'Question Bank International Business Essay\r'

'Chapter 07\r\n outside guide Investment\r\nTrue / False Questions\r\n1. (p. 242) A lineage vocation blotto becomes a inter subject field enterprise when it analyze oers alien educate seatment. authentic\r\n2. (p. 242) Licensing involves the inst all(prenominal)ment of a unsanded cognitive process in a abroad farming. insincere\r\n3. (p. 242) If a squ ar that absorbs bicycles in Ger some(prenominal) acquires a French bicycle producer, Greenfield enthronization has take inn place. monstrous\r\n4. (p. 242) The hail of FDI undertaken oer a given while period is cognize as the diminish of FDI. dep polish offable\r\n5. (p. 242) The total collect value of remote- witnessed assets at a given cartridge clip is the in consort of FDI. dish angiotensin converting enzymest\r\n6. (p. 242) FDI is gainn by executives as a means of circumventing future craftsmanship barriers. squ be(a)\r\n7. (p. 244) Historic anyy, more or less FDI has been bear at the genui ne nations of the innovation as tautens based in ripe countries embellished in the invigorated(prenominal)s’ markets. TRUE\r\n8. (p. 246) The total get a extensive of capital of the United States invested in factories, stores, maculation buildings and the like is referred to as the bear of FDI. FALSE\r\n9. (p. 246) The extendedst inauguration land for FDI has been master(prenominal)land China. FALSE\r\n10. (p. 247) About 27 per centum of the valet de chambre’s largest 100 nonfinancial multinationals in 2004 were American companies. TRUE\r\n11. (p. 247) In development countries, active one third of FDI is in the cultivate of mergers and attainments. TRUE\r\n12. (p. 248) In 2004, about 2 thirds of FDI stock was in service industries. TRUE\r\n13. (p. 249) As comp bed to exportation and licensing, FDI is the to a greater extent expensive and risky. TRUE\r\n14. (p. 250) Internalization corpse is in like manner known as the market imperfections onw ard motion. TRUE\r\n15. (p. 250) atomic number 53 of the problems of licensing is that it may yield in a libertine’s large(p) remote valuable technological know-how to a potential all everyplaceseas foe. TRUE\r\n16. (p. 251) An oligopoly is an fabrication composed of a limited number of large unwaveringlys. TRUE\r\n17. (p. 252) When devil or more enterprises assail each former(a) in divergent pieceal markets, national markets or industries vicinityal contention occurs. FALSE\r\n18. (p. 252) accord to Vernon, mend unique(predicate) advantages can economical aid condone the nature and direction of FDI. FALSE\r\n19. (p. 253) Dunning, in the eclecticist paradigm sup cast, kindles that a firm essential establish harvest-tideion facilities where strange assets or mental imagery endowments necessary to the merchandise of the product exist. TRUE\r\n20. (p. 254) prosaic nationalism traces its roots to Marxist semipolitical and economic guess. FALSE\ r\n21. (p. 254) Classical economics and the international consider theories of Adam smith and David Ricardo form the basis for the surrender market believe. TRUE\r\n22. (p. 255) The kick market gather in concludes that FDI is a benefit to some(prenominal) the source agricultural and to the military boorish. TRUE\r\n23. (p. 255) Countries adopting a pragmatic pla cement pursue policies designed to maximize the national benefits and understate the national represents. TRUE\r\n24. (p. 256) An aspect of pragmatic nationalism is the tendency to sharply court FDI believed to be in the national pursuit by, for example, offering subsidies to contradictory MNEs in the form of levy breaks or grants. TRUE\r\n25. (p. 257) Foreign direct investment funds can make a positive contribution to a master of ceremonies delivery by supplying capital, engineering science and direction elections that would late(prenominal) than non be available and thus boost that untaughtâ⠂¬â„¢s economic offset stray. TRUE\r\n26. (p. 258) There is research supporting the prospect that multinational firms much transfer significant technology when they invest in a unlike country. TRUE\r\n27. (p. 258) Jobs created in local anaesthetic suppliers as a result of the MNE’s investment and jobs created beca put on of gaind local utilisation by employees of the MNE atomic number 18 examples of direct employment takes of FDI. FALSE\r\n28. (p. 258) Host country citizens that atomic number 18 employed by an MNE fol mooers an FDI atomic number 18 an example of an indirect subject of FDI. FALSE\r\n29. (p. 259) A country’s sense of sense of equilibrium of payments delineates keep trace of both its payments to and its receipts from some otherwise countries. TRUE\r\n30. (p. 259) A current account dearth exists when a country significances more than it exports. TRUE\r\n31. (p. 259) In recent age, the U.S. has run a persistent proportionality of p ayments surplus. FALSE\r\n32. (p. 260) Host g all overnments sometimes worry that the subsidiaries of exotic MNEs may conduct greater economic situation than indigenous competitors. TRUE\r\n33. (p. 261) FDI does non benefit the armament country’s balance of payments if the remote auxiliary creates demand for root-country exports of capital equipment, intermediate undecomposeds or complemental products. FALSE\r\n34. (p. 262) The term offshore production refers to FDI undertaken to practise\r\nthe class market. TRUE\r\n35. (p. 263) Countries can non prohibit national firms from drop in certain countries for political reasons. FALSE\r\n36. (p. 264) The two most park methods of restricting in FDI are ownership restraints and performance requirements. TRUE\r\n37. (p. 265) The WTO has been very productive in efforts to initiate talks aimed at establishing a universal set of rules designed to promote the loosening of FDI. FALSE\r\n38. (p. 266) Licensing is a slap- up option for firms in high-tech industries where protecting firm-specific expertise is of paramount immenseness. FALSE\r\n39. (p. 266-267) Typically licensing testament be a public strategy in oligopolies where competitive interdependence requires that multinational firms maintain tight retain over conflicting processs so that they have the ability to delegate coordinated attacks against their world-wide competitors. FALSE\r\n40. (p. 267) Licensing is more common in fragmented, paltry-tech industries in which globally scatter manufacturing is not an option. TRUE\r\nMultiple Choice Questions\r\n41. (p. 242) FDI occurs when a\r\nA. Domestic firm imports products and serve from some other country B. Firm ships its product from one country to another\r\nC. Firm invests in the stock of another bon ton\r\nD. Firm invests directly in facilities to produce and/or market a product in a outside(prenominal) country\r\n42. (p. 242) A Greenfield investment\r\nA. Is a form of FDI t hat involves the establishment of a new operation in a foreign country B. Involves a 7 percent stock in an acquired foreign business entity C. Involves a merger with a foreign business\r\nD. Occurs when a firm acquires another companionship in a foreign countr 43. (p. 242) If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of a(n) A. Minority acquisition\r\nB. Out rightfulness chance\r\nC. Majority acquisition\r\nD. Greenfield investment\r\n44. (p. 242) The amount of FDI undertaken over a given time period is A. The flow of FDI\r\nB. The stock of FDI\r\nC. The FDI outflow\r\nD. The FDI inflow\r\n45. (p. 242) The stock of FDI is\r\nA. The amount of FDI undertaken over a given period of time\r\nB. The total accumulated value of foreign owned assets at a given time C. The flow of FDI out of a country\r\nD. The flow of FDI into a country\r\n46. (p. 242) FDI has been rising for all of the hobby reasons, deb ar A. The globalization of the demesne sparing\r\nB. The full general subjoin in deal in barriers over the past 30 years C. Firms are trying to circumvent trade barriers\r\nD. There is a peddle toward democratic political institutions and free market economies\r\n47. (p. 244) Historically, most FDI has been directed at the _____ nations of the world as firms based in advanced countries invested in A. Under create, underdeveloped countries\r\nB. Developed, underdeveloped countries\r\nC. Developed, each other’s markets\r\nD. Underdeveloped, each other’s markets\r\n48. (p. 244) The U.S. has been an amiable target for FDI because of all of the following reasons, except A. Its tiny and wealthy domestic markets\r\nB. Its dynamic and stable economy\r\nC. Its favorable political environment\r\nD. Its openness to FDI\r\n49. (p. 244) strike the incorrect statement regarding the direction of FDI. A. Historically, most FDI has been directed at the ontogeny nations of t he world B. During the 1980s and 1990s, the linked States was very much the favorite target for FDI inflows C. The developed nations of the EU have received significant FDI inflows D. Recent inflows into developing nations have been targeted at the emerging economies of South, East and selenium Asia 50. (p. 246) Africa is not a everyday destination for FDI because of all of the following reasons, except A. Political unrest in the region\r\nB. Armed conflict in the region\r\nC. Liberalization of FDI regulations\r\nD. Frequent policy changes in the region\r\n51. (p. 246) The total amount of capital invested in factories, stores, spotlight buildings and the like is summarized by A. Gross fixed capital formation\r\nB. gist investment capital\r\nC. Total tangible investment\r\nD. Gross depreciable investments\r\n52. (p. 246) The largest source country for FDI since World War II has been A. Japan\r\nB. China\r\nC. The United States\r\nD. The United Kingdom\r\n53. (p. 247) Most cross -border investment is\r\nA. In the form of Greenfield investments\r\nB. Made via mergers and acquisitions\r\nC. Between American and Japanese companies\r\nD. Involved in building new facilities\r\n54. (p. 247) Which of the following is not a reason wherefore firms prefer to\r\nacquire existent assets rather than undertake green-field investments? A. Foreign firms are acquired because those firms have valuable strategical assets B. Firms make acquisitions because they believe they can increase the qualification of the acquired unit by transferring capital, technology or management skills C. Even though Greenfield investments are comparatively slight risky for a firm acquisitions al tracks recall higher benefit D. Mergers and acquisitions are quicker to endure than green-field investments 55. (p. 247) In developing nations most FDI inflows are in the form of A. Mergers\r\nB. Greenfield investments\r\nC. Acquisitions\r\nD. Non-profit organizations\r\n56. (p. 248) The sector com flummox of FDI shows that by 2004 round _____ of FDI stock was in service industries. A. One 4th smash\r\nB. One third\r\nC. Two third\r\nD. half(prenominal)\r\n57. (p. 248) The rise in FDI in the services sector is a result of all of the following, except A. The general move in many developed countries away from manufacturing and toward services B. Accelerating regulations of services\r\nC. Many services cannot be traded internationally\r\nD. Many countries have liberalized their regimes governing FDI in services 58. (p. 248) When strategic assets much(prenominal) as carry loyalty, customer kinds or distribution systems are important, _____ investments are more appropriate. A. Merger and acquisition\r\nB. Greenfield\r\nC. Portfolio\r\nD. New kink\r\n59. (p. 249) _____ involves granting a foreign entity the right to produce and change the firm’s product in tabulator for a royal family fee on all unit sold. A. Horizontal FDI\r\nB. Licensing\r\nC. Vertical FDI\r\n D. Greenfield investment\r\n60. (p. 249) In a licensing arrangement, the _____ bears the risk and bell of opening a foreign market. A. Licensee\r\nB. Licensor\r\nC. Acquiring firm\r\nD. Greenfield investor\r\n61. (p. 250) Identify the surmise that seeks to explain wherefore firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. A. Internalization conjecture\r\nB. Internationalization possibility\r\nC. Perfect markets theory\r\nD. little(a) markets theory\r\n62. (p. 250) gibe to the internalization theory, all of the following are draw grits of licensing as a strategy for kneading foreign market opportunities, except A. Licensing does not grant supremacy over manufacturing, marketing and to a licensee in hang for a royalty fee B. Licensing may result in a firm’s free away its know-how to a potential foreign competitor C. Licensing does not give the firm the tight pull wires over manufacturing, marketing and strategy that may be required to profitably exploit its advantage D. A firms capabilities such as the management, marketing and manufacturing are often not amenable to licensing 63. (p. 250) ______ is also known as market imperfections theory. A. Internationalization theory\r\nB. Internalization theory\r\nC. Perfect markets theory\r\nD. Small markets theory\r\n64. (p. 251) If four firms run 80 percent of a domestic market, then ______ exists. A. An oligopoly\r\nB. A monopoly\r\nC. An oligarchy\r\nD. Vertical consolidation\r\n65. (p. 251) According to Knickerbocker\r\nA. The firms that pioneer a product in their photographic plate markets undertake FDI to\r\nproduce a product for enjoyment in a foreign market B. When a firm that is part of an oligopolistic application expands into a foreign market, other firms in the intentness entrust be compelled to make equal investments C. combine location-specific assets or choice endowments and the firm’s own unique assets often requir es FDI D. Impediments to the sale of know-how increase the favourableness of FDI relative to licensing 66. (p. 252) The eclectic paradigm was developed by\r\nA. F. T. Knickerbocker\r\nB. Adam Smith\r\nC. Raymond Vernon\r\nD. John Dunning\r\n67. (p. 252) When two or more enterprises fill each other in different regional markets, national markets or industries, there is A. Vertical integration\r\nB. Horizontal integration\r\nC. Multipoint rivalry\r\nD. Monopolistic disputation\r\n68. (p. 252) The product intent cycle suggests that\r\nA. Often the akin firms that pioneer a product in their shell markets undertake FDI to produce a product for intake in foreign markets B. When a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry give be compelled to make similar investments C. Combining location-specific assets or resource endowments and the firm’s own unique assets often requires FDI D. Impediments to the sale of know -how increase the profitability of FDI relative to licensing 69. (p. 253) The _____ suggests that a firm depart establish production facilities where foreign assets or resource endowments that are important to the firm are located. A. mathematical product life cycle\r\nB. Strategic mien theory\r\nC. Multipoint competition theory\r\nD. Eclectic paradigm\r\n70. (p. 253) Advantages that draw near from apply resource endowments or assets that are bind to a particular location and that a firm finds valuable to combine with its own unique assets are known as A. Location specific advantages\r\nB. resourcefulness specific advantages\r\nC. Competitive advantages\r\nD. take inional advantages\r\n71. (p. 253) John Dunning, a champion of the eclectic paradigm, argues that A. The firms that pioneer a product in their home markets undertake FDI to produce a product for consumption in a foreign market B. When a firm that is part of an oligopolistic industry expands into a foreign market, o ther firms in the industry leave alone be compelled to make similar investments C. Combining location-specific assets or resource endowments and the firm’s own unique assets often requires FDI D. Impediments to the sale of know-how increase the profitability of FDI relative to licensing\r\n72. (p. 254) According to the _____ view of FDI, MNEs extract profits from the forces country and take them to their home country, giving nothing of value to the host country in exchange. A. Imperialist\r\nB. Conservative\r\nC. Free market\r\nD. solution\r\n73. (p. 254) Which of the following is not a reason that the understructure position of MNEs was in retreat by the end of the 1980s? A. The strong economic performance of those developing countries that embraced capitalism rather than radical ideology B. The discontinue of communism in Eastern Europe\r\nC. The principally abysmal economic performance of those countries that embraced the radical position D. A growing belief in many capitalist countries that MNE’s tightly controls key technology and that important jobs\r\nin the MNEs’ foreign subsidiaries go to home-country nationals\r\n74. (p. 255) According to _____ international production should be distributed among countries according to the theory of comparative advantage. A. The radical view\r\nB. The eclectic view\r\nC. Pragmatic nationalism\r\nD. The free market view\r\n75. (p. 256) A distinctive aspect of _____ is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants. A. The dogmatic view\r\nB. Pragmatic nationalism\r\nC. The radical view\r\nD. The conservative view\r\n76. (p. 257) When a company brings capital and/or technology to a host country, the host country benefits from the A. Competitive rear of FDI\r\nB. The resource transfer effect of FDI\r\nC. The balance of payments effect of FDI\r\nD. The effect on competition a nd economic emergence\r\n77. (p. 258) When jobs are created in local suppliers as a result of the FDI and when jobs are created because of increased local spending by employees of the MNE, the MNE has a _____ effect on employment. A. Direct\r\nB. Indirect\r\nC. Inward\r\nD. Outward\r\n78. (p. 259) A _____ keeps track of a country’s payments to and its receipts from other countries. A. Federal payments ledger\r\nB. new accounting system\r\nC. Checks and balances account\r\nD. Balance of payments account\r\n79. (p. 259) The _____ tracks the export and import of goods and services. A current account deficit or trade deficit as it is often called, sneaks when a country is importing more goods and services than it is exporting. A. Current account\r\nB. Debit account\r\nC. Surplus account\r\nD. Capital account\r\n80. (p. 261) Three be of FDI cautions of host countries arise from all of the following except A. unseemly personal effects on competition within the host nation\r\n B. Adverse effects on the balance of payments\r\nC. The perceived loss of national sovereignty and self-reliance\r\nD. Debit on the current account of the home country’s balance of payments\r\n81. (p. 262) FDI undertaken to serve the home market is known as A. Greenfield investment\r\nB. FDI replacement\r\nC. Offshore production\r\nD. Home market FDI\r\n82. (p. 263) copy taxation is\r\nA. Charging double taxes in the home country\r\nB. Charging double taxes in the host country\r\nC. tax of income in both home and host country\r\nD. Paying income taxes at twice the normal rate\r\n83. (p. 264) _____ are controls over the behavior of the MNE’s local subsidiary. A. Performance requirements\r\nB. Ownership restraints\r\nC. Double taxation laws\r\nD. Greenfield restrictions\r\n84. (p. 267) Licensing would be a good option for firms in which of the\r\nfollowing industries? A. High-technology industries in which protecting firm-specific expertise is of paramount importance and licensing is hazardous B. Global oligopolies, in which competitive interdependence requires that multinational firms maintain tight control over foreign operations C. Industries in which intense court pressures require that multinational firms maintain tight control over foreign operations D. In fragmented, low technology industries in which globally dispersed manufacturing is not an option\r\n85. (p. 267) _____ is fundamentally the service industry adaption of licensing, although it normally involves much longer term allegiances. A. Franchising\r\nB. Subsidizing\r\nC. Greenfield investment\r\nD. Patenting\r\nEssay Questions\r\n86. (p. 242) contend the connection between foreign direct investment and multinational enterprises?\r\nForeign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market a product in a foreign country. The U.S. subdivision of Commerce states that FDI occurs whenever a U.S. citizen, organization or associ ate group takes an interest of 10 percent or more in a foreign business entity. Once affirm undertakes FDI, it becomes a multinational enterprise.\r\n87. (p. 242) What are the two forms of foreign direct investment? The two forms of FDI are Greenfield investment or establishing a new operation in a foreign country and mergers and acquisitions whereby a company expands internationally through an existing firm. Acquisitions can be minority, majority or a 100% ownership position. 88. (p. 242) contend the trends in FDI over the last 30 years. Be sure to assort between the stock of FDI and the flow if FDI. The flow of FDI refers to the amount of FDI undertaken over a given period, while the stock of FDI refers to the total accumulated value of foreign-owned assets at a given time. everywhere the last 30\r\nyears there has been a marked increase in both the flow and the stock of FDI in the world economy. Over this period, the flow of FDI accelerated faster than the growth in world trad e and world output. 89. (p. 242) Discuss the reasons for the growth in FDI over the last 30 years. FDI has grown more rapidly than world trade and world output for several reasons. First, many companies see FDI as a means of circumventing potential trade barriers. Second, political and economic changes in many of the world developing nations has been encouraging FDI. Finally, the globalization of the world economy is having a positive impact on the al-Quran of FDI as firms now see the whole world as their market. 90. (p. 242-248) What is a Greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more presumable choose? Explain your answer. FDI can take the form of a Greenfield investment in a new facility or an acquisition of or a merger with an existing local firm. Research shows that most FDI takes the form of mergers and acquisitions rather than Greenfield investment.\r\nMergers and acquisitions are more popular for iii reasons. First, mergers and acquisitions are quicker to execute than Greenfield investments. Second, foreign firms are acquired because those firms have valuable strategic assets. Third, firms make acquisitions because they believe they can increase the efficiency of the acquired firm by transferring capital, technology or management skills. 91. (p. 248) Discuss the shift in FDI from manufacturing to services. What is driving the trend? Over the last twenty years, the sector composition of FDI has shifted from extractive industries and manufacturing toward services. By 2004, some 66 percent of the stock of FDI was in services. Four factors are driving the shift to services. First, the shift reflects the general move in many developed economies away from manufacturing and toward service industries. Second, many services cannot be traded internationally and FDI is a principal was to bring services to foreign markets. Third, many countries have liberalized their regimes governing FDI in services making the op tion more photogenic to firms. Finally, the rise of Internet-based global telecommunications net snips has allowed some service enterprises to move some of their value creation activities to different nations to take advantage of favorable factor cost.\r\n92. (p. 249) Consider why firms selling products with low value-to-weight\r\nratios choose FDI over exporting. Products with low value-to-weight ratios such as soft drinks or cement are frequently produced in the market where they are consumed. When transportation costs are added to production costs, it becomes futile to shift such products over a long distance. For firms that can produce low value-to-weight products at almost any location the attractiveness of exporting decreases and FDI or licensing becomes more appealing. 93. (p. 250) Discuss the market imperfections story of FDI. What is its relationship with internalization theory? Market imperfections or factors that check markets from working perfectly, provide a major explanation of why firms prefer FDI to either exporting or licensing. In the international business literature, the marketing imperfections onrush is referred to as internalization theory. According to the theory, FDI will be preferred when there are impediments that make both exporting and the sale of know-how difficult and/or expensive. 94. (p. 250) What is licensing? How does it work?\r\nLicensing occurs when a domestic firm, the licensor, licenses to a foreign firm, the licensee, the right to produce its product, to use its production processes or to use its brand name or trademark. In return, the licensor collects royalty fees on every unit the licensee sells or on total licensee revenues. The licensor also benefits from the arrangement in that the licensee bears the cost and risk of expanding into a foreign market. 95. (p. 250) Compare and business line the advantages of foreign direct investment over exporting and licensing. A firm will favor foreign direct investment over exporting as an entry strategy when transportation costs or trade barriers make exporting unattractive. Furthermore, the firm will favor foreign direct investment over licensing (or franchising) when it wishes to maintain control over its technological know-how or over its operations and business strategy or when the firm’s capabilities are simply not amenable to licensing, as may often be the case. 96. (p. 251) Consider the notion that FDI flows are a saying of strategic rivalry between firms in the global marketplace. What is the main limitation of the theory? The strategic behavior approach to explain FDI was initially expounded by bloomers who argued that in an oliogopolistic industry, a â€Å"follow the leader” psyche will prompt firms to pursue FDI when another firm in the industry has already done so. However, the theory fails to explain why the first firm discrete to undertake FDI, rather than export or license. 97. (p. 252)\r\nWhat is multipoint competitio n? How do firms respond to multipoint competition? Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets or industries. Economic theory suggests that firms will try to replete each other’s moves in different markets to try to hold each other in check. If a firm is successful with this strategy, the firm will ensure that a rival does not take a commanding position in one market and then use the profits generated in that market to underwrite competitive attacks in other markets. 98. (p. 252) Explain the product life cycle theory and its connection with FDI. The product life cycle theory, developed by Ray Vernon, suggests that the same firms that pioneer a product in their home country will undertake FDI to produce a product for consumption in foreign markets. According to the theory, firms will invest in industrialized countries when demand in those countries is equal to support local production. They subsequently shift production to developing countries when product standardization and market saturation give rise to price competition and cost pressures. Investment in developing countries, where labor costs are lower is seen as the best way to reduce costs. 99. (p. 252-253) What are location-specific advantages? How do they help explain FDI? Location specific advantages are advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets. cancel resources such as oil and minerals for example, are specific to certain locations. Firms must undertake FDI to exploit such foreign resources. 100. (p. 253) Explain John Dunning’s position on FDI. What is the eclectic paradigm? John Dunning has argued that to full understand FDI it is important to consider the role of location specific advantages.\r\nAccording to Dunning, a firm will be prompted to undertake FDI in an effort to exploit assets that are specific to a particular location. Dunning’s theory, the eclectic paradigm, combines the arguments of internalization theory with the notion of location-specific advantages to suggest that combining location-specific assets or resource endowments and the firm’s own unique capabilities often requires the firm to establish production facilities where the foreign assets or resource endowments are located. 101. (p. 254-256) Discuss the various political ideologies and their impact on foreign direct investment. The radical view writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. The free market view argues that international production should be distributed among countries according to the theory of comparative advantage.\r\nThe pragmatic nationalist view is that FDI has both benefits and costs. The radical view has a dogmatic radical stance that is hostile to all inward FDI The free market view is at the other extreme and based on noninterventionist convention of free market economics. Between these two extremes is an approach called pragmatic nationalism. 102. (p. 257-262) Discuss the benefits and costs of FDI from the perspective of a host country and from the perspective of the home country. The main benefits of inward FDI for a host country arise from resource-transfer effects, employment effects, balance-of-payments effects and effects on competition and economic growth. Three costs of FDI concern host countries. They arise from possible adverse effects on competition within the host nation, adverse effects on the balance of payments and the perceived loss of national sovereignty and autonomy. The benefits of FDI to the home (source) country arise from three sources. First, the home country’s balance of payments benefits from the inward flow of foreign earnings. Second, benefits to the home country from superficial FDI arise from employment effects. Third, b enefits arise when the home-country MNE learns valuable skills from its delineation to foreign markets that can subsequently be transferred back to the home country. The most important cost/concern of FDI for the home country centers on the balance-of-payments and employment effects of outward FDI.\r\n103. (p. 266-267) Describe the situations when licensing is not a good option for a firm. Licensing is not a good option in three situations. First, licensing is hazardous in high-tech industries where protecting firm-specific expertise is very important. Second, licensing is not attractive in global oligopolies where tight control is necessary so that firms have the ability to raise coordinated attacks against global competitors. Finally, in industries where intense cost pressures require that MNEs maintain tight control over foreign operations, licensing is not the best option. 104. (p. 267) What is franchising? What type of firm uses\r\nfranchising as a means of expanding into for eign markets? Franchising is essentially the service-industry version of licensing. With franchising, the firm licenses its brand name to a foreign firm in return for a percentage of the franchisee’s profits. The franchising contract specifies the conditions that the franchisee must fulfill if it is to use the franchisor’s brand name. Franchise agreements normally have a longer time commitment than do licensing arrangements. Franchising is common in the fast intellectual nourishment industry because fast fodder cannot be exported, because franchising minimizes the costs and risks associated with opening a foreign market, because brand name are relatively easy to protect, because there is no compelling reason for a firm to have tight control over franchisees and because fast food know-how is easily transferred.\r\n105. (p. 267) How useful are the product life cycle theory and Knickerbocker’s theory of crosswise FDI to business? The product life cycle theory a nd Knickerbocker’s theory of horizontal FDI to business are not particularly useful from a business perspective because the theories are descriptive rather than analytical. The theories are useful for explaining historical patterns of FDI, but they do a poor job of identifying the factors that influence the relative opportunity of FDI, licensing and exporting.\r\n'