IB exam 2025

Question 1

FDI

Answer 1

Purchase of physical assets / significant amount of ownership in a company in another country to gain a measure of management control

Question 2

International Product life cycle theory

Answer 2

1. New product stage
   - good produced in home country due to domestic demand
2. Maturing product stage
   - company invest in production facilities in countries where demand is high
3. Standardised product stage
   - Increased competition creates pressures to reduce production costs
   - company builds production capacity in low-cost developing nations

Question 3

Market imperfections theory

Answer 3

• When an imperfection in the market makes a transaction less efficient the company undertakes FDI to internalised the transaction and remove the imperfection
• e.g. Tariffs are an imperfection

Question 4

Eclectic Theory

Answer 4

Ownership advantage
- company advantage arising from ownership of special asset
Location advantage
- advantage of locating a particular economic activity in a specific location because of its natural/acquired characteristics Internationalisation advantage
- advantage that arises from internalising business activity instead of leaving to relatively inefficient market

Question 5

Market power theory

Answer 5

• firm tries to establish a dominant market presence in an industry by undertaking FDI
• FDI = dictate cost of inputs/price of outputs
  Vertical integration
• company taking ownership of various stages of its production process rather than relying on external suppliers