Question 1

FDI vertical integration is backward

Accepted Answer

FDI vertical integration is considered backward when it involves an industry abroad that produces inputs for MNCs. This means that the MNCs are investing in industries that provide them with necessary raw materials, components, or other inputs. This type of investment is considered backward because it involves going upstream in the production process, and the MNCs become more reliant on their suppliers for their production processes.

Question 2

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,

Accepted Answer

Coca-Cola chose to withdraw from the Indian market rather than reveal their formula to the Indian government.

Question 3

Examples of intangible assets include

Accepted Answer

Intangible assets include technological, managerial, and marketing know-how, superior R&D capabilities, and brand names. Therefore, all of the above options (A, B, and C) are correct.

Question 4

Intangible assets are often hard to package and sell to foreigners

Accepted Answer

Foreigners may default on contracts related to intangible assets because they may not fully understand the value or may have different expectations. Additionally, property rights for intangible assets are difficult to establish and protect in foreign countries, making it challenging to enforce contracts and address infringement. As a result, there may be more FDI because companies may choose to invest in foreign markets where they have more control over their intangible assets.

Question 5

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

Accepted Answer

Forward vertical integration involves a company expanding into the distribution and sales channels of its product. By building their own network of dealerships in Japan, U.S. car makers were integrating forward into the Japanese market.

Question 6

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

Accepted Answer

The first statement is true as the product life cycle theory was indeed developed in the 1960s when the U.S. was a leader in R&D. The second statement is also true as the international system of production has become too complex to be explained by a simple version of the product life cycle theory. The third statement is also true as the theory predicts that over time, the U.S. shifts from being an exporting country of new products to an importing country. Therefore, all the above statements are true about the product life cycle theory.

Question 7

The majority of foreign vertical integration is

Accepted Answer

Backward vertical integration, where a company acquires suppliers or raw material producers, is the most common form of foreign vertical integration. This allows the company to have more control over the supply chain and ensure the availability and quality of inputs for their production processes. Forward integration, where a company acquires distributors or retailers, is less common in foreign markets due to regulatory barriers and cultural differences. Sideways integration, where a company acquires competitors or firms in unrelated industries, is even less common in foreign markets due to the complexity and risks involved.

Question 8

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

Accepted Answer

Locating manufacturing/processing facilities near natural resources can save transportation costs for MNCs. This is because they can source their raw materials locally instead of importing them from other places, which can be more expensive. Additionally, having access to natural resources can also give MNCs a competitive advantage in terms of cost and quality.

Question 9

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

Accepted Answer

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

Question 10

According to Raymond Vernon (1966),

Accepted Answer

Raymond Vernon's theory of the product life cycle states that firms undertake foreign direct investment (FDI) at a particular stage in the life cycle of the products that they initially introduced. 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. 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 of the options are correct.

Question 11

Many MNCs involved in extractive/natural resources industries

Accepted Answer

Many MNCs in extractive/natural resources industries tend to directly own oil fields, mine deposits, and forests in order to have full control over the resources and maximize profits. Leasing may not provide the same level of control, and partnering with local firms may not guarantee the same level of returns on investment.

Question 12

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

Accepted Answer

MNCs typically have advantages over local firms due to intangible assets such as technology, know-how, and global networks. These advantages may offset the inherent advantages that local firms may have in terms of familiarity with the local market and culture. Therefore, it is not a mistake for MNCs to undertake overseas investment projects even if local firms enjoy inherent advantages.

Question 13

According to the internalization theory of FDI

Accepted Answer

The answer of According to the internalization theory of FDI
...

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

The product life-cycle theory predicts that

Accepted Answer

The product life-cycle theory suggests that a country initially has a comparative advantage in producing and exporting new and innovative products, but as the products mature and become standardized, production and exporting activities gradually shift to other countries with lower labor costs. This is evident in the case of the United States where, for example, the country was once a leader in textile manufacturing, but now most of the textile production has shifted to Asia.

Question 17

An example of forward vertical FDI

Accepted Answer

Forward vertical FDI involves a firm investing in a foreign country to ensure access to upstream or downstream activities in the value chain. 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 investing in downstream activities.

Question 18

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

Accepted Answer

The conflicts between upstream and downstream firms can be resolved if they form a vertically integrated firm. This integration will ensure that both firms work towards a common objective and share the risk and revenue. By integrating, the upstream firm can gain a larger market and reduce the risk of demand fluctuations. On the other hand, the downstream firm can reduce the supply risk and get a steady supply of raw materials from the upstream firm. This integration can also lead to cost savings and improve efficiency. Therefore, forming a vertically integrated firm is the best choice to resolve conflicts between upstream and downstream firms.

Question 19

The boomerang effect

Accepted Answer

The answer of The boomerang effect
...

Question 20

What kind of integration is vertical integration?

Accepted Answer

Vertical integration is when two firms related in the production process are owned by the same firm. Option A is an example of a government policy, while option B is an example of a conglomerate merger, which is a type of horizontal integration. Therefore, the best choice is C.

Quiz 16: Foreign Direct Investment and Cross-Border Acquisitions

FDI vertical integration is backward

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,

Examples of intangible assets include

Intangible assets are often hard to package and sell to foreigners

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

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

The majority of foreign vertical integration is

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

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

According to Raymond Vernon (1966) ,

Many MNCs involved in extractive/natural resources industries

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

According to the internalization theory of FDI

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

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

The product life-cycle theory predicts that

An example of forward vertical FDI

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

The boomerang effect

What kind of integration is vertical integration?