Question 1

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)firms that have intangible assets with a public good property tend to invest directly in foreign countries.Additionally,property rights in intangible assets are difficult to establish and protect,especially in foreign countries where legal recourse may not be readily available.
D)none of the options

Accepted Answer

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

Question 2

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 options

Accepted Answer

Many MNCs involved in extractive/natural resources industries tend to directly own oil fields, mine deposits, and forests. This allows them to have more control over their operations and potentially greater profitability. Leasing or partnering with local firms may also be options for some MNCs, but direct ownership is the most common practice.

Question 3

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

Accepted Answer

All of the options are examples of intangible assets. Technological, managerial, and marketing know-how refers to the knowledge and skills of employees that contribute to the success of the company. Superior R&D capabilities refer to the ability of a company to innovate and develop new products or processes. Brand names represent the reputation and recognition of a company's products or services.

Question 4

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 options

Accepted Answer

The conflicts between upstream and downstream firms can be resolved if both firms form a vertically integrated firm. This means that the two firms will merge, and one company will produce both the upstream and downstream products, thereby eliminating the conflicts that arise during the transfer of goods between the two firms. This can also improve the efficiency of the production process and reduce costs.

Question 5

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

Accepted Answer

Intangible assets are hard to package and sell due to difficulties in establishing and protecting property rights, especially in foreign countries. This leads to more foreign direct investment (FDI) as companies prefer to invest directly rather than risk losing control over their intangible assets.

Question 6

An example of forward vertical FDI is when
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 options

Accepted Answer

Forward vertical FDI is when a company invests in a foreign country in order to sell its products or services in that country. In this case, U.S. car makers built their own network of dealerships in Japan to help sell their cars, which is an example of forward vertical FDI. Option B is an example of backward vertical FDI, where a company invests in a foreign country in order to source raw materials or other inputs. Option C is an example of horizontal FDI, where a company invests in a foreign country in order to compete with local firms in the same industry.

Question 7

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 options

Accepted Answer

MNCs may have significant advantages over local firms, such as access to capital, technology, and managerial expertise, which allow them to compete effectively despite the inherent advantages enjoyed by local firms. Additionally, MNCs may enter into partnerships with local firms to leverage their expertise and gain access to local markets. Therefore, it is not a mistake for MNCs to undertake overseas investment projects in foreign countries despite the inherent advantages enjoyed by local firms.

Question 8

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)because Coca-Cola wanted to protect the formula for its famous soft drink and because of the internalization theory of FDI.

Accepted Answer

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

Question 9

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 options

Accepted Answer

Forward vertical integration occurs when a company expands its operations into an area that is closer to the end consumer, such as distribution or retail, which is the case with U.S. car makers establishing dealerships.

Question 10

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 options

Accepted Answer

The product life-cycle theory proposes that as products mature, their demand declines and production shifts from the innovating country to other countries where production costs are lower. Therefore, over time, the United States switches from an exporting country of new products to an importing country.

Question 11

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 options
D)when FDI involves an industry abroad that produces inputs for MNCs,as well as when FDI involves an industry abroad that sells the MNC's outputs.

Accepted Answer

FDI vertical integration is backward when it involves an industry abroad that produces inputs for MNCs. This means that the MNC is investing in a foreign firm that will be supplying it with the necessary materials or components for its production process, rather than investing in a foreign firm that will be selling its finished products. This type of FDI is referred to as backward integration because the MNC is integrating backwards into its supply chain.

Question 12

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 options

Accepted Answer

Option A is true as the product life cycle theory was developed in the 1960s by Raymond Vernon when the US was ahead in R&D. Option B is true as the global economy has become more complex and integrated, making it difficult to apply a simple version of the theory. Option C is also true as the theory predicts that as products mature and become standardized, production moves to countries with lower labor costs, and the US becomes an importer of these products. Therefore, all options are correct making option D the correct answer.

Question 13

The boomerang effect is defined as
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 options

Accepted Answer

The boomerang effect refers to the possibility that if a firm's secret formula were leaked, other firms would come up with similar products and hurt the original firm's sales.

Question 14

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 options

Accepted Answer

These are all statements made by Raymond Vernon in his theory of the product life cycle and its impact on foreign direct investment by firms. Vernon argued that U.S. firms would initially introduce new products in the domestic market, where demand was high and prices could be set relatively high. As the product matured and the market became more saturated, firms would seek new markets overseas through foreign direct investment. This theory had significant implications for understanding patterns of international trade and investment.

Question 15

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 options

Accepted Answer

Instead of revealing the formula, Coca-Cola withdrew from the Indian market. This decision was due to the company's belief that revealing their formula would give their competitors an unfair advantage in the market. Coca-Cola returned to the Indian market in 1993 after a 16-year absence.

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 options

Accepted Answer

All the statements provided are true about the product life cycle theory. It describes how a product's sales volume and market share change over time, including high initial pricing, the transition of a country from exporter to importer of the product, and the characteristic "S"-shaped sales curve.

Question 17

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 options

Accepted Answer

MNCs often locate manufacturing and processing facilities near natural resources as it saves transportation costs. This is because transportation costs can be a significant expense for MNCs, and locating facilities near natural resources reduces the need for transportation of raw materials to the facility. Additionally, this can also lead to lower costs as some governments offer tax incentives and subsidies to companies that establish facilities in certain regions with abundant natural resources.

Question 18

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

Accepted Answer

The majority of foreign vertical integration is backward. This is because foreign firms often seek to integrate with suppliers in order to secure a reliable source of inputs and protect against supply chain disruptions. Backward vertical integration involves a company acquiring or merging with a supplier, whereas forward vertical integration involves acquiring or merging with a customer.

Question 19

Firms that have intangible assets with a public good property tend to invest directly in foreign countries.This is
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)in order to use these assets on a larger scale,and to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism.
D)none of the options

Accepted Answer

Firms with intangible assets that have public good property, such as technology or patents, tend to invest directly in foreign countries in order to use these assets on a larger scale. Additionally, by investing directly, they can avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism, thus protecting their intangible assets.

Question 20

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 options

Accepted Answer

Vertical integration refers to the merger or acquisition of companies that are involved in different stages of the production process, such as a plywood manufacturer owning a logging company. This allows for better control over the supply chain and can increase efficiency and profitability.

Quiz 16: Foreign Direct Investment and Cross-Border Acquisitions

According to the internalization theory of FDI,

Many MNCs involved in extractive/natural resources industries

Examples of intangible assets include

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

Intangible assets are often hard to package and sell to foreigners

An example of forward vertical FDI is when

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

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

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

The product life-cycle theory predicts that

FDI vertical integration is backward

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

The boomerang effect is defined as

According to Raymond Vernon (1966) ,

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,

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

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

The majority of foreign vertical integration is

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

What kind of integration is vertical integration?