CHAPTER 1
Globalization and International Business
Multiple Choice Questions
STUDY QUESTION 1: What are international business and globalization? What is the
relationship between them?
1. Which of the following best defines international business?
a. It includes all economic flows between two or more countries.
b. It includes all private economic flows between two or more countries.
c. It includes all business transactions involving two or more countries, whether the
transactions are conducted by private or governmental organizations.
(definition, page 7)
d. It includes all business transactions in countries other than your home country.
2. The deepening relationship and broadening interdependence among people from different
parts of the world is known as _____.
a. globalization (definition, page 6)
b. off-shoring
c. economic geography
d. outsourcing
3. In the comparison of private and governmental conduct of international business, one can
say that _____.
a. the objectives are the same
b. the private objective is profit; whereas, governments may or may not have profit
as the objective (interpretation, page 7)
c. governments operate strictly for nonprofit motives, but private organizations seek
profits
d. governments undertake international business for more long-term objectives than
private companies
4. All commercial transactions between two or more countries are known as _____.
a. foreign trade
b. the balance of payments
c. globalization
d. international business (definition, page 7)
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Globalization and International Business
STUDY QUESTION 2: Why should you study international business?
5. Which of the following is not a reason to study international business?
a. All business except that outside the territory of any nation is international.
(interpretation, page 7)
b. International business comprises a large and growing portion of the world's total
business.
c. The conditions within foreign countries affect the best way to conduct business there.
d. A company operating internationally may engage in modes of business that differ
from those it is accustomed to domestically.
6. Even if you never have direct international responsibilities, understanding some of the
complexities of international business may be useful to you because _____.
a. an understanding is essential for most managerial job interviews
b. it may help you make more informed decisions in support of government policy
(interpretation, pages 7–8)
c. you will need to supervise and evaluate subordinates who have international
responsibilities
d. it teaches you how to evade taxes in your country
7. Today, we can say that because global events and competition affect almost all
companies, you need to _____.
a. pressure your government to become more independent of other countries
b. take a job with a company headquartered in another country
c. find employment with a company that does not compete against international
companies
d. gain some understanding of international business (interpretation, page 7)
8. In terms of international business, we can say that _____.
a. the best way to conduct business is the same from one country to another
b. global competition affects large companies but not small ones
c. most companies, regardless of industry, depend either on foreign markets and
supplies or compete against companies that do (interpretation, page 7)
d. government regulation of international business has little effect on companies' profits
STUDY QUESTION 3: Explain how globalization has changed over time and differs
both among countries and within countries.
9. Most of the world's goods and services are sold _____.
a. in international markets
b. in the countries where they are produced (interpretation, page 8)
c. through exports of goods and services
d. through production abroad by foreign investors
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Globalization and International Business
10. According to the A.T. Kearny/Foreign Policy Globalization Index, which ranked
countries on their extent of globalization across four dimensions (economic,
technological, personal contact, and political), countries _____.
a. tend to be ranked similarly on all four dimensions
b. are similarly globalized
c. that are large in land mass and population are more globalized than small countries
d. sometimes rank high on one dimension and low on another (interpretation, page
9)
11. A difficulty in comparing the amount of business globalization over time is that _____.
a. countries differ in their extent of globalization
b. companies adopt different operating forms
c. shifting borders obsolesce figures on what is international (interpretation, page
8)
d. many private companies were once government owned
12. An indication of the increased globalization of business since the end of World War II is
that _____.
a. world trade has grown more rapidly than world production in almost every year
(interpretation, page 8)
b. most countries now depend on foreign output for more than half their consumption
c. most countries now depend on foreign markets for more than half their sales
d. countries have had to increase their import restrictions to counter the rising tide of
imports
STUDY QUESTION 4: Identify and explain the seven forces that have been causing the
growth in globalization.
13. Which of the following has been a major force behind recent globalization?
a. lower tax rates
b. the slower rise of prices in general than prices of transportation and communications
c. greater prohibitions on the placement of capital in countries with secretive bankholding laws
d. cumulative institutional developments that aid foreign trade and investment
(interpretation, page 11)
14. Cumulative institutional developments by business and government have aided the
expansion of international business by _____.
a. providing a universally agreed upon language for conducting international
transactions
b. removing immigration restrictions so that international firms can move personnel
wherever they are most needed
c. developing means to ease the flow of goods among countries (interpretation,
page 11)
d. assisting in the development of MNEs from low-income countries
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Globalization and International Business
15. International business has recently grown at such a rapid pace because of _____.
a. development of institutions to support and facilitate trade (interpretation, page
11)
b. stricter government policies on cross-border movements
c. decreasing global competition
d. increased concerns about terrorism
16. Which of the following has influenced consumers to demand access to foreign-made
products?
a. Less global affluence has caused consumers to seek out lower-priced products from
abroad.
b. Consumers have become more efficient in using the Internet to compare prices
worldwide. (interpretation, page 11)
c. Fearing that their governments will enact restrictive policies on imports, final
consumers are stocking up on foreign products before the restrictions are put in place.
d. Expectations of rising prices of foreign products have caused consumers to seek
foreign products before their prices become prohibitive.
STUDY QUESTION 5: How is technology affecting the growth of international
business?
17. How have improvements in communications affected managers' control of foreign
operations?
a. More control of decision-making has shifted from headquarters to foreign locations.
b. Headquarters is better able to control foreign operations. (interpretation, page
9)
c. Headquarters' managers no longer have to travel abroad to control foreign operations.
d. Managers now have to choose between foreign and domestically owned
communications services.
18. The recent expansion of technology has contributed to the growth in international
business by _____.
a. creating new products that are important in world trade (interpretation, page 9)
b. speeding the clearance of goods through customs
c. counting international transactions that heretofore did not appear in national statistics
d. enabling governments to increase tax collections so as to develop trade-facilitating
services
19. Which of the following is a result of the recent expansion of transportation technology?
a. Transportation costs have risen more rapidly than costs in general.
b. Governments have increased restrictions to prevent competition among carriers from
different countries.
c. More countries are competing for sales in a given market. (interpretation, page
9)
d. Companies have lessened their dependence on producing components in multiple
countries.
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Chapter 1
Globalization and International Business
20. All the following statements are true about the increase and expansion of technology
except _____.
a. it has eased the ability of headquarters to interact with their foreign operations
b. small companies can more easily access global customers and suppliers
c. companies from more countries can compete for sales in given markets
d. most analysts agree that the development of new products will decelerate in the
future (interpretation, page 9)
STUDY QUESTION 6: Why have most governments lowered restrictions on
international trade?
21. Which of the following is a reason for recent governmental decreases in restrictions on
cross-border trade or resource movements?
a. Governments hope to induce other nations to reduce their barriers in return.
(interpretation, page 10)
b. Governments believe this will decrease the need to make their own companies more
innovative.
c. Consumers increasingly want to buy goods and services produced in their own
countries, thus making restrictions less necessary.
d. Most countries face shortages of workers, thus by allowing entry of foreign workers
they can produce more.
22. Which of the following is a reason for recent governmental decreases in restrictions on
cross-border trade or resource movements?
a. Governments believe that this will decrease the need to make their own companies
more innovative.
b. Consumers increasingly want to buy goods and services produced in their own
countries, thus making restrictions less necessary.
c. Their citizens have expressed the desire for easier access to a greater variety of
goods and services at lower prices. (interpretation, page 10)
d. Most countries face shortages of workers, thus by allowing entry of foreign workers
they can produce more.
23. Which of the following is a reason for recent governmental decreases in restrictions on
cross-border trade or resource movements?
a. Most countries face shortages of workers, thus by allowing entry of foreign workers
they can produce more.
b. Governments believe that this will decrease the need to make their own companies
more innovative.
c. Consumers increasingly want to buy goods and services produced in their own
countries, thus making restrictions less necessary.
d. Governments believe that domestic producers will become more efficient as a
result of foreign competition. (interpretation, page 10)
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Chapter 1
Globalization and International Business
24. Because their citizens have expressed the desire for easier access to a greater variety of
goods and services at lower prices, most governments have _____.
a. placed restrictions on most exports so that more supply is available to their citizens
b. liberalized cross-border trade and resource movements (interpretation, page 10)
c. reduced taxes on consumption
d. signed cross-national agreements to subsidize international transportation
STUDY QUESTION 7: What is the relationship between competition and
globalization?
25. Why do firms increasingly face global competition?
a. There are fewer wars and insurrections to interrupt business than in any other period
of history.
b. More countries now publish balance of payments statistics.
c. Advancements in transport and communications make companies more aware
of business developments and opportunities elsewhere. (interpretation, page 9)
d. Social science advancements have helped break down nationalism.
26. A company starting out with a global focus, usually because of the international
experience of its founders, is called a _____.
a. multinational enterprise
b. transnational company
c. strategically allianced company
d. born-global company (definition, page 12)
27. Potential pressures of increased foreign competition can persuade companies to _____.
a. use more domestic inputs in their production
b. expand their business into international markets (interpretation, page 12)
c. seek fewer barriers to imports
d. raise prices to improve the quality-image of their products
28. When a company successfully responds to foreign production and market opportunities,
_____.
a. other companies likely emulate the successful practices (interpretation, page 12)
b. it likely has a long-term advantage over competitors
c. it downsizes its domestic operations
d. its home government likely raises taxes on the company
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Chapter 1
Globalization and International Business
STUDY QUESTION 8: Why do countries cooperate with other countries? How does
this cooperation affect international business?
29. Which of the following is a reason why governments cooperate through treaties,
agreements, and consultation?
a. to gain a division of labor, such as by performing research and development in one
country and production in another
b. to be in compliance with United Nations' requirements
c. to assure that all countries get an equitable share of taxes from multinational
enterprises
d. to deal with areas of concern that lie outside the territory of all countries
(interpretation, page 12)
30. In terms of nonterritorial areas (noncoastal areas of the oceans, outer space, Antarctica),
there _____.
a. is little short-term business potential
b. are a number of treaties that specify their business use (interpretation, page 13)
c. is a consensus that commercial benefits from exploitation should be shared by all
countries
d. is a consensus that companies technologically able to exploit opportunities should
receive the benefits
31. Governments have signed treaties to protect foreign-owned property rights, such as
investments and patents. A reason for doing so is to _____.
a. gain reciprocal advantages (interpretation, page 13)
b. attack problems jointly
c. deal with areas of concern outside the territory of any country
d. prevent adverse spillover from one country to another
32. Which of the following is a reason why governments cooperate through treaties,
agreements, and consultation?
a. to gain a division of labor, such as by performing research and development in one
country and production in another
b. to be in compliance with United Nations' requirements
c. to attack problems jointly that one country acting alone cannot solve
(interpretation, page 13)
d. to assure that all countries get an equitable share of taxes from multinational
enterprises
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Chapter 1
Globalization and International Business
STUDY QUESTION 9: What are the main criticisms of globalization?
33. All of the following are major criticisms of globalization except _____.
a. countries lose control to act in their own best interest
b. globalization brings economic growth that uses too many nonrenewable resources and
despoils the environment
c. globalization creates winners and losers, thus leading to greater inequality
d. globalization increases the cost of production (interpretation, page 14)
34. Although critics complain that globalization causes the use of too many nonrenewable
resources while despoiling the environment, those in favor of globalization counter that
_____.
a. globalization speeds the international dissemination of technologies that save
natural resources and are less polluting (interpretation, page 15)
b. economic growth created by globalization is largely in services, which neither use too
many nonrenewable resources nor despoil the environment
c. the biggest problem of environmental despoliation occurs in the countries that are
least globalized
d. pollution and toxic runoff problems do not increase with economic growth
35. Although globalization may bring economic growth, critics nevertheless contend that
_____.
a. the growth is not fast enough
b. the inequality of gains puts some people in a relatively worse economic situation
(interpretation, page 15)
c. this growth is mainly for the future, thus ignoring present economic growth needs
d. we should all embrace an attitude of antimaterialism
36. Curtailment of logging in the Amazon region is generally viewed as beneficial for the
planet as a whole, nevertheless Brazil's president allowed the resumption of logging
_____.
a. because of acute lumber shortages in other countries
b. in protest over the loss of the best Brazilian soccer players to European teams
c. because of protests by Brazilian workers who wanted logging jobs
(interpretation, page 15)
d. because of pressures to pay the country's external debt
STUDY QUESTION 10: What is meant by off-shoring? What are the major arguments
for and against it?
37. The process of shifting production from a domestic to a foreign location is known as
_____.
a. off-shoring (definition, page 17)
b. out-sourcing
c. service imports
d. a turnkey operation
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Globalization and International Business
38. The major argument companies use to support off-shoring is that it _____.
a. helps poor countries improve their economies
b. saves costs (interpretation, page 17)
c. reduces pollution.
d. reduces home-country unemployment
39. Proponents of off-shoring claim all of the following except _____.
a. the percentage of the world population living in poverty fell drastically between 1980
and 2000
b. off-shoring increases the number of high-value jobs in the home countries of offshoring companies
c. off-shoring is fundamentally different from the introduction of labor-saving
technologies (interpretation, page 17)
d. economic growth of poor countries increases those countries' purchase of goods from
rich countries
40. Critics of off-shoring claim all of the following except _____.
a. cost savings are seldom passed on to final consumers
b. off-shoring exchanges good jobs for bad jobs
c. the number of people living in poverty increased substantially in the last decade of the
twentieth century
d. off-shoring reduces the incomes of people in poor countries (interpretation, page
17)
STUDY QUESTION 11: Why do companies engage (What advantages do they gain?) in
international business?
41. Companies may increase profits by seeking foreign sales, provided that _____.
a. they can obtain resources abroad
b. the costs to make the sales do not increase disproportionately (interpretation,
page 16)
c. they can off-shore their production
d. they can reach the foreign market by exporting rather than making a foreign
investment
42. An advantage that an international company may have over a purely domestic one is that
it can _____.
a. save transportation costs
b. more easily control its operating units
c. acquire cheaper resources to use in production (interpretation, page 18)
d. deal with a less complex external environment
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Globalization and International Business
43. The televising of sports competition to viewers in multiple countries is an example of an
objective of _____.
a. acquiring scarce resources
b. minimizing risk
c. off-shoring
d. sales expansion ((interpretation, page 16)
44. By operating internationally a company may reduce its risks because it _____.
a. takes advantage of business-cycle differences among countries (interpretation,
page 18)
b. can buy competitive risk insurance not available in its home country
c. prevents competitors from operating in the countries it has entered
d. operates in less competitive environments than those at home
STUDY QUESTION 12: Define and give examples of merchandise and service imports
and exports.
45. An example of a Mexican merchandise export would be a shirt made ______ and sold
_______.
a. in the United States by a Mexican company; in the United States
b. in the United States by a Mexican company; outside the United States
c. in Mexico by either a Mexican or a U.S. company; outside Mexico
(interpretation, page 19)
d. in Mexico by either a Mexican or a U.S. company; in Mexico
46. An example of a Japanese service export would be a visit by a _____.
a. Japanese citizen to Disneyland in the United States
b. Japanese citizen to the Japan Pavilion at Epcot Center in the United States
c. U.S. citizen to the Japan Pavilion at Epcot Center in the United States
d. U.S. citizen to Tokyo Disneyland in Japan (interpretation, page 19)
47. Visible exports and imports are _____.
a. merchandise imports and exports (interpretation, page 19)
b. the sum total of goods and services traded
c. international transactions paid for in money rather than barter
d. legal trade rather than products smuggled internationally
48. Fees from the use of assets abroad, such as trademarks or patents, would be example of
_____.
a. merchandise trade
b. service trade (interpretation, page 20)
c. visible trade
d. a joint venture
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STUDY QUESTION 13: What are the types of foreign investment?
49. A direct investment occurs _____.
a. only when a company owns more than 50 percent of a foreign firm
b. when a company controls a company abroad (interpretation, page 20)
c. when foreign ownership is in private rather than government securities
d. by buying a foreign firm rather than establishing a new company abroad
50. When two or more organizations share in ownership of a foreign direct investment, the
operation is called a _____.
a. portfolio investment
b. transnational corporation
c. turnkey operation
d. joint venture (definition, page 20)
51. When a company owns foreign bonds or bills, this is an example of a _____.
a. portfolio investment (interpretation, page 20)
a. transnational corporation
b. direct investment
c. joint venture
52. Foreign direct investment _____.
a. is owned only by large companies
b. includes the ownership of foreign bonds
c. includes partially owned foreign operations as long as the owner has controlling
interest (interpretation, page 20)
d. in terms of value, is mainly owned by small companies
STUDY QUESTION 14: What is a multinational enterprise (MNE)?
53. A multinational enterprise (MNE) is one that is _____.
a. among the world's 500 largest companies
b. owned and managed by companies whose headquarters are split among different
countries
c. licensed to operate by the United Nations Transnational Center
d. willing to consider market and production locations anywhere in the world
(definition, page 21)
54. A company that takes a global approach to foreign markets and production is called a
_____.
a. multinational enterprise (definition, page 21)
b. strategic alliance enterprise
c. collaborative participant
d. multiglobal company
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55. Although the term multinational enterprise (MNE) is sometimes defined differently, most
writers today define it to include _____.
a. only companies with production facilities in a minimum of five different countries
b. only companies among the world's 100 largest
c. any company that has operations in more than one country (interpretation, page
21)
d. any company that competes with companies from foreign countries
56. The term used by the United Nations as a synonym for multinational enterprise is _____.
a. multinational corporation
b. transnational company (definition, page 21)
c. stateless company
d. global enterprise
STUDY QUESTION 15: What do we mean by a company's physical and societal
environments? Why should companies understand them when engaging in
international business?
57. Why do international business managers need a working knowledge of their physical and
societal environments?
a. The aggregate of conditions outside the company influences its success.
(interpretation, page 22)
b. Governments require that foreign companies do business the way it is customarily
carried out in their countries.
c. This knowledge is required in order to obtain visas to work in many countries.
d. This knowledge explains why the world's natural resources are located where they
are.
58. In Japan, baseball games may end in a tie, but in the United States, teams play until one
wins. This difference is most likely due to _____ factors.
a. economic
b. geographic
c. behavioral (interpretation, page 23)
d. legal
59. The uneven distribution of resources among countries results in _____.
a. uneven enforcement of laws
b. different capabilities to produce given products (interpretation, page 23)
c. the determination of different economic levels
d. the need for treaties to assure the sharing of them
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Globalization and International Business
60. Companies need to determine not only the laws affecting business where they plan to
operate, but also the _____of those laws.
a. origin
b. ethical rationale
c. legislating bodies
d. degree of enforcement (interpretation, page 22)
STUDY QUESTION 16: How does a company's competitive environment affect its
international operations? How might its competitive environment differ from one
country to another?
61. The competitive environment that companies face abroad is generally _____.
a. more intense than they face in their domestic markets
b. very similar among countries for a given industry
c. varied by industry and country (interpretation, page 24)
d. such that companies use the same operating methods in each country
62. A company from a small country generally _____ than a company from a large country.
a. must pay a higher tax rate
b. has to become more dependent on foreign sales (interpretation, page 24)
c. faces more competitors in its domestic market
d. depends more on service exports
63. Company A produces a product aimed at low- and middle-income consumers. Company
B produces a product aimed at a niche of very high–income consumers. Most likely, A
will be more interested than B in locating production where _____.
a. business cycles are not very correlated with those in its home country
b. the probability of natural disasters is low
c. franchise operations are very popular
d. labor costs are low (interpretation, page 24)
64. When companies face the same competitors in almost all countries where they operate,
_____.
a. what they learn about each other in one country is useful in predicting the
other's strategies and actions elsewhere (interpretation, page 24)
b. the market leader is the same everywhere
c. there is less need to understand the physical and societal factors of each country
d. they are more apt to enter joint ventures with each other
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Chapter 1
Globalization and International Business
STUDY QUESTION 17: What are the three main viewpoints about the future of
globalization?
65. The view that globalization is inevitable is primarily based on the belief that _____.
a. international organizations will replace nation states
b. protesters against globalization represent only a very small minority
c. people want more global homogeneity of cultures
d. technical advances in transportation and communications are too pervasive to
stop globalization's growth (interpretation, page 25)
66. The belief that most international business in the future will be regional rather than global
is based partly on the fact that _____.
a. many treaties to remove trade barriers have been enacted on a regional basis
(interpretation, page 25)
b. transportation of most goods is impractical over great distances
c. most people in adjacent countries understand each other's languages
d. countries within a region share more similar political beliefs
67. All of the following are reasons given for the future slowing or collapse of globalization
except _____.
a. antiglobalization interests have been successful in electing parties that are adverse to
freer movement of trade or people
b. technological advancements will slow in the future (interpretation, page 25)
c. some major countries have either ignored international treaties or have refused to sign
them
d. neither institutions nor people can handle the complexities of a truly interconnected
world
68. Some observers feel that people working within international institutions cannot
adequately handle the complexities of an interconnected world. Based on this, they
premise that _____.
a. international business will grow primarily on a regional basis
b. globalization is nevertheless inevitable
c. globalization will slow in the future (interpretation, page 25)
d. private companies will replace international organizations in running the world's
economy.
True/False Questions
STUDY QUESTION 1: What are international business and globalization? What is the
relationship between them?
69. International business includes all commercial transactions between two or more
countries. True (definition, page 7)
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Chapter 1
Globalization and International Business
70. All commercial transactions between two or more countries are known as globalization.
False (definition, page 6)
STUDY QUESTION 2: Why should you study international business?
71. Gaining some understanding of international business is important because global events
and competitions affect almost all companies. True (interpretation, page 7)
72. Understanding some of the complexities of international business help you to make more
informed decisions in support of government policies. True (interpretation, page 8)
STUDY QUESTION 3: Explain how globalization has changed over time and differs
both among countries and within countries.
73. It is difficult to compare globalization of business over time because shifting borders
obsolesce figures on what is international. True (interpretation, page 8)
74. World production has grown more rapidly than world trade in almost every year since
World War II. False (interpretation, page 8)
STUDY QUESTION 4: Identify and explain the seven forces that have been causing the
growth in globalization?
75. The lowering of tax rates around the world has been a major force behind recent
globalization. False (interpretation, page 9)
76. Globalization of business has been stimulated by consumers' greater efficiency in using
the Internet to compare prices worldwide. True (interpretation, page 11)
STUDY QUESTION 5: How is technology affecting the growth of international
business?
77. The recent expansion of technology has contributed to the growth in international
business by creating new products that are important in world trade. True
(interpretation, page 9)
78. As a result of expansions in transportation technology, more countries can compete for
sales in a given market. True (interpretation, page 9)
STUDY QUESTION 6: Why have most governments lowered restrictions on
international trade?
79. Import restrictions have been becoming less important because consumers increasingly
want to buy goods and services produced in their own countries. False (interpretation,
page 10)
80. Countries have reduced import trade barriers because they believe their domestic
producers will become more efficient as a result of foreign competition. True
(interpretation, page 10)
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Chapter 1
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STUDY QUESTION 7: What is the relationship between competition and
globalization?
81. Firms increasingly face global competition because more countries now publish balance
of payments statistics. False (interpretation, pages 11–12)
82. A born-global company is one that starts out with a global focus. True (interpretation,
page 12)
STUDY QUESTION 8: Why do countries cooperate with other countries? How does
this cooperation affect international business?
83. Governments sometimes cooperate to deal with areas of concern that lie outside the
territory of all countries. True (interpretation, page 13)
84. Governments cooperate through treaties, agreements, and consultation to assure that they
all get an equitable share of taxes from multinational enterprises. False (interpretation,
pages 12–13)
STUDY QUESTION 9: What are the main criticisms of globalization?
85. A criticism of globalization is that by creating more economic growth, too many
nonrenewable resources are used. True (interpretation, page 15)
86. People favoring globalization contend that the biggest problem of environment
despoliation occurs in the countries that are least globalized. False (interpretation, page
17)
STUDY QUESTION 10: What is meant by off-shoring? What are the major arguments
for and against it?
87. The process of shifting production to a foreign country is known as out-sourcing. False
(interpretation, page 15)
88. The major argument companies use to support off-shoring is that it saves costs. True
(interpretation, page 17)
STUDY QUESTION 11: Why do companies engage (What advantages do they gain?) in
international business?
89. By operating internationally a company may reduce its risks because of taking advantage
of business-cycle differences among countries. True (interpretation, page 18)
90. The televising of sports competition to viewers in multiple countries is an example of an
international objective of sales expansion. True (interpretation, page 16)
STUDY QUESTION 12: Define and give examples of merchandise and service imports
and exports.
91. When a U.S. citizen visits Tokyo Disneyland, this is a service export for Japan. True
(interpretation, page 19)
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Chapter 1
Globalization and International Business
92. The production by a U.S. company in Canada for sale in Canada is a U.S. merchandise
export. False (interpretation, page 19)
STUDY QUESTION 13: What are the types of foreign investment?
93. The ownership of foreign bonds is an example of a portfolio investment. True
(definition, page 20)
94. A direct investment occurs when foreign ownership is in private rather than government
securities. False (definition, page 20)
STUDY QUESTION 14: What is a multinational enterprise (MNE)?
95. A multinational enterprise is a company that takes a global approach to foreign markets
and production. True (definition, page 21)
96. Stateless company is a term used by the United Nations as a synonym for multinational
enterprise. False (definition, page 21)
STUDY QUESTION 15: What do we mean by a company's physical and societal
environments? Why should companies understand them when engaging in
international business?
97. The uneven distribution of resources among countries results in different capabilities to
produce given products. True (interpretation, page 23)
98. Managers need a working knowledge of their physical and societal environments to help
them understand the aggregate of conditions outside their companies that influence their
success. True (interpretation, page 22)
STUDY QUESTION 16: How does a company's competitive environment affect its
international operations? How might its competitive environment differ from one
country to another?
99. A company from a small country generally has to become more dependent on foreign
sales than a company from a large country. True (interpretation, page 24)
100. When companies face the same competitors in almost all the countries where they
operate, what they learn about each other in one country is useful in predicting the other's
strategies and actions in other countries. True (interpretation, page 25)
STUDY QUESTION 17: What are the three main viewpoints about the future of
globalization?
101. The view that globalization is inevitable is primarily based on the belief that
international organizations will replace nation states. False (interpretation, page 25)
102. The view that globalization will slow or collapse is based on the belief that
technological advancements will slow in the future. False (interpretation, page 25)
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Essay Questions
103.
In a short essay, define international business.
Answer
International business is all commercial transactions—private and governmental—
between two or more countries. Private companies undertake such transactions for profit;
governments may or may not do the same in their transactions. These transactions include
sales, investments, and transportation.
(definition, page 7)
104. In a short essay, discuss why the study of international business is important to
managers.
Answer
A simple answer is that international business comprises a large and growing portion of
the world's total business. Global events affect almost all companies. A more complex
answer is that a company operating internationally will engage in modes of business,
such as exporting and importing, that differ from those it is accustomed to domestically.
To operate effectively, managers must understand these different modes.
(interpretation, pages 7–8)
105. In a short essay, list and describe the three primary reasons companies engage in
international business.
Answer
a. To expand sales—The number of people and the amount of their purchasing power
are higher for the world as a whole than for a single country, so companies may
increase their sales by reaching international markets. Ordinarily, higher sales mean
higher profits, assuming each unit sold has the same markup.
b. To acquire resources—Manufacturers and distributors seek out products, services,
and components produced in foreign countries. They also look for foreign capital,
technologies, and information they can use at home. Sometimes they do this to
reduce costs. Acquiring resources may enable a company to improve its product
quality and differentiate itself from competitors—in both cases, potentially
increasing market share and profits. Although a company may initially use domestic
resources to expand abroad, once the foreign operations are in place, the foreign
earnings may then serve as resources for domestic operations.
c. To minimize competitive risk—Many companies enter into international business
for defensive reasons. They want to counter advantages competitors might gain in
foreign markets that, in turn, could hurt them domestically. Companies harboring
such a fear may enter foreign markets primarily to prevent a competitor from
gaining advantages.
(interpretation, pages 16, 18)
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106. In a short essay, list and describe the factors that have led to this increased growth in
international business in recent decades.
Answer
a. Rapid increase in an expansion of technology—By increasing the demand for new
products and services, technology has tremendous impact on international business.
As the demand increases, so do the number of international business transactions.
Improved communications and transportation speed up interactions and improve
managers' ability to control foreign operations.
b. Liberalization of cross-border movements—Although the past decrease in restrictions
has been erratic, governments have lowered them because their citizens have
expressed the desire for better access to a greater variety of goods and services at
lower prices. They also reason that their domestic producers will become more
efficient as a result of foreign competition, and they hope to induce other countries to
reduce their barriers to international movements.
c. Increase in global competition—The pressures of increased foreign competition can
persuade a company to expand its business into international markets. Today
companies can respond rapidly to many foreign sales opportunities. They can shift
production quickly among countries if they're experienced in foreign markets and
because they can transport goods efficiently from most places.
d. Growing consumer pressures—Consumers are more savvy and have more income.
They want to be able to buy the variety and low-cost products available from
anywhere in the world.
e. Development of supporting services—Companies and governments have developed
services that ease international business. Today, producers can be paid relatively
easily for goods and services sold abroad because of bank credit agreements, clearing
arrangements that convert one country's currency into another's, and insurance that
covers damage en route and nonpayment by the buyer.
f. Changing political situations—The schism between communist and noncommunist
countries is basically over as communist countries have moved toward transitioning
their economies, thus trade between the two groups has increased.
g. Expanded cross-national cooperation—Countries realize they can't go it alone. They
cooperate to gain reciprocal advantages, to attack problems jointly, and to deal with
areas outside the confines of any country.
(interpretation, pages 8–14)
107. In a short essay, discuss why governments have been liberalizing cross-border
movements of goods, services, and resources.
Answer
Generally, governments today impose fewer restrictions on cross-border movements than
they did a decade or two ago. They have lowered them for the following reasons:
a. Their citizens have expressed the desire for easier access to a greater variety of goods
and services at lower prices.
b. They reason that their domestic producers will become more efficient as a result of
foreign competition.
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Chapter 1
Globalization and International Business
c. They hope to induce other countries to reduce their barriers to international
movements.
(interpretation, page 10)
108. Give at least two examples of business and government services that ease the conduct
of international business.
Answer
Banks have developed efficient means for companies to receive payment for their foreign
sales. Today, most producers can be paid relatively easily for goods and services sold
abroad because of bank credit agreements, clearing arrangements that convert one
country's currency into another's, and insurance that covers damage en route and
nonpayment by the buyer.
(interpretation, page 11)
109. In a short essay, define and give examples of merchandise and service imports and
exports.
Answer
a. Merchandise exports are tangible products—goods—sent out of a country.
Merchandise imports are goods brought into a country. When a Chinese contractor
sends toy action figures from China to Hasbro in the United States, the contractor
exports and Hasbro imports.
b. Service exports and imports are nonproduct international earnings. The company or
individual receiving payment is making a service export. The company or individual
paying is making a service import.
(definition, pages 18–20)
110. In a short essay, list and describe the various modes of international business as
described in the text.
Answer
a. Importing and exporting—More companies are involved in exporting and importing
than in any other international mode. This is especially true of smaller companies,
even though they are less likely than large companies to engage in exporting. For
most countries, exporting and importing of goods are the major sources of
international revenue and expenditures.
b. Licensing and franchising—Licensing agreements are used when companies allow
others to use their assets, such as trademarks, patents, copyrights, or expertise under
contract. Franchising is a mode of business in which one party allows another party
the use of a trademark that is an essential asset for the franchisee's business.
c. Turnkey operations—Refers to construction, performed under contract, of facilities
that are transferred to the owner when they are ready to begin operating.
d. Management contracts—Refers to arrangements in which one company provides
personnel to perform general or specialized management functions for another
company.
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Globalization and International Business
e. Direct and portfolio investment—A direct investment is one that gives the investor a
controlling interest in a foreign company. A portfolio investment is a noncontrolling
interest in a company or ownership of a loan to another party.
(definition, pages 20–21)
111. In a short essay, list and discuss the three sources of service exports and imports as
described in the text.
Answer
a. Tourism and transportation—International tourism and transportation are important
sources of revenue for airlines, shipping companies, travel agencies, and hotels.
Earnings from foreign tourism are more important for the Bahamian economy than
are earnings from the export of merchandise. Similarly, the United States has in
recent years earned more from foreign tourism than from its exports of agricultural
goods.
b. Performance of services—Some services, such as banking, insurance, rentals,
engineering, and management services, net companies earnings in the form of fees.
On an international level, for example, companies pay fees for engineering services
that are often handled through turnkey operations. Companies also pay fees for
management contracts.
c. Use of assets—When companies allow others to use their assets, such as trademarks,
patents, copyrights, or expertise under contracts, they receive earnings called
royalties. Dividends and interest paid on foreign investments are also treated as
service exports and imports because they represent the use of assets.
(definition, pages 19–20)
112.
In a short essay, discuss how companies benefit from foreign direct investment (FDI).
Answer
Companies may choose FDI as a mode to access certain resources or reach a market.
Today, about 61,000 companies worldwide have FDIs that encompass every type of
business function—extracting raw materials from the earth, growing crops,
manufacturing products or components, selling output, and providing various services.
Many small firms maintain their sales offices abroad to complement their export efforts,
which are FDI along with the real estate they own abroad.
(interpretation, pages 20–21)
113.
In a short essay, define a multinational enterprise.
Answer
The multinational enterprise (MNE) is a company that takes a global approach to foreign
markets and production. It is willing to consider market and production locations
anywhere in the world.
(definition, page 21)
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114. In a short essay, discuss a company's physical and societal environments. Why should
companies understand them when engaging in international business?
Answer
To operate within a company's external environment, its managers should have, in
addition to knowledge of business operations, a working knowledge of the basic social
sciences: political science, law, anthropology, sociology, psychology, economics, and
geography. Politics help shape business worldwide because political leaders control
whether and how international business takes place. Domestic and international law
determine largely what the managers of a company operating internationally can do. The
related sciences of anthropology, sociology, and psychology describe, in part, people's
social and mental development. Economics explains, among other concepts, why
countries exchange goods and service with each other. Managers who know geography
can better determine the location, quantity, quality, and availability of the world's
resources, as well as the best means to exploit them.
(interpretation, pages 21–24)
115. The external environment is important in the planning strategy, especially in the
international arena. In a short essay, list and describe the various factors that comprise the
external environment
Answer
a. Physical factors—Managers who know geography can better determine the location,
quantity, quality, and availability of the world's resources, as well as the best means
to exploit them.
b. Societal factors—Includes a country's politics, law, culture, and economy.
c. Competitive factors—Includes the number and strength of suppliers, customers, and
rival firms.
(interpretation, pages 21–25)
116. To operate within a company's external environment, its managers should have, in
addition to knowledge of business operations, a working knowledge of the basic social
sciences. In a short essay, list and discuss the various social sciences that are discussed in
the text.
Answer
a. Political science—Politics helps shape business worldwide because the political
leaders control whether and how international business takes place. Domestic and
international law largely determine what the managers of a company operating
internationally can do. Domestic law includes regulations in both the home and host
countries on such matters as taxation, employment, and foreign exchange
transactions. International law in the form of legal agreements between two countries
governs how both tax the earnings.
b. By studying anthropology, sociology, and psychology, managers can better
understand societal values, attitudes, and beliefs concerning themselves and others.
This understanding can help them function better in different countries.
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c. Economics explains, among other concepts, why countries exchange goods and
services with each other, why capital and people travel among countries in the course
of business, and why one country's currency has a certain value compared to
another's. By studying economics, managers can better understand why, where, and
when one country can produce goods or services less expensively than another can.
d. Managers who know geography can better determine the location, quantity, quality,
and availability of the world's resources, as well as the best means to exploit them.
The uneven distribution of resources results in different products and services being
produced or offered in different parts of the world. Geographical barriers such as high
mountains, vast deserts, and inhospitable jungles affect communications and
distribution channels for companies in many countries.
(interpretation, pages 22–24)
43