Chapter 1 Globalizing Business
TRUEFALSE
1. A multinational enterprise is a firm that engages in foreign direct investment by directly investing
in, controlling, and managing value-added activities in other countries.
(A) True
(B) False
Answer : (A)
2. The term "emerging markets" refers to all markets other than the developed markets.
(A) True
(B) False
Answer : (A)
3. Gross domestic product (GDP) is the sum of value added by resident firms, households, and
governments operating in an economy.
(A) True
(B) False
Answer : (A)
4. Majority of the global GDP is contributed by the emerging markets.
(A) True
(B) False
Answer : (B)
5. Purchasing power parity (PPP) is a conversion that determines the equivalent amount of goods
and services different currencies can purchase.
(A) True
(B) False
Answer : (A)
6. Purchasing power parity (PPP) is calculated as the sum of value added by resident firms,
households, and governments operating in an economy.
(A) True
(B) False
Answer : (B)
7. Emerging markets contribute about 30% of global GDP without adjusting for purchasing power
parity (PPP).
(A) True
(B) False
Answer : (A)
8. More than half the GDP produced by emerging markets comes from outside the BRIC countries.
(A) True
(B) False
Answer : (B)
9. On the global economic pyramid, the Triad refers to developed economies consisting of North
America, Western Europe, and Japan.
(A) True
(B) False
Answer : (A)
10. All the countries of the BRIC belong to the top tier of the global economic pyramid.
(A) True
(B) False
Answer : (B)
11. The second tier of the global economic pyramid is made up of countries with a per capita annual
income of more than $20,000.
(A) True
(B) False
Answer : (B)
12. The emerging markets of the world are placed at the top of the global economic pyramid.
(A) True
(B) False
Answer : (B)
13. The global economic pyramid does not represent countries that have a per capita annual income
of less than $2,000.
(A) True
(B) False
Answer : (B)
14. The term "base of the pyramid" represents economies where individuals make less than $2,000 a
year.
(A) True
(B) False
Answer : (A)
15. Reverse innovations are innovations that are adopted first in the Triad-based multinationals and
then diffused around the world.
(A) True
(B) False
Answer : (B)
16. Reverse innovation is an example of bottom up innovation.
(A) True
(B) False
Answer : (A)
17. The Group of 20 includes the European Union (EU)-a regional bloc.
(A) True
(B) False
Answer : (A)
18. Globalization has driven up the salaries of low-level jobs.
(A) True
(B) False
Answer : (B)
19. An international premium is a significant pay raise awarded to expatriate employees working
abroad.
(A) True
(B) False
Answer : (A)
20. New York has more Fortune Global 500 company headquarters than any other city.
(A) True
(B) False
Answer : (B)
21. Overall, the focus on firm performance around the globe defines the field of global business
more than anything else.
(A) True
(B) False
Answer : (A)
22. An institution-based view suggests that the success and failure of firms are enabled and
constrained by business norms of the host nation.
(A) True
(B) False
Answer : (A)
23. Formal institutions include laws, regulations, and rules.
(A) True
(B) False
Answer : (A)
24. The institution-based view places emphasis on the external factors that could affect a firm.
(A) True
(B) False
Answer : (A)
25. Focusing on a firm's internal resources and capabilities is the main emphasis of the resourcebased view.
(A) True
(B) False
Answer : (A)
26. Liability of foreignness is the inherent disadvantage experienced by foreign firms in host
countries because of their non-native status.
(A) True
(B) False
Answer : (A)
27. Most opponents of globalization view globalization as a long-run historical evolution since trade
began.
(A) True
(B) False
Answer : (B)
28. According to the pendulum view of globalization, globalization is a relatively new phenomenon
triggered by the information revolution of early 1990s.
(A) True
(B) False
Answer : (B)
29. Scenario planning is a technique to prepare and plan exclusively for high risk scenarios.
(A) True
(B) False
Answer : (B)
30. Standardization of markets would lead to a state of semiglobalization.
(A) True
(B) False
Answer : (B)
31. Semiglobalization is primarily caused by the practice of total isolation.
(A) True
(B) False
Answer : (B)
32. The current state of globalization around the world is that of semiglobalization.
(A) True
(B) False
Answer : (A)
33. Semiglobalization calls for adopting one way of doing business for all conditions.
(A) True
(B) False
Answer : (B)
34. The strategy of treating the entire world as one market is known as localization.
(A) True
(B) False
Answer : (B)
35. Many opponents of globalization are nongovernmental organizations.
(A) True
(B) False
Answer : (A)
MULTICHOICE
36. The term "emerging economies" has replaced the term _____.
(A) developed countries
(B) developing countries
(C) Triad markets
(D) first-world markets
Answer : (B)
37. The _____ is measured as the sum of value added by resident firms, households, and
governments operating in an economy.
(A) gross national product
(B) gross national income
(C) gross domestic product
(D) national reserve
Answer : (C)
38. A conversion that determines the equivalent amount of goods and services that different
currencies can buy is known as _____.
(A) purchasing power parity
(B) foreign exchange rate
(C) country's deficit
(D) gross domestic product
Answer : (A)
39. The gross domestic product plus the income from non-resident sources abroad gives the ____.
(A) gross national product
(B) per capita income
(C) purchasing power parity
(D) net national income
Answer : (A)
40. Without adjusting for PPP, emerging economies contribute about 30% of the global GDP.
Adjusting for PPP, they now contribute approximately 50% of the global GDP. The reason there is a
huge difference between the two measures is because
(A) the cost of living in emerging economies tends to be lower than that in developed economies.
(B) the purchasing power parity is much higher in emerging countries.
(C) the population in emerging economies is much higher than that in developed economies.
(D) the deficit spending in emerging economies is much larger than that in developed economies.
Answer : (A)
41. Which of the following countries would be characterized as an emerging economy?
(A) Brazil
(B) USA
(C) Germany
(D) Japan
Answer : (A)
42. Which of the following groups is primarily composed of emerging economies?
(A) The Triad
(B) BRIC
(C) Group of Eight (G8)
(D) NAFTA
Answer : (B)
43. Which of the following countries is included in BRIC?
(A) Belgium
(B) Russia
(C) Italy
(D) Canada
Answer : (B)
44. More than 25% of global GDP comes from _____.
(A) the Four Asian Tigers (Hong-Kong, Singapore, South Korea, and Taiwan)
(B) MIKT (Mexico, Indonesia, South Korea, Turkey)
(C) the Commonwealth of Independent States
(D) BRICS countries
Answer : (D)
45. People who live in the Triad countries comprise the _____ of the global economic pyramid.
(A) top tier
(B) second tier
(C) base
(D) outlier
Answer : (A)
46. Viewing the global economy as a pyramid, the Triad refers to _____.
(A) Taiwan, Hong Kong, and South Korea
(B) US, the EU, and China
(C) Brazil, India, and China
(D) North America, Western Europe, and Japan
Answer : (D)
47. Which of the following countries is represented in the Triad of the global economic pyramid?
(A) India
(B) China
(C) Japan
(D) Russia
Answer : (C)
48. Which of the following tiers in the global economic pyramid would comprise developed nations?
(A) The base
(B) The top tier
(C) The second tier
(D) The third tier
Answer : (B)
49. People who earn _____ a year comprise the base of the global economic pyramid.
(A) between $2,000 to $20,000
(B) less than $2,000
(C) between $20,000 to $40,000
(D) more than $40,000
Answer : (B)
50. Which of the following is true of economies in the base of the global economic pyramid?
(A) They are composed of developed economies.
(B) They are composed of people from North America, Western Europe, and Japan.
(C) They are largely ignored by MNEs.
(D) They attract the largest FDI from MNEs.
Answer : (C)
51. A _____ is defined as an innovation that is adopted first in emerging economies and then diffused
around the world.
(A) reverse innovation
(B) reverse-engineered innovation
(C) top down innovation
(D) traditional innovation
Answer : (A)
52. Which of the following would be an example of a top down innovation?
(A) Lowering prices and features of existing products to meet emerging market needs
(B) Launching a product in and for emerging economies
(C) Adopting an innovation first in emerging economies and then diffusing it around the world
(D) Introducing products from emerging markets into developed markets
Answer : (A)
53. Which of the following would be an example of a product undergoing reverse innovation on the
global economic pyramid?
(A) Triad nation to Triad nation
(B) Triad nation to second tier nation
(C) Second tier to base tier nation
(D) Base tier nation to Triad nation
Answer : (D)
54. Which of the following is true of the Group of 20 (G-20)?
(A) It only has 19 member countries.
(B) It doesn't represent any European nation.
(C) It meets annually to discuss environmental issues.
(D) It includes many regional blocs.
Answer : (A)
55. Expats often receive significant _____.
(A) international premiums
(B) government assistance
(C) economic penalties
(D) decreases in income
Answer : (A)
56. Which of the following does the institution-based view of global business lay emphasis on?
(A) Acquiring resources that belong to the host nation
(B) Consolidating the internal assets of a firm
(C) Focusing on the capabilities of the firm's headquarters
(D) Understanding the laws and values of the firm's host nation
Answer : (D)
57. The _____ view suggests that the success and failure of firms are largely determined by their
environments.
(A) institution-based
(B) stakeholder-based
(C) resource-based
(D) capability-based
Answer : (A)
58. The _____ view of global business focuses on external factors that affect a firm's performance.
(A) resource-based
(B) asset-based
(C) capability-based
(D) institution-based
Answer : (D)
59. The resource-based view of global business differs from the institution-based view of global
business in that the resource-based view _____.
(A) postulates the ideology of localization
(B) supports the ideology of total globalization
(C) focuses on the internal strengths on the firm
(D) advocates adopting a single method for achieving globalization
Answer : (C)
60. The _____ view of global business focuses on internal factors that can help a firm overcome its
external environment.
(A) resource-based
(B) industry-based
(C) socio-cultural
(D) institution-based
Answer : (A)
61. The liability of foreignness is the inherent disadvantage faced by _____.
(A) domestic firms against other domestic firms that have engaged in global business
(B) foreign firms in host nations due to their non-native status
(C) domestic firms from foreign firms setting up in their country
(D) foreign firms from their home country governments
Answer : (B)
62. Which of the following is true of globalization according to the "new force" perspective?
(A) It is a process of trade integration that has both advantages and disadvantages.
(B) It is a phenomenon that is technologically out of sync.
(C) It is a historical aspect of human trade.
(D) It is a western ideology focused on exploiting and dominating the world through MNEs.
Answer : (D)
63. Which of the following is true of globalization according to the "pendulum view" perspective?
(A) Globalization is being interrupted by artificial barriers to the flows of goods, services, capital,
and knowledge.
(B) Globalization is a Western ideology focused on exploiting and dominating the world through
MNEs.
(C) Globalization is a not a one-directional phenomenon.
(D) Globalization is a recent phenomenon of human trade.
Answer : (C)
64. The _____ of globalization suggests that globalization is neither recent nor one-directional.
(A) new-force view
(B) long-run historical view
(C) pendulum view
(D) colonial view
Answer : (C)
65. The concept of _____ suggests that barriers to market integration at borders are high, but not
high enough to completely insulate countries from each other.
(A) localization
(B) technocapitalism
(C) semiglobalization
(D) total globalization
Answer : (C)
66. Which of the following is true of semiglobalization?
(A) It is a type of globalization that adopts a strategy of treating the entire world as one market.
(B) It is a type of globalization that lies between total isolation and total globalization.
(C) It is a form of globalization that treats each country as a unique market.
(D) It is a form of globalization that considers each nation in isolation when conducting business.
Answer : (B)
67. The strategy of treating each country as a unique market and in total isolation is referred to as
_____.
(A) total globalization
(B) standardization
(C) semiglobalization
(D) localization
Answer : (D)
68. _____ is the strategy of treating the entire world as one market.
(A) Total isolation
(B) Semiglobalization
(C) Standardization
(D) Localization
Answer : (C)
69. Which of the following would lead to the standardization of world markets?
(A) Semiglobalization
(B) Localization
(C) Total globalization
(D) Total isolation
Answer : (C)
70. MNEs from the Triad dominate the list of the 500 largest MNEs; their share has been _____.
(A) growing
(B) fluctuating
(C) steady over time
(D) shrinking
Answer : (D)
ESSAY
71. How does purchasing power parity (PPP) affect the gross domestic product (GDP)?
Graders Info :
Overall, emerging economies contribute approximately 50% of the global gross domestic product
(GDP). In 1990, they accounted for less than one-third of a much smaller world GDP. Note that this
percentage is adjusted for purchasing power parity (PPP), which is an adjustment to reflect the
differences in cost of living. Using official (nominal) exchange rates without adjusting for PPP,
emerging economies contribute about 30% of the global GDP. Why is there such a huge difference
between the two measures? Because the cost of living (such as housing and haircuts) in emerging
economies tends to be lower than that in developed economies. For instance, US$1 spent in Mexico
can buy a lot more than US$1 spent in the United States.
72. Summarize the Great Transformation.
Graders Info :
Overall, the Great Transformation of the global economy is embodied by the tremendous shift in
economic weight and engines of growth toward emerging economies in general and BRIC(S) in
particular. Led by BRIC(S), emerging economies accomplished "the biggest economic transformation
in modern economy," according to the Economist. In China, per capita income doubled in about ten
years, an achievement that took Britain 150 years and the United States 50 years as they
industrialized.
73. How is reverse innovation helping emerging economies?
Graders Info :
One interesting recent development out of emerging economies is reverse innovation-an innovation
that is adopted first in emerging economies and then diffused around the world. Traditionally,
innovations are generated by Triad-based multinationals, with the needs and wants of rich
customers at the top of the pyramid in mind. When such multinationals entered lower-income
economies, they tended to simplify the product features and lower prices. In other words, the
innovation flow is top-down. The reverse innovation movement suggests that emerging economies
are no longer merely low-cost production locations or attractive new markets (hence the term
"emerging markets"). They are also sources of new innovations that may not only grow out of BoP
markets, but also have the potential to go uphill to penetrate into the top of the global economic
pyramid.
74. How can gaining knowledge of global business advance someone's career? ​
Graders Info :
Because many ambitious students aspire to join the top ranks of large firms, expertise in global
business is often a prerequisite. Today, it is increasingly difficult, if not impossible, to find top
managers at large firms without significant global competence. Of course, eventually, hands-on
experience, not merely knowledge acquired from this course, will be required. However, mastery of
the knowledge of, and demonstration of interest in, global business during your education will set
you apart as a more ideal candidate to be selected as an expatriate manager ("expat")-a manager
who works abroad-to gain such an experience.
75. Explain the success and failure of global firms based on institution- and resource-based views.
Graders Info :
An institution-based view suggests that the success and failure of firms are enabled and constrained
by institutions. By institutions, we mean the rules of the game. Doing business around the globe
requires intimate knowledge about both formal rules (such as laws) and informal rules (such as
values) that govern competition in various countries. Firms that do not do their homework and thus
remain ignorant of the rules of the game in a certain country are not likely to emerge as winners.
While the institution-based view primarily deals with the external environment, the resource-based
view focuses on a firm's internal resources and capabilities. It starts with a simple observation: In
harsh, unattractive environments, most firms either suffer or exit. However, against all odds, a few
superstars thrive in these environments.
76. Elaborate on the three prevalent views of globalization.
Graders Info :
Depending on what sources you read, globalization could be
●
●
●
a new force sweeping through the world in recent times
a long-run historical evolution since the dawn of human history
a pendulum that swings from one extreme to another from time to time
First, opponents of globalization suggest that it is a new phenomenon beginning in the late 20th
century, driven by recent technological innovations and a Western ideology focused on exploiting
and dominating the world through MNEs. A second view contends that globalization has always
been part and parcel of human history. A third view suggests that globalization is the "closer
integration of the countries and peoples of the world which has been brought about by the enormous
reduction of the costs of transportation and communication, and the breaking down of artificial
barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across
borders."
77. Explain the pendulum view of globalization.
Graders Info :
The pendulum view probably makes the most sense because it can help us understand the ups and
downs of globalization. The current era of globalization originated in the aftermath of World War II,
when major Western countries committed to global trade and investment. However, between the
1950s and the 1970s, this view was not widely shared. Countries focused on fostering and protecting
domestic industries. But refusing to participate in global trade and investment ended up breeding
uncompetitive industries. In contrast, four developing economies in Asia-Hong Kong, Singapore,
South Korea, and Taiwan-earned their stripes as the "Four Tigers" by participating in the global
economy. They became the only economies once recognized as less developed (low-income) by the
World Bank to have subsequently achieved developed (high-income) status. Inspired by the Four
Tigers, more countries and regions realized that joining the global economy was a must. As these
countries started to emerge as new players in the global economy globalization rapidly accelerated.
However, globalization, like a pendulum, is unable to keep going in one direction. Rapid
globalization in the 1990s and the 2000s saw some significant backlash. Then in the mid-2000s,
however, worldwide GDP, cross-border trade, and per capita GDP all soared to historically high
levels. Unfortunately, the party suddenly ended in 2008. The 2008-2009 global economic crisis
showed, for better or worse, how interconnected the global economy has become. Numerous
governments had to bail out their own troubled banks. Global output, trade, and investment
plummeted, while unemployment skyrocketed. The 2008-2009 crisis became known as the Great
Recession. Many people blamed globalization for the Great Recession.
After unprecedented government intervention in developed economies, confidence was growing that
the global economy had turned the corner and that the recession was ending. However, starting in
2010, the Greek debt crisis and then the broader PIGS debt crisis erupted. The already-slow
recovery in Europe thus became slower, and unemployment hovered at very high levels.
The recovery has seen more protectionist measures, since the stimulus packages and job-creation
schemes of various governments often emphasize "buy national" and "hire locals." In short, the
pendulum is swinging back. In other words, globalization has both rosy and dark sides, and these
change over time.
78. Explain the role of nongovernmental organizations (NGOs) in globalization.
Graders Info :
Many of the opponents of globalization are nongovernmental organizations (NGOs), such as
environmentalists, human rights activists, and consumer groups. Ignoring them will be a grave
failure when doing business around the globe. Instead of viewing NGOs as opponents, many firms
view them as partners. NGOs do raise a valid point when they insist that firms, especially MNEs,
should have a broader concern for the various stakeholders affected by the actions of MNEs actions
around the world. At present, this view is increasingly moving from the peripheral to the
mainstream.