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IB12e tif 05 - Test bank and notes for international business
international business (‫( ءارسإلا ةعماج‬Jordan))
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CHAPTER 5
Globalization and Society
Multiple Choice Questions
STUDY QUESTION 1: Which stakeholders must companies satisfy? Why is this process
more difficult for companies operating internationally?
1.
Which of the following is not a key stakeholder group that a company must work to
satisfy in order to survive in a global environment?
a. employees
b. competitors
c. shareholders
d. customers
(b; p. 190; Concept; Moderate)
2.
Which of the following groups wants additional sales and increased productivity, which
result in higher profits and larger returns going to them?
a. customers
b. shareholders
c. society at large
d. government
(b; p. 190; Concept; Moderate)
3.
Which of the following stakeholders are more interested in an MNE providing increased
corporate taxes and more trustworthy behavior on the part of corporate executives?
a. shareholders
b. society
c. employees
d. customers
(b; p. 190; Concept; Moderate)
4.
Which of the following statements is true regarding MNEs’ relationships with their
stakeholders?
a. No individual stakeholder group is powerful enough to cause the demise of an MNE.
b. An MNE may serve all stakeholder groups equally at any given time.
c. All stakeholders of an MNE have the same goals and interests.
d. Inadequate familiarity with stakeholders in a foreign operating environment complicates
choosing which groups need the most attention.
(d; p. 191; Concept; Moderate) {AACSB: Multicultural and Diversity}
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STUDY QUESTION 2: Why is it difficult to make generalizations about the overall effect
of FDI?
5.
Which of the following statements about foreign direct investment is true?
a. Home country governments can enhance but not restrict the activities of MNEs in making
FDI.
b. Host country governments can restrict but not enhance the activities of MNEs who want
to make investments in their countries.
c. Home and host governments are often under pressure from various groups to adopt
policies to regulate the activities of MNEs as FDI grows worldwide.
d. MNEs look at FDI as an objective of their existence rather than as a means of entering
foreign markets.
(c; p. 188; Concept; Moderate)
6.
Findings from investigations of cause-and-effect relationships between FDI and situations
in a host country imply which of the following?
a. If employment rises when an MNE invests in a foreign country, it is safe to say that the
cause of the rise in employment must be due to the foreign direct investment.
b. The effects of an MNE’s activities must be positive to both home and host country to
warrant a host country allowing an FDI to occur.
c. FDI usually results in a win-lose situation, although it is possible to have a win-win
situation for both countries.
d. It is hard to determine if the actions of an MNE are responsible for effects in recipient
countries, such as economic growth or unemployment.
(d; p. 191; Application; Moderate) {AACSB: Analytic Skills}
7.
In general, governments should not make general assumptions about the effects of FDI
because ________.
a. many critics link individual companies to general situations while proponents don’t
b. it is too time-consuming and costly
c. MNEs are very different in their functions and behaviors, and each has an individual
impact on the host country
d. governments have a successful history of predicting future impacts of MNEs on host
countries
(c; p. 191; Concept; Moderate)
8.
When proponents of MNE activities claim that an increase in the collection in tax
revenues in a host country is a result of FDI, they are using which type of generalization
about the impact of FDI?
a. cause and effect relationships
b. individual and aggregate effects
c. stakeholder tradeoffs
d. micro consequences of macro decisions
(a; p. 190-191; Concept; Moderate) {AACSB: Reflective Thinking}
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STUDY QUESTION 3: Describe the potential economic effects of MNEs.
9.
The investment by a U.S. company in an industry in Mexico is an example of ________.
a. a capital inflow into Mexico
b. import stimulus into the U.S.
c. a net balance of payments effect
d. export reduction
(a; p. 192; Application; Moderate) {AACSB: Reflective Thinking}
10.
If a British company sets up a subsidiary in France that produces products for the French
market, this investment is most likely to result in what type of economic effect in the short
run?
a. export stimulus for France
b. capital export from France
c. import displacement in France
d. capital inflow for Britain
(c; p. 193; Application; Moderate) {AACSB: Analytic Skills}
11.
Which of the following is the best explanation for why an MNE’s investment is initially
favorable to the host country but later more favorable to the home country?
a. MNEs fear host-country restrictions on capital outflow, which increases capital inflows
and discourages capital flight.
b. MNEs usually remain in the host country for only four to six years before removing their
operations and returning home.
c. Although MNEs increase employment in the host country, they do not transfer any
technology or capital to the host country.
d. Nearly all foreign investors plan eventually to have their subsidiaries remit dividends
back to the parent company in excess of what they sent abroad.
(d; p. 193; Concept; Moderate)
12.
The net export effect of a foreign direct investment is positive in the host country if the
FDI results in ________.
a. more imports from the investing country
b. the development of markets abroad for the FDI in the host country
c. dividends not being sent back to the home office
d. a reduction of imports by the home country
(b; p. 193; Application; Moderate) {AACSB: Reflective Thinking}
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STUDY QUESTION 4: What are the growth and employment effects of FDI to both the
home and host countries? How do these benefits and losses change over time?
13.
Which of the following statements is true regarding the potential economic effects of
MNEs?
a. FDI brings only capital inflows to the host country.
b. MNEs’ investments are initially favorable to the home country and unfavorable to the
host country.
c. Host country restrictions on capital outflow increase confidence in the economy and
encourage MNEs to invest in the host country.
d. The effects of MNEs on growth and employment are not a zero-sum game—both
countries may benefit.
(d; p. 194; Concept; Easy)
14.
Home country losses due to FDI include ________.
a. the export of jobs to foreign countries
b. more optimal use of production factors abroad.
c. the use of unemployed resources in the foreign market.
d. the downgrading of resources in the foreign market.
(a; p. 194; Concept; Easy)
15.
In what ways can FDI benefit the host country?
a. through the transfer of technology and capital and the creation of new jobs
b. by forcing local companies to lay off their workers
c. by destroying the local entrepreneurial spirit
d. by exploiting natural resources and polluting the environment
(a; p. 194; Concept; Easy)
16.
Host country losses due to FDI include ________.
a. the transfer of capital and technology
b. enhanced capacity or capability of existing companies
c. creation of new jobs
d. displacement of local entrepreneurs
(d; p. 195; Concept; Moderate)
STUDY QUESTION 5: Why do companies care about ethical behaviors?
17.
Which of the following is a business objective for pursuing ethical behavior?
a. avoid being perceived as being responsible
b. increase competitive advantages
c. create better advertisements
d. discourage commitment to the firm for the wrong reason
(b; p. 196; Concept; Easy) {AACSB: Ethical Reasoning}
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18.
Which of the following is a business objective for pursuing ethical behavior?
a. create a better relationship with corrupt politicians and customers
b. reduce profit margins
c. avoid being perceived as socially irresponsible
d. impose host-country behavior in the foreign country
(c; p. 196; Concept; Easy) {AACSB: Ethical Reasoning}
19.
Pursuing responsible behavior for strategic and financial success is an example of
a. relative behavior
b. normative behavior
c. working to achieve the objective of developing a competitive advantage
d. working to achieve the objective of avoiding being perceived as irresponsible
(c; p. 196; Concept; Moderate) {AACSB: Ethical Reasoning}
20.
Why would MNEs want to avoid being perceived as socially irresponsible?
a. Companies that are socially irresponsible gain support from their home governments.
b. Socially irresponsible companies usually have fewer exports and more imports.
c. Cultural barriers increase for companies who are socially irresponsible, preventing them
from expanding into more countries.
d. Social irresponsibility may lead to negative publicity from nongovernmental and other
organizations, which could hurt a company’s reputation.
(d; p. 196; Application; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 6: What are important cultural foundations of ethical behaviors?
21.
Ethical dilemmas tend to be ________ for MNE managers than for domestic managers.
a. more complicated
b. less controversial
c. easier to decide
d. about the same
(a; p. 196; Concept; Moderate) {AACSB: Ethical Reasoning}
22.
A manager practicing relativism would ________.
a. adapt to local conditions instead of implementing home-country practices
b. enforce home-country laws on employees and suppliers
c. refuse to change company policy to comply with local norms
d. feel that universal laws exist, which should apply to each country despite local traditions
(a; p. 196; Application; Moderate) {AACSB: Ethical Reasoning}
23.
The belief that there are universal standards of behavior that all cultures should follow is
called ________.
a. humanism
b. relativism
c. normativism
d. naturalism
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(c; p. 197; Concept; Easy) {AACSB: Ethical Reasoning}
24.
A manager who refuses to bribe customs officials in a foreign country, even though it is
morally acceptable in that country, believes in ________.
a. relativism
b. normativism
c. humanism
d. existentialism
(b; p. 197; Application; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 7: What are the legal foundations of ethical behavior?
25.
_____ teaches that “people have a responsibility to do what is right and to avoid doing
what is wrong.”
a. Moral relativism
b. Implied normativism
c. Ethics
d. Cultural relativism
(c; p. 198; Concept; Easy) {AACSB: Ethical Reasoning}
26.
Why is the argument that “anything legal is ethical” insufficient?
a. The law is often based on imprecisely defined moral concepts that cannot be separated
from legal concepts.
b. Everything that is unethical is also illegal.
c. Laws can never be changed; thus, rules for all possible ethical dilemmas are found in the
law.
d. The law is an extremely efficient way to solve every ethical problem.
(a; p. 198; Concept; Easy) {AACSB: Ethical Reasoning}
27.
Which of the following is a reason for an MNE base its standards for ethical behavior on
a country’s laws?
a. The law embodies many of a country’s moral beliefs but is an inadequate guide for
proper conduct.
b. The law contains unenforceable rules that are impossible to follow.
c. The law represents a consensus derived from significant experience and deliberation.
d. The law provides a vaguely defined set of rules.
(d; p. 199; Concept; Easy) {AACSB: Ethical Reasoning}
28.
The idea that laws usually underlie local cultural values is a good example of ________.
a. why the law is not a good foundation for ethical behavior
b. why laws are the same worldwide
c. a reason to use the legal-justification standard for ethical behavior
d. the mismatch between cultural values and legal values
(c; p. 199; Concept; Easy) {AACSB: Ethical Reasoning}
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STUDY QUESTION 8: Explain and give an example of extraterritoriality.
29.
Which of the following is an example of extraterritoriality?
a. a U.S. subsidiary operating in China that is forced to follow some U.S. laws, even though
China has no comparable laws
b. a U.S. sweatshop operating in Thailand that does not follow U.S. labor laws but allows
children to work 60 hours a week
c. an MNE manager who, after working in the host country, tries to implement foreign
practices in the home-country office
d. a British subsidiary operating in Indonesia that maintains the same health and safety
standards for its foreign factories that are required in Great Britain, even though the
British government does not require it to use those standards
(a; p. 199; Application; Moderate) {AACSB: Reflective Thinking}
30.
A government that enforces its own laws on foreign subsidiaries of its domestic
companies practices ________.
a. civil law
b. normativism
c. imitation lag
d. extraterritoriality
(d; p. 199; Concept; Easy) {AACSB: Ethical Reasoning}
31.
Extraterritoriality suggests that ________.
a. a host country government enforces local laws on foreign companies operating in their
country
b. legal and ethical values in a home country may cause its companies to operate abroad
according to home country laws rather than host country laws
c. companies are not allowed to operate outside of their territorial boundaries
d. countries are not allowed to expand their borders beyond what is accepted by the United
Nations and the business community
(b; p. 199; Application; Moderate) {AACSB: Analytic Skills}
32.
The requirement by the U.S. government that its subsidiaries abroad comply with trade
restrictions with Cuba is an example of ________.
a. extraterritoriality
b. comparative advantage
c. absolute advantage
d. relative advantage
(a; p. 199; Application; Moderate) {AACSB: Reflective Thinking}
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STUDY QUESTION 9: What types of payments are legal and illegal under the Foreign
Corrupt Practices Act of the United States? What are the controversies surrounding the
FCPA?
33.
The FCPA applies ________.
a. only to companies registered in the United States
b. only to U.S. companies with foreign subsidiaries
c. only to foreign firms quoted on any stock exchange in the United States
d. to companies registered in the United States and to foreign firms quoted on any stock
exchange in the United States
(d; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
34.
Which of the following statements describes an inconsistency of the FCPA?
a. Facilitation payments (also known as grease money) are classified as bribery.
b. Facilitation payments (or grease money) are excluded from the FCPA’s definition of
bribery.
c. Payments to officials who are not directly responsible for carrying out the law are legal.
d. Payments to foreign officials who carry out the law are illegal.
(b; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
35.
A 1998 U.S. law that outlaws bribery payments by U.S. firms to foreign government
officials is known as the ________.
a. Anti-Bribery Act of 2004
b. Foreign Corrupt Practices Act
c. Zero Tolerance Initiative
d. Sarbanes-Oxley Act
(b; p. 201; Concept; Easy) {AACSB: Ethical Reasoning}
36.
Which of the following is permitted by the Foreign Corrupt Practices Act?
a. a bribe paid by foreign firms operating in U.S. territories.
b. a bribe paid by U.S. firms operating in a foreign country that permits bribes to be paid.
c. a payment to a foreign government official to influence a customs official.
d. a payment to a customs official to clear legitimate merchandise
(d; p. 201; Application; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 10: What other efforts are under way to stop bribery?
37.
According to Transparency International, of the four countries below, companies from
which country are more likely to pay bribes?
a. South Korea
b. Japan
c. Singapore
d. Canada
(a; p. 200; Concept; Challenging) {AACSB: Multicultural and Diversity}
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38.
The OECD Convention against bribery is an example of a(n) ________.
a. bilateral agreement
b. agreement that targets the demand side of bribery
c. an agreement that targets the supply side of bribery
d. U.N. Convention dominated by developing countries
(c; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
39.
Which of the following statements most accurately describes the recent fight against
corruption?
a. Only public organizations, such as the United Nations, have taken measures to reduce and
prevent bribery.
b. Only private organizations, such as Transparency International, are trying to control
corruption at various levels.
c. Many industries have established initiatives to clean up corruption within their respective
fields.
d. In general, organizations around the world are becoming less likely to enforce
punishments for bribery.
(c; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
40.
A zero tolerance pact against bribery signed by 50 multinational construction and naturalresources companies in 2005 is an example of ________.
a. a U.N. agreement that brings together government and business
b. a private sector initiative that grew out of the World Economic Forum
c. a legislated agreement that has been ratified by the countries of the signatory firms
d. an ineffective agreement since construction and natural resources companies are not
likely to pay bribes
(b; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 11: How do environmental concerns affect the strategies of MNEs?
41.
Meeting the needs of the present without compromising the ability of future generations
to meet their own needs is known as ________.
a. competitive advantage
b. the Kyoto Protocol
c. sustainability
d. global warming
(c; p. 204; Concept; Easy) {AACSB: Ethical Reasoning}
42.
What is the Kyoto Protocol?
a. It is an agreement that requires all members of the United Nations to reduce their
greenhouse gas emissions by 5.2 percent.
b. It is an agreement between the United States and Japan requiring both countries to more
tightly control greenhouse gas emissions.
c. It is an agreement that requires the signatory countries to cut greenhouse gas emissions to
5.2 percent below 1990 levels.
d. It is an agreement that requires each country to report its emissions levels each year.
(c; p. 205; Concept; Easy) {AACSB: Ethical Reasoning}
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43.
How has the Kyoto Protocol affected U.S. companies operating in Europe?
a. Companies are changing the way they do business in order to comply with new emissions
standards in Europe.
b. The Kyoto Protocol has not affected U.S. companies with subsidiaries in Europe because
the United States has not signed the Kyoto Protocol.
c. Before U.S. companies can open any more European subsidiaries, the U.S. government
must sign the Kyoto Protocol.
d. Because the United States is not a party to the Kyoto Protocol, U.S. companies may not
operate in European countries that have signed the Kyoto Protocol.
(a; p. 206; Concept; Moderate) {AACSB: Multicultural and Diversity}
Which of the following countries is not a party to the Kyoto Protocol?
a. Germany
b. France
c. the United Kingdom
d. the United States
(d; p. 205; Concept; Moderate) {AACSB: Multicultural and Diversity}
44.
STUDY QUESTION 12: What are some ethical issues that face the pharmaceutical
industry worldwide?
45.
A situation in the pharmaceutical industry where companies charge a market price in
developed countries and a discounted price in developing countries is known as ________.
a. discount pricing
b. skimming pricing
c. penetration pricing
d. tiered pricing
(d; p. 207; Concept; Easy)
46.
Some countries reverse engineer pharmaceutical products ________.
a. as a way to charge higher prices in their domestic markets
b. to lower the cost of certain drugs to the domestic market
c. because they know that generic products are inherently better than branded products
d. to comply with patent laws
(b; p. 208; Concept; Moderate)
47.
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
________.
a. allows rich countries to produce generic versions of patented drugs without having to pay
royalties to the patent holder
b. permits developing countries to import generic products from other countries if they
don’t have the capacity to produce generic drugs
c. requires tiered pricing for most drugs
d. deals with vaccines, such as for malaria, but does not cover drugs such as those used to
treat HIV/AIDS
(b; p. 208; Concept; Moderate) {AACSB: Ethical Reasoning}
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48.
A major concern with illegal generic pharmaceutical products is that ________.
a. drug companies don’t have enough other products to help them earn profits
b. they are generally drugs that do not have a worldwide market demand
c. they may or may not be of high and safe quality
d. illegal generic products are usually more expensive than legal generic products
(c; p. 208; Application; Moderate) {AACSB: Analytic Skills}
STUDY QUESTION 13: What are some of the major labor issues facing companies? In
which industries and countries are these issues most significant?
49.
Which of the following is a labor issue facing many MNEs?
a. paying workers too much
b. providing working conditions that are too nice
c. work weeks that are too short
d. hiring children that are too young
(d; p. 209; Concept; Easy) {AACSB: Ethical Reasoning}
50.
The Ethical Trading Initiative ________.
a. is a U.N. based initiative that is concerned about effective trade laws
b. is a British-based initiative the includes many NGOs but not any corporations, which
limits its ability to implement change
c. wants all companies to reduce greenhouse gas emissions and use tiered pricing for
pharmaceutical products
d. is concerned with employment practices of MNEs
(d; p. 209; Concept; Moderate) {AACSB: Ethical Reasoning}
51.
According to the Ethical Trading Initiative, ________.
child labor cannot be used unless there are no suitable opportunities for work.
employment need not be freely chosen in order to be acceptable.
no harsh or inhumane treatment of workers should be allowed
MNEs cannot be part of the process of setting ethical employment practices since they
are the problem in the first place.
(c; p. 210; Concept; Moderate) {AACSB: Ethical Reasoning}
a.
b.
c.
d.
52.
Which of the following is an argument against MNEs leaving countries with different
labor policies?
a. MNEs have been shown to have an influence on government labor policies in foreign
countries.
b. Many MNEs have substantially improved the working conditions of their foreign plants.
c. MNEs are required to pay workers more than local companies.
d. If MNEs employ native workers in their foreign plants, they can deduct the labor expense
on their U.S. tax returns.
(b; p. 211; Application; Moderate) {AACSB: Analytic Skills}
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STUDY QUESTION 14: Why do companies need to act more responsibly?
53.
Unethical and ________ behavior by an MNE could result in ________.
a. irresponsible; higher employee morale
b. irresponsible; legal headaches
c. responsible; fewer consumer boycotts
d. responsible; higher sales
(b; p. 212; Concept; Easy) {AACSB: Ethical Reasoning}
54.
Which of the following is the most persuasive reason for companies to act more
responsibly?
a. Companies face no outside pressures to act responsibly.
b. Companies that have good ethical behavior are proven to have higher earnings than
unethical companies.
c. Unethical or irresponsible behavior can negatively impact employee morale.
d. The U.S. government provides tax breaks to companies that donate to international
charities.
(c; p. 212; Concept; Moderate) {AACSB: Ethical Reasoning}
55.
A company looking to improve its corporate behavior and public image could do which
of the following?
a. pay sub standard wages to local employees so they don’t upset local wage levels
b. use employee time and profits to donate to international charities
c. invest in countries that permit the hiring of children to put less pressure on the local
education system
d. cut costs in order to improve profits and shareholder satisfaction
(b; p. 212; Application; Moderate) {AACSB: Ethical Reasoning}
56.
Companies need to act responsibly because unethical and irresponsible behavior
________.
a. rarely results in legal sanctions.
b. could result in consumer boycotts
c. usually improves employee morale
d. almost always results in lower sales
(b; p. 212; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 15: What is a code of conduct? What are four dimensions to an
effective code of conduct?
57.
A guideline for responsible action by a firm in its operations worldwide is a(n) ________.
a. code of conduct
b. corporate monitoring policy
c. education program
d. honor code
(a; p. 212; Concept; Easy) {AACSB: Ethical Reasoning}
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58.
A(n) ________ code of conduct is a set of guidelines, recommendations, and rules issued
by entities within society but outside the firm with the intent to affect the behavior of
international business entities in order to enhance corporate responsibility.
a. internal
b. external
c. top management
d. employee-generated
(b; p. 212; Concept; Easy) {AACSB: Ethical Reasoning}
59.
Which of the following is necessary for designing an effective internal code of conduct?
a. setting a national policy that must be complied with domestically
b. communicating the code of conduct only to employees so as to maintain a competitive
advantage
c. ensuring that the code’s policies are carried out
d. making sure the company sets up codes for each country where it is operating instead of
using a code that can be used worldwide.
(c; p. 213; Concept; Moderate) {AACSB: Ethical Reasoning}
60.
Which of the following is an important dimension to ensuring that a code of conduct is
carried out?
a. Make sure employees understand the code and confirm that in writing.
b. Rely on internal rather than external monitoring groups since external groups are often
anti-MNE anyway.
c. Rely on your suppliers to comply with the code of conduct since it is too expensive to use
company resources for compliance purposes.
d. all of the above
(a; p. 213; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 16: What lessons/points in Chapter 5 are illustrated by the opening
and closing cases?
61.
General Electric has decided to focus on being more “green” because ________.
a. the industry has always looked to GE as a trend setter in green technology
b. it feels it can align investor and environmental interests strategically
c. it feels there is a huge opportunity to profit from the environmental revolution, even
though it is not interested in adopting green measures for the company as a whole
d. the U.S. government has decided to use GE as a test case to see if the adoption of the
Kyoto Protocol can actually work for a U.S. firm.
(b; p. 186; Application; Moderate) {AACSB: Analytic Skills}
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62.
As part of its efforts to be more environmentally responsive, General Electric ________.
a. is responding in part to the fact that it is operating in many countries which require
compliance with higher environmental standards than exist in the United States
b. has decided to develop new products that are environmentally friendly rather than adopt
internal policies to reduce greenhouse gas emissions
c. has moved aggressively to reduce greenhouse gas usage internally but has not been able
to develop commercially viable “clean” technologies
d. considered joining the U.S. Climate Action Partnership but decided it was too radical in
its approach to reducing greenhouse gas emissions
(a; p. 186; Concept; Moderate)
63.
HIV/AIDS is affecting the operations of Anglo American PLC ________.
a. by forcing the company to invest outside of South Africa to avoid having to deal with the
health issues
b. for workers in South Africa but nowhere else in the world
c. in a relatively insignificant way since Anglo American will not hire workers infected with
HIV/AIDS
d. through health care and related costs
(d; p. 215; Concept; Moderate)
64.
Which of the following is a problem that Anglo American PLC is facing as it tries to
adopt an aggressive strategy against HIV/AIDS?
a. HIV/AIDS prevention programs are more effective than treatment programs.
b. Its programs have been much more effective than imagined, and costs to treat employees
have dropped.
c. Many employees are not following through on their treatments.
d. They have been incurring huge costs to help migrant workers who generally do not have
HIV/AIDS and do not take the disease back to their home villages.
(c; p. 216; Concept; Moderate)
True/False Questions
STUDY QUESTION 1: Which stakeholders must companies satisfy? Why is this process
more difficult for companies operating internationally?
65.
In the long run, MNEs must adequately meet the needs of all stakeholders in order to
prosper and survive.
(True; p. 190; Application; Moderate) {AACSB: Analytic Skills}
66.
Shareholders are far more interested in corporate social responsibility than in earning
profits.
(False; p. 190; Concept; Easy)
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STUDY QUESTION 2: Why is it difficult to make generalizations about the overall effect
of FDI?
67.
Home country governments can enhance but not restrict the activities of MNEs in making
FDI.
(False; p. 188; Concept; Moderate)
68.
MNEs are very different in their functions and behaviors, and each has an individual
impact on its host country.
(True; p. 191; Concept; Moderate)
STUDY QUESTION 3: Describe the potential economic effects of MNEs.
69.
The investment by a U.S. company in an industry in Mexico is an example of a capital
outflow from Mexico.
(False; p. 192; Application; Moderate) {AACSB: Reflective Thinking}
70.
Generally, MNEs’ investments are initially favorable to the host country and unfavorable
to the home country.
(True; p. 193; Concept; Moderate)
STUDY QUESTION 4: What are the growth and employment effects of FDI to both the
home and host countries? How do these benefits and losses change over time?
71.
The effects of MNEs on growth and employment are not a zero-sum game—both
countries may benefit.
(True; p. 194; Concept; Moderate)
72.
Host country losses due to FDI include the transfer of capital and technology.
(False; p. 194; Concept; Moderate)
STUDY QUESTION 5: Why do companies care about ethical behaviors?
73.
Pursuing responsible behavior for strategic and financial success is an example of relative
behavior.
(False; p. 196; Application; Moderate) {AACSB: Ethical Reasoning}
74.
An important business objective for pursuing ethical behavior is to create a better
relationship with corrupt politicians and customers.
(False; p. 196; Concept; Easy) {AACSB: Ethical Reasoning}
STUDY QUESTION 6: What are important cultural foundations of ethical behaviors?
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75.
Relativism is the theory that ethical truths depend on the values of the groups holding
them; thus, MNEs should adhere to or adopt the cultures of the countries in which they are
located.
(True; p. 196; Concept; Easy) {AACSB: Ethical Reasoning}
76.
MNEs can face pressures both to comply and not to comply with a country”s norms.
(True; p. 197; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 7: What are the legal foundations of ethical behavior?
77.
The law is often based on imprecisely defined moral concepts that cannot be separated
from legal concepts.
(True; p. 198; Concept; Moderate) {AACSB: Ethical Reasoning}
78.
The argument that “anything legal is ethical” is insufficient as a basis for ethical behavior
because the law is usually based on vague moral concepts that can be separated from legal
concepts.
(False; p. 198; Application: Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 8: Explain and give an example of extraterritoriality.
79.
Under the practice of extraterritoriality, legal and ethical values in a country may cause
its companies to operate abroad according to home country laws rather than host country
laws.
(True; p. 199; Concept; Easy) {AACSB: Ethical Reasoning}
80.
The requirement by the U.S. government that its subsidiaries abroad comply with trade
restrictions with Cuba is an example of comparative advantage.
(False; p. 199; Application; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 9: What types of payments are legal and illegal under the Foreign
Corrupt Practices Act of the United States? What are the controversies surrounding the
FCPA?
81.
The Foreign Corrupt Practices Act applies only to companies registered in the United
States.
(False; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
82.
A payment to a customs official to clear legitimate merchandise is permitted by the
Foreign Corrupt Practices Act.
(True; p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 10: What other efforts are under way to stop bribery?
83.
Transparency International, the OECD, and the ICC are all working to stop bribery
around the world.
(True; p. 200; Concept; Easy) {AACSB: Ethical Reasoning}
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84.
The OECD Convention against bribery is an example of an agreement that targets the
demand side of bribery.
(False; p. 201; Concept; Easy) {AACSB: Ethical Reasoning}
STUDY QUESTION 11: How do environmental concerns affect the strategies of MNEs?
85.
Meeting the needs of the present without compromising the ability of future generations
to meet their own needs is known as sustainability.
(True; p. 204; Concept; Easy)
86.
U.S. MNEs that operate in Europe are under pressure to conform to the emissions
standards of the Kyoto Protocol.
(True; Concept; p. 206; Moderate)
STUDY QUESTION 12: What are some ethical issues that face the pharmaceutical
industry wordwide?
87.
When a pharmaceutical company charges a market price in developed countries and a
discounted price in developing countries, the company is using partial source pricing.
(False; p. 207; Concept; Moderate)
88.
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
permits developing countries to import generic products from other countries if they don’t
have the capacity to produce generic drugs.
(True; p. 208; Concept; Moderate)
STUDY QUESTION 13: What are some of the major labor issues facing companies? In
which industries and countries are these issues most significant?
89.
The best thing for MNEs operating in countries in which labor laws differ from those in
the home market is to leave.
(False; p. 210; Application; Moderate) {AACSB: Ethical Reasoning}
90.
According to the Ethical Trading Initiative, child labor cannot be used unless there are no
suitable opportunities for work.
(False; p. 210; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 14: Why do companies need to act more responsibly?
91.
Employee morale is largely unaffected by a company's corporate behavior.
(False; p. 212; Concept; Easy) {AACSB: Ethical Reasoning}
92.
Companies need to act responsibly because unethical and irresponsible behavior could
result in consumer boycotts.
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(True; p. 212; Application; Easy) {AACSB: ethical reasoning}
STUDY QUESTION 15: What is a code of conduct? What are four dimensions to an
effective code of conduct?
93.
An internal code of conduct is a set of guidelines, recommendations, and rules issued by
entities within society but outside the firm with the intent of affecting the behavior of
international business entities in order to enhance corporate responsibility.
(False; p. 212; Concept; Easy) {AACSB: Ethical Reasoning}
94.
The creation of a code of conduct includes steps such as establishing a global policy,
communicating the code to employees, ensuring that the policies are followed, and reporting
results to external stakeholders.
(True; p. 213; Concept; Easy) {AACSB: Ethical Reasoning}
STUDY QUESTION 16: What lessons/points in Chapter 5 are illustrated by the opening
and closing cases?
95.
As part of its efforts to be more environmentally responsive, General Electric is
responding in part to the fact that it is operating in many countries which require compliance
with higher environmental standards than exist in the United States.
(True; p. 186; Concept; Moderate)
96.
HIV/AIDS is affecting the operations of Anglo American PLC by forcing the company to
invest outside of South Africa to avoid having to deal with the health issues.
(False; p. 215; Concept; Moderate)
Essay Questions
STUDY QUESTION 1: Which stakeholders must companies satisfy? Why is this process
more difficult for companies operating internationally?
97.
Which stakeholders must companies satisfy? Why is this process more difficult for
companies operating abroad?
Stakeholders include stockholders, employees, customers, and society at large. In the short
term, the aims of these groups conflict. Stockholders want additional sales and increased
productivity, which result in higher profits and larger returns going to them. Employees want
additional compensation. Customers want lower prices. And society at large would like to see
increased corporate taxes or corporate involvement in social functions. In the long term, all
of these aims must be achieved adequately, or none will be attained at all because each
stakeholder group is powerful enough to cause the company’s demise. Management must be
aware of these various interests but serve them unevenly at any given period. At one time,
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gains may go to consumers; at another, to stockholders. Making necessary trade-offs is
difficult enough in the domestic environment. However, abroad, where corporate managers
are not so familiar with customs and power groups, the problem of choosing the best
alternative is compounded—particularly if dominant interests differ among countries.
(p. 190; Concept; Moderate) {AACSB: Multicultural and Diversity}
STUDY QUESTION 2: Why is it difficult to make generalizations about the overall effect
of FDI?
STUDY QUESTION 3: Describe the potential economic effects of MNEs.
STUDY QUESTION 4: What are the growth and employment effects of FDI to both the
home and host countries? How do these benefits and losses change over time?
98.
What factors make it difficult to evaluate whether the overall effects of FDI are
sufficiently positive?
MNEs may affect countries’ balance-of-payments, growth, and employment objectives.
Under different scenarios, these effects may be positive or negative for either host or home
countries.
a.
Home-country gains—Countries want capital inflows because they allow them to
increase their imports. However, because FDI brings both capital inflows and outflows,
countries worry that the balance-of-payments effect may be negative. Unlike balance-ofpayments effects, the effects of MNEs on growth and employment are not necessarily a
zero-sum game among countries. The argument that both the home and the host countries
may gain from FDI assumes that resources are not necessarily fully employed and that
capital and technology cannot be easily transferred from use in one industry to another.
b.
Home-country losses—The United States is the home country for the largest
amounts of foreign licensing and direct investment. Therefore, its policies understandably
invite criticism. One of its critics is organized labor, which argues that foreign production
often displaces what would otherwise be U.S. production. Critics also cite many
examples
of highly advanced technology that has been at least partially developed through
governmental contracts and then transferred abroad. In fact, some MNEs are moving their
most advanced technologies abroad and in some cases producing abroad before they do
so in the United States.
c.
Host-country gains—Most observers agree that an inflow of investment from MNEs
can initiate greater local development through the employment of unused labor and other
resources. A company will want to move resources such as capital and technology abroad
when the potential return is high—especially in an area where they are in short supply.
Most observers also agree that an inflow of investment from MNEs can initiate an
upgrading of resources by educating local personnel to use equipment, technology, and
modern production methods.
d.
Host-country losses—Some critics have claimed that there are examples of MNEs
making investments that domestic companies otherwise would have undertaken. The
result may be the displacement of local entrepreneurs and entrepreneurial drive. Or they
may bid up prices by competing with local companies for labor and other resources.
Critics also contend that FDI destroys local entrepreneurial drive, which has an important
effect on development. Another argument is that investors learn abroad by observing
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foreign companies closely. This may give them earlier access to technology abroad that
they may copy in their home countries. Critics also say that MNEs absorb local capital,
either by borrowing locally or by receiving investment incentives.
(p. 191, Application; Challenging) {AACSB: Analytic Skills}
STUDY QUESTION 6: What are important cultural foundations of ethical behaviors?
99.
Discuss the difference between relativism and normativism.
a. Relativism affirms that ethical truths depend on the groups holding them. This makes
intervention by outsiders unethical. The idea of relativism can be expressed by the
statement “When in Rome, do as the Romans do.”
b. Normativism holds that there are universal standards of behavior (based on people’s own
values) that all cultures should follow, making nonintervention unethical. Managers thus
struggle with implementing a “universal” set of truths versus adapting to local conditions
on the assumption that every place is different and should be treated differently.
(p. 196; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 7: What are the legal foundations of ethical behavior?
100.
Explain why the argument that “anything that is legal is ethical” is insufficient.
a. The law is not appropriate for regulating all business activity because not
everything that is unethical is illegal.
b. The law is slow to develop in emerging areas of concern. Laws take
time to be legislated and tested in courts. Further, they cannot
anticipate all future ethical dilemmas; basically, they are a reaction to
issues that have already surfaced.
c. The law often is based on moral concepts that are not precisely defined
and that cannot be separated from legal concepts. Moral concepts
must be considered along with legal ones.
d. The law is often in need of testing by the courts. This is especially true
of case law, in which the courts establish precedent.
e. The law is not very efficient. Efficiency in this case implies achieving
ethical behavior at a very low cost, and it would be impossible to solve
every ethical behavioral problem with a law.
(p. 198; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 8: Explain and give an example of extraterritoriality.
101.
In a short essay, explain the idea of extraterritoriality.
Extraterritoriality takes place when governments apply their laws to the foreign operations of
their domestic companies. This occurs because laws vary from country to country, often
because moral values vary from country to country. What some countries accept as illegal
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may not be considered as such by other countries. Strong governments can attempt to
enforce its laws on companies operating in other countries.
(p. 199; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 9: What types of payments are legal and illegal under the Foreign
Corrupt Practices Act of the United States? What are the controversies surrounding the
FCPA?
102.
What types of payments are legal and illegal under the Foreign Corrupt Practices Act
(FCPA) of the United States?
Payments to officials to expedite their compliance with the law are legal (officially called
“facilitation payments” but sometimes referred to as “speed money” or “grease money”), but
payments to other officials who are not directly responsible for carrying out the law are not.
Specifically, a 1988 amendment to the FCPA excluded facilitation payments from its
definition of bribery. Facilitation payments take many forms. For example, payment to a
customs official to clear legitimate merchandise is legal, whereas a payment to a government
minister to influence the customs official is illegal. The FCPA allows the former payment
because governmental officials in many countries delay compliance of laws indefinitely until
they do receive payments, even though such payments may be illegal in those countries.
(p. 201; Concept; Moderate) {AACSB: Ethical Reasoning}
103.
What is the Foreign Corrupt Practices Act, and how does it affect the activities of U.S.
and foreign-based MNEs?
The FCPA outlaws bribery payments by U.S. firms to foreign officials, political parties,
political officials, and political candidates. According to the act, it is illegal to make
payments to government officials to directly engage in illegal activity to benefit the
briber. However, it is possible for U.S. companies to make facilitating payments to
foreign government officials to expedite legitimate transactions, in other words, doing
what they should be doing, not doing something wrong. The FCPA is directed toward
U.S. companies operating abroad, although the provisions of the FCPA were extended in
1998 to include bribery by foreign firms operating in the United States or one of its
territories.
(p. 201; Application; Moderate) {AACSB: ethical reasoning}
STUDY QUESTION 13: What are some of the major labor issues facing companies? In
which industries and countries are these issues most significant?
104.
Discuss the ethical dimensions and pressures related to labor issues that MNEs face.
The many labor issues that companies must deal with include fair wages, child labor,
working conditions, working hours, and freedom of association. These issues are especially
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critical in retail, clothing, footwear, and agriculture where MNEs outsource production to
independent companies abroad, usually in developing countries.
Child labor is a highly publicized issue. The challenge for MNEs is that they work in an
environment with different cultural, legal, and political rules than what they are used to in
their home countries. Two arguments used for hiring children as laborers are (1) children are
better suited than adults to perform certain tasks and (2) if the children were not employed,
they would be worse off. MNEs often face pressure to leave countries that do not have the
same labor policies as their home country; however, this is short-sighted because MNEs may
be able to improve the working conditions for the laborers in their own firms. Some
companies avoid operating in countries that support child labor, while others try to establish
responsible policies in those countries. Either way, MNEs cannot solve all the problems of
child labor.
(p. 209; Concept; Moderate) {AACSB: Ethical Reasoning}
STUDY QUESTION 14: Why do companies need to act more responsibly?
105.
What motivations do companies have to act responsibly?
a. Unethical and irresponsible behavior could result in legal sanctions, especially in the
areas of bribery and product safety.
b. Unethical and irresponsible behavior could also result in consumer boycotts, although
there is little evidence of the effectiveness of consumer boycotts in effecting change.
c. Unethical behavior can affect employee morale. Good behavior can positively influence
both the workers in the developing countries as well as those in corporate headquarters
back home who are proud of their company's behavior.
d. Companies never know when bad publicity is going to cost them sales.
(p. 212, Concept; Moderate) {AACSB: Ethical Reasoning)
STUDY QUESTION 15: What is a code of conduct? What are four dimensions to an effective
code of conduct?
106.
What are the four dimensions of a successful code of conduct?
a. Set a global policy that must be complied with wherever the company operates.
b. Communicate the code to employees, suppliers, and subcontractors.
c. Ensure that policies are carried out.
d. Report results to external stakeholders.
(p. 213; Concept; Moderate) {AACSB: Ethical Reasoning)
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