ge14 - CHAPTER 3 REVIEW QUESTION ANSWERS 1. What is the...

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CHAPTER 3 REVIEW QUESTION ANSWERS 1. What is the primary difference between FDI and FPI? Foreign direct investment (FDI) is defined as directly investing in activities that control and manage value creation in other countries. Foreign portfolio investment (FPI). FPI refers to investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets. 2. How does horizontal FDI compare to vertical FDI? Horizontal FDI: when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI. Vertical FDI: a firm through FDI moves upstream or downstream in different value chain stages in a host country. 3. Devise an example that demonstrates your understanding of upstream and downstream vertical FDI. Answers will vary but should demonstrate understanding of the following. Downstream vertical FDI: expanding through the stages of production and distribution toward distribution. Upstream vertical FDI: expanding back through the stages of production and distribution toward production . 4. What distinguishes an MNE from a non-MNE? Multinational enterprises are firms that engage in FDI, non-MNE firms may be involved in international transactions but do so using alternatives to FDI. 5. Briefly summarize each of the three OLI advantages. OLI advantages: ownership (O) advantages, location (L) advantages, and internalization (I) advantages. Ownership refers to MNEs’ possession and leveraging of certain valuable, rare, hard-to- imitate, and organizationally embedded (VRIO) assets overseas. Location refers to advantages enjoyed by firms operating in certain areas. Internalization refers to the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries. 6.
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ge14 - CHAPTER 3 REVIEW QUESTION ANSWERS 1. What is the...

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