Question

1) What is an “infant industry” policy? Is it generally a good idea for the long-term health of developing economies? Explain pros and cons.

2) Give 3 specific ways in which the Internalization and Ownership parts of the OLI framework tie into VRIO based advantages,? Explain, giving at least 2 specific examples,

3) What is a “black hole” subsidiary? What should an MNC do if they identify such a subsidiary? (5 points)

4) Give four reasons why and when a strong USD would cause US-based MNCs to worry. (5 points)

5) What are three advantages and three disadvantages of Chinese inbound FDI for the USA (be specific). If the host country is a small developing country like Jamaica, would the disadvantages be any different? Explain briefly.

6)) What is a “black hole” subsidiary? What should an MNC do if they identify such a subsidiary? (5 points)

7) Give four reasons why and when a strong USD would cause US-based MNCs to worry. (5 points)

8) Guanxi is a form of collectivism that is based upon deep long term personal ties usually formed early in life. Should this be related to (a) Uncertainty avoidance and/or (b) recent government subsidies for private entrepreneurial activity. Take and firm position for both (a) and (b) and explain. The Hofstede framework should be particularly useful.

Answer 1

1)

Infant industry policy refers to the economic policy of developing countries where these countries seek to protect domestic industries against the competitions from developed countries. Developing countries uses tariffs and non-tariffs measures to reduce the level of competition.

Pros:

• It protects domestic industries and help them to survive.
• It helps a country to well diversify its output base gradually shifting primary sector to secondary and tertiary sector.

Cons:

• Protection to domestic industries breeds inefficiency in production system and these firms do not care to increase efficiencies to enhance profits.
• Consumer welfare is compromised in form of reduced output level.