Question

Some countries have oil as a natural resource and BronzePlate Inc., based in Illinois, is considering building a facility in one of those foreign countries since it does not have easy access to oil near its manufacturing plant. Which theory of foreign direct investment provides an explanation for this decision

Answer 1

The question is incomplete:

Some countries have oil as a natural resource and BronzePlate Inc., based in Illinois, is considering building a facility in one of those foreign countries since it does not have easy access to oil near its manufacturing plant. Which theory of foreign direct investment provides an explanation for this decision

A) eclectic paradigm

B) infant industry argument

C) protectionism argument

D) product life cycle theory

E) new trade theory

Answer:

D) product life cycle theory

Explanation:

-Eclectic paradigm  refers to an approach that helps a business to evaluate if it should make a foreign direct investment based on ownership, location and internationalization.

-Infant industry argument  says that a new industry in a country doesn't have the economies of scale that the industry has in other countries and because of that, it has to be protected.

-Protectionism argument  says that restrictions on imports should be placed to protect the national industry against international competitors.

-Product life cycle theory  states that at the beginning of the product life cycle all the materials and resources needed are from the place where the product was created but when the product is widely used, the manufacturing process is transfered to a different place that can be in another country.

-New trade theory refers to a group of models related to international trade that talk about returns to scale that tend to increase and network effects when protectionist measures are put in place and that they can help to create important industries.

According to this, the answer is that the theory of foreign direct investment that provides an explanation for this decision is product life cycle theory because BronzePlate Inc. manufactures its products in Illinois and it is considering building a facility in another country to get easy access to oil and the product life cycle theory says that when companies have a product that is widely used they would transfer the production process to a different place that is what you can see in this case.