International Business Concepts Quiz

Study Notes

Subsidiary: More than 50% ownership by the parent entity, giving control over management.
Associate: Between 10% and 50% ownership by the parent entity, offering partial influence.
Branch: Unincorporated, wholly or jointly owned by the parent entity, lacking independent legal status.

Home Countries: Parent firms and domestic affiliates located within the parent company's home country.
Host Countries: Foreign affiliates located in a different country where the parent company is establishing operations.

FDI: Focuses on control and management of foreign ventures. Investors are primarily producers of goods and services.
FPI: Driven by financial returns like dividends and capital gain. Investors include financial institutions, institutional investors, and individuals.
Developing Countries: Generally prefer FDI over FPI due to the speculative nature of FPI.

Greenfield Investment: Establishing new enterprises in the host country. This is often used when speed and access to proprietary assets are not priorities.
Mergers and Acquisitions (M&As): Common mode of FDI entry into developed countries, offering rapid entry and control over existing resources.

FDI Flow: Tracks capital transactions between parent firms and their foreign affiliates within a specific time period.
FDI Stock: Measures the accumulated value of capital owned by parent firms in their foreign affiliates.

Primary source of foreign savings for developing countries, complementing and enhancing domestic savings.
Contributes to economic growth and balance of payments, potentially leading to income outflows.
Transfer pricing remains a risk for host countries, although concerns have diminished.

Direct impact: Bringing in foreign savings, supporting local firms.
Indirect impact: Influencing domestic investment by creating new opportunities or crowding out local firms in saturated markets.
The overall effect is dependent on local conditions and linkages between foreign and domestic enterprises.

Developing nations strive to attract FDI to supplement domestic resources, although it typically represents a small portion of total investment.
Strategies for attracting FDI include creating a conducive policy framework, reducing regulatory barriers, and utilizing investment promotion and incentives.
National policies should focus not only on attracting FDI but also on maximizing its positive impact on host countries.

Leading TNCs are key innovators, transferring advanced technologies to foreign affiliates via FDI.
Nationalization, expropriation, and other regulatory takings (property takings) must adhere to public purpose, non-discrimination, and compensation principles.
Types of property takings:
- Direct takings: Physical possession and legal title transfer.
- Indirect takings: No transfer of property rights. Examples include creeping expropriation and regulatory takings.

Stipulations imposed on foreign affiliates to benefit the host economy.
Common requirements: Local content, export performance, domestic equity, joint ventures, technology transfer, and employment of nationals.

Incentives can lead to administrative costs, efficiency losses, unintended distortions, and tax base erosion through transfer pricing.

Technology diffusion: The spread of new technology.
FDI benefits host countries through technology transfer and skills diffusion to local firms and individuals.
Spillovers or externalities: Unintended or deliberate actions that transfer knowledge and capabilities.
FDI-driven technology diffusion occurs through:
- Competition
- Cooperation
- Labor mobility