Section 07
Foreign Immediate Investment
Accurate / Fake Questions
1 ) (p. 242) A firm becomes a multinational venture when it performs foreign immediate investment. AUTHENTIC
2 . (p. 242) Licensing requires the business of a new operation in a foreign country. FALSE
a few. (p. 242) If a organization that makes mountain bikes in Australia acquires a French bicycle maker, Greenfield investment has taken place. FAKE
four. (p. 242) The amount of FDI undertaken over a given time period is known as the flow of FDI. THE CASE
5. (p. 242) The whole accumulated value of foreign-owned assets by a given period is the influx of FDI.
FALSE
6th. (p. 242) FDI is viewed by executives as a means of circumventing upcoming trade barriers. TRUE
six. (p. 244) Historically, most FDI have been directed at the developed nations of the world while firms operating out of advanced countries invested in the others’ marketplaces. TRUE
almost 8. (p. 246) The total amount of capital committed to factories, shops, office structures and the like is called the share of FDI. FALSE
being unfaithful. (p. 246) The largest source country to get FDI have been China.
FALSE
10. (p. 247) About 28 percent from the world’s most significant 100 nonfinancial multinationals in 2004 were American firms. TRUE
14. (p. 247) In developing countries, regarding one third of FDI is in the form of mergers and acquisitions. TRUE
12. (p. 248) In 2004, about two thirds of FDI inventory was in services industries. AUTHENTIC
13. (p. 249) As compared to exporting and guard licensing and training, FDI may be the more expensive and risky. ACCURATE
13. (p. 250) Internalization theory is also referred to as market defects approach. TRUE
15. (p. 250) One of the concerns of license is that it could result in a firm’s giving away important technological know-how to a potential foreign rival. TRUE
16. (p. 251) An oligopoly is an industry made up of a limited range of large companies. TRUE
17. (p. 252) When two or more enterprises face each other in several regional markets, national marketplaces or sectors regional competition occurs. PHONY
18. (p. 252) According to Vernon, area specific advantages can help describe the nature and direction of FDI. PHONY
19. (p. 253) Dunning, in the eclectic paradigm theory, suggests that a firm must establish creation facilities where foreign possessions or source endowments necessary to the production in the product can be found. TRUE
twenty. (p. 254) Pragmatic nationalism traces their roots to Marxist personal and financial theory. FAKE
21. (p. 254) Time-honored economics as well as the international operate theories of Adam Smith and David Ricardo make up the basis intended for the free market perspective. TRUE
twenty two. (p. 255) The cost-free market view argues that FDI is actually a benefit to both the resource country and also to the web host country. TRUE
twenty three. (p. 255) Countries taking on a pragmatic stance pursue policies designed to increase the nationwide benefits and minimize the national costs. TRUE
24. (p. 256) An aspect of pragmatic nationalism is definitely the tendency to aggressively court docket FDI considered to be in the nationwide interest by simply, for example , supplying subsidies to foreign MNEs in the form of tax breaks or grants or loans. TRUE
twenty-five. (p. 257) Foreign immediate investment can produce a positive contribution to a sponsor economy by simply supplying capital, technology and management solutions that would normally not be around and thus improve that country’s economic growth rate. ACCURATE
26. (p. 258) There is research helping the view that multinational firms often transfer significant technology when they choose a foreign region. TRUE
twenty-seven. (p. 258) Jobs developed in neighborhood suppliers as a result of the MNE’s investment and jobs created because of improved local spending by workers of the MNE are instances of direct job effects of FDI. FALSE
twenty-eight. (p. 258) Host region citizens which might be employed by a great MNE subsequent an FDI are an sort of an roundabout effect of FDI. FALSE
29. (p. 259) A country’s balance of payments accounts keep track of both its obligations to as well as its receipts from other countries. TRUE
31. (p. 259) A current consideration deficit is present when a region imports much more than it export products. TRUE
23. (p. 259) In recent years, the U. T. has any persistent equilibrium of repayments surplus. BOGUS
32. (p. 260) Sponsor governments sometimes worry that the subsidiaries of foreign MNEs may have got greater monetary power than indigenous rivals. TRUE
33. (p. 261) FDI does not benefit the host country’s balance of payments in the event the foreign additional creates demand for home-country exports of capital equipment, more advanced goods or complementary items. FALSE
34. (p. 262) The term overseas production refers to FDI taken on to serve
the house market. TRUE
35. (p. 263) Countries are not able to prohibit nationwide firms by investing in specific countries to get political reasons. FALSE
thirty six. (p. 264) The two most frequent methods of restricting inward FDI are title restraints and satisfaction requirements. AUTHENTIC
37. (p. 265) The WTO has become very good in initiatives to trigger talks geared towards establishing a universal set of rules created to promote the liberalization of FDI. PHONY
38. (p. 266) License is a good option for firms in high-tech sectors where safeguarding firm-specific competence is of paramount importance. FAKE
39. (p. 266-267) Commonly licensing is a common approach in oligopolies where competitive interdependence requires that multinational firms maintain tight control of foreign operations so that they are able to launch synchronised attacks against their global competitors. FALSE
40. (p. 267) License is more prevalent in fragmented, low-tech sectors in which internationally dispersed manufacturing is not an option. ACCURATE
Multiple Choice Questions
forty one. (p. 242) FDI occurs when a
A. Home firm imports products and services via another country B. Organization ships the product from one country to another
C. Firm buys the stock of an additional company
D. Company invests immediately in establishments to produce and market a product or service in a international country
forty two. (p. 242) A Greenfield investment
A. Is a form of FDI that involves the establishment of any new operation in a foreign country M. Involves a 7 percent stock in an acquired foreign business organization C. Involves a combination with a foreign business
Deb. Occurs if a firm acquires another company in a foreign countr 43. (p. 242) If General Electric, a U. T. based firm, purchased a 50% affinity for a company in Italy, that purchase can be an example of a(n) A. Group acquisition
B. Outright stake
C. Majority acquisition
D. Greenfield purchase
44. (p. 242) How much FDI carried out over a provided time period is known as a. The movement of FDI
N. The share of FDI
C. The FDI outflow
D. The FDI inflow
45. (p. 242) The stock of FDI is
A. The amount of FDI undertaken on the given period of time
M. The total built up value of foreign owned or operated assets at a given period C. The flow of FDI away of a region
Deb. The stream of FDI into a region
46. (p. 242) FDI has been growing for all of the following reasons, except A. The globalization of the world economy
B. The typical increase in transact barriers over the past 30 years C. Firms are attempting to circumvent operate barriers
D. There exists a shift toward democratic politics institutions and free market economies
forty seven. (p. 244) Historically, many FDI has been directed at the _____ countries of the world because firms operating out of advanced countries invested in A. Underdeveloped, bad countries
B. Created, underdeveloped countries
C. Developed, every other’s market segments
Deb. Underdeveloped, every other’s market segments
twenty four. (p. 244) The U. S. continues to be an attractive target for FDI because of each of the following causes, except A. Its small , wealthy home-based markets
B. The dynamic and stable overall economy
C. Its advantageous political environment
G. Its visibility to FDI
49. (p. 244) Identify the incorrect statement regarding the direction of FDI. A. Historically, the majority of FDI have been directed at the developing countries of the world N. During the 1980s and nineties, the United States was often the favourite target pertaining to FDI inflows C. The developed nations of the EU have received significant FDI inflows D. The latest inflows in developing nations have been geared towards the appearing economies of South, East and Southeast Asia 55. (p. 246) Africa is not a well-liked destination for FDI because of all of the following factors, except A. Political unrest in the region
W. Armed conflict in the region
C. Liberalization of FDI regulations
D. Repeated policy changes in the region
51. (p. 246) The total amount of capital invested in production facilities, stores, business office buildings etc is described by A. Gross fixed capital formation
B. Total investment capital
C. Total tangible expense
M. Gross depreciable investments
52. (p. 246) The largest source country for FDI since World War II has been A. Asia
N. China
C. The us
G. The United Kingdom
53. (p. 247) Most cross-border investment is definitely
A. In the form of Greenfield investments
B. Manufactured via mergers and acquisitions
C. Between American and Japanese people companies
D. Involved in building fresh facilities
54. (p. 247) Which usually of the subsequent is not only a reason why companies prefer to
acquire existing assets instead of undertake green-field investments? A. Foreign businesses are obtained because all those firms possess valuable tactical assets M. Firms make acquisitions mainly because they believe they will increase the performance of the acquired unit simply by transferring capital, technology or management abilities C. Despite the fact that Greenfield opportunities are relatively less high-risk for a organization acquisitions usually yield bigger profits G. Mergers and acquisitions are quicker to execute than green-field opportunities 55. (p. 247) In developing nations around the world most FDI inflows are in the form of A. Mergers
N. Greenfield opportunities
C. Acquisitions
D. Non-profit organizations
56. (p. 248) The sector structure of FDI shows that by 2004 around _____ of FDI stock was in support industries. A. One fourth
B. One third
C. Two third
M. Half
57. (p. 248) The rise in FDI in the providers sector is because all of the pursuing, except A. The general relocate many developed countries away from manufacturing and toward providers B. Accelerating regulations of services
C. Many companies cannot be exchanged internationally
D. Various countries possess liberalized their particular regimes governing FDI in services 49. (p. 248) When tactical assets just like brand devotion, customer associations or distribution systems are essential, _____ purchases are more appropriate. A. Combination and acquisition
B. Greenfield
C. Portfolio
D. New construction
59. (p. 249) _____ involves approving a foreign enterprise the right to develop and sell the firm’s product in return for a royalty payment on every unit sold. A. Horizontal FDI
W. Licensing
C. Straight FDI
D. Greenfield investment
60. (p. 249) In a licensing arrangement, the _____ bears the danger and expense of opening a foreign market. A. Licensee
B. Licensor
C. Acquiring company
Deb. Greenfield trader
61. (p. 250) Identify the theory that seeks to explain so why firms frequently prefer foreign direct investment over guard licensing and training as a method for entering overseas markets. A. Internalization theory
W. Internationalization theory
C. Perfect markets theory
D. Little markets theory
62. (p. 250) According to the internalization theory, all of the following are drawbacks of licensing like a strategy for taking advantage of foreign market opportunities, other than A. Certification does not grant control over manufacturing, marketing and to a licensee in return for a royals fee N. Licensing may result in a business’s giving away their know-how to a potential foreign competitor C. Licensing would not give the organization the limited control over developing, marketing and technique that may be necessary to profitably take advantage of its advantage D. A firms capabilities such as the management, marketing and production are often not amenable to licensing 63. (p. 250) ______ is likewise known as marketplace imperfections theory. A. Internationalization theory
N. Internalization theory
C. Perfect markets theory
D. Small markets theory
64. (p. 251) If four firms control 80 percent of a domestic market, then ______ exists. A. An oligopoly
W. A monopoly
C. An oligarchy
M. Vertical integration
sixty-five. (p. 251) According to Knickerbocker
A. The firms that pioneer a product or service in their residence markets carry out FDI to
produce a product for consumption in a foreign market B. Each time a firm that may be part of an oligopolistic market expands to a foreign marketplace, other companies in the industry will probably be compelled to generate similar assets C. Merging location-specific possessions or reference endowments as well as the firm’s own unique assets often requires FDI G. Impediments to the sale of know-how increase the success of FDI relative to certification 66. (p. 252) The eclectic paradigm was developed simply by
A. Farreneheit. T. Knickerbocker
N. Adam Johnson
C. Raymond Vernon
G. John Dunning
67. (p. 252) When two or more corporations encounter the other person in different regional markets, countrywide markets or perhaps industries, we have a. Vertical the use
W. Horizontal the usage
C. Multipoint competition
Deb. Monopolistic competition
68. (p. 252) The merchandise life circuit suggests that
A. Usually the same firms that master a product inside their home market segments undertake FDI to produce a merchandise for intake in international markets B. When a organization that is component to an oligopolistic industry expands into a international market, different firms on the market will be compelled to make comparable investments C. Combining location-specific assets or perhaps resource endowments and the business own exclusive assets frequently requires FDI D. Road blocks to the sale of know-how boost the profitability of FDI relative to licensing 69. (p. 253) The _____ suggests that a strong will create production establishments where foreign assets or perhaps resource endowments that are important to the company are located. A. Product life pattern
B. Proper behavior theory
C. Multipoint competition theory
D. Eclectic paradigm
seventy. (p. 253) Advantages that arise by using resource endowments or property that are linked with a particular site and that a firm finds important to combine having its own exclusive assets are known as A. Site specific positive aspects
B. Useful resource specific positive aspects
C. Competitive positive aspects
G. Directional advantages
71. (p. 253) John Dunning, a champion with the eclectic paradigm, argues a. The companies that leading a product within their home markets undertake FDI to produce a product for intake in a international market M. When a organization that is a part of an oligopolistic industry grows into a foreign market, additional firms in the industry will be compelled to make related investments C. Combining location-specific assets or resource endowments and the business own exclusive assets often requires FDI D. Impediments to the sale for know-how improve the profitability of FDI relative to licensing
seventy two. (p. 254) According to the _____ view of FDI, MNEs extract earnings from the sponsor country and take them to their home country, supplying nothing valuable to the sponsor country as a swap. A. Imperialist
B. Conventional
C. Free market
M. Radical
73. (p. 254) Which with the following is usually not a explanation that the major position of MNEs was at retreat by the end of the eighties? A. The strong financial performance of these developing countries that embraced capitalism rather than radical ideology B. The collapse of communism in Eastern Europe
C. The commonly abysmal economic performance of these countries that embraced the radical situation D. An increasing belief in many capitalist countries that MNE’s tightly settings key technology and that crucial jobs
in the MNEs’ foreign subsidiaries go to home-country nationals
74. (p. 255) According to _____ worldwide production must be distributed between countries in line with the theory of comparative benefits. A. The radical look at
N. The varied view
C. Sensible nationalism
D. The free industry view
75. (p. 256) A distinctive aspect of _____ is the trend to strongly court FDI believed to be in the national curiosity by, for instance , offering financial assistance to international MNEs in the form of tax breaks or grants. A. The dogmatic view
B. Pragmatic nationalism
C. The major view
D. The conservative look at
76. (p. 257) Each time a company gives capital and technology to a host region, the number country benefits from the A. Competitive a result of FDI
B. The resource copy effect of FDI
C. The balance of payments a result of FDI
D. The effect on competition and economic growth
seventy seven. (p. 258) When careers are created in local suppliers as a result of the FDI and once jobs are made because of improved local spending by personnel of the MNE, the MNE has a _____ effect on work. A. Immediate
B. Indirect
C. Inward
D. Facing outward
78. (p. 259) A _____ monitors a country’s payments to and its statements from other countries. A. Federal repayments ledger
B. Current accounting program
C. Checks and balances account
M. Balance of payments bank account
79. (p. 259) The _____ paths the foreign trade and import of goods and services. A present-day account deficit or operate deficit since it is often called, occurs when a nation is adding more services and goods than it really is exporting. A. Current account
N. Debit accounts
C. Surplus account
G. Capital bank account
80. (p. 261) 3 costs of FDI issues of host countries arise from each of the following apart from A. Adverse effects on competition within the number nation
B. Negative effects on the stability of payments
C. The recognized loss of countrywide sovereignty and autonomy
D. Charge on the current account of the home country’s balance of payments
81. (p. 262) FDI undertaken to serve the property market is known as the. Greenfield expense
W. FDI replacement
C. Offshore creation
D. Home market FDI
82. (p. 263) Double taxation is
A. Recharging double taxation in the home region
N. Charging dual taxes inside the host country
C. Taxation of income in both house and sponsor country
D. Having to pay income taxes in twice the conventional rate
83. (p. 264) _____ will be controls above the behavior of the MNE’s community subsidiary. A. Performance requirements
B. Ownership vices
C. Double taxation laws
D. Greenfield restrictions
84. (p. 267) Licensing is a good option intended for firms in which of the
following sectors? A. High-technology industries in which protecting firm-specific expertise is of paramount importance and guard licensing and training is hazardous B. Global oligopolies, through which competitive interdependence requires that multinational companies maintain small control over foreign operations C. Industries through which intense cost pressures need that international firms preserve tight control over foreign functions D. In fragmented, low technology industries in which worldwide dispersed making is not an option
85. (p. 267) _____ is basically the support industry variation of licensing, although it normally involves a lot longer term responsibilities. A. Franchising
W. Subsidizing
C. Greenfield investment
D. Having a patent of
Essay Questions
eighty six. (p. 242) Discuss the bond between international direct expense and multinational enterprises?
Foreign direct purchase (FDI) takes place when a organization invests immediately in fresh facilities to produce and/or marketplace a product in a foreign country. The U. S. Section of Trade states that FDI happens whenever a U. S. resident, organization or perhaps affiliated group takes any of 10 % or more within a foreign business entity. When affirm undertakes FDI, it is a international enterprise.
87. (p. 242) What are the two forms of foreign direct purchase? The two kinds of FDI happen to be Greenfield investment or creating a new operation in a foreign country and mergers and acquisitions whereby a company grows internationally via an existing organization. Acquisitions can be minority, majority or a totally ownership placement. 88. (p. 242) Talk about the trends in FDI over the last 3 decades. Be sure to distinguish between the stock of FDI and the flow if FDI. The stream of FDI refers to the amount of FDI undertaken over a offered period, while the stock of FDI refers to the total gathered value of foreign-owned resources at specific time. Over the last 30
years there is a proclaimed increase in the two flow plus the stock of FDI in the world economy. More than this period, the flow of FDI quicker faster than the growth on planet trade and world output. 89. (p. 242) Talk about the reasons for the growth in FDI over the last 30 years. FDI has grown quicker than community trade and world result for several causes. First, many companies see FDI as a means of circumventing potential trade obstacles. Second, politics and financial changes in a lot of the world expanding nations continues to be encouraging FDI. Finally, the globalization of the world economy has a positive influence on the volume of FDI as firms today see the entire world because their market. 90. (p. 242-248) What is a Greenfield investment? How exactly does it beat an obtain? Which sort of FDI can be described as firm much more likely choose? Describe your solution. FDI may take the form of a Greenfield expense in a fresh facility or perhaps an purchase of or a combination with a preexisting local company. Research demonstrates that most FDI takes the proper execution of mergers and acquisitions rather than Greenfield investment.
Mergers and acquisitions are more well-known for three causes. First, mergers and purchases are faster to do than Greenfield investments. Second, foreign companies are attained because these firms have got valuable ideal assets. Third, firms generate acquisitions since they believe they can increase the efficiency of the obtained firm by transferring capital, technology or management skills. 91. (p. 248) Discuss the change in FDI from making to services. What is driving the trend? During the last twenty years, the sector make up of FDI has shifted from extractive industries and manufacturing toward services. By simply 2004, some 66 percent of the inventory of FDI was in companies. Four factors are driving a car the change to providers. First, the shift displays the general relocate many produced economies faraway from manufacturing and toward support industries. Second, many services cannot be exchanged internationally and FDI is known as a principal was to bring solutions to overseas markets. Third, many countries have liberalized their routines governing FDI in services making the possibility more attractive to firms. Finally, the rise of Internet-based global telecoms networks allows some services enterprises to relocate a selection of their value creation activities to different nations to be given favorable component costs.
92. (p. 249) Consider how come firms making sales with low value-to-weight
ratios choose FDI over exporting. Products with low value-to-weight percentages such as carbonated drinks or concrete are frequently produced in the market in which they are used. When transportation costs happen to be added to production costs, it is unprofitable to shift this kind of products on the long range. For organizations that can create low value-to-weight products by almost any position the charm of conveying decreases and FDI or perhaps licensing becomes more appealing. 93. (p. 250) Discuss the marketplace imperfections description of FDI. What is it is relationship with internalization theory? Market defects or elements that lessen markets coming from working correctly, provide a key explanation of why businesses prefer FDI to either exporting or licensing. In the international business literature, the marketing defects approach is referred to as internalization theory. According to the theory, FDI will be preferred once there are impediments that make both equally exporting plus the sale of information difficult and/or expensive. 94. (p. 250) What is certification? How does it work?
Certification occurs if a domestic organization, the licensor, licenses to a foreign company, the licensee, the right to develop its merchandise, to use their production techniques or to use its manufacturer or hallmark. In return, the licensor collects royalty charges on every product the licensee sells or perhaps on total licensee revenues. The licensor also advantages from the layout in that the licensee contains the cost and risk of growing into a foreign market. 95. (p. 250) Compare and contrast the advantages of overseas direct investment over transferring and licensing. A firm can favor international direct expense over conveying as a great entry strategy when vehicles costs or trade obstacles make transferring unattractive. Furthermore, the company will favour foreign direct investment above licensing (or franchising) in order to wishes to maintain control over the technological know-how or over their operations and business strategy or when the firm’s capacities are simply not amenable to licensing, since may frequently be the situation. 96. (p. 251) Consider the notion that FDI moves are a representation of ideal rivalry among firms in the global industry. What is the primary limitation of the theory? The strategic habit approach to clarify FDI was initially expounded by Knickerbockers who also argued that in an oliogopolistic industry, a “follow the leader mentality will fast firms to pursue FDI when an additional firm inside the industryhas already done so. Nevertheless , the theory fails to explain how come the initial firm chose to undertake FDI, rather than foreign trade or certificate. 97. (p. 252)
What is multipoint competition? How do businesses respond to multipoint competition? Multipoint competition develops when several enterprises face each other in various regional market segments, national marketplaces or sectors. Economic theory suggests that companies will try to complement each other peoples moves in different markets to try and hold each other in check. When a firm is successful with this strategy, the firm will ensure that a rival will not take a ordering position in one market and then use the revenue generated in that market to underwrite competitive attacks in other markets. 98. (p. 252) Explain the merchandise life pattern theory and its connection with FDI. The product life cycle theory, developed by Beam Vernon, shows that the same companies that leader a product within their home country will undertake FDI to produce a product for usage in international markets. Based on the theory, organizations will invest in industrialized countries when demand in individuals countries is sufficient to support local production. That they subsequently shift production to developing countries when merchandise standardization and market vividness give rise to cost competition and cost challenges. Investment in developing countries, where labor costs are lower is seen as the best way to keep costs down. 99. (p. 252-253) Exactly what are location-specific positive aspects? How do they help make clear FDI? Location specific advantages are positive aspects that occur from using useful resource endowments or assets which have been tied to a particular foreign location and that a good finds important to combine having its own exclusive assets. Normal resources including oil and minerals for instance , are certain to selected locations. Businesses must take on FDI to use such overseas resources. 100. (p. 253) Explain John Dunning’s situation on FDI. What is the eclectic paradigm? John Dunning has asserted that to completely understand FDI it is important to consider the role of location certain advantages.
According to Dunning, a firm will probably be prompted to undertake FDI in an effort to exploit assets that are particular to a particular location. Dunning’s theory, the eclectic paradigm, combines the arguments of internalization theory with the idea of location-specific advantages to suggest that merging location-specific possessions or resource endowments plus the firm’s personal unique features often needs the organization to establish production facilities where foreign resources or source endowments arelocated. 101. (p. 254-256) Talk about the various personal ideologies and their impact on foreign direct expenditure. The radical view authors argue that the multinational enterprise (MNE) can be an instrument of imperialist dominance, superiority. The cost-free market watch argues that international development should be distributed among countries according to the theory of comparison advantage.
The pragmatic nationalist view is that FDI has both benefits and costs. The revolutionary view provides a dogmatic major stance that is hostile to any or all inward FDI The cost-free market view is at the other extreme and based on non-interventionist theory of free marketplace economics. Among these two extreme conditions is a way called practical nationalism. 102. (p. 257-262) Discuss the huge benefits and costs of FDI from the perspective of a host country and from the perspective of the home region. The main advantages of inward FDI for a sponsor country come up from resource-transfer effects, employment effects, balance-of-payments effects and effects in competition and economic progress. Three costs of FDI concern sponsor countries. They will arise from possible negative effects on competition within the number nation, adverse effects on the harmony of payments and the identified loss of national sovereignty and autonomy. The key benefits of FDI for the home (source) country come up from 3 sources. Initially, the home country’s balance of payments advantages from the back to the inside flow of foreign profits. Second, rewards to the country from outward FDI happen from work effects. Third, benefits arise when the home-country MNE discovers valuable expertise from its exposure to foreign market segments that can subsequently be transmitted back to your home country. The most crucial cost/concern of FDI for the home country centers on the balance-of-payments and work effects of facing outward FDI.
103. (p. 266-267) Describe the situations when licensing can be not a good approach to a firm. Guard licensing and training is not a good option in three circumstances. First, license is dangerous in high end industries where protecting firm-specific expertise is vital. Second, guard licensing and training is certainly not attractive in global oligopolies where restricted control is necessary so that organizations have the ability to launch coordinated attacks against global competitors. Finally, in industries where powerful cost demands require that MNEs keep tight control of foreign functions, licensing is not the best option. 104. (p. 267) What is franchising? What kind of firm uses
franchising as a means of expanding in to foreign markets? Franchising is basically the service-industry version of licensing. With franchising, the firm licenses its brand name to a international firm in substitution for a percentage from the franchisee’s profits. The franchising contract identifies the conditions that the franchisee must fulfill when it is to use the franchisor’s manufacturer. Franchise agreements usually have longer commitment than do license arrangements. Franchising is common inside the fast food industry because junk food cannot be exported, because franchising minimizes the cost and hazards associated with starting a foreign market, because brandnames are easy to protect, because there is no powerful reason for a good to have small control over dispenses and because junk food know-how is easily transferred.
a hundred and five. (p. 267) How valuable are the support life cycle theory and Knickerbocker’s theory of horizontal FDI to organization? The product your life cycle theory and Knickerbocker’s theory of horizontal FDI to organization are not particularly useful by a business point of view because the theories are detailed rather than analytical. The theories are useful pertaining to explaining historic patterns of FDI, nonetheless they do a poor job of identifying the factors that influence the relative possibility of FDI, licensing and exporting.
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