examples of intangible assets include

U.S.car makers were forced to build their own network of dealerships to enter the Japanese market.

Many MNCs involved in extractive/natural resources industries

FDI vertical integration is backward

According to Raymond Vernon (1966) ,

According to the internalization theory of FDI

Also,MNCs often find it profitable to locate manufacturing/processing facilities near

The conflicts between the upstream and downstream firms can be resolved,

In the 1960s,Coca-Cola,which had bottling plants in India,faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India.As a result,

An example of forward vertical FDI

Intangible assets are often hard to package and sell to foreigners

Which of the following statements is true about product life cycle theory?

What kind of integration is vertical integration?

The product life-cycle theory predicts that

The boomerang effect

Which of the following statements is true about product life cycle theory?