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IB testbank chap 1
Quản trị kinh doanh (University of Economics, Hue University)
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Chapter 01 Globalization Answer Key
True / False Questions
1-1
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1.
A company does not need a large size to facilitate, and benefit from, the globalization of
markets.
TRUE
A company does not have to be the size of multinational giants to facilitate, and benefit from,
the globalization of markets. In the United States, for example, nearly 90 percent of firms that
export are small businesses employing less than 100 people, and their share of total U.S.
exports has grown steadily over the past decade to now exceed 20 percent.
1-2
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2.
Companies hope to lower their overall cost structure or improve the quality or functionality of
their product offering through globalization of production.
TRUE
The globalization of production refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality of factors of
production. By doing this, companies hope to lower their overall cost structure or improve the
quality or functionality of their product offering, thereby allowing them to compete more
effectively.
1-3
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3.
The most global markets currently are markets for consumer products.
FALSE
The most global markets currently are not markets for consumer products—where national
differences in tastes and preferences are still often important enough to act as a brake on
globalization—but markets for industrial goods and materials that serve a universal need the
world over.
1-4
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4.
Outsourcing is a process that is limited to manufacturing enterprises.
FALSE
Early outsourcing efforts were primarily confined to manufacturing activities. Increasingly,
however, companies are taking advantage of modern communications technology, particularly
the Internet, to outsource service activities to low-cost producers in other nations.
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5.
The World Bank has focused on policing the world trading system and making sure nationstates adhere to the rules laid down in trade treaties.
FALSE
The World Trade Organization is primarily responsible for policing the world trading system and
making sure nation-states adhere to the rules laid down in trade treaties signed by WTO
member states. The World Bank was set up to promote economic development.
1-6
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6.
The World Bank is known as the lender of the last resort.
FALSE
The IMF was established to maintain order in the international monetary system. It is often seen
as the lender of last resort to nation-states whose economies are in turmoil and whose
currencies are losing value against those of other nations.
1-7
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7.
One of the UN's central mandates is the promotion of higher standards of living, full
employment, and conditions of economic and social progress and development.
TRUE
Although the UN is perhaps best known for its peacekeeping role, one of the organization's
central mandates is the promotion of higher standards of living, full employment, and conditions
of economic and social progress and development—all issues that are central to the creation of
a vibrant global economy.
1-8
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8.
The Uruguay Round, finalized in December 1993, reduced protection for patents, trademarks,
and copyrights.
FALSE
Under the umbrella of GATT, the most recent negotiations to be completed, known as the
Uruguay Round, were finalized in December 1993. The Uruguay Round provided enhanced
protection for patents, trademarks, and copyrights.
1-9
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9.
"Beggar thy neighbor" retaliatory trade policies involved countries progressively lowering trade
barriers against each other, which contributed to the Great Depression of the 1930s.
FALSE
The typical aim of tariffs on imports of manufactured goods was to protect domestic industries
from foreign competition. One consequence, however, was "beggar thy neighbor" retaliatory
trade policies, with countries progressively raising trade barriers against each other. Ultimately,
this depressed world demand and contributed to the Great Depression of the 1930s.
10.
Rivers Inc., a U.S. based sports apparel manufacturer, sets up a production unit in China to
take advantage of the lower labor costs there. This is an example of foreign direct investment.
TRUE
Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
11.
World Bank gives an aid of 100 million dollars to Kenya for creating rural health care facilities.
This is an example of foreign direct investment.
FALSE
Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
12.
The lowering of barriers to international trade enables firms to view the world, rather than a
single country, as their market.
TRUE
The lowering of barriers to international trade enables firms to view the world, rather than a
single country, as their market.
13.
According to WTO data, the volume of world merchandise trade has grown faster than the world
economy since 1950.
TRUE
According to WTO data, the volume of world merchandise trade has grown faster than the world
economy since 1950.
1-10
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14.
The cost of microprocessors continues to fall, while their power increases. This statement
supports the predictions made by Moore's Law.
TRUE
The cost of microprocessors continues to fall, while their power increases (a phenomenon
known as Moore's Law, which predicts that the power of microprocessor technology doubles
and its cost of production falls in half every 18 months).
1-11
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15.
Non-U.S. firms increasingly began to invest across national borders because they wanted to
disperse production activities to optimal locations and to build a direct presence in major foreign
markets.
TRUE
As the barriers to the free flow of goods, services, and capital fell, and as other countries
increased their shares of world output, non-U.S. firms increasingly began to invest across
national borders. The motivation for much of this foreign direct investment by non-U.S. firms
was the desire to disperse production activities to optimal locations and to build a direct
presence in major foreign markets.
1-12
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16.
A current trend in international business is the decline of medium-sized and small
multinationals, known as mini-multinationals.
FALSE
Since the 1960s, two notable trends in the demographics of the multinational enterprise have
been (1) the rise of non-U.S. multinationals and (2) the growth of mini-multinationals.
17.
The globalization of the world economy has resulted in a relative increase in the dominance of
U.S. firms in the global marketplace.
FALSE
By 2012 some 22 of the world's 100 largest nonfinancial multinationals were now U.S.
enterprises; 14 were British; 14 French; 10, German; and 7, Japanese. The globalization of the
world economy has resulted in a relative decline in the dominance of U.S. firms in the global
marketplace.
18.
Doing business in Russia involves risks because the country has shown signs of shifting back
toward greater state involvement in economic activity and authoritarian government.
TRUE
Disturbing signs of growing unrest and totalitarian tendencies continue to be seen in several
Eastern European and Central Asian states, including Russia, which has shown signs of shifting
back toward greater state involvement in economic activity and authoritarian government. Thus,
the risks involved in doing business in such countries are high, but so may be the returns.
19.
Globalization critics argue that the decline in unskilled wage rates is due to the migration of lowwage manufacturing jobs offshore and a corresponding reduction in demand for unskilled
workers.
TRUE
Globalization critics argue that the decline in unskilled wage rates is due to the migration of lowwage manufacturing jobs offshore and a corresponding reduction in demand for unskilled
workers.
1-13
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20.
Evidence suggests that technological change has had a bigger impact than globalization on the
declining share of national income enjoyed by labor.
TRUE
Evidence suggests that technological change has had a bigger impact than globalization on the
declining share of national income enjoyed by labor.
1-14
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21.
According to supporters of free trade, as countries get richer they commit greater violation of
environmental and labor regulations.
FALSE
Supporters of free trade and greater globalization argue that tougher environmental regulations
and stricter labor standards go hand in hand with economic progress. In general, as countries
get richer, they enact tougher environmental and labor regulations.
22.
According to critics of globalization, today's interdependent global economy limits a nation's
national sovereignty.
TRUE
A concern voiced by critics of globalization is that today's increasingly interdependent global
economy shifts economic power away from national governments and toward supranational
organizations such as the World Trade Organization, the European Union, and the United
Nations.
23.
Supporters of debt relief argue that new democratic governments in poor nations should not be
forced to honor debts incurred by corrupt and dictatorial predecessors.
TRUE
Supporters of debt relief argue that new democratic governments in poor nations should not be
forced to honor debts that were incurred and mismanaged long ago by their corrupt and
dictatorial predecessors.
24.
A firm does not have to become a multinational enterprise to engage in international business.
TRUE
An international business is any firm that engages in international trade or investment. A firm
does not have to become a multinational enterprise, investing directly in operations in other
countries, to engage in international business, although multinational enterprises are
international businesses.
25.
Managing an international business is much easier than managing a domestic business.
FALSE
A further way in which international business differs from domestic business is the greater
complexity of managing an international business. In addition to the problems that arise from
the differences between countries, a manager in an international business is confronted with a
range of other issues that the manager in a domestic business never confronts.
1-15
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Multiple Choice Questions
1-16
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26.
The shift toward a more integrated and interdependent world economy is referred to as _____.
A
.
B
.
C
.
D
.
outsourci
ng
international
marketing
privatizati
on
globalizati
on
Globalization refers to the shift toward a more integrated and interdependent world economy.
1-17
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27.
In 2008 and 2009, the _____ became the forum though which major nations attempted to
launch a coordinated policy response to the global financial crisis, which started in America.
A
.
B
.
C
.
D
.
GA
TT
Group of Ten
(G20)
Group of Twenty
(G20)
World Trade
Organization
Originally, the G20 was established to formulate a coordinated policy response to financial
crises in developing nations. In 2008 and 2009 it became the forum though which major nations
attempted to launch a coordinated policy response to the global financial crisis that started in
America and then rapidly spread around the world.
1-18
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28.
The Uruguay Round provided:
A
.
B
.
C
.
D
.
reduced protection for patents, trademarks, and
copyrights.
enhanced protection for patents, trademarks, and
copyrights.
increased trade
barriers.
reduced coverage of services and manufactured
goods.
Under the umbrella of GATT, the most recent negotiations to be completed, known as the
Uruguay Round, were finalized in December 1993. The Uruguay Round provided enhanced
protection for patents, trademarks, and copyrights.
1-19
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29.
Since the collapse of communism at the end of the 1980s, the erstwhile communist nations
have transformed their economies by globalizing their markets. This involves _____.
A
.
B
.
C
.
D
.
regulating
markets
privatizing state-owned
enterprises
decreasing
competition
reducing foreign
investment
Since the collapse of communism at the end of the 1980s, the pendulum of public policy in
nation after nation has swung toward the free market end of the economic spectrum. Regulatory
and administrative barriers to doing business in foreign nations have been reduced, while those
nations have often transformed their economies, privatizing state-owned enterprises,
deregulating markets, increasing competition, and welcoming investment by foreign businesses.
1-20
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30.
Which of the following is a consequence of globalization?
A
.
B
.
C
.
D
.
Decreasing interdependence between national
economies
Increasing outsourcing of
services
Differentiation of material
culture
Increase in barriers to cross-border
trade
The process of outsourcing legal services from developed nations to lower-cost locations is
indicative of what is occurring in today's global economy. Because of rapid advances in
telecommunications and the removal of barriers to cross-border trade and investment, such
outsourcing is becoming increasingly common.
1-21
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31.
Which of the following has enabled globalization of markets?
A
.
B
.
C
.
D
.
Marginal differentiation among national
markets
Falling barriers to cross border
trade
Reduced homogeneity of material culture across the
world
Increased government ownership of factors of
production
The globalization of markets refers to the merging of historically distinct and separate national
markets into one huge global marketplace. Falling barriers to cross-border trade have made it
easier to sell internationally.
1-22
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32.
Which of the following factors hinders globalization of consumer goods market?
A
.
B
.
C
.
D
.
National differences in tastes and
preferences
Higher production costs in developed
nations
Homogenization of material
culture
Increased outsourcing of goods and
services
The most global markets currently are not markets for consumer products—where national
differences in tastes and preferences are still often important enough to act as a brake on
globalization—but markets for industrial goods and materials that serve a universal need the
world over.
1-23
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33.
Globalization of markets results in markets becoming _____.
A
.
B
.
C
.
D
.
more
interdependent
less
diverse
more
protected
less
competitive
As markets become global, greater uniformity replaces diversity. In an increasing number of
industries, it is no longer meaningful to talk about "the German market," "the American market,"
"the Brazilian market," or "the Japanese market"; for many firms there is only the global market.
34.
A U.S. investment firm, Fin-Smart, set up a customer service call center in India to take
advantage of the lower labor costs. This is called ____.
A
.
B
.
C
.
D
.
homogenizing
markets
vertical
integration
international
outsourcing
horizontal
integration
Early outsourcing efforts were primarily confined to manufacturing activities; increasingly,
however, companies are taking advantage of modern communications technology, particularly
the Internet, to outsource service activities to low-cost producers in other nations.
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35.
Early outsourcing efforts were primarily confined to _____.
A
.
B
.
C
.
D
.
health
care
service
activities
technological
research
manufacturing
activities
Early outsourcing efforts were primarily confined to manufacturing activities; increasingly,
however, companies are taking advantage of modern communications technology, particularly
the Internet, to outsource service activities to low-cost producers in other nations.
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36.
Which of the following is an impediment that makes it difficult for firms to achieve the optimal
dispersion of their productive activities to locations around the globe?
A
.
B
.
C
.
D
.
Transportation
costs
Government
deregulations
Reduction of barriers to trade between
countries
Reduction of barriers to foreign direct
investment
Substantial impediments still make it difficult for firms to achieve the optimal dispersion of their
productive activities to locations around the globe. These impediments include formal and
informal barriers to trade between countries, barriers to foreign direct investment, transportation
costs, and issues associated with economic and political risk.
1-26
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37.
The General Agreement on Tariffs and Trade (GATT) was responsible for ____.
A
.
B
.
C
.
D
.
protecting government owned
enterprises
policing the global
marketplace
limiting nuclear
testing
promoting environment friendly
technology
As markets globalize and an increasing proportion of business activity transcends national
borders, institutions are needed to help manage, regulate, and police the global marketplace,
and to promote the establishment of multinational treaties to govern the global business system.
Over the past half century, a number of important global institutions have been created to help
perform these functions, including the General Agreement on Tariffs and Trade (GATT).
1-27
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38.
The ______ is primarily responsible for policing the world trading system and making sure
nation-states adhere to the rules laid down in trade treaties signed by member states.
A
.
B
.
C
.
D
.
International Development
Association
World
Bank
International Court of
justice
World Trade
Organization
The World Trade Organization is primarily responsible for policing the world trading system and
making sure nation-states adhere to the rules laid down in trade treaties signed by WTO
member states. As of 2011, 154 nations that collectively accounted for 97 percent of world trade
were WTO members, thereby giving the organization enormous scope and influence.
1-28
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39.
The World Trade Organization promotes the:
A
.
B
.
C
.
D
.
lowering of barriers to cross-border trade and
investment.
development of poor nations through low-interest
loans.
state ownership of major
enterprises.
regulation of national
economies.
The WTO is also responsible for facilitating the establishment of additional multinational
agreements between WTO member states. Over its entire history, and that of the GATT before
it, the WTO has promoted the lowering of barriers to cross-border trade and investment.
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40.
Which of the following is true about the International Monetary Fund?
A
.
B
.
C
.
D
.
It is primarily responsible for policing the world trading
system.
It is seen as the lender of last resort to nation-states whose economies are in
turmoil.
It is responsible for establishing multinational treaties to govern the global business
system.
It was established to formulate a coordinated policy response to financial crises in
developing nations.
The IMF is often seen as the lender of last resort to nation-states whose economies are in
turmoil and whose currencies are losing value against those of other nations. During the past
two decades, for example, the IMF has lent money to the governments of troubled states,
including Argentina, Indonesia, Mexico, Russia, South Korea, Thailand, and Turkey.
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41.
The _____ was established on October 24, 1945, by 51 countries committed to preserving
peace through international cooperation and collective security.
A
.
B
.
C
.
World Trade
Organization
United
Nations
G
2
0
D World
. Bank
The United Nations was established on October 24, 1945, by 51 countries committed to
preserving peace through international cooperation and collective security. Today nearly every
nation in the world belongs to the United Nations; membership now totals 191 countries.
42.
The G20 was originally established to:
A
.
B
.
C
.
D
.
preserve peace through international cooperation and collective
security.
maintain order in the international monetary
system.
formulate a coordinated policy response to financial crises in developing
nations.
manage, regulate, and police the global
marketplace.
The G20 was established in 1999 to formulate a coordinated policy response to financial crises
in developing nations. The G20 comprises the finance ministers and central bank governors of
the 19 largest economies in the world, plus representatives from the European Union and the
European Central Bank.
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43.
_____ occurs when a firm exports goods or services to consumers in another country.
A
.
B
.
C
.
D
.
International
trade
Foreign direct
investment
Inward
investment
Outsourci
ng
International trade occurs when a firm exports goods or services to consumers in another
country.
44.
Which of the following is a factor of production?
A
.
B
.
C
.
D
.
tar
iffs
transportation
costs
cap
ital
governm
ent
The factors of production are land, labor, and capital.
45.
Which of the following is true regarding the WTO?
A
.
B
.
C
.
D
.
WTO stands for World Transition
Organization.
The WTO was succeeded by
GATT.
As of 2015, the WTO has 160
members.
The WTO is policed by the United
Nations.
The World Trade Organization (WTO), like the GATT before it, is primarily responsible for
policing the world trading system and making sure its nation-states adhere to the rules laid
down in trade treaties. As of 2015, 160 nations were WTO members.
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46.
Which of the following is focused on making low-interest loans to cash-strapped governments in
poor nations that wish to undertake significant infrastructure investments?
A
.
B
.
C
.
D
.
The
WTO
The
GATT
The World
Bank
The
IMF
The World Bank was set up to promote economic development. It has focused on making lowinterest loans to cash-strapped governments in poor nations that wish to undertake significant
infrastructure investments (such as building dams or roads).
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47.
Which of the following was established to maintain order in the international monetary system?
A
.
B
.
C
.
D
.
The
WTO
The
GATT
The World
Bank
The
IMF
The IMF was established to maintain order in the international monetary system.
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48.
Which of the following is true of the IMF?
A
.
B
.
C
.
D
.
It is often seen as the lender of first choice to nation-states whose economies are in
turmoil.
Its loans come with no strings
attached.
It is the less controversial of the two sister institutions, the IMF and the World
Bank.
It has emerged as a significant player in the global
economy.
The IMF was established to maintain order in the international monetary system and has
emerged as significant player in the global economy. The World Bank is the less controversial of
the two sister institutions. The IMF is often seen as the lender of last resort to nation-states
whose economies are in turmoil and whose currencies are losing value against those of other
nations. In return for loans, the IMF requires nation-states to adopt specific economic policies.
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49.
In late 2001, the WTO launched a new round of talks in Doha aimed at:
A
.
B
.
C
.
D
.
helping member states to cope with financial
crisis.
liberalizing of the global trade and investment
framework.
protecting national economies from global
competition.
promoting higher standards of living in all member
states.
In late 2001, the WTO launched a new round of talks aimed at further liberalizing the global
trade and investment framework. The Doha agenda includes cutting tariffs on industrial goods,
services, and agricultural products; phasing out subsidies to agricultural producers; reducing
barriers to cross-border investment; and limiting the use of antidumping laws.
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50.
Which of the following is included in world merchandise trade?
A
.
B
.
C
.
D
.
Service
industry
Agricultural
labor
Foreign
services
Mining
products
From 1970 to 2010, the volume of world merchandise trade expanded more than 30-fold,
outstripping the expansion of world production, which grew close to 10 times in real terms.
World merchandise trade includes trade in manufactured goods, agricultural goods, and mining
products, but not services.
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51.
_____ have/has the most to gain from reductions in agricultural tariffs and subsidies that are a
part of the Doha agenda.
A
.
B
.
C
.
D
.
The world's developed
nations
The world's poorer
nations
European
nations
The United
States
The world's poorer nations have the most to gain from any reduction in agricultural tariffs and
subsidies; such reforms would give them access to the markets of the developed world.
52.
The volume of world trade in merchandise growing faster than world GDP implies that:
A
.
B
.
C
.
D
.
more firms are dispersing their production processes to global
locations.
the economies of the world's nation-states are becoming more independent from each
other.
the global economy is headed for a large downward
correction.
the world is becoming
poorer.
The fact that the volume of world trade has been growing faster than world GDP implies several
things. First, more firms are dispersing parts of their production process to different locations
around the globe. Second, the economies of the world's nation-states are becoming ever more
intertwined. As trade expands, nations are becoming increasingly dependent on each other for
important goods and services. Third, the world has become significantly wealthier since 1990.
The implication is that rising trade is the engine that has helped pull the global economy along.
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53.
In 2009, the financial crisis in the United States was triggered by:
A
.
B
.
C
.
D
.
the global hike in the price of crude
oil
the slowdown in U.S.
imports
the problems in the U.S. subprime mortgage lending
market
the artificial fixing of currency rate by
China
In 2009 the global economy contracted by 2.3 percent as the global financial crisis that began
with problems in the U.S. subprime mortgage lending market reverberated around the world.
The volume of merchandised trade dropped by 12.2 percent in 2009, the largest such decline
since World War II.
54.
_____ predicts that the power of microprocessor technology doubles and its cost of production
falls in half every 18 months.
A
.
B
.
C
.
D
.
Keynes's
Law
Say's
Law
Moore's
Law
Sullivan
Principles
Moore's Law, which predicts that the power of microprocessor technology doubles and its cost
of production falls in half every 18 months.
55.
Containerization allows:
A
.
B
.
C
.
D
.
reduction of the time needed to get from one location to
another.
simplification of transshipment from one mode of transport to
another.
buyers and sellers to find each other easily in a global
economy.
enterprises to coordinate and control a globally dispersed production
system.
The introduction of containerization simplifies transshipment from one mode of transport to
another. Before the advent of containerization, moving goods from one mode of transport to
another was very labor intensive, lengthy, and costly.
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56.
The average tariff rates for manufactured goods have fallen significantly since 1950 and now
stand at about _____.
A 1
. 8
%
B 5.
. 9
%
C 4.
. 8
%
D 1.
. 5
%
The impact of GATT agreements on average tariff rates for manufactured goods is that average
tariff rates have fallen significantly since 1950 and now stand at about 1.5 percent.
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57.
The volume of world trade in merchandised goods has been:
A
.
B
.
C
.
D
.
growing at the same rate as world
GDP.
growing faster than world
GDP.
growing slower than world
GDP.
declining faster than world
GDP.
According to WTO, the volume of world trade in merchandised goods has grown consistently
faster than the growth rate in the world economy since 1950.
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58.
The growth of international trade in services has been driven by advances in:
A
.
B
.
C
.
D
.
communicatio
ns.
transportati
on.
agricultu
re.
ener
gy.
Increasingly, international trade in services has been driven by advances in communications,
which allow corporations to outsource service activities to different locations around the globe.
59.
The value of international trade in services now accounts for about _____ of the value of all
international trade.
A 1
. 5
%
B 2
. 0
%
C 3
. 0
%
D 4
. 0
%
Since the mid-1980s, the value of international trade in services has also grown robustly and
now accounts for about 20 percent of the value of all international trade.
60.
_____ occurs when a firm invests resources in business activities outside its home country.
A
.
B
.
C
.
D
.
Foreign direct investment
(FDI)
Direct international investment
(DII)
International trade
(IT)
Foreign direct production
(FDP)
Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
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61.
The relative decline of the United States in the share of world output and world exports reflects:
A
.
B
.
C
.
D
.
an increase in the barriers to foreign trade in the United
States.
the deepening of the global financial
crisis.
the reduced industrialization in developing
nations.
the growth in the economic development of the world
economy.
The relative decline of the United States reflects the growing economic development and
industrialization of the world economy, as opposed to any absolute decline in the health of the
U.S. economy.
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62.
Why did many Japanese firms invest in North America and Europe in the 1970s?
A
.
B
.
C
.
D
.
To avoid a highly competitive domestic
market.
To exploit high domestic tariff
barriers.
To create a hedge against unfavorable currency
movements.
To take advantage of low labor
costs.
Beginning in the 1970s, European and Japanese firms began to shift labor-intensive
manufacturing operations from their home markets to developing nations where labor costs
were lower. In addition, many Japanese firms invested in North America and Europe—often as
a hedge against unfavorable currency movements and the possible imposition of trade barriers.
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63.
The total cumulative value of foreign investments is best referred to as:
A
.
B
.
C
.
D
.
accumulation of foreign
shares.
portfolio
investments.
stock of foreign direct
investments.
stock market
investments.
The stock of foreign direct investment refers to the total cumulative value of foreign
investments.
64.
Throughout the 1990s, the amount of foreign direct investment directed at both developed and
developing nations increased dramatically. This trend reflects:
A
.
B
.
C
.
D
.
a slowdown in global economic
activity.
the increasing share of the United States in the total FDI
stock.
the decline in cross-border flows of foreign direct
investment.
the increasing internationalization of business
corporations.
Throughout the 1990s, the amount of investment directed at both developed and developing
nations increased dramatically, a trend that reflects the increasing internationalization of
business corporations.
65.
Which of the following countries has been the largest recipient of foreign direct investment and
received about $60 billion to $100 billion a year in inflows in 2004-2012?
A Br
. azi
l
B Rus
. sia
C In
. di
a
D Chi
. na
Among developing nations, the largest recipient of foreign direct investment has been China,
which in 2004-2012 received $60 billion to $100 billion a year in inflows.
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66.
A multinational enterprise (MNE) is a firm that:
A
.
B
.
C
.
D
.
exports its products to multiple
countries.
has production units in more than two
countries.
does most of its business on the
Internet.
lists its securities on a public
exchange.
A multinational enterprise (MNE) is any business that has productive activities in two or more
countries.
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67.
Which of these statements pertaining to cross-border FDI flows is true?
A
.
B
.
C
.
D
.
There was a growth of FDI between 2004 and
2007.
A slump in FDI from 1998 to 2000 was followed by a surge from 2001 to
2003.
Among developing nations, the largest recipient of FDI has been
Russia.
The dramatic increase in FDI reflects the decreasing internationalization of business
corporations.
A surge in foreign direct investment from 1998 to 2000 was followed by a slump from 2001 to
2003. However, the growth of foreign direct investment resumed in 2004 and continued through
2007, when it hit record levels, only to slow again in 2008 and 2009 as the global financial crisis
took hold.
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68.
Since the 1960s, which of the following has been a notable trend in the demographics of the
multinational enterprise?
A
.
B
.
C
.
D
.
The decline of multinational companies in the manufacturing
sector
The growth of government-owned multinational
enterprises
The decline of non-U.S.
multinationals
The growth of minimultinationals
Since the 1960s, two notable trends in the demographics of the multinational enterprise have
been (1) the rise of non-U.S. multinationals and (2) the growth of mini-multinationals.
69.
In the last two decades, Latin American countries like Brazil, Mexico, and Chile have _____.
A
.
B
.
C
.
D
.
embraced communist
principles
promoted government ownership of
enterprises
experienced increasing debt and
inflation
welcomed foreign
investment
In the past two decades, throughout most of Latin America, debt and inflation are down,
governments have sold state-owned enterprises to private investors, foreign investment is
welcomed, and the region's economies have expanded. Brazil, Mexico, and Chile have led the
way.
\
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70.
Which of the following is a risk associated with globalization?
A
.
B
.
C
.
D
.
Restrictions on
competition
Global financial
contagion
Excessive market
regulation
Differentiation of
markets
Greater globalization brings with it risks of its own. The opportunities for doing business in a
global economy may be significantly enhanced; however the risks associated with global
financial contagion are also greater.
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71.
Between 1960 and 2013, the U.S. share of world exports of goods and services:
A
.
B
.
C
.
D
.
has increased from 9.7% to
38.3%.
has decreased from more than 20% to
9.7%.
has slipped to second place, behind only
Japan.
although in decline, has remained in first place with China a close
second.
By 2012, the United States accounted for 23.1 percent of world output, still the world's largest
industrial power but down significantly in relative size. China's share of world output increased
from a trivial amount to 12.2 percent, making it the world's second-largest economy.
1-50
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72.
The rise of mini-multinationals means that:
A
.
B
.
C
.
D
.
small businesses are becoming increasingly involved in international trade and
investment.
it is increasingly difficult to enter the large multinational
market.
countries are working together to minimize MNE
influence.
there is greater state involvement in
industry.
Although most international trade and investment are still conducted by large firms, many
medium-size and small businesses are becoming increasingly involved in international trade
and investment.
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73.
The downside of increased globalization is:
A
.
B
.
C
.
D
.
global financial contagions are less
likely.
a severe crisis in one region can affect the entire
globe.
one nation may become too
powerful.
the potential for increased exploitation of undeveloped nations by developed
nations.
Greater globalization brings with it risks of its own. This was starkly demonstrated in 1997 and
1998 when a financial crisis in Thailand spread first to other East Asian nations and then to
Russia and Brazil. Ultimately, the crisis threatened to plunge the economies of the developed
world, including the United States, into a recession.
1-52
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74.
During the last two decades, change in Latin America has been characterized by:
A
.
B
.
C
.
D
.
an increase in
debt.
hyperinflati
on.
the sale of state-owned enterprises to private
investors.
protests against foreign
investment.
Throughout most of Latin America, debt and inflation are down, governments have sold stateowned enterprises to private investors, foreign investment is welcomed, and the region's
economies have expanded. Brazil, Mexico, and Chile have led the way.
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75.
If China continues to move toward greater free market reforms they:
A
.
B
.
C
.
D
.
may move from industrial superpower to third-world
status.
will likely see a decrease in their GDP per
capita.
may move from third-world to industrial superpower
status.
will likely give global market share to Western and Japanese
enterprises.
China continues to move progressively toward greater free market reforms. If what is occurring
in China continues for two more decades, China may move from third-world to industrial
superpower status even more rapidly than Japan did.
1-54
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76.
The rise of mini-multinationals means that:
A
.
B
.
C
.
D
.
small businesses are becoming increasingly involved in international trade and
investment.
it is increasingly difficult to enter the large multinational
market.
countries are working together to minimize MNE
influence.
there is greater state involvement in
industry.
Although most international trade and investment are still conducted by large firms, many
medium-size and small businesses are becoming increasingly involved in international trade
and investment.
77.
After the United States, the second-largest source country of MNEs is:
A
.
B
.
C
.
D
.
Jap
an.
Chi
na.
a tie between France and the United
Kingdom.
a tie between Germany and the United
Kingdom.
By 2012, 22 of the world's 100 largest nonfinancial multinationals were U.S. enterprises; 14
were British, 14 French, 10 were German, and 7 were from Japan.
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78.
In order to be classified as an MNE, a company must have productive activities in at least
_____ countries.
A t
. w
o
B thr
. ee
C f
. o
u
r
D twe
. nty
A multinational enterprise (MNE) is any business that has productive activities in two or more
countries.
79.
Supporters of globalization maintain that the apparent decline in real wage rates of unskilled
workers:
A
.
B
.
C
.
D
.
is due to technological changes that create greater demand for skilled
workers.
is due to the migration of low-wage manufacturing jobs
offshore.
can be checked by increasing government ownership of
enterprises.
can be checked by limiting free trade and foreign
investment.
Supporters of globalization maintain that the weak growth rate in real wage rates for unskilled
workers owes far more to a technology-induced shift within advanced economies away from
jobs where the only qualification was a willingness to turn up for work every day and toward
jobs that require significant education and skills.
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80.
A study published in 2011 by the OECD noted that:
A
.
B
.
C
.
D
.
the real household income of the unskilled workers in the United States increased more in
comparison to that of the skilled workers.
in almost all countries real income levels declined over the 20-year period
studied.
the falling unemployment rates brought gains to low-wage workers and fairly broad-based
wage growth.
the gap between the poorest and richest segments of society in some OECD countries had
widened.
In a study published in 2011, the OECD found that between 1985 and 2008 real household
income (adjusted for inflation) increased by 1.7% annually among its member states. The real
income level of the poorest 10% of the population increased at 1.4% on average, while that of
the richest 10% increased by 2% annually (i.e., while everyone got richer, the gap between the
most affluent and the poorest sectors of society widened).
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81.
A number of econometric studies have found consistent evidence of a hump-shaped
relationship between income levels and pollution levels. According to this, as an economy
grows and income levels rise:
A
.
B
.
C
.
D
.
initially the pollution levels remain
low.
after a while, the pollution levels
decrease.
the pollution levels also rise in proportion to the economic
growth.
there is increasing industrialization which leads to greater
pollution.
A number of econometric studies have found consistent evidence of a hump-shaped
relationship between income levels and pollution levels. As an economy grows and income
levels rise, initially pollution levels also rise. However, past some point, rising income levels lead
to demands for greater environmental protection, and pollution levels then fall.
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82.
NAFTA was passed only after:
A
.
B
.
C
.
D
.
China agreed to establish a higher minimum
wage.
the United States agreed to limit the number of jobs that could be
outsourced.
Mexico committed to tougher enforcement of environmental protection
regulations.
Canada committed to establish new limits on
FDI.
NAFTA was passed only after side agreements had been negotiated that committed Mexico to
tougher enforcement of environmental protection regulations. Thus, supporters of free trade
argue that factories based in Mexico are now cleaner than they would have been without the
passage of NAFTA.
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83.
Globalization is criticized because it increases the power of:
A
.
B
.
C
.
D
.
governments to own
enterprises.
unskilled labor to form labor
unions.
supranational organizations over nationstates.
nation-states to regulate markets and reduce
competition.
A concern voiced by critics of globalization is that today's increasingly interdependent global
economy shifts economic power away from national governments and toward supranational
organizations such as the World Trade Organization, the European Union, and the United
Nations.
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84.
The World Trade Organization has estimated that the developed nations of the world can raise
global economic welfare by $128 billion by:
A
.
B
.
C
.
D
.
removing subsidies given to their agricultural
producers.
increasing tariff barriers to trade in
agriculture.
increasing outsourcing of manufacturing
processes.
reducing defense
expenditure.
The World Trade Organization has estimated that if the developed nations of the world
eradicated subsidies to their agricultural producers and removed tariff barriers to trade in
agriculture this would raise global economic welfare by $128 billion, with $30 billion of that going
to developing nations, many of which are highly indebted.
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85.
Which of the following is an ill antiglobalization protestors assign to globalization?
A
.
B
.
C
.
D
.
Job growth in industries under attack from foreign
competitors
Upward pressure on the wage rates of unskilled
workers
Environmental
degradation
Cultural insularity of global media and
MNEs
The demonstrators were protesting against a wide range of issues, including job losses in
industries under attack from foreign competitors, downward pressure on the wage rates of
unskilled workers, environmental degradation, and the cultural imperialism of global media and
multinational enterprises, which was seen as being dominated by what some protesters called
the "culturally impoverished" interests and values of the United States.
86.
While the hump-shaped relationship between income levels and pollution levels seems to hold
across a wide range of pollutants, _____ represent an important exception.
A
.
B
.
C
.
D
.
sulfur dioxide
emissions
lead
concentrations
carbon dioxide
emissions
water quality
standards
While the hump-shaped relationship depicted in Figure 1.4 in the text seems to hold across a
wide range of pollutants—from sulfur dioxide to lead concentrations and water quality—carbon
dioxide emissions are an important exception, rising steadily with higher-income levels.
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87.
Based on several studies, the data suggest that real wages:
A
.
B
.
C
.
D
.
for unskilled workers have decreased while real wages for skilled workers have
increased.
for both skilled and unskilled labor have
decreased.
for both skilled and unskilled labor have
increased.
for unskilled workers have increased while real wages for skilled worker have
decreased.
The data suggest that over the past two decades, the share of labor in national income has
declined. However, detailed analysis suggests the share of national income enjoyed by skilled
labor has actually increased, suggesting that the fall in labor's share has been due to a fall in
the share taken by unskilled labor.
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88.
Critics of globalization argue that if proponents of globalization were correct about the supposed
benefits associated with free trade and investment, then which of the following would have
happened?
A
.
B
.
C
.
D
.
The average GNI per person between the richest and poorest nations would have
shrunk
The debt burdens of the poorest nations would have
increased
Tougher environmental and labor laws would have been implemented in less-developed
countries
Factories based in Mexico would not be
cleaner
Critics of globalization argue that despite the supposed benefits associated with free trade and
investment, over the past 100 years or so, the gap between the rich and poor nations of the
world has gotten wider. If globalization is such a positive development, this divergence between
the rich and poor should not have occurred.
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89.
Which of the following is a reason that little progress has been made toward the ambitious goals
set at the 1992 Earth Summit in Rio de Janeiro?
A
.
B
.
C
.
D
.
China has shown a strong appetite to adopt tighter pollution
controls.
Political cooperation in the U.S. Congress promotes domestic
action.
There is a culture of denial in the United
States.
Trade liberalization efforts have not been rolled
back.
There has been little success in moving toward the ambitious goals for reducing carbon
emissions laid down in the Earth Summit. In part, this is because the largest emitters of carbon
dioxide, the United States and China, have failed to reach agreements about how to proceed.
China, a country whose carbon emissions are increasing at a rapid rate, has shown little
appetite to adopt tighter pollution controls. As for the United States, political divisions in
Congress and a culture of denial have made it difficult for the country to even acknowledge,
never mind move forward with, legislation designed to tackle climate change.
90.
The two largest emitters of carbon dioxide are:
A
.
B
.
C
.
D
.
China and the United
States.
China and the United
Kingdom.
Canada and the United
States.
Mexico and the United
States.
There has been little success in moving toward the ambitious goals for reducing carbon
emissions laid down in the Earth Summit. In part, this is because the largest emitters of carbon
dioxide, the United States and China, have failed to reach agreements about how to proceed.
1-65
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91.
In 2000, the United Nations adopted eight economic and human develop goals for the world
known as the:
A
.
B
.
C
.
D
.
Millennium
Goals.
Century
Goals.
Globalization
Goals.
U.N. Humanic
Goals.
In 2000 the United Nations adopted what were known as the Millennium Goals. These were
eight economic and human development goals for the world.
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92.
Proponents of globalization and reduced trade restrictions would argue that they are largely
responsible for:
A
.
B
.
C
.
D
.
reducing by half the number of people living in extreme poverty, howbeit, five years later
than the U.N.'s goal.
reducing by half the number of people living in extreme poverty five years ahead of the
U.N.'s goal.
reducing by two-thirds the under-five mortality rate as scheduled by the U.N.'s
goal.
reducing by half the number of people living without sustainable access to safe drinking
water five years ahead of the U.N.'s goal.
One of the Millennium goals was to cut in half the number of people living in extreme poverty,
defined as less than $1.25 a day, between 1995 and 2015. This goal was actually achieved in
2010, five years ahead of schedule. This represents the greatest reduction in extreme poverty in
human history. It's hard to escape the conclusion that globalization and lower barriers to crossborder trade and investment were major factors behind this remarkable achievement.
93.
Which of the following is true of HIPCs?
A
.
B
.
C
.
D
.
About 100 nations fall in this
category.
The average debt burden has never been more than 75% of the value of the HIPC's
economy.
Servicing heavy debt leaves HIPCs with little left to invest in public
infrastructure.
The annual costs of serving debt consumes about 30% of HIPC export
earnings.
Many of the world's poorer nations are being held back by large debt burdens. Of particular
concern are the 40 or so "highly indebted poorer countries" (HIPCs), which are home to some
700 million people. Among these countries, the average government debt burden has been as
high as 85% of the value of the economy, as measured by gross domestic product, and the
annual costs of serving government debt consumed 15% of the country's export earnings.
Servicing such a heavy debt load leaves the governments of these countries with little left to
invest in important public infrastructure projects, such as education, health care, roads, and
power. The result is the HIPCs are trapped in a cycle of poverty and debt that inhibits economic
development.
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94.
Which of the following is true of the supporters of debt relief for HIPCs?
A
.
B
.
C
.
D
.
They argue that free trade alone is sufficient to bring HIPCs out of
poverty.
They argue that new democratic governments should be forced to honor debts incurred by
previous corrupt predecessors.
They include Bono, the Dalai Lama, and Jeffrey Sachs among their
ranks.
They are working against the policies of the IMF and World
Bank.
Free trade alone, some argue, is a necessary but not sufficient prerequisite to help these
countries bootstrap themselves out of poverty. Instead, large-scale debt relief is needed for the
world's poorest nations to give them the opportunity to restructure their economies and start the
long climb toward prosperity. Supporters of debt relief also argue that new democratic
governments in poor nations should not be forced to honor debts that were incurred and
mismanaged long ago by their corrupt and dictatorial predecessors. In the late 1990s, a debt
relief movement began to gain ground among the political establishment in the world's richer
nations. Fueled by high-profile endorsements from Irish rock star Bono, the Dalai Lama, and
influential Harvard economist Jeffrey Sachs, the debt relief movement was instrumental in
persuading the United States to enact legislation in 2000 that provided $435 million in debt relief
for HIPCs. The IMF and World Bank have picked up the banner and have embarked on a
systematic debt relief program.
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95.
An international business, unlike a multinational enterprise:
A
.
B
.
C
.
D
.
needs to have manufacturing units in at least two foreign
nations.
needs to manufacture products or provide services that target a global
market.
need not customize its products to the requirements of national
markets.
need not invest directly in operations in other
countries.
An international business is any firm that engages in international trade or investment. A firm
does not have to become a multinational enterprise, investing directly in operations in other
countries, to engage in international business, although multinational enterprises are
international businesses.
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96.
Which of the following statements is true regarding an international business?
A
.
B
.
C
.
D
.
An international business needs to invest directly in operations in other
countries.
An international business needs to have homogenous practices across
countries.
An international business can be managed in the same way that a domestic business is
managed.
An international business must find ways to work within the limits imposed by government
intervention.
Conducting business transactions across national borders requires understanding the rules
governing the international trading and investment system. Managers in an international
business must also deal with government restrictions on international trade and investment.
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97.
What is the main reason that managing an international business differs from managing a
domestic business?
A
.
B
.
C
.
D
.
International managers are more
experienced.
Countries differ in their cultures and
systems.
Countries want to do business with their
neighbors.
Countries want to keep their transactions
simple.
As their organizations increasingly engage in cross-border trade and investment, managers
need to recognize that the task of managing an international business differs from that of
managing a purely domestic business in many ways. At the most fundamental level, the
differences arise from the simple fact that countries are different.
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98.
Which of the following is true regarding international businesses?
A
.
B
.
C
.
D
.
All MNEs are international
businesses.
Only firms that export products are international
businesses.
Only firms that invest abroad are international
businesses.
All international businesses are
MNEs.
A firm does not have to become a multinational enterprise, investing directly in operations in
other countries, to engage in international business, although multinational enterprises are
international businesses. All a firm has to do is export or import products from other countries.
99.
Managing an international business is different from managing a purely domestic business for
which of the following reasons?
A
.
B
.
C
.
D
.
Countries prefer to keep business transactions between domestic
partners.
The range of problems confronted are wider and more
complex.
International businesses have an added layer of U.N.
regulations.
International transactions involve exchanging currencies through each countries'
treasury.
Managing an international business is different from managing a purely domestic business for at
least four reasons: (1) countries are different, (2) the range of problems confronted by a
manager in an international business is wider and the problems themselves more complex than
those confronted by a manager in a domestic business, (3) an international business must find
ways to work within the limits imposed by government intervention in the international trade and
investment system, and (4) international transactions involve converting money into different
currencies.
Essay Questions
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100.
Discuss the characteristics of globalization. Use an example in your discussion.
Globalization refers to a fundamental shift in the world economy in which national economies
are no longer relatively self-contained entities. Instead, nations are moving toward an
interdependent global economic system. Within this new global economy, an American might
drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler
from components made in the United States and Japan that were fabricated from Korean steel
and Malaysian rubber. A company does not have to be the size of these multinational giants to
facilitate, and benefit from, the globalization of markets.
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101.
Explain what is meant by the globalization of markets. Provide an example. What are the most
global markets?
The globalization of markets refers to the idea that historically distinct and separate national
markets are merging into a single, huge global marketplace. For example, Coca-Cola,
Starbucks, and McDonald's offer the same basic product worldwide, and are in fact, not only a
part of the trend, but facilitators of the trend as well. The most global markets are not actually for
consumer goods, but instead are for industrial goods and materials that serve the same needs
across the world.
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102.
Discuss the concept of the globalization of production.
The globalization of production refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality of factors of
production (such as labor, energy, land, and capital). By doing this, companies hope to lower
their overall cost structure or improve the quality or functionality of their product offering, thereby
allowing them to compete more effectively.
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103.
What is the World Trade Organization? What is its role in the world economy?
The World Trade Organization (WTO) is primarily responsible for policing the world trading
system and making sure nation-states adhere to the rules laid down in trade treaties signed by
WTO members. As of 2015, 160 nations that collectively accounted for 98 percent of world
trade were WTO members, thereby giving the organization enormous scope and influence. The
WTO has been instrumental in lowering barriers to cross-border trade and investment. In
addition to these responsibilities, the WTO also facilitates the establishment of additional
agreements between member states.
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104.
What is the International Monetary Fund? What is the World Bank? What is their relationship, if
any, with each other?
The International Monetary Fund (IMF) was created to maintain order in the international
monetary system. The World Bank was established to promote economic development. Both
organizations were launched as part of the 1944 Bretton Woods Agreement and have emerged
as significant players in the global economy. The IMF is often seen as the lender of last resort to
nation-states whose economies are in turmoil and currencies are losing value against those of
other nations.
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105.
What is the Uruguay Round? List the measures implemented in the Uruguay Round?
Under the umbrella of GATT, eight rounds of negotiations among member states worked to
lower barriers to the free flow of goods and services. The most recent negotiations to be
completed, known as the Uruguay Round, were finalized in December 1993. The Uruguay
Round further reduced trade barriers; extended GATT to cover services as well as
manufactured goods; provided enhanced protection for patents, trademarks, and copyrights;
and established the World Trade Organization to police the international trading system.
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106.
Explain the trends in world trade and foreign direct investment since 1950.
Since 1950, the volume of world merchandise trade has grown faster than the world economy.
In particular, there has been acceleration in world trade since 1980. This trade and investment
pattern implies that firms are dispersing parts of their production to different locations around
the world to drive down production costs and increase product quality, that the economies of the
world's nation states are becoming more intertwined, that foreign direct investment is playing an
increasing role in the global economy as firms increase their cross-border investments, and that
the world has become significantly wealthier since 1990. The implication is that rising trade is
the engine that has helped pull the global economy along. Evidence also suggests that foreign
direct investment is playing an increasing role in the global economy as firms increase their
cross-border investments.
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107.
Explain how a company competes using outsourcing. Provide an example.
The lowering of trade and investment barriers also allows firms to base production at the
optimal location for that activity. Thus, a firm might design a product in one country, produce
component parts in two other countries, assemble the product in yet another country, and then
export the finished product around the world. For example, consider Boeing's 777, a
commercial jet airliner. Eight Japanese suppliers make parts for the fuselage, doors, and wings;
a supplier in Singapore makes the doors for the nose landing gear; three suppliers in Italy
manufacture wing flaps; and so on. In total, some 30 percent of the 777, by value, is built by
foreign companies.
108.
Discuss the impact of technological change on global markets.
Major advances in communication, information processing, and transportation technology have
facilitated the globalization of markets and production. The microprocessor and the Internet
have been central to the technology explosion. The development of the microprocessor vastly
increased the amount of information that can be processed by individuals and firms, and the
growth of the Internet has allowed companies to expand their global presence at a fraction of
the cost of more traditional methods of business. Jet air travel, by shrinking travel time, has also
helped to link the worldwide operations of international businesses. These changes have
enabled firms to achieve tight coordination of their worldwide operations and to view the world
as a single market.
109.
Discuss the demographics of world trade since the 1960s. How has the role of the United
States changed? How is world trade expected to change in the future?
In the early 1960s, the United States was the world's dominant industrial power accounting for
almost 40 percent of world output. By 2012, the United States accounted for 23.1 percent of
world output, still the world's largest industrial power but down significantly in relative size.
Other industrialized countries also saw their relative standing slip. This change in the U.S.
position was a relative decline, reflecting the faster economic growth of several other
economies, particularly in Asia. Most forecasts now predict a rapid rise in the share of world
output accounted for by developing nations such as China, India, Russia, Indonesia, Thailand,
South Korea, Mexico, and Brazil, and a commensurate decline in the share enjoyed by rich
industrialized countries such as Great Britain, Germany, Japan, and the United States.
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110.
Why does China represent both opportunities and threats for established international
businesses?
China represents a huge and largely untapped market. Reflecting this, between 1983 and 2014,
annual foreign direct investment in China increased from less than $2 billion to $110 billion
annually. On the other hand, China's new firms are proving to be very capable competitors, and
they could take global market share away from Western and Japanese enterprises. Thus, the
changes in China are creating both opportunities and threats for established international
businesses.
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111.
Consider whether the shift toward a more integrated and interdependent global economy is a
good thing. Discuss the shift from the eyes of the consumer, the worker, the company, and the
environmentalist.
There are many advantages of globalization. From a broad perspective, globalization creates
economic activity (which stimulates economic growth), creates jobs, raises income levels, and
provides consumers with more choices in regard to the products and services that are available
to them. From the perspective of an individual firm, globalization has the potential to increase
revenues (through expanded market potential), drive down costs (through additional economies
of scale), and boost profits. However, critics argue that globalization destroys manufacturing
jobs in wealthy countries and contributes to pollution. Critics argue that falling trade barriers
allow firms in industrialized countries to move their manufacturing activities offshore to countries
where wage rates are much lower. Critics also argue that globalization encourages firms from
advanced nations to move manufacturing facilities offshore to less developed countries to avoid
the more stringent pollution controls in place in their home countries.
112.
Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the events were
important to the future of global trade.
In December 1999, more than 40,000 protesters blocked the streets of Seattle in an effort to
shut down a WTO meeting being held in the city. The issue was job losses in industries under
attack from foreign competitors, falling wage rates of unskilled workers, environmental
degradations, and cultural imperialism of global media and MNEs. Protesters believed that all of
these issues were the result of globalization, and felt that the WTO, as a promoter of
globalization, was a legitimate target for blame. The protest was a violent one, and emboldened
by the experience, antiglobalization protesters now turn up at almost every major meeting of a
global institution.
113.
Falling barriers to international trade destroy manufacturing jobs in wealthy advanced
economies. Discuss this statement. Do you agree? Why or why not?
Critics argue that falling trade barriers allow firms to move manufacturing activities to countries
where wage rates are much lower. Because of such moves they argue that, the wage rates of
poorer Americans have fallen significantly over the past quarter of a century. Supporters of
globalization reply that critics of these trends miss the essential point about free trade—the
benefits outweigh the costs. They argue that free trade will result in countries specializing in the
production of those goods and services that they can produce most efficiently, while importing
goods and services that they cannot produce as efficiently.
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114.
Why is managing an international business different from managing a purely domestic
business?
Managing an international business is different from managing a purely domestic business for at
least four reasons: (1) countries are different, (2) the range of problems confronted by a
manager in an international business is wider and the problems themselves more complex than
those confronted by a manager in a domestic business, (3) an international business must find
ways to work within the limits imposed by government intervention in the international trade and
investment system, and (4) international transactions involve converting money into different
currencies.
115.
What are some of the issues a manager of an international business must confront that a
manager of a domestic business never confronts?
In addition to the problems that arise from the differences between countries, managers of an
international business must decide where in the world to site production activities to minimize
costs and to maximize value added. They must decide whether it is ethical to adhere to the
lower labor and environmental standards found in many less developed nations. Then they
must decide how best to coordinate and control globally dispersed production activities, which is
not a trivial problem. Managers in an international business must also decide which foreign
markets to enter and which ones to avoid.
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IB testbank chap 2
Quản trị kinh doanh (University of Economics, Hue University)
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Test Bank for International Business Competing in the Global Marketplace 11th Edition by Hill IBSN 1259578119
Full Download: http://downloadlink.org/product/test-bank-for-international-business-competing-in-the-globalmarketplace-11th- ed
Chapter 02
National Differences in Political, Economic, and Legal Systems
True / False Questions
1. The central message of collectivism is that individual economic and political freedoms are the
ground rules on which a society should be based.
True
False
2. The communists believed that socialism could be achieved by democratic means, and turned
their backs on violent revolution and dictatorship.
True
False
3. The Cold War was, in many respects, a war between collectivism and individualism.
True
False
4. Most modern democratic states practice representative democracy.
True
False
5. Democracy is a form of government that prohibits opposing political parties.
True
False
6. In a totalitarian country, there are safeguards to protect an individual's right to freedom of
expression, opinion, and organization.
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True
False
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Full all chapters instant download please go to Solutions Manual, Test Bank site: downloadlink.org
7. The number of command economies has fallen dramatically since the demise of communism in
the late 1980s.
True
False
8. The objective of the government in a command economy is to encourage free and fair
competition between private producers.
True
False
9. In mixed economies, governments also tend to take into state ownership troubled firms whose
continued operation is thought to be vital to national interests.
True
False
10. A nation's legal system is usually of very little interest to international business managers,
because international businesses are headquartered in different countries.
True
False
11. Judges under a civil law system have more flexibility than those under a common law system.
True
False
12. A theocratic law system is one in which the law is based on religious teachings.
True
False
13. The parties to an agreement normally resort to contract law when one party feels the other has
violated either the letter or the spirit of an agreement.
True
False
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14. Contracts under a civil law system tend to be very detailed with all contingencies spelled out.
True
False
15. Many of the world's larger trading nations, including India and the United Kingdom, have not
ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG).
True
False
16. To facilitate international business, property rights are defined in a consistent way across
countries.
True
False
17. Property rights can be violated in two ways—through private action and through public action.
True
False
18. The Foreign Corrupt Practices Act does not allow for grease payments.
True
False
19. Patents, copyrights, and trademarks establish ownership rights over intellectual property.
True
False
20. Patents discourage companies from committing themselves to extensive basic research.
True
False
21. The Trade-Related Aspects of Intellectual Property Rights, attempts to reduce intellectual
property protections to enhance trade.
True
False
22. Product liability sets certain safety standards to which a product must adhere.
True
False
23. Product liability can be much lower if a product does not conform to required safety standards.
True
False
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24. The political systems of a country raise ethical issues that have implications for the practice of
international business.
True
False
Multiple Choice Questions
25. Interdependent political, economic, and legal systems of a country make up its:
A. administrative agenda.
B. socioeconomic fabric.
C. cultural environment.
D. political economy.
26. A political system that prioritizes the needs of the society over individual freedoms is called
_____.
A. totalitarianism
B. collectivism
C. capitalism
D. egalitarianism
27. Modern socialism has been popularized largely through the work of _____.
A. Adam Smith
B. Karl Marx
C. David Hume
D. Thomas Hobbes
28. The _____ believed that socialism could be achieved only through violent revolution and
totalitarian dictatorship.
A. existentialists
B. social democrats
C. communists
D. anarchists
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29. In several Western democracies, the poor performance of state-owned enterprises, because of
protection from competition and guaranteed government financial support, led to _____.
A. privatization
B. nationalization
C. liberalization
D. socialization of production
30. Which of the following philosophies can be traced back to the ancient Greek philosopher
Aristotle?
A. Socialism
B. Individualism
C. Collectivism
D. Anarchism
31. The tenet of _____ is that the welfare of society is best served by letting people pursue their own
economic self-interest.
A. socialism
B. communism
C. anarchism
D. individualism
32. Which of the following statements about individualism is true?
A. Individualism promotes state ownership of the basic means of production, distribution, and
exchange.
B. Individualism promotes globalization.
C. Individualism creates an anti-business environment.
D. Individualism advocates for a democratic political system.
33. Which of the following is a feature of a democracy?
A. Exercise of absolute control by one person or political party.
B. Governance by people or elected representatives.
C. Prohibition of entry to opposing political parties.
D. Complete restriction of individual political freedom.
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34. Totalitarianism:
A. refers to a political system in which government is by the people, exercised either directly or through
elected representatives.
B. is based on a belief that citizens should be directly involved in decision making.
C. is a form of government in which one person or political party exercises absolute control over all
spheres of human life.
D. is based on the idea that the welfare of society is best served by letting people pursue their own
economic self-interests.
35. Peoples' right to protest on issues of accountability in public expenditure would be possible in a
_____ political set-up.
A. dictatorial
B. democratic
C. totalitarian
D. fascist
36. _____ refers to a state where political power is monopolized by a party, group, or individual that
governs according to religious principles.
A. Representative democracy
B. Theocratic totalitarianism
C. Tribal anarchism
D. Monotheistic communism
37. Which system of government generally permits some individual economic freedom but restricts
individual political freedom, frequently on the grounds that it would lead to the rise of
communism?
A. Tribal totalitarianism
B. Right-wing totalitarianism
C. Democratic totalitarianism
D. Theocratic totalitarianism
38. In a pure market economy:
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A. all productive activities are owned by the state.
B. production is determined by the interaction of supply and demand.
C. collectivist goals are given priority over individual goals.
D. the prices at which goods are sold is determined by the government.
39. An economy in which the interaction of supply and demand determines the quantity in which
goods and services are produced is called a _____.
A. planned economy
B. command economy
C. closed economy
D. market economy
40. Antitrust laws in the United States are designed to:
A. restrict agricultural subsidies.
B. increase trade barriers.
C. outlaw monopolies.
D. restrict privatization.
41. In a(n) _____ economy the government plans the goods and services that a country produces,
the quantity in which they are produced, and the prices at which they are sold.
A. market
B. command
C. open economy
D. laissez-faire
42. In a _____ economy, certain sectors of the economy are left to private ownership and free market
mechanisms while other sectors have significant state ownership and government planning.
A. market
B. private
C. command
D. mixed
43. In which of the following economies would the government be most likely to take into state
ownership troubled firms whose continued operation is thought to be vital to national interests?
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A. Market economies
B. Laissez-faire economies
C. Liberal economies
D. Mixed economies
44. Which of the following statements about the legal systems of countries is true?
A. They can affect the attractiveness of a country as an investment site or market.
B. They are not influenced by the prevailing political system of the country.
C. They are almost the same for all countries.
D. They are of little importance to international business.
45. One key components of a country's legal system is:
A. establishing a mixed economy.
B. taking a hands-off approach to business practices.
C. defining the rights and obligations of those involved in business transactions.
D. leaving the monitoring of the way business transactions are executed to the United Nations.
46. Under the _____, cases are judged with reference to three characteristics: tradition, precedent,
and custom.
A. theocratic law system
B. civil law system
C. contract law system
D. common law system
47. A civil law system tends to be less adversarial than a common law system because the:
A. judges' decisions are based on detailed legal codes.
B. judges have the freedom to interpret laws based on the situation.
C. judges' decisions are based on religious teachings.
D. judges are guided by interpretations made in prior legal cases.
48. A common law system is different from a civil law system because:
A. a common law system is based on religious teachings, while a civil law system is based on cultural
traditions.
B. a common law system is very rigid, while a civil law system tends to be more flexible.
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C. in a common law system a judge relies on legal codes to make rulings, while in a civil law system a
judge relies on his intuition and moral reasoning to make judgments.
D. in a common law system a judge has the power to interpret the law, while in a civil law system a
judge has the power only to apply the law.
49. A _____ system is based on a very detailed set of laws organized into codes.
A. traditional law
B. theocratic law
C. civil law
D. common law
50. A theocratic law system is one in which the law is based on:
A. religious teachings.
B. tradition, precedent, and custom.
C. a detailed set of laws organized into codes.
D. cultural and social norms.
51. Which of the following is the most widely practiced theocratic legal system in the world today?
A. Hindu law
B. Sikh law
C. Islamic law
D. Jewish law
52. _____ is the collective term for the legal rights relating to the use to which a resource is put and
over the use made of any income that may be derived from that resource.
A. Trade rights
B. Property rights
C. Positive rights
D. Common rights
53. In Russia, in the chaotic period following the collapse of communism, an outdated legal system,
coupled with a weak police force and judicial system, allowed the Russian Mafia to demand
"protection money" from business owners. Any business owner who rebelled had to face violent
retribution. This violation of property rights exemplifies _____.
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A. private action
B. copyright violation
C. infrastructural failure
D. public liability
54. Violation of property rights done through legal mechanisms such as levying excessive taxation
and requiring expensive licenses or permits from property holders is called _____.
A. private action
B. collective action
C. public action
D. copyright violation
55. Which of the following areas of international trade is regulated by the Foreign Corrupt Practices
Act?
A. Making and performance of commercial contracts in international trade.
B. Preventing bribery and unethical acts in the conduct of international business.
C. Establishing a set of safety standards to which a new product must adhere.
D. Controlling the mafia activity that hinders trade in Russia, Japan, and the U.S.
56. Which of the following is an example of intellectual property?
A. A music score
B. A lazer-tag game
C. A software business
D. A theater
57. A _____ grants the inventor of a new product or process exclusive rights for a defined period of
time to the manufacture, use, or sale of that invention.
A. copyright
B. trademark
C. contract
D. patent
58. Design and names by which merchants or manufacturers designate and differentiate their
products are known as _____.
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A. trademarks
B. copyrights
C. patents
D. licenses
59. The Research and Development division of a company has recently designed a new coffee
vending machine that is likely to sell very well in the market. It is compact, user-friendly, and
provides unprecedented efficiency in terms of cost per cup. Consequently, the company fears
that its competitors would soon mimic the design of their product and to protect its product, it is
now seeking a _____.
A. copyright
B. patent
C. trademark
D. certification
60. Which of the following provides exclusive legal rights to authors, composers, playwrights, artists,
and publishers to publish and disperse their work as they see fit?
A. Patent
B. Copyright
C. Trademark
D. License
61. The TRIPS agreement was designed to:
A. exclude China from all intellectual property agreements.
B. oversee a much stricter enforcement of intellectual property regulations.
C. hold a firm and its officers responsible when a product causes injury, death, or damage.
D. support traded software and recorded property among developed markets.
62. Which of the following statements about the Trade Related Aspects of Intellectual Property
Rights (or TRIPS) agreement is true?
A. It was designed to oversee the loosening of intellectual property regulations, beginning in 1995.
B. It obliged WTO members to grant and enforce patents lasting at least 20 years and copyrights
lasting 50 years.
C. It directed rich countries to comply with its rules of intellectual property protection within five years.
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D. It provided the very poorest countries amnesty from complying with its rules of intellectual property
protection.
63. Safety standards to which a product must adhere are set by:
A. safety certifications.
B. contract laws.
C. product safety laws.
D. product liability laws. 64. Private action refers to:
A. public officials extorting income, resources, or the property itself from property holders.
B. bribing government officials in foreign countries in an attempt to win lucrative contracts.
C. theft, piracy, blackmail, and the like by private individuals or groups.
D. violations of intellectual property rights.
65. Which of the following is a safeguard that representative democracies use to ensure that their
elected officials are held responsible for their actions?
A. Unlimited terms for elected representatives
B. A court system that is integrated with the political system
C. An individual's right to freedom of expression, opinion, and organization
D. A political police force and armed service
66. The _____ establishes a uniform set of rules governing certain aspects of the making and
performance of everyday commercial contracts between sellers and buyers who have their
places of business in different nations.
A. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
B. Paris Convention for the Protection of Industrial Property
C. United Nations Convention on Contracts for the International Sale of Goods (CIGS)
D. World Trade Organization (WTO)
67. The _____ makes it illegal for American companies to bribe a foreign government official in order
to obtain or maintain business over which that foreign official has authority, and requires all
publicly traded companies to keep detailed records that would allow determining whether a
violation of the act has occurred.
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A. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
B. Foreign Corrupt Practices Act
C. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
D. Organisation for Economic Co-operation and Development (OECD)
68. Which of the following is a reason that command economies tend to stagnate?
A. Costs are tightly controlled and business are forced to be efficient rather than dynamic and
innovative.
B. The abolition of private ownership means there is no incentive for individuals to look for better ways
to serve consumer needs.
C. All economic resources are mobilized for the public good.
D. Individuals in command economy countries lack the skills to be innovative.
69. Which of the following is true of criminal liability laws?
A. Calls for the payment of monetary damages
B. They are more extensive in Western Europe than in any other region of the world
C. Results in fines or imprisonment
D. They are less impactful if the product does not conform to the required safety standards
70. _____ are established through patents, copyrights, and trademarks.
A. Digital signatures
B. Ownership rights over private property
C. Origination fees and tributes
D. Ownership rights over intellectual property
71. Systems that emphasize collectivism tend toward _____.
A. totalitarianism
B. capitalism
C. democracy
D. privatization
72. In a(n) _____ society, the welfare of society is best served by letting people pursue their own
economic self-interest.
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A. individualist
B. capitalist
C. democratic
D. totalitarian
73. _____ argued that individual diversity and private ownership are undesirable.
A. Karl Marx
B. Plato
C. John Stuart Smith
D. Aristotle
74. _____ generally permits some individual economic freedom but restricts individual political
freedom, frequently on the grounds that it would lead to the rise of communism.
A. Communist totalitarianism
B. Theoretical totalitarianism
C. Right-wing totalitarianism
D. Tribal totalitarianism
75. In a _____, if demand for a product exceeds supply, prices will rise, signaling to producers to
produce more.
A. mixed economy
B. market economy
C. collectivist economy
D. command economy
76. The abolition of _____ in a command economy means there is no incentive for individuals to look
for better ways to serve consumer needs.
A. private ownership
B. public ownership
C. government-owned businesses
D. co-operatives
77. In common law, _____ refers to cases that have come before the courts in the past.
A. custom
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B. precedent
C. codification
D. tradition
78. Judges in a(n) _____ have the power to interpret the law so that it applies to the unique
circumstances of an individual case.
A. civil law system
B. international law system
C. common law system
D. theocratic law system
79. The most widely practiced theocratic legal system in the world today.
A. Christian
B. Hindu
C. Jewish
D. Islamic
80. The legal rights over the use to which a resource is put and over the use made of any income
that may be derived from that resource.
A. Property rights
B. Public action
C. Intellectual rights
D. Private action
81. In the 1970s, the United States _____ which requires all publicly traded companies, whether or
not they are involved in international trade, to keep detailed records that would reveal whether
a violation of the act has occurred.
A. adopted the Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions policy
B. passed the Foreign Corrupt Practices Act
C. joined Transparency International
D. joined the Organisation for Economic Co-operation and Development (OECD)
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82. The _____ associated with doing business in a country are a function of that country's political,
economic, and legal systems.
A. ethical considerations
B. profitability
C. simplicity and ease
D. benefits, costs, and risks
83. When _____ is emphasized, an individual's right to do something may be restricted on the
grounds that it runs counter to "the good of society."
A. individualism
B. totalitarianism
C. collectivism D. theocracy
84. Plato _____; he believed that society should be stratified into classes, with those best suited to
rule.
A. equated individualism with equality
B. equated collectivism with equality
C. promoted representative democracy
D. did not equate collectivism with equality
85. The _____ believed that socialism could be achieved only through violent revolution and
totalitarian dictatorship.
A. socialists
B. communists
C. collectivists
D. social democrats
86. Modern socialists trace their intellectual roots to _____, although socialist thought clearly
predates this individual.
A. David Hume
B. Karl Marx
C. Adam Smith
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D. John Stuart Mill
87. A law system that is based on a detailed set of laws organized into codes.
A. Theocratic
B. Contract
C. Civil
D. Common
88. The term _____ stresses that the political, economic, and legal systems of a country are
interdependent.
A. political economy
B. common law
C. socialism
D. collectivism
89. Who was the author of The Wealth of Nations in which it is stated that an individual who intends
his own gain is led by an invisible hand to promote an end that was not part of his intention?
A. David Hume
B. Adam Smith
C. Karl Marx
D. John Stuart Mill
90. _____ occurs when a political party that represents the interests of a particular tribe (and not
always the majority tribe) monopolizes power.
A. Tribal dictatorship
B. Communist totalitarianism
C. Tribal totalitarianism
D. Privatization
91. The term used to describe a state in which authoritarian elements have captured some or much
of the machinery of state and use this in an attempt to deny basic political and civil liberties.
A. Authoritarian dictatorship
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B. Right-wing democracies
C. Representative totalitarianism
D. Pseudo-democracies
92. In response to increased demand, what is a monopolist likely to do?
A. Restrict output to drive prices down.
B. Increase output to drive prices down.
C. Restrict output and let prices rise.
D. Increase output and let prices rise.
93. In 2008, the U.S. government took an 80 percent stake in AIG to stop that financial institution
from collapsing, the theory being that if AIG did collapse, it would have very serious
consequences for the entire financial system. What type of economy is this an example of?
A. Command
B. Mixed
C. Capitalistic
D. Market
94. Although many countries have stringent intellectual property regulations on their books, the
enforcement of these regulations has often been lax. This has been the case even among many
of the 185 countries that are now members of the _____, all of which have signed international
treaties designed to protect intellectual property.
A. World Intellectual Property Organization
B. General Agreement on Tariffs and Trade
C. Business Software Alliance
D. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Essay Questions
95. Why did Karl Marx criticize capitalism? Describe how he planned to correct those shortcomings.
96. Discuss collectivism. What ideals does the philosophy support? Where did the philosophy start?
How does collectivism exist in the modern world?
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97. What are state-owned companies? Why do they usually perform poorly?
98. Discuss individualism. Explain the key positions of the philosophy, it roots, and its role in the
modern economy.
99. Compare and contrast a pure democracy and a representative democracy. Which type of
democracy is more common today? Why?
100.Compare and contrast the four forms of totalitarianism.
101. Identify the three types of economic systems. How do these three types of economic
systems differ from each other? How are they the same?
102.Discuss why there is inefficiency in a monopoly situation. What is the role of the government in
such a situation?
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103.Discuss the effects of private ownership of production in a market economy.
104.What is a country's legal system? Why is it important to international businesses?
105.Explain the differences between common law and civil law systems by the approach of
each to contract law.
106.Discuss the ways in which public action to violate property rights can occur.
107. What are the factors that contribute to the attractiveness of a country as a market or investment site?
108.Discuss the key factors that companies must be aware of before deciding to do business in other
countries.
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Chapter 02 National Differences in Political, Economic, and Legal
Systems Answer Key
True / False Questions
1.
The central message of collectivism is that individual economic and political freedoms
are the ground rules on which a society should be based.
FALSE
Collectivism refers to a political system that stresses the primacy of
collective goals over individual goals. When collectivism is emphasized, the needs of
society as a whole are generally viewed as being more important than individual
freedoms.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
2.
The communists believed that socialism could be achieved by democratic means, and
turned their backs on violent revolution and dictatorship.
FALSE
The communists believed that socialism could be achieved only through
violent revolution and totalitarian dictatorship, whereas the social democrats committed
themselves to achieving socialism by democratic means, turning their backs on violent
revolution and dictatorship.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
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Learning Objective: 02-01
Understand how the
political systems of
countries differ.
Topic: Differences in Political Systems
3.
The Cold War was, in many respects, a war between collectivism and individualism.
TRUE
The Cold War, in many respects, was a war between collectivism,
championed by the former Soviet Union, and individualism, championed by the United
States.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
4.
Most modern democratic states practice representative democracy.
TRUE
In complex, advanced societies with populations in the tens or
hundreds of millions the pure form of democracy is impractical. Most modern
democratic states practice representative democracy.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Different Forms of Government
5.
Democracy is a form of government that prohibits opposing political parties.
FALSE
Democracy refers to a political system in which government is by the
people, exercised either directly or through elected representatives. Totalitarianism is a
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form of government in which one person or political party exercises absolute control
over all spheres of human life and prohibits opposing political parties.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Different Forms of Government
6.
In a totalitarian country, there are safeguards to protect an individual's right to freedom
of expression, opinion, and organization.
FALSE
In a totalitarian country, all the constitutional guarantees on which
representative democracies are built—an individual's right to freedom of expression and
organization, a free media, and regular elections—are denied to the citizens.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Different Forms of Government
7.
The number of command economies has fallen dramatically since the demise of
communism in the late 1980s.
TRUE
Historically, command economies were found in communist countries
where collectivist goals were given priority over individual goals. Since the demise of
communism in the late 1980s, the number of command economies has fallen
dramatically.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
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Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
8.
The objective of the government in a command economy is to encourage free and fair
competition between private producers.
FALSE
The objective of a command economy is for government to allocate
resources for "the good of society." In addition, in a pure command economy, all
businesses are state owned.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ. Topic:
Differences in Economic Systems
9.
In mixed economies, governments also tend to take into state ownership troubled firms
whose continued operation is thought to be vital to national interests.
TRUE
In a mixed economy, certain sectors of the economy are left to private
ownership and free market mechanisms while other sectors have significant state
ownership and government planning. In mixed economies, governments also tend to
take into state ownership troubled firms whose continued operation is thought to be
vital to national interests.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
10.
A nation's legal system is usually of very little interest to international business managers,
because international businesses are headquartered in different countries.
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FALSE
The legal system of a country refers to the rules, or laws, that regulate
behavior along with the processes by which the laws are enforced and through which
redress for grievances is obtained.
The legal system of a country is of immense importance to international business.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic:
Differences in Legal Systems
11.
Judges under a civil law system have more flexibility than those under a common law system.
FALSE
A civil law system is based on a detailed set of laws organized into codes. Judges under a
civil law system have less flexibility than those under a common law system.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Differences in Legal Systems
12.
A theocratic law system is one in which the law is based on religious teachings.
TRUE
A theocratic law system is one in which the law is based on religious teachings.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic Law
2-25
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13.
The parties to an agreement normally resort to contract law when one party feels the other has
violated either the letter or the spirit of an agreement.
TRUE
Contract law is the body of law that governs contract enforcement. The
parties to an agreement normally resort to contract law when one party feels the other
has violated either the letter or the spirit of an agreement.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic Law
14.
Contracts under a civil law system tend to be very detailed with all contingencies
spelled out.
FALSE
Because common law tends to be relatively ill specified, contracts
drafted under a common law framework tend to be very detailed with all contingencies
spelled out. In civil law systems, however, contracts tend to be much shorter and less
specific because many of the issues are already covered in a civil code.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic Law
15.
Many of the world's larger trading nations, including India and the United Kingdom,
have not ratified the United Nations Convention on Contracts for the International Sale
of Goods (CISG).
TRUE
2-26
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One problem with the CISGS, however, is that only 83 nations have
ratified the convention (the CISG went into effect in 1988). Many of the world's larger
trading nations, including India and the United Kingdom, have not ratified the CISG.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Laws
Affecting International Business
16.
To facilitate international business, property rights are defined in a consistent way across countries.
FALSE
Countries differ in the extent to which their legal systems define and protect
property rights.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property Rights
17.
Property rights can be violated in two ways—through private action and through public action.
TRUE
Property rights can be violated in two ways—through private action and through
public action.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property Rights
18.
The Foreign Corrupt Practices Act does not allow for grease payments.
FALSE
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Both the U.S. law and OECD convention include language that allows for
exceptions known as facilitating or expediting payments (also called grease payments or
speed money), the purpose of which is to expedite or to secure the performance of a
routine governmental action.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Laws Affecting International Business
19.
Patents, copyrights, and trademarks establish ownership rights over intellectual property.
TRUE
Patents, copyrights, and trademarks establish ownership rights over intellectual
property.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property Rights
20.
Patents discourage companies from committing themselves to extensive basic research.
FALSE
The philosophy behind intellectual property laws is to reward the
originator of a new invention, book, musical record, and the like, for his or her idea and
effort. Without the guarantees provided by patents, companies would be unlikely to
commit themselves to extensive basic research.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
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Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
21.
The Trade-Related Aspects of Intellectual Property Rights, attempts to reduce intellectual
property protections to enhance trade.
FALSE
Under the new agreement, known as the Trade-Related Aspects of
Intellectual Property Rights (TRIPS), as of 1995 a council of the World Trade Organization
is overseeing enforcement of much stricter intellectual property regulations. These
regulations oblige WTO members to grant and enforce patents lasting at least 20 years
and copyrights lasting 50 years.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property Rights
22.
Product liability sets certain safety standards to which a product must adhere.
FALSE
Product safety laws set certain safety standards to which a product must adhere.
Product liability involves holding a firm and its officers responsible when
a product causes injury, death, or damage.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Product
Liability
23.
Product liability can be much lower if a product does not conform to required safety
standards.
FALSE
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Product liability involves holding a firm and its officers responsible when
a product causes injury, death, or damage. Product liability can be much greater if a
product does not conform to required safety standards.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Product Liability
24.
The political systems of a country raise ethical issues that have implications for the practice
of international business.
TRUE
The political, economic, and legal systems of a country raise important
ethical issues that have implications for the practice of international business. For
example, what ethical implications are associated with doing business in totalitarian
countries where citizens are denied basic human rights, corruption is rampant, and
bribes are necessary to gain permission to do business?
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-04 Explain the implications for
management practice of national differences in political economy.
Topic: Ethical Issues in International Business
Multiple Choice Questions
25.
Interdependent political, economic, and legal systems of a country make up its:
A. administrative agenda.
B. socioeconomic fabric.
C. cultural environment.
D. political economy.
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The term political economy is used to stress that the political, economic,
and legal systems of a country are interdependent; they interact and influence each
other, and in doing so they affect the level of economic well-being.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
26.
A political system that prioritizes the needs of the society over individual freedoms is called _____.
A. totalitarianism
B. collectivism
C. capitalism
D. egalitarianism
Collectivism refers to a political system that stresses the primacy of
collective goals over individual goals. When collectivism is emphasized, the needs of
society as a whole are generally viewed as being more important than individual
freedoms.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
27.
Modern socialism has been popularized largely through the work of _____.
A. Adam Smith
B. Karl Marx
C. David Hume
D. Thomas Hobbes
Modern socialists trace their intellectual roots to Karl Marx (18181883), although socialist thought clearly predates Marx (elements of it can be traced
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to Plato). Marx argued that the few benefit at the expense of the many in a capitalist
society where individual freedoms are not restricted.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
28.
The _____ believed that socialism could be achieved only through violent revolution and totalitarian
dictatorship.
A. existentialists
B. social democrats
C. communists
D. anarchists
The communists believed that socialism could be achieved only through
violent revolution and totalitarian dictatorship, whereas the social democrats committed
themselves to achieving socialism by democratic means, turning their backs on violent
revolution and dictatorship.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-01
Understand how the
political systems of
countries differ.
29.
In several Western democracies, the poor performance of state-owned enterprises, because of
protection from competition and guaranteed government financial support, led to _____.
A. privatization
B. nationalization
C. liberalization
D. socialization of production
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In many countries, state-owned companies performed poorly. As a consequence, a
number of
Western democracies voted many social democratic parties out of office in the late
1970s and early
1980s. They were succeeded by political parties, such as Britain's
Conservative Party and Germany's Christian Democratic Party, that were more
committed to free market economics. These parties sold state-owned enterprises to
private investors (a process referred to as privatization).
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Nationalization and Privatization of Business
30.
Which of the following philosophies can be traced back to the ancient Greek philosopher Aristotle?
A. Socialism
B. Individualism
C. Collectivism
D. Anarchism
Like collectivism, individualism can be traced to an ancient Greek
philosopher, in this case Plato's disciple Aristotle (384-322 BC). In contrast to Plato,
Aristotle argued that individual diversity and private ownership are desirable.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
31.
The tenet of _____ is that the welfare of society is best served by letting people pursue their own
economic self-interest.
A. socialism
B. communism
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C. anarchism
D. individualism
A tenet of individualism is that the welfare of society is best served by
letting people pursue their own economic self-interest, as opposed to some collective
body (such as government) dictating what is in society's best interest.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
32.
Which of the following statements about individualism is true?
A. Individualism promotes state ownership of the basic means of production, distribution, and
exchange.
B. Individualism promotes globalization.
C. Individualism creates an anti-business environment.
D. Individualism advocates for a democratic political system.
In practical terms, individualism translates into an advocacy for
democratic political systems and market economics, which in general creates a more
favorable environment for international businesses to operate in.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
33.
Which of the following is a feature of a democracy?
A. Exercise of absolute control by one person or political party.
B. Governance by people or elected representatives.
C. Prohibition of entry to opposing political parties.
D. Complete restriction of individual political freedom.
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Democracy refers to a political system in which government is by the
people, exercised either directly or through elected representatives.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Different Forms of Government
34.
Totalitarianism:
A. refers to a political system in which government is by the people, exercised either directly or
through elected representatives.
B. is based on a belief that citizens should be directly involved in decision making.
C. is a form of government in which one person or political party exercises absolute
control over all spheres of human life.
D. is based on the idea that the welfare of society is best served by letting people pursue their own
economic self-interests.
Totalitarianism is a form of government in which one person or political
party exercises absolute control over all spheres of human life and prohibits opposing
political parties.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
35.
Peoples' right to protest on issues of accountability in public expenditure would be possible in a
_____ political set-up.
A. dictatorial
B. democratic
C. totalitarian
D. fascist
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In a representative democracy, citizens periodically elect individuals
to represent them. These elected representatives then form a government, whose
function is to make decisions on behalf of the electorate. In a representative
democracy, elected representatives who fail to perform this job adequately will be
voted out of office at the next election. To guarantee that elected representatives can
be held accountable for their actions by the electorate, an ideal representative
democracy has a number of safeguards that are typically enshrined in constitutional
law.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
36.
_____ refers to a state where political power is monopolized by a party, group, or
individual that governs according to religious principles.
A. Representative democracy
B. Theocratic totalitarianism
C. Tribal anarchism
D. Monotheistic communism
Theocratic totalitarianism is found in states where political power is
monopolized by a party, group, or individual that governs according to religious
principles. The most common form of theocratic totalitarianism is based on Islam and is
exemplified by states such as Iran and Saudi Arabia.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Different Forms of Government
37.
Which system of government generally permits some individual economic freedom
but restricts individual political freedom, frequently on the grounds that it would lead
to the rise of communism?
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A. Tribal totalitarianism
B. Right-wing totalitarianism
C. Democratic totalitarianism
D. Theocratic totalitarianism
Right-wing totalitarianism generally permits some individual economic
freedom but restricts individual political freedom, frequently on the grounds that it
would lead to the rise of communism. A common feature of many right-wing
dictatorships is an overt hostility to socialist or communist ideas.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable:
automatic Learning Objective: 02-01 Understand how the political
systems of countries differ. Topic: Different Forms of Government
38.
In a pure market economy:
A. all productive activities are owned by the state.
B. production is determined by the interaction of supply and demand.
C. collectivist goals are given priority over individual goals.
D. the prices at which goods are sold is determined by the government.
In the archetypal pure market economy, all productive activities are
privately owned, as opposed to being owned by the state. The goods and services that a
country produces are not planned by anyone.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
39.
An economy in which the interaction of supply and demand determines the quantity in which goods
and services are produced is called a _____.
A. planned economy
B. command economy
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C. closed economy
D. market economy
In the archetypal pure market economy, all productive activities are
privately owned, as opposed to being owned by the state. Production is determined by the
interaction of supply and demand and signaled to producers through the price system.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
40.
Antitrust laws in the United States are designed to:
A. restrict agricultural subsidies.
B. increase trade barriers.
C. outlaw monopolies.
D. restrict privatization.
Given the dangers inherent in monopoly, the role of government in a
market economy is to encourage vigorous free and fair competition between private
producers. Governments do this by outlawing restrictive business practices designed to
monopolize a market (antitrust laws serve this function in the United States).
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Laws Affecting International Business
41.
In a(n) _____ economy the government plans the goods and services that a country produces, the quantity in
which they are produced, and the prices at which they are sold.
A. market
B. command
C. open economy
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D. laissez-faire
In a pure command economy, the government plans the goods and
services that a country produces, the quantity in which they are produced, and the
prices at which they are sold.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
42.
In a _____ economy, certain sectors of the economy are left to private ownership and free market mechanisms
while other sectors have significant state ownership and government planning.
A. market
B. private
C. command
D. mixed
In a mixed economy, certain sectors of the economy are left to private
ownership and free market mechanisms while other sectors have significant state ownership
and government planning.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
43.
In which of the following economies would the government be most likely to take into state ownership troubled
firms whose continued operation is thought to be vital to national interests?
A. Market economies
B. Laissez-faire economies
C. Liberal economies
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D. Mixed economies
In mixed economies, governments also tend to take into state ownership
troubled firms whose continued operation is thought to be vital to national interests.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
44.
Which of the following statements about the legal systems of countries is true?
A. They can affect the attractiveness of a country as an investment site or market.
B. They are not influenced by the prevailing political system of the country.
C. They are almost the same for all countries.
D. They are of little importance to international business.
The legal system of a country refers to the rules, or laws, that regulate
behavior along with the processes by which the laws are enforced and through which
redress for grievances is obtained.
The legal environments of countries differ in significant ways.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Differences in Legal Systems
45.
One key components of a country's legal system is:
A. establishing a mixed economy.
B. taking a hands-off approach to business practices.
C. defining the rights and obligations of those involved in business transactions.
D. leaving the monitoring of the way business transactions are executed to the United Nations.
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A country's laws regulate business practice, define the manner in which
business tractions are to be executed, and set down the rights and obligations of those
involved in business transactions. Establishing a mixed economy would be part of a
country's economic system, not its legal system.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Differences in Legal Systems
46.
Under the _____, cases are judged with reference to three characteristics: tradition,
precedent, and custom.
A. theocratic law system
B. civil law system
C. contract law system
D. common law system
Common law is based on tradition, precedent, and custom.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
47.
A civil law system tends to be less adversarial than a common law system because
the:
A. judges' decisions are based on detailed legal codes.
B. judges have the freedom to interpret laws based on the situation.
C. judges' decisions are based on religious teachings.
D. judges are guided by interpretations made in prior legal cases.
A civil law system tends to be less adversarial than a common law
system, because the judges rely upon detailed legal codes rather than interpreting
tradition, precedent, and custom.
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AACSB: Analytical Thinking
Blooms:
Apply Difficulty: 2
Medium
Gradable:
automatic
Learning
Objective:
02-03
Understand
how
the legal systems
of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
48.
A common law system is different from a civil law system because:
A. a common law system is based on religious teachings, while a civil law system is
based on cultural traditions.
B. a common law system is very rigid, while a civil law system tends to be more
flexible.
C. in a common law system a judge relies on legal codes to make rulings, while in a
civil law system a judge relies on his intuition and moral reasoning to make
judgments.
D. in a common law system a judge has the power to interpret the law, while
in a civil law system a judge has the power only to apply the law.
Judges in a common law system have the power to interpret the law,
whereas judges in a civil law system have the power only to apply the law.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Accessibility: Keyboard Navigation
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Topic: Civil Law, Common Law, and Theocratic
Law
49.
A _____ system is based on a very detailed set of laws organized into codes.
A. traditional law
B. theocratic law
C. civil law
D. common law
A civil law system is based on a detailed set of laws organized into
codes. When law courts interpret civil law, they do so with regard to these codes.
AACSB: Knowledge
Application Accessibility:
Keyboard Navigation Blooms:
Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
50.
A theocratic law system is one in which the law is based on:
A. religious teachings.
B. tradition, precedent, and custom.
C. a detailed set of laws organized into codes.
D. cultural and social norms.
A theocratic law system is one in which the law is based on religious
teachings.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
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Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
51.
Which of the following is the most widely practiced theocratic legal system in the
world today?
A. Hindu law
B. Sikh law
C. Islamic law
D. Jewish law
A theocratic law system is one in which the law is based on religious
teachings. Islamic law is the most widely practiced theocratic system in the modern
world, although usage of both Hindu and Jewish law persisted into the twentieth
century.
AACSB: Knowledge Application
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
52.
_____ is the collective term for the legal rights relating to the use to which a resource
is put and over the use made of any income that may be derived from that resource.
A. Trade rights
B. Property rights
C. Positive rights
D. Common rights
Accessibility: Keyboard Navigation
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Property rights refer to the legal rights over the use to which a
resource is put and over the use made of any income that may be derived from that
resource.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
53.
In Russia, in the chaotic period following the collapse of communism, an outdated
legal system, coupled with a weak police force and judicial system, allowed the
Russian Mafia to demand "protection money" from business owners. Any business
owner who rebelled had to face violent retribution. This violation of property rights
exemplifies _____.
A. private action
B. copyright violation
C. infrastructural failure D. public liability
Private action refers to theft, piracy, blackmail, and the like by private
individuals or groups. Although theft occurs in all countries, a weak legal system
allows for a much higher level of criminal action in some than in others.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
54.
Violation of property rights done through legal mechanisms such as levying excessive
taxation and requiring expensive licenses or permits from property holders is called
_____.
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A. private action
B. collective action
C. public action
D. copyright violation
Public action to violate property rights occurs when public officials,
such as politicians and government bureaucrats, extort income, resources, or the
property itself from property holders.
AACSB: Knowledge Application
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
55.
Which of the following areas of international trade is regulated by the Foreign Corrupt
Practices Act?
A. Making and performance of commercial contracts in international trade.
B. Preventing bribery and unethical acts in the conduct of international
business.
C. Establishing a set of safety standards to which a new product must adhere.
D. Controlling the mafia activity that hinders trade in Russia, Japan, and the U.S.
In the 1970s, the United States passed the Foreign Corrupt Practices
Act. This law makes it illegal to bribe a foreign government official to obtain or
maintain business over which that foreign official has authority.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Accessibility: Keyboard Navigation
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Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Laws Affecting International Business
56.
Which of the following is an example of intellectual property?
A. A music score
B. A lazer-tag game
C. A software business
D. A theater
Intellectual property refers to property that is the product of
intellectual activity, such as computer software, a screenplay, a music score, or the
chemical formula for a new drug.
AACSB: Analytical
Thinking Accessibility:
Keyboard Navigation
2-48
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Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
57.
A _____ grants the inventor of a new product or process exclusive rights for a defined
period of time to the manufacture, use, or sale of that invention.
A. copyright
B. trademark
C. contract
D. patent
A patent grants the inventor of a new product or process exclusive
rights for a defined period to the manufacture, use, or sale of that invention.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
58.
Design and names by which merchants or manufacturers designate and differentiate
their products are known as _____.
A. trademarks
B. copyrights
C. patents
D. licenses
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Trademarks are designs and names, often officially registered, by
which merchants or manufacturers designate and differentiate their products (e.g.,
Christian Dior clothes).
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
59.
The Research and Development division of a company has recently designed a new
coffee vending machine that is likely to sell very well in the market. It is compact,
user-friendly, and provides unprecedented efficiency in terms of cost per cup.
Consequently, the company fears that its competitors would soon mimic the design of
their product and to protect its product, it is now seeking a _____.
A. copyright
B. patent
C. trademark
D. certification
A patent grants the inventor of a new product or process exclusive
rights for a defined period to the manufacture, use, or sale of that invention.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
60.
Which of the following provides exclusive legal rights to authors, composers,
playwrights, artists, and publishers to publish and disperse their work as they see fit?
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A. Patent
B. Copyright
C. Trademark
D. License
Copyrights are the exclusive legal rights of authors, composers,
playwrights, artists, and publishers to publish and disperse their work as they see fit.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
61.
The TRIPS agreement was designed to:
A. exclude China from all intellectual property agreements.
B. oversee a much stricter enforcement of intellectual property regulations.
C. hold a firm and its officers responsible when a product causes injury, death, or
damage.
D. support traded software and recorded property among developed markets.
Under the new agreement, known as the Trade Related Aspects of
Intellectual Property Rights (or TRIPS), as of 1995 a council of the World Trade
Organization is overseeing enforcement of much stricter intellectual property
regulations.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
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62.
Which of the following statements about the Trade Related Aspects of Intellectual
Property Rights (or TRIPS) agreement is true?
A. It was designed to oversee the loosening of intellectual property regulations,
beginning in 1995.
B. It obliged WTO members to grant and enforce patents lasting at least 20
years and copyrights lasting 50 years.
C. It directed rich countries to comply with its rules of intellectual property protection
within five years.
D. It provided the very poorest countries amnesty from complying with its rules of
intellectual property protection.
Under the new agreement, known as the Trade Related Aspects of
Intellectual Property Rights (or TRIPS), as of 1995 a council of the World Trade
Organization is overseeing enforcement of much stricter intellectual property
regulations. These regulations oblige WTO members to grant and enforce patents
lasting at least 20 years and copyrights lasting 50 years. Rich countries had to comply
with the rules within a year. Poor countries, in which such protection generally was
much weaker, had five years of grace, and the very poorest have 10 years.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
63.
Safety standards to which a product must adhere are set by:
A. safety certifications.
B. contract laws.
C. product safety laws.
D. product liability laws.
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Product safety laws set certain safety standards to which a product
must adhere.
Product liability involves holding a firm and its officers responsible
when a product causes injury, death, or damage.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Product Liability
64.
Private action refers to:
A. public officials extorting income, resources, or the property itself from property
holders.
B. bribing government officials in foreign countries in an attempt to win lucrative
contracts.
C. theft, piracy, blackmail, and the like by private individuals or groups.
D. violations of intellectual property rights.
Private action refers to theft, piracy, blackmail, and the like by private
individuals or groups. Although theft occurs in all countries, a weak legal system
allows for a much higher level of criminal action in some than in others.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Civil Law,
Common Law, and Theocratic Law
65.
Which of the following is a safeguard that representative democracies use to ensure
that their elected officials are held responsible for their actions?
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A. Unlimited terms for elected representatives
B. A court system that is integrated with the political system
C. An individual's right to freedom of expression, opinion, and organization
D. A political police force and armed service
To guarantee that elected representatives are being held accountable
for their actions by the electorate, an ideal representative democracy incorporates
safeguards that are enshrined in constitutional law. These safeguards include an
individual's right to freedom of expression, opinion, and organization; a free media;
regular elections in which all eligible citizens are allowed to vote; universal adult
suffrage; limited terms for elected representatives; a fair court system that is separate
for the political system; a nonpolitical state bureaucracy; a nonpolitical police force
and armed service; and relatively free access to state information.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic: Different
Forms of Government
66.
The _____ establishes a uniform set of rules governing certain aspects of the making
and performance of everyday commercial contracts between sellers and buyers who
have their places of business in different nations.
A. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
B. Paris Convention for the Protection of Industrial Property
C. United Nations Convention on Contracts for the International Sale of
Goods (CIGS)
D. World Trade Organization (WTO)
When contract disputes arise in international trade, there is always
the question of which country's laws to apply. To resolve this issue, a number of
countries, including the United States, have ratified the United Nations Convention on
Contracts for the International Sale of Goods (CIGS). The CIGS establishes a uniform
set of rules governing certain aspects of the making and performance of everyday
commercial contracts between sellers and buyers who have their places of business in
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different nations. By adopting the CIGS, a nation signals to other adopters that it will
treat the convention's rules as part of its law. The CIGS applies automatically to all
contracts for the sale of goods between different firms based in countries that have
ratified the convention, unless the parties to the contract explicitly opt out.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Laws
Affecting International Business
67.
The _____ makes it illegal for American companies to bribe a foreign government
official in order to obtain or maintain business over which that foreign official has
authority, and requires all publicly traded companies to keep detailed records that
would allow determining whether a violation of the act has occurred.
A. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
B. Foreign Corrupt Practices Act
C. Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions
D. Organisation for Economic Co-operation and Development (OECD)
The Foreign Corrupt Practices Act was passed during the 1970s by the
United States. The Law makes it illegal for American companies to bribe a foreign
government official in order to obtain or maintain business over which that foreign
official has authority, and requires all publicly traded companies to keep detailed
records that would allow determining whether a violation of the act has occurred.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Laws
Affecting International Business
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68.
Which of the following is a reason that command economies tend to
stagnate?
A. Costs are tightly controlled and business are forced to be efficient rather than
dynamic and innovative.
B. The abolition of private ownership means there is no incentive for
individuals to look for better ways to serve consumer needs.
C. All economic resources are mobilized for the public good.
D. Individuals in command economy countries lack the skills to be innovative.
The objective of a command economy is to mobilize economic
resources for the public good, however the opposite usually occurs. In a command
economy, state-owned enterprises have little incentive to control costs and be
efficient, because they cannot go out of business. Also, the abolition of private
ownership means there is no incentive for individuals to look for better ways to serve
consumer needs; hence, dynamism and innovation are absent from command
economies.
Instead of growing and becoming more prosperous, such economies
tend to stagnate.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ. Topic:
Differences in Economic Systems
69.
Which of the following is true of criminal liability laws?
A. Calls for the payment of monetary damages
B. They are more extensive in Western Europe than in any other region of the world
C. Results in fines or imprisonment
D. They are less impactful if the product does not conform to the required safety
standards
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Product liability involves holding a firm and its officers responsible
when a product causes injury, death, or damage. Product liability can be much greater
if a product does not conform to required safety standards. Both civil and criminal
product liability laws exist. Civil laws call for payment and monetary damages.
Criminal liability laws result in fines or imprisonment. Both civil and criminal liability
laws are probably more extensive in the United States than in any other country,
although many other Western nations also have comprehensive liability laws. Liability
laws are typically least extensive in less developed nations.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic: Product
Liability
70.
_____ are established through patents, copyrights, and trademarks.
A. Digital signatures
B. Ownership rights over private property
C. Origination fees and tributes
D. Ownership rights over intellectual property
Ownership rights over intellectual property are established through
patents, copyrights, and trademarks. A patent grants the inventor of a new product or
process exclusive rights for a defined period to the manufacture, use, or sale of that
invention. Copyrights are the exclusive legal rights of authors, composers,
playwrights, artists, and publishers to publish and disperse their work as they see fit.
Trademarks are designs and names by which merchants or manufacturers designate
and differentiate their products.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
2-57
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Topic: Property Rights and Intellectual Property
Rights
71.
Systems that emphasize collectivism tend toward _____.
A. totalitarianism
B. capitalism
C. democracy
D. privatization
Systems that emphasize collectivism tend toward totalitarian,
whereas those that place a high value on individualism tend to be democratic.
However, a large gray area exists in the middle. It is possible to have democratic
societies that emphasize a mix of collectivism and individualism.
Similarly, it is possible to have totalitarian societies that are not
collectivist.
AACSB:
Thinking
Analytical
Accessibility:
Keyboard Navigation Blooms:
Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
72.
In a(n) _____ society, the welfare of society is best served by letting people pursue
their own economic self-interest.
A. individualist
B. capitalist
C. democratic
D. totalitarian
Individualism refers to a philosophy that an individual should have
freedom in his or her economic and political pursuits. In contrast to collectivism,
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individualism stresses that the interests of the individual should take precedence over
the interests of the state.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic: Different
Forms of Government
73.
_____ argued that individual diversity and private ownership are undesirable.
A. Karl Marx
B. Plato
C. John Stuart Smith
D. Aristotle
Aristotle argued that individual diversity and private ownership are
desirable. According to Aristotle, communal property receives little care, whereas
property that is owned by an individual will receive the greatest care and therefore be
most productive.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
74.
_____ generally permits some individual economic freedom but restricts individual
political freedom, frequently on the grounds that it would lead to the rise of
communism.
A. Communist totalitarianism
B. Theoretical totalitarianism
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C. Right-wing totalitarianism
D. Tribal totalitarianism
Right-wing totalitarianism generally permits some individual economic
freedom but restricts individual political freedom, frequently on the grounds that it
would lead to the rise of communism. A common feature of many right-wing
dictatorships is an overt hostility to socialist or communist ideas.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1
Easy Gradable:
automatic
Learning
Objective: 02-01
Understand how
the political
systems of
countries differ.
Topic: Differences in Political Systems
75.
In a _____, if demand for a product exceeds supply, prices will rise, signaling to
producers to produce more.
A. mixed economy
B. market economy
C. collectivist economy
D. command economy
In a market economy, if demand for a product exceeds supply, prices
will rise, signaling producers to produce more. If supply exceeds demand, prices will
fall, signaling producers to produce less. In this system consumers are sovereign.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
2-60
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Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ. Topic:
Differences in Economic Systems
76.
The abolition of _____ in a command economy means there is no incentive for
individuals to look for better ways to serve consumer needs.
A. private ownership
B. public ownership
C. government-owned businesses
D. co-operatives
In a command economy, state-owned enterprises have little incentive
to control costs and be efficient, because they cannot go out of business. Also, the
abolition of private ownership means there is no incentive for individuals to look for
better ways to serve consumer needs; hence, dynamism and innovation are absent
from command economies.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
77.
In common law, _____ refers to cases that have come before the courts
in the past.
A. custom
B. precedent
C. codification
D. tradition
Common law is based on tradition, precedent, and custom. Tradition
refers to a country's legal history, precedent to cases that have come before the
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courts in the past, and custom to the ways in which laws are applied in specific
situations. When law courts interpret common law, they do so with regard to these
characteristics.
AACSB: Knowledge Application
Accessibility: Keyboard
Navigation
Blooms:
Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
78.
Judges in a(n) _____ have the power to interpret the law so that it applies to the unique
circumstances of an individual case.
A. civil law system
B. international law system
C. common law system
D. theocratic law system
Common law is based on tradition, precedent, and custom. Judges in a common law
system have the power to interpret the law so that it applies to the unique
circumstances of an individual case.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
79.
The most widely practiced theocratic legal system in the world today.
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A. Christian
B. Hindu
C. Jewish
D. Islamic
Islamic law is the most widely practiced theocratic system in the
modern world, although usage of both Hindu and Jewish law persisted into the
twentieth century.
AACSB: Knowledge Application
Accessibility: Keyboard
Navigation
Blooms:
Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
80.
The legal rights over the use to which a resource is put and over the use made of any
income that may be derived from that resource.
A. Property rights
B. Public action
C. Intellectual rights
D. Private action
Property rights refer to the legal rights over the use to which a
resource is put and over the use made of any income that may be derived from that
resource.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
2-63
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Gradable: automatic Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
81.
In the 1970s, the United States _____ which requires all publicly traded companies,
whether or not they are involved in international trade, to keep detailed records that
would reveal whether a violation of the act has occurred.
A. adopted the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions policy
B. passed the Foreign Corrupt Practices Act
C. joined Transparency International
D. joined the Organisation for Economic Co- operation and Development (OECD )
The Foreign Corrupt Practices Act requires all publicly traded
companies (whether or not they are involved in international trade) to keep detailed
records that would reveal whether a violation of the act has occurred.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Laws Affecting International Business
82.
The _____ associated with doing business in a country are a function of that country's
political, economic, and legal systems.
A. ethical considerations
B. profitability
C. simplicity and ease
D. benefits, costs, and risks
The political, economic, and legal environments of a country clearly
influence the attractiveness of that country as a market or investment site. The
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benefits, costs, and risks associated with doing business in a country are a function of
that country's political, economic, and legal systems.
AACSB: Knowledge
Application Accessibility:
Keyboard Navigation Blooms:
Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-04 Explain the implications for
management practice of national differences in political economy.
Topic: Country Risk Produced by Legal Systems
83.
When _____ is emphasized, an individual's right to do something may be restricted on
the grounds that it runs counter to "the good of society."
A. individualism
B. totalitarianism
C. collectivism
D. theocracy
When collectivism is emphasized, the needs of society as a whole are
generally viewed as being more important than individual freedoms. In such
circumstances, an individual's right to do something may be restricted on the grounds
that it runs counter to "the good of society" or to "the common good."
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
84. Plato _____; he believed that society should be stratified into classes,
with those best suited to rule.
A. equated individualism with equality
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B. equated collectivism with equality
C. promoted representative democracy
D. did not equate collectivism with equality
Advocacy of collectivism can be traced to the ancient Greek
philosopher Plato. Plato did not equate collectivism with equality; he believed that
society should be stratified into classes, with those best suited to rule (which for Plato,
naturally, were philosophers and soldiers) administering society for the benefit of all.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
85.
The _____ believed that socialism could be achieved only through violent revolution
and totalitarian dictatorship.
A. socialists
B. communists
C. collectivists
D. social democrats
The communists believed that socialism could be achieved only
through violent revolution and totalitarian dictatorship, whereas the social democrats
committed themselves to achieving socialism by democratic means, turning their
backs on violent revolution and dictatorship.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1
Easy Gradable:
automatic
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Learning
Objective: 02-01
Understand how
the political
systems of
countries differ.
Topic: Differences in Political Systems
86.
Modern socialists trace their intellectual roots to _____, although socialist thought
clearly predates
this individual.
A. David Hume
B. Karl Marx
C. Adam Smith
D. John Stuart Mill
Modern socialists trace their intellectual roots to Karl Marx (18181883), although socialist thought clearly predates Marx (elements of it can be traced
to Plato).
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
87.
A law system that is based on a detailed set of laws organized into codes.
A. Theocratic
B. Contract
C. Civil
D. Common
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A civil law system is based on a detailed set of laws organized into
codes. When law courts interpret civil law, they do so with regard to these codes.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
D
ifficulty: 2 Medium
Gradable:
automatic Learning
Objective: 02-03
Understand how
the legal systems
of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
88.
The term _____ stresses that the political, economic, and legal systems of a country
are interdependent.
A. political economy
B. common law
C. socialism
D. collectivism
The term political economy stresses that the political, economic, and
legal systems of a country are interdependent; they interact and influence each other,
and in doing so, they affect the level of economic well-being.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
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89.
Who was the author of The Wealth of Nations in which it is stated that an individual
who intends his own gain is led by an invisible hand to promote an end that was not
part of his intention?
A. David Hume
B. Adam Smith
C. Karl Marx
D. John Stuart Mill
The second tenet of individualism is that the welfare of society is best
served by letting people pursue their own economic self-interest, as opposed to some
collective body (such as government) dictating what is in society's best interest. Or,
as Adam Smith put it in a famous passage from The Wealth of Nations, an individual
who intends his own gain is led by an invisible hand to promote an end that was no
part of his intention.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
90.
_____ occurs when a political party that represents the interests of a particular tribe
(and not always the majority tribe) monopolizes power.
A. Tribal dictatorship
B. Communist totalitarianism
C. Tribal totalitarianism
D. Privatization
Tribal totalitarianism has arisen from time to time in African countries
such as Zimbabwe, Tanzania, Uganda, and Kenya. The borders of most African states
reflect the administrative boundaries drawn by the old European colonial powers
rather than tribal realities. Consequently, the typical African country contains a
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number of tribes (e.g., in Kenya there are more than 40 tribes). Tribal totalitarianism
occurs when a political party that represents the interests of a particular tribe (and not
always the majority tribe) monopolizes power.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ. Topic: Different
Forms of Government
91.
The term used to describe a state in which authoritarian elements have captured
some or much of the machinery of state and use this in an attempt to deny basic
political and civil liberties.
A. Authoritarian dictatorship
B. Right-wing democracies
C. Representative totalitarianism
D. Pseudo-democracies
Many of the world's nations are neither pure democracies nor iron-clad
totalitarian states. Rather they lie between pure democracies and complete
totalitarian systems of government. They might be described as imperfect or pseudodemocracies, where authoritarian elements have captured some or much of the
machinery of state and use this in an attempt to deny basic political and civil liberties.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Different Forms of Government
92.
In response to increased demand, what is a monopolist likely to do?
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A. Restrict output to drive prices down.
B. Increase output to drive prices down.
C. Restrict output and let prices rise.
D. Increase output and let prices rise.
A supply restriction occurs when a single firm monopolizes a market.
In such circumstances, rather than increase output in response to increased demand,
a monopolist might restrict output and let prices rise. This allows the monopolist to
take a greater profit margin on each unit it sells.
AACSB: Reflective Thinking
Accessibility: Keyboard
Navigation
Blooms:
Apply
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
93.
In 2008, the U.S. government took an 80 percent stake in AIG to stop that financial
institution from collapsing, the theory being that if AIG did collapse, it would have very
serious consequences for the entire financial system. What type of economy is this an
example of?
A. Command
B. Mixed
C. Capitalistic
D. Market
In mixed economies, governments tend to take into state ownership
troubled firms whose continued operation is thought to be vital to national interests.
For example, in 2008 the U.S. government took an 80 percent stake in AIG to stop that
financial institution from collapsing, the theory being that if AIG did collapse, it would
have very serious consequences for the entire financial system.
2-71
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AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-02
Understand how the economic systems of countries differ. Topic:
Differences in Economic Systems
94.
Although many countries have stringent intellectual property regulations on their
books, the enforcement of these regulations has often been lax. This has been the
case even among many of the 185 countries that are now members of the _____, all of
which have signed international treaties designed to protect intellectual property.
A. World Intellectual Property Organization
B. General Agreement on Tariffs and Trade
C. Business Software Alliance
D. Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Although many countries have stringent intellectual property
regulations on their books, the enforcement of these regulations has often been lax.
This has been the case even among many of the 185 countries that are now members
of the World Intellectual Property Organization, all of which have signed international
treaties designed to protect intellectual property, including the oldest such treaty, the
Paris Convention for the Protection of Industrial Property, which dates to 1883 and
has been signed by more than 170 nations.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Property Rights and Intellectual Property
Rights
Essay Questions
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95. Why did Karl Marx criticize capitalism? Describe how he planned to
correct those shortcomings.
Modern socialists trace their intellectual roots to Karl Marx. Marx
argued that the few benefit at the expense of the many in a capitalist society where
individual freedoms are not restricted. While successful capitalists accumulate
considerable wealth, Marx postulated that the wages earned by the majority of
workers in a capitalist society would be forced down to subsistence levels. He argued
that capitalists expropriate for their own use the value created by workers, while
paying workers only subsistence wages in return. According to Marx, the pay of
workers does not reflect the full value of their labor. To correct this perceived wrong,
Marx advocated state ownership of the basic means of production, distribution, and
exchange (i.e., businesses). His logic was that if the state owned the means of
production, the state could ensure that workers were fully compensated for their
labor. Thus, the idea is to manage state-owned enterprise to benefit society as a
whole, rather than individual capitalists.
AACSB: Reflective Thinking
Blooms: Evaluate
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
96.
Discuss collectivism. What ideals does the philosophy support? Where did the
philosophy start?
How does collectivism exist in the modern world?
A
collectivist political system is one that stresses the primacy of collective goals over
individual goals. In that sense, the needs of the society as a whole are viewed as
being more important than individual freedoms. Collectivism can trace its roots to the
ancient Greek philosopher Plato who suggested that individual rights be sacrificed for
the good of the majority. Today, collectivism is reflected in the socialist movement
started by Karl Marx who argued that the few benefit at the expense of the many in a
capitalist society where individual freedoms are not restricted. Marx advocated state
ownership of the basic means of production, distribution, and exchange.
2-73
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Supporters of Marx's ideals were divided into two camps in the early
th
20 century: communists, who believed that socialism could only be achieved through
violent revolution and totalitarian dictatorship; and social democrats, who committed
themselves to achieving socialism by democratic means. Today, both versions of
socialism are losing followers.
AACSB: Analytical Thinking
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
97.
What are state-owned companies? Why do they usually perform poorly?
A
state-owned company is a company that is owned by a nation's government. After
World War II, many social democratic governments nationalized private companies
that were to be run for the public good rather than private profit. Great Britain, for
example, nationalized so many companies that by the end of the 1970s, state-owned
monopolies existed in telecommunications, electricity, gas, coal, and several other
industries. However, because state-run companies such as the ones that existed in
Great Britain are protected from competition by their monopoly position and
guaranteed financial support, they become inefficient.
AACSB: Analytical
Thinking
Blooms:
Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Different Forms of Government
98.
Discuss individualism. Explain the key positions of the philosophy, it roots, and its role
in the modern economy.
2-74
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Individualism refers to a philosophy that an individual should have
freedom in his/her economic and political pursuits. Accordingly, the philosophy
stresses that the interests of the individual should take precedence over the interests
of the state. Individualism can be traced to the ancient Greek philosopher Aristotle
who argued that individual diversity and private ownership are desirable. Aristotle's
philosophy was refined by David Hume, Adam Smith, and John Stuart Mill in the 1700s
and 1800s, and more recently by Milton Friedman, Friedrich von Hayek, and James
Buchanan. Today, individualism translates into an advocacy for democratic political
systems and free market economies.
AACSB: Analytical Thinking
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Differences in Political Systems
99.
Compare and contrast a pure democracy and a representative democracy. Which type
of democracy is more common today? Why?
The pure form of democracy is based on a belief that citizens should
be directly involved in decision making. In contrast, in a representative democracy,
citizens periodically elect individuals to represent them. The elected individuals form a
government and make decisions on behalf of the electorate. Because a pure
democracy is impractical in advanced societies with tens or hundreds of millions of
people, representative democracies are far more common in today's world.
AACSB: Analytical
Thinking
Blooms:
Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ.
Topic: Different Forms of Government
2-75
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100. Compare and contrast the four forms of totalitarianism.
In a totalitarian country, an individual's right to freedom of expression
and organization, a free media, and regular elections are denied to the citizens. There
are four forms of totalitarianism. Communist totalitarianism was until recently the
most widespread form of totalitarianism. This form of totalitarianism advocates that
socialism can only be achieved through totalitarian dictatorship. Theocratic
totalitarianism is found in states where political power is monopolized by a party,
group, or individual that governs according to religious principles. Tribal totalitarianism
occurs when a political party that represents the interests of a particular tribe
monopolizes power. Right-wing totalitarianism permits some individual economic
freedoms but restricts individual political freedom.
AACSB: Analytical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-01
Understand how the political systems of countries differ. Topic:
Differences in Political Systems
101.
Identify the three types of economic systems. How do these three types of economic
systems differ from each other? How are they the same?
In a pure market economy, all productive activities are privately
owned. Production is determined by supply and demand, and signaled to producers
through the price system. The role of the government in a pure market economy is to
encourage vigorous free and fair competition between private producers. In a
command economy, the goods and services that a country produces, the quantity in
which they are produced, and the prices at which they are sold are all planned by the
government. The government's role is to allocate resources for the good of the
society. In addition, all businesses are state owned. A mixed economy is a combination
of the other economic systems in which certain sectors of the economy are left to
private ownership and free market mechanisms, while other sectors have significant
state ownership and government planning.
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AACSB: Analytical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
102.
Discuss why there is inefficiency in a monopoly situation. What is the role of the
government in such a situation?
In a monopoly situation, a firm has no competitors, and therefore it
has no incentive to search for ways to lower production costs. Rather, cost increases
are simply passed on to consumers in the form of higher prices. The net result is that
the monopolist is likely to become increasingly inefficient, producing high-priced, lowquality goods. Given the dangers inherent in monopoly, the role of government in a
market economy is to encourage vigorous free and fair competition between private
producers. Governments do this by outlawing restrictive business practices designed
to monopolize a market (antitrust laws serve this function in the United States).
AACSB: Knowledge Application
Blooms: Apply
D
ifficulty: 3 Hard
Gradable: manual
Learning Objective:
02-02 Understand
how the economic
systems of
countries differ.
Topic: Differences in Economic Systems
103. Discuss the effects of private ownership of production in a market
economy.
Private ownership encourages vigorous competition and economic
efficiency. Private ownership ensures that entrepreneurs have a right to the profits
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generated by their own efforts. This gives entrepreneurs an incentive to search for
better ways of serving consumer needs. That may be through introducing new
products, by developing more efficient production processes, by pursuing better
marketing and after-sale service, or simply through managing their businesses more
efficiently than their competitors. In turn, the constant improvement in product and
process that results from such an incentive has been argued to have a major positive
impact on economic growth and development.
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-02
Understand how the economic systems of countries differ.
Topic: Differences in Economic Systems
104. What is a country's legal system? Why is it important to international
businesses?
The legal system of a country refers to the rules, or laws, that regulate
behavior along with the processes by which laws are enforced through which redress
for grievances are obtained. It is critical that international companies understand a
country's legal system because the legal system regulates business practice, defines
the manner in which business transactions are to be executed, and sets down the
rights and obligations of those involved in business transactions.
AACSB: Analytical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-03
Understand how the legal systems of countries differ. Topic:
Differences in Legal Systems
105.
Explain the differences between common law and civil law systems by the approach of
each to contract law.
2-78
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Contracts drafted under a common law framework tend to be very
detailed with all contingencies spelled out. In contrast, contracts in a civil law system
tend to be much shorter and less specific because many of the issues typically
covered in a common law contract are already covered in civil law.
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-03
Understand how the legal systems of countries differ.
Topic: Civil Law, Common Law, and Theocratic
Law
106.
Discuss the ways in which public action to violate property rights can occur.
Public action to violate property rights occurs when public officials,
such as politicians and government bureaucrats, extort income, resources, or the
property itself from property holders. This can be done through legal mechanisms
such as levying excessive taxation, requiring expensive licenses or permits from
property holders, taking assets into state ownership without compensating the
owners, or redistributing assets without compensating the prior owners. It can also be
done through illegal means, or corruption, by demanding bribes from businesses in
return for the rights to operate in a country, industry, or location.
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-03 Understand how the
legal systems of countries differ. Topic: Property Rights and
Intellectual Property Rights
107. What are the factors that contribute to the attractiveness of a country
as a market or investment
site?
2-79
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The political, economic, and legal environments of a country clearly
influence the attractiveness of that country as a market or investment site. The
benefits, costs, and risks associated with doing business in a country are a function of
that country's political, economic, and legal systems. The overall attractiveness of a
country as a market or investment site depends on balancing the likely long-term
benefits of doing business in that country against the likely costs and risks.
AACSB: Analytical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Gradable: manual Learning Objective: 02-04 Explain the implications for
management practice of national differences in political economy.
Topic: Managing Political Risk and Differences
108.
Discuss the key factors that companies must be aware of before deciding to do
business in other countries.
The political, economic, and legal systems of a country raise
important issues that have implications for the practice of international business. For
example, what ethical implications are associated with doing business in totalitarian
countries where citizens are denied basic human rights, corruption is rampant, and
bribes are necessary to gain permission to do business? The other important factor is
that the benefits, costs, and risks associated with doing business in another country
are a function of that country's political economic, and legal systems. Companies
must balance the likely longterm benefits of doing business in that country against
likely costs and risks.
AACSB: Knowledge Application
Blooms: Apply
D
ifficulty: 3 Hard
Gradable: manual
2-80
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Test Bank for International Business Competing in the Global Marketplace 11th Edition by Hill IBSN 1259578119
Full Download: http://downloadlink.org/product/test-bank-for-international-business-competing-in-the-globalmarketplace-11th- ed
Learning Objective: 02-04 Explain the implications for management practice of national differences in political economy.
Topic: Country Risk Produced by Legal Systems
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2-92
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Full all chapters instant download please go to Solutions Manual, Test Bank site: downloadlink.org
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Chapter 3 international business
Business (Trường Đại học Kinh tế, Đại học Đà Nẵng)
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1.In a ____ economy certain sectors of the economy are left to
private ownership and free market mechanisms, while there is
significant state ownership and government planning in other
sectors.
(1/1 Điểm)
A) market
B) planned
C) mixed
D) state-directed
E) common
2.Which of the followings are important determinants of economic
development? (Multiple answers)
(1/1 Điểm)
A) Geography and education
B) Market economy
C) Culture and language
D) Language and education
3.Since 2001, the replacement term for GNP is:
(1/1 Điểm)
A) GRP, Gross Revenue product
B) GNI, Gross national Income
C) NEI, National Estimated Income
D) GDP, Gross Domestic Product
E) NDP, National Domestic product
4.Human Development Index is based on literacy rates, life
expectancy, and:
(1/1 Điểm)
A) average income based on PPP estimates.
B) per capita average income.
C) GNP.
D) CPI.
E) inflation rate.
5._______ is the removing of legal restrictions of markets, and the
establishment of private enterprises.
(1/1 Điểm)
A) Deregulation
B) Privatization
C) Planned economy
D) Communism
E) Command system
6.___________ transfers the ownership of state property into the
hands of individuals.
(1/1 Điểm)
A) Confiscation
B) Privatization
C) Deregulation
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D) Planned economy
E) Democratization
7.The privatization movement started in ____ in the early 1980s.
(0/1 Điểm)
A) Japan
B) Britain
C) India
D) China
E) The United states
8.A country's _______ are two factors that are reasonably good
predictors of a its future economic prospects.
(0/1 Điểm)
A) literacy rate and life expectancy rates
B) legal system and political system
C) inflation rate and unemployment rate
D) GNP and population rate
E) economic system and property rights regime
9.________ risk, is the likelihood that ________ forces will cause drastic
changes in a country’s business environment that will adversely
effect enterprises.
(0/1 Điểm)
A) Economic
B) Political
C) Social
D) Geographic
E) Regional
10.Other things being equal, a nation with
___________________________, democratic political institutions, and a
strong legal system that protects property rights and limits
corruption is a more attractive as a place in which to business than
countries without these factors.
(0/1 Điểm)
A) strong political parties
B) a market-based economic system
C) a well-established stock market
D) membership in international organizations
11.Purchasing power parity refers to:
(0/1 Điểm)
A) adjusting gross domestic product per capita to reflect differences in the cost of
living for each country.
B) the amount of annual income the average individual makes in each country.
C) the differences between individuals’ earnings within each country.
D) the total income each country produces.
12.An extensive 20-year study of the relationship between economic
growth and economic freedom (as provided by a market economy)
demonstrated ________________.
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(1/1 Điểm)
A) no significant correlation between the two
B) the more economic freedom, the more economic growth it achieved
C) despite more economic freedom, economic growth in fact decreased
D) the less economic freedom, the more economic growth it achieved
13.Many economies have transformed into market-based systems
due primarily to the fact that _____________________.
(1/1 Điểm)
A) in general, command and mixed economies have failed to deliver the kind of
sustained performance achieved by market-based systems
B) the WTO has endorsed and encouraged the growth of market-based systems
C) special interest groups, including the green movement and organized labor
have embraced this approach
D) the Internet and other new media have been instrumental in promoting this
kind of system
14.___________________ is defined as the likelihood that political forces
will cause drastic changes in a country’s business environment that
adversely affect the profit and goals of a business enterprise.
(0/1 Điểm)
A) Deregulation
B) Reregulation
C) Political risk
D) Legal risk
15.When considering the cost-benefit-risk trade-off in determining
the overall attractiveness of a country as a potential market or
investment site for an international business,
_____________________________.
(1/1 Điểm)
A) economic risk outweighs all others, including political and legal risks
B) the most favorable is likely to be the politically stable nations that have free
market systems and no upsurge in inflation rates or private sector debts
C) the most favorable is likely to be politically unstable developing nations that
operate with a mixed or command economy as long as the firm can create a firstmover advantage
D) the most favorable is likely to be a developed country, regardless of the
possibility of financial bubbles that have led to excessive borrowing, as they will
easily bounce back
16.Which of the following is not one of the three measures used to
calculate the Human Development Index developed by the UN based
on work of Amartya Sen?
(1/1 Điểm)
A) Life expectancy at birth
B) Quality of air and water
C) Educational attainment
D) Whether average incomes are sufficient to meet the basic needs of life
17.Without __________________________, businesses and individuals run
the risk that profits they might earn from their innovative ideas
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might be appropriated by the state, other companies, or criminal
elements.
(1/1 Điểm)
A) strong property rights protections
B) relief from taxation
C) access to low-cost capital
D) secure access to the Interne
18.Without __________________________, businesses and individuals run
the risk that profits they might earn from their innovative ideas
might be appropriated by the state, other companies, or criminal
elements.
(1/1 Điểm)
A) strong property rights protections
B) relief from taxation
C) access to low-cost capital
D) secure access to the Interne
19. Generally, the long-term monetary benefits of doing business in
a country are a function of the size of the market, the present
purchasing power of consumers in that market, and
__________________.
(1/1 Điểm)
A) the likely future wealth of consumers
B) the average age and demographic profile of its citizens
C) the state of existing international competition
D) the availability of natural resources
20.The likelihood that economic mismanagement will cause drastic
changes in a country's business environment that hurt the profit and
other goals of a particular business enterprise is an example of:
(0/1 Điểm)
A) legal risk.
B) political risk.
C) economic risk.
D) fiscal risk.
21.Political risk
(0/1 Điểm)
A) is the likelihood that economic mismanagement will cause drastic changes in a
country's business environment that hurt the profit and goals of a particular business
enterprise.
B) is the likelihood that political forces will cause drastic changes in country's
business environment that adversely affect the profit and goals of a business
enterprise.
C) is the likelihood that a trading partner will opportunistically break a contract or
expropriate property rights.
D) is the likelihood that commercial mismanagement will cause drastic changes in
a country's business environment that will negatively affect the profit and goals of a
particular business enterprise.
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International Business testbank chapter 4
International Business (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)
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Chapter 04 Differences in Culture Answer Key
True / False Questions
1.
In today's world of global communications, rapid transportation, and global markets,
cultural differences have ceased to exist.
FALSE
In these days of global communications, rapid transportation, worldwide markets,
and global brands, when the era of the global village seems just around the corner, it
is easy to forget just how different various cultures really are. Underneath the veneer
of modernism, deep cultural differences often remain.
2.
Culture is not static.
TRUE
Culture is not static. It can and does evolve, although the rate at which culture can
change is the subject of some dispute.
3.
Norms are abstract ideas about what a group believes to be good, right, and
desirable.
FALSE
Norms refer to the social rules and guidelines that prescribe appropriate behavior in
particular situations.
4.
The term society is another name for a country; each country has a single society.
FALSE
The term society refers to a group of people who share a common set of values and
norms. While a society may be equivalent to a country, some countries harbor
several societies (i.e., they support multiple cultures), and some societies embrace
more than one country.
5.
A country is defined as a system of values and norms that are shared among a group
of people and that when taken together constitute a design for living.
FALSE
Culture is viewed as a system of values and norms that are shared among a group of
people and that when taken together constitute a design for living.
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6.
Folkways include rituals and symbolic behavior.
TRUE
Folkways include rituals and symbolic behavior. Rituals and symbols are the most
visible manifestations of a culture and constitute the outward expression of deeper
values.
7.
Upon meeting a foreign business executive, a Japanese executive will hold his
business card in both hands and bow while presenting the card to the foreigner. This
is an example of ritual behavior.
TRUE
Rituals and symbols are the most visible manifestations of a culture and constitute
the outward expression of deeper values. For example, upon meeting a foreign
business executive, a Japanese executive will hold his business card in both hands
and bow while presenting the card to the foreigner.
8.
Folkways have much greater significance than mores.
FALSE
Mores are norms that are seen as central to the functioning of a society and to its
social life. They have much greater significance than folkways.
9.
Even if a country can be characterized as having a single homogenous culture, often
that national culture is a mosaic of subcultures.
TRUE
The relationship between culture and country is often ambiguous. Even if a country
can be characterized as having a single homogenous culture, often that national
culture is a mosaic of subcultures.
10.
The values and norms of a culture do not emerge fully formed.
TRUE
The values and norms of a culture do not emerge fully formed. They evolve over
time in response to a number of factors, including prevailing political and economic
philosophies, the social structure of a society, and the dominant religion, language,
and education.
11.
Individualism has led to a high degree of managerial mobility between companies
resulting in managers who have good general skills but lack company-specific
experience.
TRUE
The lack of loyalty and commitment to an individual company, and the tendency to
move on for a better offer, can result in managers who have good general skills but
lack the knowledge, experience, and network of interpersonal contacts that come
from years of working within the same company.
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12.
The emphasis on the individual in the United States may raise the costs of doing
business due to its adverse impact on managerial stability and cooperation.
TRUE
An effective manager draws on company-specific experience, knowledge, and a
network of contacts to find solutions to current problems, and American companies
may suffer if their managers lack these attributes. The emphasis on individualism
may also make it difficult to build teams within an organization to perform collective
tasks.
13.
In countries where the value of group identification is considered to be primary,
managers and workers are discouraged from moving from company to company.
TRUE
The primacy of the value of group identification discourages managers and workers
from moving from company to company.
14.
The term social strata refers to the extent to which individuals can move out of the
strata into which they were born.
FALSE
All societies are stratified on a hierarchical basis into social categories—that is, into
social strata. These strata are typically defined on the basis of characteristics such
as family background, occupation, and income.
15.
The most rigid system of stratification is a class system.
FALSE
The most rigid system of stratification is a caste system. A class system is a less
rigid form of social stratification in which social mobility is possible.
16.
A caste system is a closed system of stratification in which social position is
determined by the family into which the person is born.
TRUE
A caste system is a closed system of stratification in which social position is
determined by the family into which a person is born, and change in that position is
usually not possible during an individual's lifetime.
17.
A class system is a rigid form of social stratification in which the position a person
has by birth cannot be changed through his/her own achievements or luck.
FALSE
A class system is a less rigid form of social stratification in which social mobility is
possible. It is a form of open stratification in which the position a person has by birth
can be changed through his or her own achievements or luck.
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18.
Class consciousness refers to a condition where people tend to perceive themselves
in terms of their class background.
TRUE
Class consciousness refers to a condition where people tend to perceive themselves
in terms of their class background, and this shapes their relationships with members
of other classes.
19.
An antagonistic relationship between management and labor classes may result in
lower costs of production.
FALSE
An antagonistic relationship between management and labor classes, and the
resulting lack of cooperation and high level of industrial disruption, tends to raise the
costs of production in countries characterized by significant class divisions.
20.
Ethical systems may be defined as a system of shared beliefs and rituals that are
concerned with the realm of the sacred.
FALSE
Ethical systems refer to a set of moral principles, or values, that are used to guide
and shape behavior. Most of the world's ethical systems are the product of religions.
21.
According to Max Weber, Protestantism encouraged capitalism's development by
emphasizing the importance of wealth creation and frugality.
TRUE
Weber argued that Protestant ethics emphasize the importance of hard work and
wealth creation (for the glory of God) and frugality (abstinence from worldly
pleasures). According to Weber, this kind of value system was needed to facilitate
the development of capitalism.
22.
Like Christianity and Judaism, Islam is a polytheistic religion.
FALSE
Like Christianity and Judaism, Islam is a monotheistic religion. The central principle
of Islam is that there is but the one true omnipotent God.
23.
The Koran speaks disapprovingly of free enterprise.
FALSE
The Koran speaks approvingly of free enterprise and of earning legitimate profit
through trade and commerce (the prophet Mohammed himself was once a trader).
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24.
The protection of the right to private property is embedded within Islam.
TRUE
The protection of the right to private property is also embedded within Islam,
although Islam asserts that all property is a favor from Allah (God), who created and
so owns everything. Those who hold property are regarded as trustees rather than
owners in the Western sense of the word.
25.
The mudarabah contract is the most widely used Islamic banking method, because it
is the easiest to implement.
FALSE
The Islamic banking method, the murabaha contract, is the most widely used among
the world's Islamic banks, primarily because it is the easiest to implement.
26.
Max Weber thought that devout Hindus would be less likely to engage in
entrepreneurial activity than devout Protestants.
TRUE
Max Weber argued that the ascetic principles embedded in Hinduism do not
encourage the kind of entrepreneurial activity in pursuit of wealth creation found in
Protestantism. Given the emphasis on an ascetic lifestyle, Weber thought that
devout Hindus would be less likely to engage in entrepreneurial activity than devout
Protestants.
27.
Unlike Hinduism, Buddhism supports the caste system.
FALSE
According to Buddhism, suffering originates in people's desires for pleasure.
Cessation of suffering can be achieved by following a path for transformation. Unlike
Hinduism, Buddhism does not support the caste system.
28.
Both Hindus and Buddhists stress the afterlife and spiritual achievement rather than
involvement in this world.
TRUE
Like Hindus, Buddhists stress the afterlife and spiritual achievement rather than
involvement in this world.
29.
Confucianism is a religion.
FALSE
For more than 2,000 years until the 1949 Communist revolution, Confucianism was
the official ethical system of China. Although not a religion, Confucian ideology has
become deeply embedded in the culture of these countries over the centuries, and
through that, has an impact on the lives of many millions more.
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30.
Guanxi is an important mechanism for building long-term business relationships and
getting business done in China.
TRUE
In a society that lacks a rule-based legal tradition, and thus legal ways of redressing
wrongs such as violations of business agreements, guanxi is an important
mechanism for building long-term business relationships and getting business done
in China.
31.
Since English is often thought of as the global language of business, it is not
important for an American business executive to learn foreign languages.
FALSE
Although English is widely used, learning the local language yields considerable
advantages. Most people prefer to converse in their own language, and being able to
speak the local language can build rapport, which may be very important for a
business deal.
32.
Unspoken language refers to nonverbal communication.
TRUE
Unspoken language refers to nonverbal communication.
33.
Education plays an important role, from an international business perspective, as a
determinant of national competitive advantage.
TRUE
From an international business perspective, one important aspect of education is its
role as a determinant of national competitive advantage. The availability of a pool of
skilled and educated workers seems to be a major determinant of the likely
economic success of a country.
34.
Hofstede's study found that in masculine cultures, sex roles were less sharply
distinguished, and little differentiation was made between men and women in the
same job.
FALSE
Hofstede's masculinity versus femininity dimension looked at the relationship
between gender and work roles. In masculine cultures, sex roles were sharply
differentiated and traditional "masculine values," such as achievement and the
effective exercise of power, determined cultural ideals.
35.
Hofstede's research has been criticized because it was culturally bound.
TRUE
Hofstede's research may have been culturally bound. The research team was
composed of Europeans and Americans. Hofstede's results confirm Western
stereotypes, because it was Westerners who undertook the research.
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36.
People who take food or safety for granted tend to be xenophobic, are wary of
political activity, have authoritarian tendencies, and believe that men make better
political leaders than women.
FALSE
According to the the World Values Survey, "survival values" are the values people
hold when the struggle for survival is of paramount importance. People who cannot
take food or safety for granted tend to be xenophobic, are wary of political activity,
have authoritarian tendencies, and believe that men make better political leaders
than women.
37.
The convergence hypothesis states that there is a slow but steady merging occurring
across different cultures towards some universally accepted values and norms.
TRUE
With regard to globalization, some have argued that advances in transportation and
communication technologies are helping to create conditions for the merging or
convergence of cultures. There may be, in other words, a slow but steady
convergence occurring across different cultures towards some universally accepted
values and norms: This is known as the convergence hypothesis.
38.
International businesses that are ill-informed about the practices of another culture
are likely to fail.
TRUE
International businesses that are ill-informed about the practices of another culture
are likely to fail. Doing business in different cultures requires adaptation to conform
with the value systems and norms of that culture.
39.
The value systems and norms of a country are unrelated to the costs of doing
business in that country.
FALSE
The value systems and norms of a country influence the costs of doing business in
that country. The costs of doing business in a country influence the ability of firms to
establish a competitive advantage in the global marketplace.
40.
The connection between culture and competitive advantage has important
implications for the choice of countries in which to locate production facilities and do
business.
TRUE
The connection between culture and competitive advantage has important
implications for the choice of countries in which to locate production facilities and do
business.
Multiple Choice Questions
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41.
Which of the following is NOT true regarding culture?
A. Culture is
static.
B. Culture varies across and within
nations.
C. Culture is a system of values and norms that are shared among a group
of people.
D. Culture involves the knowledge and beliefs of
people.
Culture is not static. It can and does evolve, although the rate at which culture can
change is the subject of some dispute.
42.
Cross-cultural literacy refers to:
A. an individual's self-concept derived from perceived membership in a relevant
social group.
B. the phenomenon of merging and converging
cultures.
C. abstract ideas about what a group believes to be good, right, and
desirable.
D. an understanding of how cultural differences can affect
business.
Cross-cultural literacy refers to an understanding of how cultural differences across
and within nations can affect the way business is practiced.
43.
_____ is/are best defined as shared assumptions about how things ought to be.
A. Norm
s
B. Value
s
C. Societ
y
D. Cultur
e
Values refer to abstract ideas about what a group believes to be good, right, and
desirable. Put differently, values are shared assumptions about how things ought to
be.
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44.
The system of values and norms that are shared among a group of people and that
when taken together constitute a design for living best defines:
A. societ
y.
B. value
systems.
C. principle
s.
D. cultur
e.
Culture is a system of values and norms that are shared among a group of people
and that when taken together constitute a design for living.
45.
Social rules and guidelines that prescribe appropriate behavior in particular
situations are best described as:
A. norm
s.
B. value
s.
C. cultur
e.
D. societ
y.
Norms refer to the social rules and guidelines that prescribe appropriate behavior in
particular situations.
46.
Norms refer to:
A. the social rules and guidelines that prescribe appropriate behavior in
particular situations.
B. a system of values that are shared among a group of
people.
C. the routine conventions of
everyday life.
D. abstract ideas about what a group believes to be good, right, and
desirable.
Norms refer to the social rules and guidelines that prescribe appropriate behavior in
particular situations.
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47.
A group of people who share a common set of values and norms form a:
A. cultur
e.
B. societ
y.
C. countr
y.
D. cast
e.
Society refers to a group of people who share a common set of values and norms.
48.
_____ are the routine conventions of everyday life.
A. Folkway
s
B. More
s
C. Rite
s
D. Belief
s
Folkways are the routine conventions of everyday life. They are social conventions
concerning things such as the appropriate dress code in a particular situation, good
social manners, eating with the correct utensils, neighborly behavior, and the like.
49.
_____ are social conventions concerning things such as the appropriate dress code in
a particular situation, good social manners, eating with the correct utensils,
neighborly behavior, and the like.
A. Value
s
B. Belief
s
C. More
s
D. Folkway
s
Folkways are the routine conventions of everyday life. They are social conventions
concerning things such as the appropriate dress code in a particular situation, good
social manners, eating with the correct utensils, neighborly behavior, and the like.
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50.
An act, as simple as shaking hands when meeting new people is an example of:
A. value
s.
B. symbolic
behavior.
C. more
s.
D. social
stratification.
Folkways include rituals and symbolic behavior. Rituals and symbols are the most
visible manifestations of a culture and constitute the outward expression of deeper
values.
51.
A Japanese executive's ritual of presenting a business card to a foreign business
executive is an example of:
A. more
s.
B. value
s.
C. attitude
s.
D. folkway
s.
Folkways are the routine conventions of everyday life. Folkways include rituals and
symbolic behavior. For example, upon meeting a foreign business executive, a
Japanese executive will hold his business card in both hands and bow while
presenting the card to the foreigner.
52.
Mores are:
A. the norms that are seen as central to the functioning of a society and
its social life.
B. the routine conventions of
everyday life.
C. abstract ideas about what a group believes to be right, good, and
desirable.
D. the social rules and guidelines that prescribe appropriate behavior in
particular situations.
Mores are norms that are seen as central to the functioning of a society and to its
social life. Accordingly, violating mores can bring serious retribution.
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53.
Which of the following statements about mores is true?
A. Mores are the routine conventions of
daily life.
B. Mores are actions of little moral
significance.
C. In many societies, certain mores have been enacted
into law.
D. People who violate mores may be thought of as ill-mannered, but they are not
considered to be evil.
Mores include such factors as indictments against theft, adultery, incest, and
cannibalism. In many societies, certain mores have been enacted into law.
54.
Which of the following statements about values and norms of a culture is NOT true?
A. The values and norms of a society do not emerge fully
formed.
B. The values and norms of a society are the evolutionary product of a
number of factors.
C. The values and norms of a society are influenced by
religion.
D. The values and norms of a society do not influence social
structure.
While factors such as social structure and religion clearly influence the values and
norms of a society, the values and norms of a society can influence social structure
and religion.
55.
A society's social structure refers to its:
A. system of values and
norms.
B. basic social
organization.
C. religious
practices.
D. educational
infrastructure.
A society's social structure refers to its basic social organization.
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56.
The social organization of Western society tends to emphasize on:
A. a group
orientation.
B. collectivist
values.
C. individual
achievement.
D. work
groups.
In general, Western societies tend to emphasize the primacy of the individual,
whereas groups tend to figure much larger in many other societies.
57.
The emphasis on individualism in the United States results in all of the following
disadvantages EXCEPT:
A. managers tend to develop good general skills but lack the company-specific
experience.
B. difficulty in building teams within an organization to perform
collective tasks.
C. executives are not exposed to different ways of doing
business.
D. difficulty to achieve cooperation both within a company and between
companies.
One positive aspect of high managerial mobility is that executives are exposed to
different ways of doing business.
58.
Which of the following is a consequence of the emphasis on individual performance
in many Western societies?
A. Decreased
entrepreneurship
B. High degree of managerial
mobility
C. Increased loyalty towards an individual
company
D. Executives are not exposed to different ways of doing
business
The emphasis on individual performance in many Western societies has both
beneficial and harmful aspects. Individualism finds expression in a high degree of
managerial mobility between companies, and this is not always a good thing.
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59.
Which of the following refers to the extent to which individuals can move out of the
strata into which they are born?
A. Caste
stratification
B. Class
system
C. Social
mobility
D. Individual
potential
The term social mobility refers to the extent to which individuals can move out of the
strata into which they are born. Social mobility varies significantly from society to
society. The most rigid system of stratification is a caste system.
60.
Which of the following is a closed system of stratification in which social position is
determined by the family into which a person is born, and change in that position is
usually not possible during an individual's lifetime?
A. Caste
system
B. Class
system
C. Social
system
D. Cultural
system
A caste system is a closed system of stratification in which social position is
determined by the family into which a person is born, and change in that position is
usually not possible during an individual's lifetime.
61.
A _____ is a less rigid form of social stratification in which social mobility is possible.
A. caste
system
B. normative
system
C. religious
system
D. class
system
A class system is a less rigid form of social stratification in which social mobility is
possible.
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62.
Which of the following statements is true about a class system?
A. A class system is a more rigid form of social stratification, compared to a
caste system.
B. A class system is a closed form of
stratification.
C. Social mobility within a class system varies from society
to society.
D. In a class system, social position is determined at birth and cannot be changed
during an individual's lifetime.
A class system is a less rigid form of social stratification in which social mobility is
possible. While many societies have class systems, social mobility within a class
system varies from society to society.
63.
A caste system differs from a class system because:
A. a caste system is an open system of stratification, while a class system is a closed
system of stratification.
B. it is not possible for an individual to change his or her caste, while a class system
allows people to change their class through individual achievement.
C. the social mobility in caste systems varies from society to society, while in a class
system there is no social mobility.
D. a caste system is a less rigid form of social stratification, while a class system is a
comparatively more rigid form of social stratification.
A caste system is a closed system of stratification in which social position is
determined by the family into which a person is born, and change in that position is
usually not possible during an individual's lifetime. A class system is a form of open
stratification in which the position a person has by birth can be changed through his
or her own achievements or luck.
64.
A condition where people tend to perceive themselves in terms of their class
background and this shapes their relationships with members of other classes is
known as:
A. class
stratification.
B. social
mobility.
C. class
mobility.
D. class
consciousness.
Class consciousness refers to a condition where people tend to perceive themselves
in terms of their class background, and this shapes their relationships with members
of other classes.
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65.
An upper-middle-class manager tends to have hostile relationship with the workingclass employees in the firm because of his tendency to perceive himself as superior
to them based on his class background. In this example, the manager exhibits:
A. class
consciousness.
B. cultural
awareness.
C. social
mobility.
D. group
orientation.
Class consciousness refers to a condition where people tend to perceive themselves
in terms of their class background, and this shapes their relationships with members
of other classes.
66.
Ethical systems are:
A. a set of moral principles, or values, that are used to guide and shape
behavior.
B. shared beliefs and rituals that are concerned with the realm of
the sacred.
C. routine conventions of
everyday life.
D. social rules that govern people's actions toward
each other.
Ethical systems refer to a set of moral principles, or values, that are used to guide
and shape behavior.
67.
Religion may be defined as:
A. routine conventions of
everyday life.
B. social rules that govern people's actions toward
each other.
C. shared beliefs and rituals that are concerned with the realm of
the sacred.
D. a set of moral principles, or values, that are used to guide and shape
behavior.
Religion may be defined as a system of shared beliefs and rituals that are concerned
with the realm of the sacred.
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68.
Max Weber theorized that there was a relationship between Protestantism and the
emergence of modern capitalism because:
A. Protestant ethics emphasize the importance of hard work and wealth creation
and frugality.
B. Protestantism promotes the hierarchical domination of religious and
social life.
C. Protestantism states that spiritual growth is more important than
material wealth.
D. Protestantism promotes blind loyalty to
employers.
Weber argued that Protestant ethics emphasize the importance of hard work and
wealth creation (for the glory of God) and frugality (abstinence from worldly
pleasures). According to Weber, this kind of value system was needed to facilitate
the development of capitalism.
69.
Which of the following sociologists made a connection between Protestant ethics and
"the spirit of capitalism"?
A. Karl
Marx
B. Max
Weber
C. Amartya
Sen
D. Adam
Smith
In 1904, a German sociologist, Max Weber, made a connection between Protestant
ethics and "the spirit of capitalism" that has since become famous. Weber theorized
that there was a relationship between Protestantism and the emergence of modern
capitalism.
70.
According to Islam, those who hold property are regarded as:
A. Trustees
.
B. owner
s.
C. tenant
s.
D. speculator
s.
The protection of the right to private property is also embedded within Islam,
although Islam asserts that all property is a favor from Allah (God), who created and
so owns everything. Those who hold property are regarded as trustees rather than
owners in the Western sense of the word.
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71.
Which of the following observations is correct?
A. The economic principles established in the Koran are against free
enterprise.
B. The economic principles of Islam prohibit the payment or receipt
of interest.
C. The Koran speaks disapprovingly of earning legitimate profit through trade and
commerce.
D. Protection of the right to private property is not embedded
within Islam.
One economic principle of Islam prohibits the payment or receipt of interest, which is
considered usury. This is not just a matter of theology; in several Islamic states, it is
also a matter of law.
72.
Under the mudarabah banking system, when an Islamic bank lends money to a
business:
A. it charges that business interest on
the loan.
B. the business needs to pay back the loan with an additional
markup.
C. it has to donate the interest received on the loan to a
charitable trust.
D. it takes a share in the profits that are derived from the
investment.
A mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when
an Islamic bank lends money to a business, rather than charging that business
interest on the loan, it takes a share in the profits that are derived from the
investment.
73.
Which of the following statements is true about the murabaha contract?
A. Under the murabaha contract, when an Islamic bank lends money to a business it
takes a share in the profits that are derived from the investment.
B. Under the murabaha contract, money deposited in a savings account is treated as
an equity investment in whatever activity the bank uses the capital for.
C. The murabaha contract is widely used among the world's Islamic banks because it
is the easiest to implement.
D. The murabaha contract is a more efficient system than the Western banking
system since it encourages both long-term savings and long-term investment.
The Islamic banking method, the murabaha contract, is the most widely used among
the world's Islamic banks, primarily because it is the easiest to implement.
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74.
Hindus believe:
A. that there is but the one true
omnipotent God.
B. in reincarnation, or rebirth into a different body,
after death.
C. in the importance of individual religious
freedom.
D. that material quest is more important than
spiritual quest.
Hindus believe in reincarnation, or rebirth into a different body, after death. Hindus
also believe in karma, the spiritual progression of each person's soul.
75.
A major difference between Buddhism and Hinduism is that unlike Hinduism,
Buddhism:
A. does not support the cast
system.
B. emphasizes wealth
creation.
C. promotes blind loyalty to
employers.
D. supports extreme ascetic
behavior.
Unlike Hinduism, Buddhism does not support the caste system. Nor does Buddhism
advocate the kind of extreme ascetic behavior that is encouraged by Hinduism.
76.
Three values central to the Confucian system of ethics have very important
economic implications. Which of the following is NOT one among them?
A. Loyalt
y
B. Rule-based
law
C. Reciprocal
obligations
D. Honesty in dealings with
others
The influence of Confucian ethics on the culture of China, Japan, South Korea, and
Taiwan, by lowering the costs of doing business in those countries, may help explain
their economic success. In this regard, three values central to the Confucian system
of ethics are of particular interest: loyalty, reciprocal obligations, and honesty in
dealings with others.
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77.
Which of the following statements about the use of spoken language is NOT true?
A. The nature of a language structures the way we perceive
the world.
B. The language of a society can direct the attention of its members to certain
features of the world rather than others.
C. Countries with more than one language often have more than
one culture.
D. Most people prefer to converse in English rather than their own
language.
Most people prefer to converse in their own language, and being able to speak the
local language can build rapport, which may be very important for a business deal.
78.
The _____ dimension of Hofstede's study explores how a society deals with the fact
that people are unequal in physical and intellectual capabilities.
A. power
distance
B. individualism versus
collectivism
C. uncertainty
avoidance
D. masculinity versus
femininity
Hofstede's power distance dimension focused on how a society deals with the fact
that people are unequal in physical and intellectual capabilities.
79.
The individualism versus collectivism dimension of Hofstede's study explored:
A. the extent to which different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
B. the relationship between gender and work
roles.
C. how a society deals with the fact that people are unequal in physical and
intellectual capabilities.
D. the relationship between the individual and his/her
fellows.
The individualism versus collectivism dimension focused on the relationship between
the individual and his or her fellows.
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80.
Hofstede's uncertainty avoidance dimension considered:
A. the extent to which different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
B. the relationship between gender and work
roles.
C. how a society deals with the fact that people are unequal in physical and
intellectual capabilities.
D. the relationship between the individual and his or her
fellows.
Hofstede's uncertainty avoidance dimension measured the extent to which different
cultures socialized their members into accepting ambiguous situations and tolerating
uncertainty.
81.
According to Geert Hofstede's study, which of the following cultural dimensions
would be characterized by a greater readiness to take risks and less emotional
resistance to change?
A. High power distance
cultures
B. Low uncertainty
avoidance
C. High
collectivism
D. Low power distance
cultures
Hofstede's uncertainty avoidance dimension measured the extent to which different
cultures socialized their members into accepting ambiguous situations and tolerating
uncertainty. Lower uncertainty avoidance cultures were characterized by a greater
readiness to take risks and less emotional resistance to change.
82.
Hofstede's dimension of Confucian dynamism:
A. captures attitudes toward time, persistence, ordering by status, protection of face,
respect for tradition, and reciprocation of gifts and favors.
B. focuses on how a society deals with the fact that people are unequal in physical
and intellectual capabilities.
C. explores the relationship between the individual and
his/her fellows.
D. looks at the relationship between gender and the ability to accept
ambiguous situations.
According to Hofstede, Confucian dynamism captures attitudes toward time,
persistence, ordering by status, protection of face, respect for tradition, and
reciprocation of gifts and favors.
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83.
Which of the following is an example of ethnocentrism?
A. A manager in India looks down upon his subordinates because they are from a
lower caste, compared to him.
B. An upper-middle-class woman talks rudely to a sales person, because she looks
down upon individuals belonging to the working-class.
C. An American manager criticizes the cultural practices of Saudi Arabia, when he is
sent there on business, because it differs from his own cultural norms.
D. A French business owner, who plans to expand his market to China, conducts a
detailed cultural study of China to customize his marketing campaign.
Ethnocentrism is a belief in the superiority of one's own ethnic group or culture.
Hand in hand with ethnocentrism goes a disregard or contempt for the culture of
other countries.
Essay Questions
84.
Compare and contrast folkways and mores.
Folkways are the routine conventions of everyday life. Generally, folkways are
actions of little moral significance. Folkways include rituals and symbolic behavior. In
contrast, mores are norms that are seen as central to the functioning of a society
and to its social life. Mores have much greater significance than folkways.
Accordingly, violating mores can bring serious retribution.
85.
Discuss the relationship between society and the nation-state.
A society is a group of people that share a common set of values and norms, that is,
people who are bound together by a common culture. There is not a strict one-toone correspondence between a society and a nation-state. Nation-states are political
creations that may contain a single culture or several cultures. While it is possible to
talk about cultures at different levels, for example, an "American society," and
"American culture," it is important to recognize there are several societies within
America, each with its own culture. The relationship between culture and country is
often ambiguous. Even if a country can be characterized as having a single
homogenous culture, often that national culture is a mosaic of subcultures.
86.
What are the determinants of culture?
The values and norms of a culture do not emerge fully formed. They are the
evolutionary product of political philosophy, economic philosophy, education,
language, social structure, and religion. The chain of causation runs both ways.
While factors such as social structure and religion clearly influence the values and
norms of a society, the values and norms of a society can influence social structure
and religion.
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87.
Explain the concept of social stratification.
All societies are stratified on a hierarchical basis into social categories or social
strata. Social strata are typically defined on the basis of characteristics such as
family background, occupation, and income. Individuals born into the top of a social
hierarchy tend to have better life chances than individuals born into a lower stratum.
While all societies are stratified to some degree they differ from each other with
regard to the degree of mobility between social strata and with regard to the
significance attached to social strata in business contexts.
88.
Discuss why the stratification of a society is important to business.
The stratification of a society is significant if it affects the operation of business
organizations. In a country like Great Britain for example, the relative lack of class
mobility and the differences between classes has resulted in hostility between
middle-class managers and their working-class employees. An antagonistic
relationship between management and labor classes, and the resulting lack of
cooperation and high level of industrial disruption, tends to raise the costs of
production in countries characterized by significant class divisions. In turn, this can
make it more difficult for companies based in such countries to establish a
competitive advantage in the global economy.
89.
What is the connection between religion and ethical systems? Do they have any
implications for business?
Ethical systems are a set of moral principles, or values, that are used to guide and
shape behavior. Most of the world's ethical systems are the product of religions.
Therefore, there are Christian ethics and Islamic ethics. There are four dominant
religions in the world: Christianity, Islam, Hinduism, and Buddhism. The relationship
among religion, ethics, and society is subtle and complex. Some scholars have
argued that the most important business implications of religion center on the extent
to which different religions shape attitudes toward work and entrepreneurship and
the degree to which the religious ethics affect the costs of doing business in a
country.
The authors point out that it is hazardous to make sweeping generalizations about
the nature of the relationship between religion and ethical systems and business
practice. The proposed relationships may exist, but their impact may be small
compared to the impact of economic policy.
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90.
Discuss the ideas of Max Weber. What is the Protestant work ethic? Why is it
important to the world economy?
Max Weber was a German sociologist who, in 1904, made the connection between
Protestant ethics and "the spirit of capitalism." According to Weber, there was a
relationship between Protestantism and the emergence of modern capitalism. Weber
suggested that the Protestant value system that emphasized the importance of hard
work, wealth creation, and frugality was needed to facilitate the development of
capitalism.
Thus, Weber coined the term "Protestant work ethic" to denote the tendency on the
part of Protestants to work hard and accumulate wealth, which are the
underpinnings of capitalism.
91.
Explain how the Koran views business.
The Koran establishes some explicit economic principles, many of which are pro-free
enterprise. The Koran supports free enterprise and earning a legitimate profit
through trade and commerce, as well as the protection of the right to private
property. However, Islam is critical of those who earn profit through the exploitation
of others. Islam stresses the importance of living up to contractual obligations, of
keeping one's word, and of abstaining from deception. One economic principle of
Islam prohibits the payment or receipt of interest, which is considered usury. This is
not just a matter of theology; in several Islamic states, it is also a matter of law.
92.
What are the economic implications of the caste system supported by Hinduism?
Historically, Hinduism supported India's caste system. The concept of mobility
between castes within an individual's lifetime makes no sense to traditional Hindus.
Hindus see mobility between castes as something that is achieved through spiritual
progression and reincarnation. Insofar as the caste system limits individuals'
opportunities to adopt positions of responsibility and influence in society, the
economic consequences of this religious belief are somewhat negative. For example,
within a business organization, the most able individuals may find their route to the
higher levels of the organization blocked simply because they come from a lower
caste. By the same token, individuals may get promoted to higher positions within a
firm as much because of their caste background as because of their ability.
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93.
What is Buddhism? Compare Buddhism with Hinduism.
Buddhism was founded in India in the sixth century BC by Siddhartha Gautama, an
Indian prince who renounced his wealth to pursue an ascetic lifestyle and spiritual
perfection.
According to Buddhism, suffering originates in people's desires for pleasure.
Cessation of suffering can be achieved by following a path for transformation.
Siddhartha offered the Noble Eightfold Path as a route for transformation. This
emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and
meditation. Unlike Hinduism, Buddhism does not support the caste system. Nor does
Buddhism advocate the kind of extreme ascetic behavior that is encouraged by
Hinduism. Nevertheless, like Hindus, Buddhists stress the afterlife and spiritual
achievement rather than involvement in this world.
94.
Consider the influence of Confucian ethics on the economies of China, Japan, South
Korea, and Taiwan.
It has been suggested that the economic success of China, Japan, South Korea, and
Taiwan, may be due, in part, to the influence of Confucian ethics on the culture in
those countries. Three values that are central to the Confucian system of ethics are
of particular note: loyalty, reciprocal obligations, and honesty in dealing with others.
The concept of reciprocal obligations is important. Confucian ethics stress that
superiors are obliged to reward the loyalty of their subordinates by bestowing
blessings on them. The notion of guanxi, or business relationships, which permeates
business dealings in the region, revolves around the three values. For example, it
has been suggested that the close ties between the automobile companies and their
suppliers in Japan are facilitated by a combination of trust and reciprocal obligations.
95.
Discuss the spoken language. Which is the most spoken language in the world? What
language is used in business? Is it important to learn a foreign language?
Language does far more than just enable people to communicate with each other.
The nature of a language also structures the way we perceive the world. Because
language shapes the way people perceive the world, it also helps define culture.
Chinese is the mother tongue of the largest number of people in the world, followed
by English and Hindi. However, the most widely spoken language in the world is
English, followed by French, Spanish and Chinese. English is increasingly known as
the language of international business. Therefore, even when a business meeting
does not involve native English speakers, English is likely to be spoken. Learning a
foreign language is still very important for native English speakers because doing so
can build rapport, and help a company avoid costly translation blunders.
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96.
Consider the importance of unspoken language. Why is it important to be familiar
with the unspoken language of another culture?
Unspoken language refers to nonverbal communication. We all communicate with
each other by a host of nonverbal cues. The raising of eyebrows, for example, is a
sign of recognition in most cultures, while a smile is a sign of joy. Many nonverbal
cues, however, are culturally bound. A failure to understand the nonverbal cues of
another culture can lead to a failure to communicate. For example, making a circle
with the thumb and forefinger is a friendly gesture in the United States, but it is a
vulgar gesture in Greece and Turkey.
Personal space is another part of unspoken language.
97.
Why is the role of education in a culture important to international companies?
A key aspect of education in a culture is its role as a determinant of national
competitive advantage. The availability of a pool of skilled and educated workers
seems to be a major determinant of the likely economic success of a country. Porter
for example, has argued that Japan's excellent education system is an important
factor explaining the country's postwar economic success. In addition, a good
education system is an important factor guiding the location choices of international
businesses. The general education level of a country is also a good index of the kind
of products that might sell in a country and of the type of promotional material that
should be used.
98.
Describe the four dimensions of culture as identified by Geert Hofstede.
Geert Hofstede identified four dimensions that he claimed summarized the
differences between different cultures. According to Hofstede, the power distance
dimension focused on how a society deals with the fact that people are unequal in
physical and intellectual capabilities. The second dimension identified by Hofstede,
individualism versus collectivism, focused on the relationship between the individual
and his/her fellows. Hofstede's third dimension, uncertainty avoidance, measured
the extent to which different cultures socialize their members into accepting
ambiguous situations and tolerating uncertainty. Finally, Hofstede's fourth
dimension, masculinity versus femininity, examined the relationship between gender
and work roles.
99.
Discuss the limitations of Hofstede's research.
Hofstede's research has been criticized on a number of points. First, Hofstede
assumes there is a one-to-one correspondence between culture and the nation-state.
Second, the research may have been culturally bound. Third, Hofstede's informants
worked not only within a single industry, but within one company. Finally, because
cultures evolve, Hofstede's research, which was conducted in the 1960s and 1970s,
may not be as relevant today.
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100. Discuss Confucian dynamism. Explore the debate over whether Confucian dynamism
is good for an economy.
The notion of Confucian dynamism, or long-term orientation, was added to
Hofstede's model of culture to capture attitudes toward time, persistence, ordering
by status, protection of face, respect for tradition, and reciprocation of gifts and
favors. East Asian countries such as Japan, Hong Kong, and Thailand scored high on
Confucian dynamism, while countries such as the United States and Canada scored
low. Hofstede hypothesized that being Confucian was good for economic growth.
However, other experts have questioned this hypothesis, noting that countries that
score low on Confucian dynamism have also achieved high growth rates.
101. Economic advancement and globalization are prompting societal change. Discuss
this statement.
Several studies have shown that economic advancement and globalization are
important factors in societal change. The culture of societies may also change as
they become richer because economic progress affects a number of other factors,
which in turn influence culture. A study of values known as the World Values Survey
has documented how values change.
According to this research, as countries get richer, there seems to be a shift from
"traditional" to "secular rational" values, and from "survival values" to "well-being"
values.
There may be a slow but steady convergence occurring across different cultures
towards some universally accepted values and norms: This is known as the
convergence hypothesis.
102. What are the implications of cultural differences for international businesses?
International business is different from national business because countries and
societies are different. Societies differ because their cultures vary. Three important
implications for international business flow from these differences. The first is the
need to develop cross-cultural literacy. There is a need not only to appreciate that
cultural differences exist but also to appreciate what such differences mean for
international business. A second implication centers on the connection between
culture and national competitive advantage. A third implication looks at the
connection between culture and ethics in decision making.
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103. Discuss the relationship between culture and national competitive advantage?
The value systems and norms of a country influence the costs of doing business in
that country. The costs of doing business in a country influence the ability of firms to
establish a competitive advantage in the global marketplace. It can be argued that
the class-based conflict between workers and management in class-conscious
societies, when it leads to industrial disruption, raises the costs of doing business in
that society. Some sociologists have argued that the ascetic "otherworldly" ethics of
Hinduism may not be as supportive of capitalism as the ethics embedded in
Protestantism and Confucianism. Japan's emphasis on group affiliation, loyalty,
reciprocal obligations, honesty, and education, all boost the competitiveness of
Japanese companies. But as important as culture is, it is probably less important
than economic, political, and legal systems in explaining differential economic
growth between nations.
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IB testbank chap 5 - International Business chap 5
International Business (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)
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Chapter 05 Ethics in International Business Answer Key
True / False Questions
1.
Ethical strategies are the accepted principles of right or wrong governing the conduct
of businesspeople.
FALSE
An ethical strategy is a strategy, or course of action, that does not violate the
accepted principles of right or wrong governing the conduct of businesspeople.
2.
What is considered normal business practice in one country may be considered
unethical in other countries.
TRUE
Many of the ethical issues in international business are rooted in the fact that political
systems, law, economic development, and culture vary significantly from nation to
nation. What is considered normal practice in one nation may be considered unethical
in another.
3.
The Sullivan principles mandated that GM could operate in South Africa as long as the
company complied with the apartheid laws.
FALSE
GM adopted the Sullivan principles. Sullivan argued that it was ethically justified for
GM to operate in South Africa so long as two conditions were fulfilled. First, the
company should not obey the apartheid laws in its own South African operations.
Second, the company should do everything within its power to promote the abolition
of apartheid laws.
4.
The tragedy of the commons occurs when a resource held in common by all, but
owned by no one, is overused by individuals, resulting in its degradation.
TRUE
The tragedy of the commons occurs when a resource held in common by all, but
owned by no one, is overused by individuals, resulting in its degradation. The
phenomenon was first named by Garrett Hardin when describing a particular problem
in sixteenth-century England.
5.
Corporations can contribute to the global tragedy of the commons by not pumping
pollutants into the atmosphere or dumping them in oceans or rivers.
FALSE
In the modern world, corporations can contribute to the global tragedy of the
commons by moving production to locations where they are free to pump pollutants
into the atmosphere or dump them in oceans or rivers, thereby harming these
valuable global commons.
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6.
International businesses cannot gain economic advantages by making payments to
corrupt government officials.
FALSE
There always have been and always will be corrupt government officials. International
businesses can and have gained economic advantages by making payments to those
officials.
7.
The Foreign Corrupt Practices Act outlawed the paying of bribes to foreign
government officials to gain business.
TRUE
The Lockheed case was the impetus for the 1977 passage of the Foreign Corrupt
Practices Act in the United States. The act outlawed the paying of bribes to foreign
government officials to gain business.
8.
The Foreign Corrupt Practices Act originally allowed "facilitating payments" to secure
contracts that would not otherwise be secured.
FALSE
The Foreign Corrupt Practices Act was subsequently amended to allow for "facilitating
payments." Sometimes known as speed money or grease payments, facilitating
payments are not payments to secure contracts that would not otherwise be secured
and nor are they payments to obtain exclusive preferential treatment.
9.
Facilitating payments are also known as speed money or grease payments.
TRUE
Sometimes known as speed money or grease payments, facilitating payments are not
payments to secure contracts that would not otherwise be secured and nor are they
payments to obtain exclusive preferential treatment.
10.
Noblesse oblige refers to payments that ensure receiving the standard treatment that
a business ought to receive from a foreign government.
FALSE
Noblesse oblige is a French term that refers to honorable and benevolent behavior
considered the responsibility of people of high (noble) birth.
11.
In a business setting, noblesse oblige is taken to mean benevolent behavior that is
the responsibility of successful enterprises.
TRUE
Noblesse oblige is a French term that refers to honorable and benevolent behavior
considered the responsibility of people of high (noble) birth. In a business setting, it is
taken to mean benevolent behavior that is the responsibility of successful
enterprises.
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12.
Social responsibility refers to the idea that businesspeople should favor decisions that
have both good economic and social consequences.
TRUE
The concept of social responsibility refers to the idea that businesspeople should
consider the social consequences of economic actions when making business
decisions, and that there should be a presumption in favor of decisions that have
both good economic and social consequences.
13.
The ethical obligations of a multinational corporation toward employment conditions,
human rights, environmental pollution, and the use of power are always clear-cut.
FALSE
The ethical obligations of a multinational corporation toward employment conditions,
human rights, corruption, environmental pollution, and the use of power are not
always clear-cut.
14.
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
TRUE
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
15.
Ethical dilemmas exist because many real-world decisions involve first-, second-, and
third- order consequences that are hard to quantify.
TRUE
Ethical dilemmas exist because many real-world decisions are complex, difficult to
frame, and involve first-, second-, and third-order consequences that are hard to
quantify. Doing the right thing, or even knowing what the right thing might be, is
often far from easy.
16.
Societal business ethics are divorced from personal ethics.
FALSE
Societal business ethics are not divorced from personal ethics, which are the
generally accepted principles of right and wrong governing the conduct of individuals.
17.
An individual with a strong sense of personal ethics is less likely to behave in an
unethical manner in a business setting.
TRUE
Our personal ethical code exerts a profound influence on the way we behave as
businesspeople. An individual with a strong sense of personal ethics is less likely to
behave in an unethical manner in a business setting.
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18.
A firm's organizational culture refers to the values and norms that are shared among
employees of an organization.
TRUE
The term organization culture refers to the values and norms that are shared among
employees of an organization.
19.
Employees in a business often take their cue from business leaders, and if those
leaders do not behave in an ethical manner, they might not either.
TRUE
Leaders help to establish the culture of an organization, and they set the example
that others follow. Other employees in a business often take their cue from business
leaders, and if those leaders do not behave in an ethical manner, they might not
either.
20.
Straw men approaches to business ethics offer appropriate guidelines for ethical
decision making in a multinational enterprise.
FALSE
Straw men approaches to business ethics are raised by business ethics scholars
primarily to demonstrate that they offer inappropriate guidelines for ethical decision
making in a multinational enterprise.
21.
The utilitarian approach to ethics is a straw men approach to business ethics that has
some inherent value, but is unsatisfactory in important ways.
FALSE
Straw men approaches to business ethics can be characterized as the Friedman
doctrine, cultural relativism, the righteous moralist, and the naive immoralist.
22.
Milton Friedman's basic position is that the only social responsibility of business is to
increase profits, so long as the company stays within the rules of law.
TRUE
The Nobel Prize-winning economist Milton Friedman wrote an article in 1970 that has
since become a classic straw man that business ethics scholars outline only to then
tear down. Friedman's basic position is that the only social responsibility of business
is to increase profits, so long as the company stays within the rules of law.
23.
The Friedman doctrine is the belief that ethics are nothing more than a reflection of
culture and therefore, a firm should adopt the ethics of the culture in which it is
operating.
FALSE
Friedman's basic position is that the only social responsibility of business is to
increase profits, so long as the company stays within the rules of law. He explicitly
rejects the idea that businesses should undertake social expenditures beyond those
mandated by the law and required for the efficient running of a business.
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24.
Friedman's arguments suggest that improving working conditions beyond the level
required by the law and necessary to maximize employee productivity will reduce
profits and are therefore not appropriate.
TRUE
Friedman explicitly rejects the idea that businesses should undertake social
expenditures beyond those mandated by the law and required for the efficient
running of a business.
25.
According to the cultural relativism point-of-view, a firm should adopt the ethics of
the culture in which it is operating.
TRUE
Cultural relativism is the belief that ethics are nothing more than the reflection of a
culture—all ethics are culturally determined—and that accordingly, a firm should
adopt the ethics of the culture in which it is operating.
26.
Cultural relativism suggests that even if slavery is culturally acceptable in a country,
a foreign firm operating in that country should avoid using slave labor.
FALSE
At its extreme, cultural relativism suggests that if a culture supports slavery, it is OK
to use slave labor in a country.
27.
According to the righteous moralist, if a manager of a multinational sees that firms
from other nations are not following ethical norms in a host nation, that manager
should not either.
FALSE
A righteous moralist claims that a multinational's home-country standards of ethics
are the appropriate ones for companies to follow in foreign countries.
28.
The righteous moralist approach to ethics is typically associated with managers from
developing and under-developed nations.
FALSE
A righteous moralist claims that a multinational's home-country standards of ethics
are the appropriate ones for companies to follow in foreign countries. This approach
is typically associated with managers from developed nations.
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29.
An American firm that sets up production units in China is accused of releasing
untreated chemical waste into water bodies. The manager of the firm defends the
firm stating that, factories in China set up by French and British firms also release
untreated chemical waste into water bodies. In this example, the manager is using
the utilitarian approach to business ethics.
FALSE
Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences. A naive immoralist asserts that if a manager of a
multinational sees that firms from other nations are not following ethical norms in a
host nation, that manager should not either.
30.
Most moral philosophers see value in utilitarian and Kantian approaches to business
ethics.
TRUE
In contrast to the straw men approaches to ethics, most moral philosophers see value
in utilitarian and Kantian approaches to business ethics.
31.
The utilitarian approaches to ethics hold that the moral worth of actions or practices
is determined by their consequences.
TRUE
Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences. An action is judged desirable if it leads to the
best possible balance of good consequences over bad consequences.
32.
Utilitarian philosophy takes into consideration the principle of justice.
FALSE
The problem with utilitarianism is that the philosophy omits the consideration of
justice. The action that produces the greatest good for the greatest number of people
may result in the unjustified treatment of a minority.
33.
Rights theories recognize that human rights and privileges are culturally determined
and vary from country to country.
FALSE
Developed in the twentieth century, rights theories recognize that human beings
have fundamental rights and privileges that transcend national boundaries and
cultures. Rights establish a minimum level of morally acceptable behavior.
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34.
According to Rawls, inequalities are unjust even if the system that produces
inequalities is to the advantage of everyone.
FALSE
Rawls accepts that inequalities can be just if the system that produces inequalities is
to the advantage of everyone. More precisely, he formulates what he calls the
difference principle, which is that inequalities are justified if they benefit the position
of the least-advantaged person.
35.
Talking with prior employers regarding someone's reputation is a good way to discern
a potential employee's ethical predisposition.
TRUE
Businesses can give potential employees psychological tests to try to discern their
ethical predisposition, and they can check with prior employees regarding someone's
reputation (e.g., by asking for letters of reference and talking to people who have
worked with the prospective employee). The latter is common and does influence the
hiring process.
36.
Building an organization culture that places a high value on ethical behavior requires
incentive and reward systems.
TRUE
Building an organization culture that places a high value on ethical behavior requires
incentive and reward systems, including promotions that reward people who engage
in ethical behavior and sanction those who do not.
37.
A firm's internal stakeholders include customers, suppliers, and lenders.
FALSE
Internal stakeholders are individuals or groups who work for or own the business.
External stakeholders are all other individuals and groups that have some claim on
the firm. Typically, this group comprises customers, suppliers, lenders, governments,
unions, local communities, and the general public.
38.
To establish moral intent, managers need to stand in the shoes of a stakeholder and
ask how a proposed decision might impact that stakeholder.
FALSE
Managers need to establish moral intent, to be able to think through ethical
problems. This means the business must resolve to place moral concerns ahead of
other concerns in cases where either the fundamental rights of stakeholders or key
moral principles have been violated.
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39.
Moral courage enables managers to walk away from a decision that is profitable but
unethical.
TRUE
It is important to recognize that employees in an international business may need
significant moral courage. Moral courage enables managers to walk away from a
decision that is profitable but unethical.
40.
Companies can strengthen the moral courage of employees by committing
themselves to not retaliate against employees who exercise moral courage.
TRUE
Companies can strengthen the moral courage of employees by committing
themselves to not retaliate against employees who exercise moral courage, say no to
superiors, or otherwise complain about unethical actions.
Multiple Choice Questions
41.
Which of the following was designed to allow GM to operate ethically in South Africa
as long as the company did not obey the apartheid laws in its own South African
operations?
A. Sullivan
principles
B. The righteous moral
system
C. Noblesse
oblige
D. Cultural
relativism
GM adopted what came to be called the Sullivan principles, named after Leon
Sullivan, a black Baptist minister and a member of GM's board of directors. Sullivan
argued that it was ethically justified for GM to operate in South Africa so long as
certain conditions were fulfilled.
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42.
Identify the INCORRECT statement about environmental regulations.
A. Environmental regulations are often lacking in developing
nations.
B. Environmental regulations are similar across developed and
developing nations.
C. Developed nations have substantial regulations governing the emission of
pollutants, the dumping of toxic chemicals, etc.
D. Inferior environmental regulations in host nations, as compared to home nation,
can lead to ethical issues.
Many developed nations have substantial regulations governing the emission of
pollutants, the dumping of toxic chemicals, the use of toxic materials in the
workplace, and so on. Those regulations are often lacking in developing nations, and
according to critics, the result can be higher levels of pollution from the operations of
multinationals than would be allowed at home.
43.
The _____ occurs when a resource is shared by all, but owned by no one, is overused
by individuals, resulting in its degradation.
A. Friedman
effect
B. noblesse
oblige
C. inequity
aversion
D. tragedy of the
commons
The tragedy of the commons occurs when a resource held in common by all, but
owned by no one, is overused by individuals, resulting in its degradation.
44.
An international U.S. based company sets up a production unit in a developing
country with poor environmental regulations. This contributes to:
A. the noblesse oblige
situation.
B. the inequity
aversion.
C. the global tragedy of the
commons.
D. the Friedman
effect.
In the modern world, corporations can contribute to the global tragedy of the
commons by moving production to locations where they are free to pump pollutants
into the atmosphere or dump them in oceans or rivers, thereby harming these
valuable global commons.
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45.
Which of the following observations about the Foreign Corrupt Practices Act is true?
A. The act outlawed the paying of bribes to foreign government officials to
gain business.
B. There is enough evidence that it put U.S. firms at a competitive
disadvantage.
C. The act originally allowed for "facilitating
payments."
D. The Nike case was the impetus for the 1977 passage of
this act.
The Lockheed case was the impetus for the 1977 passage of the Foreign Corrupt
Practices Act in the United States. The act outlawed the paying of bribes to foreign
government officials to gain business.
46.
Facilitating payments are:
A. a direct violation of the Foreign Corrupt
Practices Act.
B. permitted so long as they designed only to gain exclusive preferential
treatment.
C. used to secure contracts that would otherwise not be
secured.
D. permitted under the amended Foreign Corrupt
Practices Act.
Sometimes known as speed money or grease payments, facilitating payments are
payments to ensure receiving the standard treatment that a business ought to
receive from a foreign government, but might not due to the obstruction of a foreign
official.
47.
The Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions excludes:
A. bribes made to secure contracts that would otherwise not be
secured.
B. grease payments to gain exclusive preferential
treatment.
C. facilitating payments made to expedite routine
government action.
D. payments to government officials for special
privileges.
The Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions excludes facilitating payments made to expedite routine
government action from the convention.
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48.
The idea that businesspeople should consider the social consequences of economic
actions when making business decisions and that there should be a presumption in
favor of decisions that have both good economic and social consequences is known
as:
A. moral
relativism.
B. noblesse
oblige.
C. ethical
dilemma.
D. social
responsibility.
The concept of social responsibility refers to the idea that businesspeople should
consider the social consequences of economic actions when making business
decisions, and that there should be a presumption in favor of decisions that have
both good economic and social consequences.
49.
Which of the following, in a business setting, is taken to mean benevolent behavior
that is the responsibility of successful enterprises?
A. Sullivan's
principles
B. Ethical
dilemma
C. Tragedy of the
commons
D. Noblesse
oblige
Noblesse oblige is a French term that refers to honorable and benevolent behavior
considered the responsibility of people of high (noble) birth. In a business setting, it is
taken to mean benevolent behavior that is the responsibility of successful
enterprises.
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50.
BP, one of the world's largest oil companies, has made it part of the company policy
to undertake "social investments" in the countries where it does business. There was
no economic reason for BP to make this social investment, but the company believes
it is morally obligated to give something back to the societies that have made their
success possible. BP's actions are an example of:
A. cultural
relativism.
B. the Friedman
doctrine.
C. noblesse
oblige.
D. the tragedy of the
commons.
Noblesse oblige is a French term that refers to honorable and benevolent behavior
considered the responsibility of people of high (noble) birth. In a business setting, it is
taken to mean benevolent behavior that is the responsibility of successful
enterprises.
51.
A situation in which none of the available alternatives seems morally acceptable is
called:
A. an ethical
dilemma.
B. noblesse
oblige.
C. the tragedy of the
commons.
D. the free rider
problem.
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
52.
Expatriate managers may experience more than the usual degree of pressure to
violate their personal ethics because of all of the following reasons EXCEPT:
A. they are away from their ordinary social context and
supporting culture.
B. they are psychologically and geographically closer to the parent
company.
C. they may be based in a culture that does not place the same value on ethical
norms important in the manager's home country.
D. they may be surrounded by local employees who have less rigorous ethical
standards.
Home-country managers working abroad in multinational firms (expatriate managers)
may experience more than the usual degree of pressure to violate their personal
ethics. They are away from their ordinary social context and supporting culture, and
they are psychologically and geographically distant from the parent company.
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53.
Which of the following refers to the values and norms that the employees of an
organization share?
A. Vision
statement
B. Cultural
relativism
C. Organization
culture
D. Power
orientation
The term organization culture refers to the values and norms that are shared among
employees of an organization.
54.
According to _____, the social responsibility of business is to increase profits, so long
as the company stays within the rules of law.
A. the naive
immoralist
B. the righteous
moralist
C. cultural
relativism
D. the Friedman
doctrine
Friedman's basic position is that the only social responsibility of business is to
increase profits, so long as the company stays within the rules of law. He explicitly
rejects the idea that businesses should undertake social expenditures beyond those
mandated by the law and required for the efficient running of a business.
55.
According to the Friedman doctrine:
A. ethics are nothing more than the reflection of
culture.
B. a multinational's home-country standards of ethics are inappropriate to follow in
foreign countries.
C. businesses should not undertake social expenditures beyond those mandated by
the law and required for the efficient running of a business.
D. if a manager of a multinational sees that firms from other nations are not following
environmental legislation in a host nation, that manager should not either.
Friedman explicitly rejects the idea that businesses should undertake social
expenditures beyond those mandated by the law and required for the efficient
running of a business.
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56.
Cultural relativism suggests that:
A. a firm should adopt the ethics of the culture in which it is
operating.
B. the only social responsibility of a firm is to increase
profits.
C. a firm's ethical policies should remain the same in all
cultures.
D. a multinational should follow its home-country cultural practices in all the hostcountries where it has operations.
Cultural relativism is the belief that ethics are nothing more than the reflection of a
culture—all ethics are culturally determined—and that accordingly, a firm should
adopt the ethics of the culture in which it is operating.
57.
Child labor is permitted and widely employed in Country X. A multinational company
entering Country X decides to employ minors in its subsidiary, even though it is
against the multinational's home-country ethics. Which of the following approaches
to business ethics would justify the actions of the multinational company?
A. Righteous
moralist
B. Cultural
relativism
C. The justice
theory
D. The rights
theory
Cultural relativism is the belief that ethics are nothing more than the reflection of a
culture—all ethics are culturally determined—and that accordingly, a firm should
adopt the ethics of the culture in which it is operating.
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58.
A multinational company is accused of paying bribes to the government of a host
country to obtain permission to build a production factory. The public relations
manager of the company defends the company's actions as being ethically sound; he
states that in the host country, paying bribes to government officials is the accepted
norm and is in keeping with the social practices in the host country. The public
relations manager is using which of the following philosophical doctrines to defend
the actions of the company?
A. The Friedman
doctrine
B. Righteous
moralist
C. Noblesse
oblige
D. Cultural
relativism
Cultural relativism is the belief that ethics are nothing more than the reflection of a
culture—all ethics are culturally determined—and that accordingly, a firm should
adopt the ethics of the culture in which it is operating.
59.
In its extreme viewpoint, _____ suggests that if a culture supports slavery, it is all
right to use slave labor in the country.
A. the Friedman
doctrine
B. noblesse
oblige
C. righteous
moralist
D. cultural
relativism
Cultural relativism does not stand up to a closer look. At its extreme, cultural
relativism suggests that if a culture supports slavery, it is OK to use slave labor in a
country.
60.
The righteous moralist suggests that:
A. ethics are nothing more than the reflection of
culture.
B. a multinational's home-country standards of ethics are the appropriate ones for
companies to follow in foreign countries.
C. the social responsibility of business is to increase profits, so long as the company
stays within the rules of law.
D. if a manager of a multinational sees that firms from other nations are not following
ethical norms in a host nation, that manager should not either.
A righteous moralist claims that a multinational's home-country standards of ethics
are the appropriate ones for companies to follow in foreign countries. This approach
is typically associated with managers from developed nations.
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61.
According to the naive immoralist,:
A. a multinational's home-country standards of ethics are the appropriate ones for
companies to follow in foreign countries.
B. the social responsibility of business is to increase profits, so long as the company
stays within the rules of law.
C. ethics are nothing more than the reflection of a
culture.
D. if firms in a host nation do not follow ethical norms then the manager of a
multinational should also not follow ethical norms there.
A naive immoralist asserts that if a manager of a multinational sees that firms from
other nations are not following ethical norms in a host nation, that manager should
not either.
62.
An American manager in Colombia routinely pays off the local drug lord to guarantee
that his plant will not be bombed and that none of his employees will be kidnapped.
The manager argues that such payments are ethically defensible because everyone
is doing it. The manager's argument exemplifies which of the following ethical
approaches?
A. Naive
immoralist
B. Kantian
ethics
C. Righteous
moralist
D. Noblesse
oblige
A naive immoralist asserts that if a manager of a multinational sees that firms from
other nations are not following ethical norms in a host nation, that manager should
not either. The classic example to illustrate the approach is known as the drug lord
problem.
63.
The utilitarian approach to business ethics suggests that:
A. people should be treated as ends and never purely as means to the ends
of others.
B. the moral worth of actions or practices is determined by their
consequences.
C. people have dignity and need to be treated
as such.
D. human beings have fundamental rights and privileges that transcend
national cultures.
Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences. An action is judged desirable if it leads to the
best possible balance of good consequences over bad consequences.
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64.
According to the _____ approach, the best decisions are those that produce the
greatest good for the greatest number of people.
A. naive
immoralist
B. Friedman
doctrine
C. Kantian
ethics
D. utilitari
an
The best decisions, from a utilitarian perspective, are those that produce the greatest
good for the greatest number of people.
65.
The products of Carmen Stores, an international sports apparel chain, are
manufactured in sweat factories in China. According to the company president, using
sweatshop labor offers a means of livelihood to children and young adults, as well as
supplies good quality apparel to customers at a lower cost. She asserts that the
actions of the company are justified because it results in the benefit of the maximum
number of people. The company president's argument is based on which of the
following ethical viewpoints?
A. The righteous
moralist
B. The Friedman
doctrine
C. Kantian approach to business
ethics
D. Utilitarian approach to business
ethics
As a philosophy for business ethics, utilitarianism focuses attention on the need to
weigh carefully all of the social benefits and costs of a business action and to pursue
only those actions where the benefits outweigh the costs. The best decisions, from a
utilitarian perspective, are those that produce the greatest good for the greatest
number of people.
66.
The Kantian approach to ethics suggests that:
A. human beings have fundamental rights and privileges that transcend national
boundaries.
B. the moral worth of actions or practices is determined by their
consequences.
C. people should be treated as ends and never purely as means to the ends
of others.
D. ethics are nothing more than the reflection of
culture.
Kantian ethics hold that people should be treated as ends and never purely as means
to the ends of others.
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67.
Identify the correct statement about the rights theories.
A. Human beings have fundamental rights and privileges that transcend national
boundaries.
B. The moral worth of actions or practices is determined by their
consequences.
C. People should be treated as ends never purely as means to the ends
of others.
D. The only social responsibility of business is to increase profits, so long as the
company stays within the rules of law.
Developed in the twentieth century, rights theories recognize that human beings
have fundamental rights and privileges that transcend national boundaries and
cultures.
68.
Which of the following persons believed that people should be treated as ends and
never purely as means to the ends of others?
A. John Stuart
Mill
B. Immanuel
Kant
C. Milton
Friedman
D. David
Hume
Kantian ethics are based on the philosophy of Immanuel Kant (1724-1804). Kantian
ethics hold that people should be treated as ends and never purely as means to the
ends of others. People are not instruments, like a machine.
69.
The United Nations Universal Declaration of Human Rights, related to employment,
upholds all of the following EXCEPT:
A. just and favorable work
conditions.
B. equal pay for equal
work.
C. prohibition of trade
unions.
D. protection against
unemployment.
Article 23 of the United Nations Universal Declaration of Human Rights states:
Everyone has the right to form and to join trade unions for the protection of his
interests.
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70.
Article 1 of the United Nations Universal Declaration of Human Rights states: All
human beings are born free and equal in dignity and rights. This best echoes:
A. cultural
relativism.
B. Friedman
doctrine.
C. the righteous moralist
approach.
D. Kantian
ethics.
Echoing Kantian ethics, Article 1 of the United Nations Universal Declaration of
Human Rights states: All human beings are born free and equal in dignity and rights.
They are endowed with reason and conscience and should act towards one another in
a spirit of brotherhood.
71.
Which of the following statements is true about the United Nations Universal
Declaration of Human Rights?
A. It transcends national
borders.
B. It states that human rights are culturally
determined.
C. It states that an action is judged desirable if it leads to the best possible balance of
good consequences over bad consequences.
D. It states that the only social responsibility of business is to increase profits, so long
as the company stays within the rules of law.
The notion that there are fundamental rights that transcend national borders and
cultures was the underlying motivation for the United Nations Universal Declaration
of Human Rights, which has been ratified by almost every country on the planet and
lays down basic principles that should always be adhered to irrespective of the
culture in which one is doing business.
72.
Justice theories of business ethics focus on:
A. the moral worth of actions or
practices.
B. minimum levels of morally acceptable
behavior.
C. fundamental rights and privileges that transcend national
boundaries.
D. the attainment of an equitable distribution of goods and
services.
A just distribution is one that is considered fair and equitable. Rawls argues that all
economic goods and services should be distributed equally except when an unequal
distribution would work to everyone's advantage.
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73.
According to John Rawls:
A. each person should be permitted the maximum amount of basic liberty compatible
with a similar liberty for others.
B. freedom of speech and assembly is the single most important component in a
justice system.
C. equal basic liberty is impossible in a pure market
economy.
D. ethics is culturally
determined.
According to Rawls, valid principles of justice are those with which all persons would
agree if they could freely and impartially consider the situation. One such principle is
that each person be permitted the maximum amount of basic liberty compatible with
a similar liberty for others.
74.
Rawls' philosophy that inequalities are justified if they benefit the position of the
least-advantaged person is known as the:
A. inequality
principle.
B. equity
principle.
C. difference
principle.
D. ignorance veil
principle.
John Rawls formulated what he called the difference principle, which is that
inequalities are justified if they benefit the position of the least-advantaged person.
75.
According to John Rawl's difference principle,:
A. certain people or institutions are obligated to provide benefits or services that
secure the rights of others.
B. fundamental human rights should transcend national borders
and cultures.
C. the best decisions are those that produce the greatest good for the greatest
number of people.
D. inequalities are justified if they benefit the position of the leastadvantaged person.
John Rawls formulated what he called the difference principle, which is that
inequalities are justified if they benefit the position of the least-advantaged person.
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76.
External stakeholders:
A. are individuals or groups who own the
business.
B. include all employees, the board of directors, and
stockholders.
C. typically comprise customers, suppliers,
lenders, etc.
D. are individuals or groups who work for the
business.
External stakeholders are all other individuals and groups that have some claim on
the firm. Typically, this group comprises customers, suppliers, lenders, governments,
unions, local communities, and the general public.
77.
Which of the following is NOT an example of internal stakeholders?
A. Employee
s
B. Custome
rs
C. Stockholde
rs
D. The board of
directors
Internal stakeholders include all employees, the board of directors, and stockholders.
External stakeholders are all other individuals and groups that have some claim on
the firm. Typically, this group comprises customers, suppliers, lenders, governments,
unions, local communities, and the general public.
78.
_____ means standing in the shoes of a stakeholder and asking how a proposed
decision might impact that stakeholder.
A. Veil of
ignorance
B. Difference
principle
C. Moral
imagination
D. Noblesse
oblige
Stakeholder analysis involves a certain amount of what has been called moral
imagination. This means standing in the shoes of a stakeholder and asking how a
proposed decision might impact that stakeholder.
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79.
Establishing _____ involves a business to resolve to place moral concerns ahead of
other concerns in cases where either the fundamental rights of stakeholders or key
moral principles have been violated.
A. a veil of
ignorance
B. a difference
principle
C. moral
imagination
D. moral
intent
Moral intent implies that a business must resolve to place moral concerns ahead of
other concerns in cases where either the fundamental rights of stakeholders or key
moral principles have been violated.
80.
Which of the following enables managers to walk away from a decision that is
profitable, but unethical?
A. Noblesse
oblige
B. Moral
courage
C. The difference
principle
D. The Friedman
doctrine
It is important to recognize that employees in an international business may need
significant moral courage. Moral courage enables managers to walk away from a
decision that is profitable but unethical.
Essay Questions
81.
What are business ethics? What is the relationship between business ethics and an
ethical strategy?
Business ethics are the accepted principles of right or wrong governing the conduct
of businesspeople. An ethical strategy is a strategy, or course of action, that does not
violate these accepted principles.
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82.
What is considered normal practice in one country may be considered unethical in
others. Discuss.
Many of the ethical issues and dilemmas in international business are rooted in the
fact that political systems, law, economic development, and culture vary significantly
from nation to nation. Therefore, what might be considered a normal business
practice in one country may constitute unethical behavior in another country.
Managers in a multinational company need to be sensitive to these differences and
choose the ethical action in those circumstances where variation across societies
creates the potential for ethical problems. In the international business setting, the
most common ethical issues involve employment practices, human rights,
environmental regulations, corruption, and the moral obligation of multinational
corporations.
83.
Discuss how companies such as Exxon, Kodak, and IBM helped improve human rights
in South Africa.
During the 1980s, many American companies doing business in South Africa realized
that following the Sullivan principles of not obeying apartheid laws and trying to
promote their abolition was not a sufficiently ethical strategy. Consequently, many
companies divested their holdings in the nation. At the same time, the U.S.
government and other nations imposed economic sanctions on the country. Together,
these actions helped bring about democratic elections in the nation in 1994, and an
end to white minority rule.
84.
Should a multinational feel free to pollute in a developing nation?
This question is designed to stimulate classroom discussion or the personal opinion of
the student. Issues that might emerge include whether there is any danger that
amoral management might move production to a developing nation precisely
because costly pollution controls are not required, the notion that the environment is
public good that no one owns, but that anyone can despoil, human-induced global
warming, and legality of various actions.
85.
What is the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions?
In 1997, the OECD adopted the Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions. The convention obliges member
states to make the bribery of foreign public officials a criminal offense. The
convention excludes facilitating payments made to expedite routine government
action from the convention.
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86.
In your opinion, are bribes ever acceptable? Why or why not?
This question is designed to allow the students to explore the idea of bribery as
possibly resulting in a positive rather than a negative outcome. Some economists
have suggested that corruption might in fact improve efficiency and help growth.
Others however, argue that corruption simply reduces the returns on business
investment and leads to low economic growth.
87.
Discuss the notion of social responsibility. What does it mean for corporations?
The concept of social responsibility refers to the idea that businesspeople should
consider the social consequences of economic actions when making business
decisions, and that there should be a presumption in favor of decisions that have
both good economic and social consequences. In a business setting, social
responsibility means that benevolent behavior is the responsibility of successful
enterprises.
88.
What are ethical dilemmas? Why do they exist?
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable. Ethical dilemmas exist because many real-world decisions are
complex, difficult to frame, and involve first-, second-, and third-order consequences
that are hard to quantify. To deal with these situations, managers need a moral
compass to guide them through the dilemma to find an acceptable solution.
89.
Why do managers behave in a manner that is unethical?
The causes that contribute to unethical behavior in businesses are very complex.
However, a few generalizations can be made. Unethical behavior is rooted in poor
personal ethics, societal culture, the psychological and geographical distances of a
foreign subsidiary from the home office, a failure to incorporate ethical issues into
strategic and operational decision making, a dysfunctional culture, and failure of
leaders to act in an ethical manner.
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90.
Why are expatriate managers at a greater risk of violating their personal code of
ethics?
Expatriate managers may experience more than the usual degree of pressure to
violate their personal ethics. They are away from their ordinary social context and
supporting culture, and they are psychologically and geographically distant from the
parent company. They may be based in a culture that does not place the same value
on ethical norms important in the manager's home country, and they may be
surrounded by local employees who have less rigorous ethical standards. The parent
company may pressure expatriate managers to meet unrealistic goals that can only
be fulfilled by acting unethically. For example, to meet centrally mandated
performance goals, expatriate managers might give bribes to win contracts. Local
managers might encourage the expatriate to adopt such behavior. Due to its
geographical distance, the parent company may be unable to see how expatriate
managers are meeting goals, or may choose not to see how they are doing so,
allowing such behavior to flourish and persist.
91.
Explain the Friedman doctrine. Who developed the philosophy? How well does this
approach hold up ethically?
In 1970, Milton Friedman suggested that the only social responsibility of business is
to increase profits, so long as the company stays within the rules of law. He explicitly
rejects the idea that business should undertake social expenditures beyond those
mandated by the law and required for the efficient running of a business. Friedman
does state that businesses should behave in an ethical manner and not engage in
deception and fraud, however, most economists believe that his approach to ethics
does not hold up well. For example, even though child labor may not be against the
law in a particular country, it is still unethical to use child labor.
92.
Discuss the cultural relativism approach to business ethics. What is the connection
between this approach and the phrase "When in Rome do as the Romans"? How well
does this approach hold up ethically?
The cultural relativism approach is the belief that ethics are nothing more than the
reflection of a culture and accordingly, a firm should adopt the ethics of the culture in
which it is operating. This approach is often summarized by the maxim "When in
Rome do as the Romans." Cultural relativism does not stand up well to business
ethics because it suggests that if a culture allows slavery, then it is acceptable for a
firm to use slaves as well. Cultural relativism implicitly rejects the idea that universal
notions of morality transcend different cultures, however, some universal notions of
morality are found across cultures.
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93.
Discuss the naive immoralist's approach to business ethics. What are the criticisms of
this approach?
The naive immoralist asserts that if a manager of a multinational sees that firms from
other nations are not following ethical norms in a host nation, that manager should
not either. This approach has been criticized with the argument that simply accepting
an action as being ethically justified just because everyone is doing it is not sufficient.
Moreover, the multinational company does have the ability to change the prevailing
practice in the country.
94.
Discuss the utilitarian approach to business ethics. When was this approach
developed? What are its drawbacks?
The utilitarian approach to business ethics was developed in the 18th and 19th
centuries by philosophers such as David Hume, Jeremy Bentham, and John Stuart Mill.
The utilitarian approach to ethics holds that the moral worth of actions or practices is
determined by their consequences. An action is judged to be desirable if it leads to
the best possible balance of good consequences over bad consequences. The best
decisions are those that produce the greatest good for the greatest number of
people.
This approach has certain limitations. One serious drawback of the utilitarian
approach is that it is difficult to measure the benefits, costs, and risks of a course of
action. A second problem is that the philosophy omits the consideration of justice.
95.
What is the veil of ignorance? Why is it important to business?
The veil of ignorance was developed by John Rawls as part of his approach to justice
theories. According to Rawls, valid principles of justice are those with which all
persons would agree if they could freely and impartially consider the situation.
Impartiality is guaranteed by the veil of ignorance. Under the veil of ignorance,
everyone is imagined to be ignorant of all of his/her particular characteristics. Under
these conditions everyone would agree that (1) each person be permitted the
maximum amount of basic liberty compatible with a similar liberty for others, and (2)
once basic liberty is assured, inequality in basic social goods is to be allowed only if
such inequalities benefit everyone.
96.
What are the ways in which international business and its managers can ensure that
ethical issues are considered in business decisions?
An international business and its managers can take several steps to make sure
ethical issues are considered in business decisions. Some of these are: (1) favor
hiring and promoting people with a well-grounded sense of personal ethics; (2) build
an organizational culture that places a high value on ethical behavior; (3) make sure
that leaders within the business not only articulate the rhetoric of ethical behavior,
but also act in a manner that is consistent with that rhetoric; (4) put decision-making
processes in place that require people to consider the ethical dimension of business
decisions; and (5) develop moral courage.
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97.
What is a code of ethics?
A code of ethics is a formal statement of the ethical priorities a business adheres to.
Often, the code of ethics draws heavily upon documents such as the UN Universal
Declaration of Human Rights, which itself is grounded in Kantian and rights-based
theories of moral philosophy.
98.
Describe the five-step process that businesses can use to think through ethical
problems?
Some experts on ethics have recommended a five-step process to think through
ethical problems. In step 1, businesspeople should identify which stakeholders a
decision would affect and in what ways. Stakeholder analysis involves a certain
amount of moral imagination. Step 2 involves judging the ethics of the proposed
strategic decision, given the information gained in step 1. Managers need to
determine whether a proposed decision would violate the fundamental rights of any
stakeholders. Step 3 requires managers to establish moral intent. This means the
business must resolve to place moral concerns ahead of other concerns in cases
where either the fundamental rights of stakeholders or key moral principles have
been violated. Step 4 requires the company to engage in ethical behavior. Step 5
requires the business to audit its decisions, reviewing them to make sure they were
consistent with ethical principles, such as those stated in the company's code of
ethics.
99.
Why do organizations appoint an ethics officer?
To make sure that a business behaves in an ethical manner, a number of firms now
have ethics officers. These individuals are responsible for making sure that all
employees are trained to be ethically aware, that ethical considerations enter the
business decision-making process, and that the company's code of ethics is followed.
Ethics officers may also be responsible for auditing decisions to make sure they are
consistent with this code. In many businesses, ethics officers act as an internal
ombudsperson with responsibility for handling confidential inquiries from employees,
investigating complaints from employees or others, reporting findings, and making
recommendations for change.
100.
How can companies strengthen the moral courage of employees?
Companies can strengthen the moral courage of employees by committing
themselves to not retaliate against employees who exercise moral courage, say no to
superiors, or otherwise complain about unethical actions. Companies can also set up
ethics hotlines, which allow employees to anonymously register a complaint with a
corporate ethics officer.
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IB testbank chap 6
Consumer Behavior (Đại học Western Sydney)
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Chapter 06 International Trade Theory Answer Key
True / False Questions
1.
Free trade refers to a situation where a government does not attempt to influence through
quotas or duties what its citizens can buy from another country.
TRUE
Free trade refers to a situation where a government does not attempt to influence through
quotas or duties what its citizens can buy from another country, or what they can produce
and sell to another country.
2.
The theories of Smith and Ricardo show that countries should not engage in international
trade for products that it is able to produce for itself.
FALSE
The theories of Smith, Ricardo, and Heckscher-Ohlin show why it is beneficial for a country
to engage in international trade even for products it is able to produce for itself.
3.
David Ricardo's theory of comparative advantage explains international trade in terms of
international differences in political environments.
FALSE
David Ricardo's theory of comparative advantage explains international trade in terms of
international differences in labor productivity.
4.
New trade theory stresses that in some cases countries specialize in the production and
export of particular products because the world market can support only a limited number of
firms.
TRUE
New trade theory stresses that in some cases countries specialize in the production and
export of particular products not because of underlying differences in factor endowments,
but because in certain industries the world market can support only a limited number of
firms.
5.
Porter's theory of national competitive advantage recommends unrestricted free trade
between countries.
FALSE
Porter's theory of national competitive advantage can be interpreted as justifying some
limited government intervention to support the development of certain export-oriented
industries.
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6.
Heckscher-Ohlin theory supports the case for unrestricted free trade between nations.
TRUE
The theories of Smith, Ricardo, and Heckscher-Ohlin support the case for unrestricted free
trade.
7.
Mercantilism supports the idea that countries should export more than what they import.
TRUE
The main tenet of mercantilism was that it is in a country's best interests to maintain a trade
surplus, to export more than it imported.
8.
Mercantilist doctrine advocates unrestricted free trade between countries.
FALSE
Mercantilist doctrine advocated government intervention to achieve a surplus in the balance
of trade.
9.
The principle of mercantilism views trade as a positive-sum game.
FALSE
The flaw with mercantilism was that it viewed trade as a zero-sum game.
10.
A country has an absolute advantage in the production of a product when it is more efficient
than any other country in producing it.
TRUE
A country has an absolute advantage in the production of a product when it is more efficient
than any other country in producing it.
11.
Adam smith argued that countries should specialize in the production of goods for which
they have an absolute advantage.
TRUE
According to Smith, countries should specialize in the production of goods for which they
have an absolute advantage and then trade these for goods produced by other countries.
12.
According to Ricardo's theory of comparative advantage, countries should produce all the
products for which they have an absolute advantage.
FALSE
According to Ricardo's theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy the
goods that it produces less efficiently from other countries.
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13.
According to Ricardo's theory of comparative advantage, countries shall not produce a good
even if they have an absolute advantage in its production.
TRUE
According to Ricardo's theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy the
goods that it produces less efficiently from other countries even if the country has an
absolute advantage over its production.
14.
The theory of comparative advantage suggests that trade is a positive-sum game in which
all countries that participate realize economic gains.
TRUE
The theory of comparative advantage suggests that trade is a positive-sum game in which
all countries that participate realize economic gains.
15.
Simple model of free trade assumed away transportation costs between countries.
TRUE
Simple model of free trade assumed away transportation costs between countries.
16.
Resources always move easily from one economic activity to another.
FALSE
Resources do not always move easily from one economic activity to another.
17.
The production possibility frontier will be parabolic if constant return to specialization is
observed.
FALSE
Constant returns to specialization mean that the units of resources required to produce a
good are assumed to remain constant no matter where one is on a country's production
possibility frontier. Thus the production possibility frontier will be a straight line.
18.
The production possibility frontier will be convex if constant return to specialization is
observed.
FALSE
Constant returns to specialization means that the units of resources required to produce a
good (cocoa or rice) are assumed to remain constant no matter where one is on a country's
production possibility frontier (PPF). In this case, the PPF will be a straight line.
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19.
Diminishing returns show that it is feasible for a country to specialize to the degree
suggested by the simple Ricardian model.
FALSE
Diminishing returns show that it is not feasible for a country to specialize to the degree
suggested by the simple Ricardian model.
20.
The simple comparative advantage model assumed that trade does not change a country's
stock of resources or the efficiency with which it utilizes those resources.
TRUE
The simple comparative advantage model assumed that trade does not change a country's
stock of resources or the efficiency with which it utilizes those resources.
21.
According to Paul Samuelson's critique, a poor country will rapidly improve its productivity if
a rich country enters into a free trade agreement with it.
TRUE
Paul Samuelson's critique argues that when a rich country enters into a free trade
agreement with a poor country, there will be a dynamic gain in the efficiency with which
resources are used in the poor country. The poor country's productivity will improve rapidly.
22.
Paul Samuelson's critique argues that trade is a positive-sum game in which all countries
that participate realize economic gains.
FALSE
Paul Samuelson's critique argues that when a rich country enters into a free trade
agreement with a poor country, only the poor country benefits from the relationship.
23.
A rich country improves its productivity by engaging in free trade with a poor country. This
situation supports Paul Samuelson's critique.
FALSE
Paul Samuelson's critique argues that when a rich country enters into a free trade
agreement with a poor country, only the poor country benefits from the relationship.
24.
Factor endowments refer to the extent to which a country is gifted with such resources as
land, labor, and capital.
TRUE
Factor endowments refer to the extent to which a country is endowed with such resources
as land, labor, and capital.
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25.
The Heckscher-Ohlin theory predicts that countries will export those goods that make
intensive use of factors that are locally scarce.
FALSE
The Heckscher-Ohlin theory predicts that countries will export those goods that make
intensive use of factors that are locally abundant, while importing goods that make intensive
use of factors that are locally scarce.
26.
Heckscher-Ohlin theory stresses that comparative advantage arises from differences in
productivity.
FALSE
Unlike Ricardo's theory, however, the Heckscher-Ohlin theory argues that the pattern of
international trade is determined by differences in factor endowments, rather than
differences in productivity.
27.
The Heckscher-Ohlin theory argues that the pattern of international trade is determined by
differences in factor endowments.
TRUE
The Heckscher-Ohlin theory argues that the pattern of international trade is determined by
differences in factor endowments.
28.
Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin
theory.
FALSE
Most economists prefer the Heckscher-Ohlin theory to Ricardo's theory because it makes
fewer simplifying assumptions.
29.
A capital intensive country exports products that are capital intensive. This is an example of
Leontief Paradox.
FALSE
The Leontief Paradox explains a deviation of the Heckscher-Ohlin theory. The given
situation follows the Heckscher-Ohlin theory.
30.
A key assumption in the Heckscher-Ohlin theory is that technologies are the same across
countries.
TRUE
A key assumption in the Heckscher-Ohlin theory is that technologies are the same across
countries.
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31.
The product life-cycle theory argues that a large proportion of the world's new products had
been developed by U.S. firms.
TRUE
The product life-cycle theory argues that a large proportion of the world's new products had
been developed by U.S. firms.
32.
The product life-cycle theory argues that the developing nations will not produce a product if
the product is highly standardized.
FALSE
The product life-cycle theory argues that the developing nations will produce a product only
when the product becomes highly standardized.
33.
Some of the arguments made by the product life-cycle theory seems ethnocentric and
increasingly dated when viewed from an Asian or European perspective.
TRUE
Viewed from an Asian or European perspective, the theory's argument that most new
products are developed and introduced in the United States seems ethnocentric and
increasingly dated.
34.
Economies of scale are unit cost reductions associated with a large scale of output.
TRUE
Economies of scale are unit cost reductions associated with a large scale of output.
35.
Companies that trade small volumes of product can benefit from economies of scale.
FALSE
Economies of scale are unit cost reductions associated with a large scale of output. This
means that companies that trade in large volumes benefit from the economies of scale.
36.
Variety of goods that a country can produce is limited by the size of the market in industries
where economies of scale are important.
TRUE
In industries where economies of scale are important, both the variety of goods that a
country can produce and the scale of production are limited by the size of the market.
37.
First-mover advantages are the economic and strategic advantages that accrue to early
entrants into an industry.
TRUE
First mover advantages are the economic and strategic advantages that accrue to early
entrants into an industry.
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38.
New trade theory suggests that nations cannot benefit from trade when they do not differ in
resource endowments or technology.
FALSE
New trade theory suggests that nations may benefit from trade even when they do not differ
in resource endowments or technology.
39.
According to the new trade theory, firms that establish a first-mover advantage with regard to
the production of a particular new product may subsequently dominate global trade in that
product.
TRUE
According to the new trade theory, firms that establish a first-mover advantage with regard to
the production of a particular new product may subsequently dominate global trade in that
product.
40.
The theories of international trade claim that promoting free trade is generally in the best
interests of an individual firm, although it may not always be in the best interest of a country.
FALSE
The theories of international trade claim that promoting free trade is generally in the best
interests of a country, although it may not always be in the best interest of an individual firm.
Multiple Choice Questions
41.
Which of the following refers to a situation where a government does not attempt to
influence through quotas or duties what its citizens can buy from another country?
A Economic
. patriotism
B Protectioni
. sm
C Free
. trade
D Offshori
. ng
Free trade refers to a situation where a government does not attempt to influence through
quotas or duties what its citizens can buy from another country, or what they can produce
and sell to another country.
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42.
Which of the following is a major benefit of engaging in free trade?
A It helps to reduce the financial volatility in global
. markets.
B It helps the countries protect the jobs that are available to their
. citizens.
C It gives countries access to products that they cannot
. produce.
D It allows the governments to exert more control on
. businesses.
Countries can benefit from exchanging goods that they can produce efficiently to obtain
products that they cannot produce.
43.
David Ricardo's theory of comparative advantage explains global trade in terms of the
_____.
A first mover advantage that certain countries and firms
. enjoy
B geographical differences between various
. countries
C international differences in labor
. productivity
D late mover advantage that certain countries and firms
. possess
David Ricardo's theory of comparative advantage offers an explanation in terms of
international differences in labor productivity.
44.
Which of the following theories emphasizes the interplay between the proportions in which
the factors of production are available in different countries and the proportions in which they
are needed for producing particular goods?
A Porter's
. theory
B Smith's
. theory
C Ricardo's
. theory
D Heckscher-Ohlin
. theory
The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the
factors of production (such as land, labor, and capital) are available in different countries and
the proportions in which they are needed for producing particular goods.
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45.
Identify the theory that supports the view that in some cases countries export for the reason
that the world market can support only a limited number of firms.
A Heckscher-Ohlin
. theory
B Smith's
. theory
C Ricardo's
. theory
D New trade
. theory
New trade theory stresses that in some cases countries specialize in the production and
export of particular products not because of underlying differences in factor endowments,
but because in certain industries the world market can support only a limited number of
firms.
46.
Country A exports electronic goods from Country B although there are no underlying
differences in factor endowments between the two countries. Which of the following theories
explains this anomaly?
A Comparative advantage
. theory
B New trade
. theory
C Ricardo's
. theory
D Smith's
. theory
New trade theory stresses that in some cases countries specialize in the production and
export of particular products not because of underlying differences in factor endowments,
but because in certain industries the world market can support only a limited number of
firms.
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47.
Which of the following observations is consistent with Michael Porter's theory of national
competitive advantage?
A Factors such as domestic demand and domestic rivalry determine nations' dominance on
. production.
B Countries should produce only those goods for which they have a comparative
. advantage.
C Interplay between the factors of production cause international marketing
. decisions.
D International differences in labor productivity determine nations' supremacy in
. production.
Michael Porter's theory of national competitive advantage attempts to explain why particular
nations achieve international success in particular industries. In addition to factor
endowments, Porter points out the importance of country factors such as domestic demand
and domestic rivalry in explaining a nation's dominance in the production and export of
particular products.
48.
Which of the following is a theory that can be used to justify limited government intervention
to support the development of certain export-oriented industries?
A Comparative advantage
. theory
B Ricardo's
. theory
C New trade
. theory
D Heckscher-Ohlin
. theory
Both the new trade theory and Porter's theory of national competitive advantage can be
interpreted as justifying some limited government intervention to support the development of
certain export-oriented industries.
49.
Which of the following is the main principle of mercantilism?
A Protection of domestic industries is not essential for a nation's
. welfare.
B Government intervention is not required in global
. trade.
C Countries should encourage absolute free
. trade.
D It is in a country's best interests to maintain a trade
. surplus.
The main tenet of mercantilism was that it was in a country's best interests to maintain a
trade surplus, to export more than it imported. By doing so, a country would accumulate gold
and silver and, consequently, increase its national wealth, prestige, and power.
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50.
Which of the following is a major flaw associated with mercantilism?
A Mercantilists do not support government intervention in
. trade.
B Mercantilists view trade as a zero-sum
. game.
C Mercantilists recommend policies to maximize
. imports.
D Mercantilists recommend countries to maintain a negative trade
. balance.
The flaw with mercantilism was that it viewed trade as a zero-sum game. A zero-sum game
is one in which a gain by one country results in a loss by another.
51.
A country has an absolute advantage in the production of a product when it _____.
A has the capability to produce the product within its
. boundaries
B is more efficient than any other country in
. producing it
C has the largest domestic demand for the
. product
D has access to the raw materials needed to produce the
. product
A country has an absolute advantage in the production of a product when it is more efficient
than any other country in producing it.
52.
According to Adam Smith, A country should specialize in the production of a good when it
has _____.
A an absolute advantage in the production of the
. good
B a strong domestic demand for the
. good
C the ability to help country increase its national
. output
D the necessary raw materials for
. production
According to Smith, countries should specialize in the production of goods for which they
have an absolute advantage and then trade these for goods produced by other countries.
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53.
Country A can produce product X, but it can also buy it at a cheap rate from Country B.
Which of the following courses of action is suitable in this situation according to Adam
Smith's theory of absolute advantage?
A Country A should import product X from country B and it should not attempt to produce it
. at home.
B Country A should partly import the product and produce it
. domestically.
C Country A should produce more of product X and should attempt to obtain an absolute
. advantage for the product.
D Country A should subsidize the production of product X to obtain an absolute advantage
. over country B.
Smith's basic argument is that a country should never produce goods at home that it can
buy at a lower cost from other countries.
54.
According to Ricardo's theory of comparative advantage, a country should produce goods
_____.
A for which it has access to raw
. materials
B that it produces most
. efficiently
C that have the highest domestic
. demand
D for which it has an absolute
. advantage
According to Ricardo's theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy the
goods that it produces less efficiently from other countries, even if this means buying goods
from other countries that it could produce more efficiently itself.
55.
Which of the following is a statement that supports the theory of comparative advantage?
A International trade is a zero-sum gain where one nation's gain is another's
. loss.
B Domestic industries are at risk when a country engages in free
. trade.
C A country should maintain trade surplus to succeed in global
. trade.
D Global production is greater with free trade than it is with restricted
. trade.
The basic message of the theory of comparative advantage is that potential world production
is greater with unrestricted free trade than it is with restricted trade.
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56.
The theory of comparative advantage provides strong rationale for supporting the idea of
_____.
A business
. nationalism
B free
. trade
C protectioni
. sm
D governmental intervention in
. trade
The theory of comparative advantage suggests that trade is a positive-sum game in which
all countries that participate realize economic gains. As such, this theory provides a strong
rationale for encouraging free trade.
57.
Diminishing returns to specialization occurs when _____.
A each additional unit is produced with lesser number of
. laborers
B a nation's gross domestic product declines for a few
. years
C production possibility frontier appears as a
. rectangle
D more units of resources are required to produce each additional
. unit
Diminishing returns to specialization occurs when more units of resources are required to
produce each additional unit.
58.
Which of the following is a major limitation of the simple Ricardian model of comparative
advantage?
A The model ignores the principle of diminishing marginal
. returns.
B The model recommends excessive governmental intervention in
. trade.
C The outcome of the model suggested by Ricardo is a zero-sum
. game.
D The model is against the idea of engaging in free trade with
. nations.
Diminishing returns show that it is not feasible for a country to specialize to a great extent.
Ricardian model ignores this principle of diminishing returns.
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59.
What will happen, according to Paul Samuelson's critique, if a rich country enters into a free
trade agreement with a poor country?
A Both the countries will incur losses due to the exchanges between
. them.
B The productivity of the poor country will decline
. rapidly.
C The poor country will rapidly improve its
. productivity.
D Both the countries will garner benefits from the exchanges between
. them.
Paul Samuelson's critique argues that when a rich country enters into a free trade
agreement with a poor country, there will be a dynamic gain in the efficiency with which
resources are used in the poor country. The poor country's productivity will improve rapidly.
60.
Which of the following arguments supports the Paul Samuelson's critique?
A A rich country cannot produce net gains by engaging in free trade with a poor
. country.
B Governmental intervention will reduce the likeliness of countries' economic
. success.
C Countries should attempt to specialize in the production of goods and
. services.
D Trade is a positive-sum game in which all countries that participate realize economic
. gains.
Paul Samuelson's critique argues that when a rich country enters into a free trade
agreement with a poor country, only the poor country benefits from the relationship.
61.
Which of the following terms refers to the extent to which a country is gifted with such
resources as land, labor, and capital?
A Current
. accounts
B Factor
. endowments
C National
. balance
D National
. accounts
Factor endowments refer to the extent to which a country is endowed with such resources
as land, labor, and capital.
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62.
Identify the theory that predicts that countries will export those goods that make intensive
use of factors that are locally abundant.
A Theory of comparative
. advantage
B Ricardo
. theory
C New trade
. theory
D Heckscher-Ohlin
. theory
The Heckscher-Ohlin theory predicts that countries will export those goods that make
intensive use of factors that are locally abundant, while importing goods that make intensive
use of factors that are locally scarce.
63.
Which of the following is the reason why most economists prefer Heckscher-Ohlin theory to
Ricardo's theory?
A Heckscher-Ohlin stresses on the differences in productivity between
. nations.
B Ricardo's theory considers factor endowments to describe national
. competitiveness.
C Heckscher-Ohlin theory makes fewer simplifying
. assumptions.
D Ricardo's theory considers the law of marginal
. returns.
Most economists prefer the Heckscher-Ohlin theory to Ricardo's theory because it makes
fewer simplifying assumptions.
64.
Which of the following statements is true of the Leontief Paradox?
A It shows an anomaly that occurs when a nation has high domestic demand for a
. product.
B It explains the relationship between domestic demand and comparative
. advantage.
C It disproved Ricardo's theory of comparative
. advantage.
D It raised questions about the validity of the Heckscher-Ohlin
. theory.
Leontief Paradox raised questions about the validity of the Heckscher-Ohlin theory.
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65.
Identify the theory that argues that advanced nations have an incentive to develop a new
offering and hence such nations always tend to create a good or service for the first time.
A Absolute
. advantage
B Ricar
. do
C Product life. cycle
D Heckscher. Ohlin
The theory argues that the wealth of such advanced countries as the United States gives
them an incentive to develop new consumer goods. Such nations always develop new
products.
66.
Country X, a poor country, invents a revolutionary electronic product. The country markets
this new product in other poor countries to garner large profits. This occurrence is against
the idea of _____.
A product life-cycle
. theory
B Ricardo's
. theory
C theory of absolute
. advantage
D theory of comparative
. advantage
The theory argues that the wealth of such advanced countries as the United States gives
them an incentive to develop new consumer goods. The theory also argues that new
products are always introduced in developed nations.
67.
Which of the following is a major disadvantage of the product life-cycle theory introduced by
Vernon?
A The theory's arguments seem ethnocentric and increasingly
. dated.
B The theory failed to explain the dominance of developed
. nations.
C The theory applies only when a poor nation invents a new
. product.
D The theory cannot be used to explain the production of luxury
. products.
Vernon's argument that most new products are developed and introduced in the United
States seems ethnocentric and increasingly dated.
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68.
Which of the following terms refers to the unit cost reductions associated with large sized
outputs?
A Absolute advantage of
. production
B Economies of
. scale
C Constant marginal
. returns
D Diminishing marginal
. returns
Economies of scale are unit cost reductions associated with a large scale of output.
69.
Wal-Mart makes bulk purchases from its vendors and hence it is able to get better deals
than its competitors. This allows Wal-Mart to offer greater discounts to its customers. In this
case, Wal-Mart benefits from _____.
A first mover
. advantage
B constant marginal
. returns
C economies of
. scale
D absolute advantage of
. production
Economies of scale are unit cost reductions associated with a large scale of output. Here,
Wal-Mart is benefiting from the economies of scale.
70.
Company A entered the production of office software before its competitors. Because of this,
the company's products are more familiar among and favored by customers. This situation
exemplifies the _____.
A first mover
. advantage
B diminishing marginal
. returns
C economies of
. scale
D constant marginal
. returns
First mover advantages are the economic and strategic advantages that accrue to early
entrants into an industry.
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71.
Which of the following theories suggests that first mover advantage is significant in the
export of a good?
A Product life-cycle
. theory
B Ricardo's
. theory
C New trade
. theory
D Theory of comparative
. advantage
New Trade theory suggests that a country may predominate in the export of a good simply
because it was lucky enough to have one or more firms among the first to produce that
good. Because they are able to gain economies of scale, the first movers in an industry may
get a lock on the world market that discourages subsequent entry.
72.
Which of the following theories stress the role of luck, entrepreneurship, and innovation in
the production and export of a good or service by the firms in a country?
A Product life-cycle
. theory
B Ricardo's
. theory
C Theory of comparative
. advantage
D New trade
. theory
New Trade theory suggests that a country may predominate in the export of a good simply
because it was lucky enough to have one or more firms among the first to produce that
good. New trade theorists stress the role of luck, entrepreneurship, and innovation in giving
a firm first mover advantages.
73.
Which of the following is one of the four attributes present in Porter's diamond?
A Economies of
. scale
B Factor
. endowments
C Structural
. innovation
D Procedural
. innovation
Porter theorizes four broad attributes of a nation shape the environment in which local firms
compete. These four factors are factor endowments, demand conditions, relating and
supporting industries, and firm strategy, structure, and rivalry.
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74.
Which of the following is an example of a basic factor that a nation will possess as proposed
by Porter?
A Communication
. infrastructure
B Skilled
. labor
C Natural
. resources
D Technological
. knowledge
Such factors as natural resources, climate, location, and demographics are basic factors.
Factors such as communication infrastructure, sophisticated and skilled labor, research
facilities, and technological know-how are examples of and advanced factors.
75.
Which of the following factors, according to Porter's national Diamond, is most likely to give
a country competitive advantage over another country?
A Natural
. resources
B Clim
. ate
C Skilled
. labor
D Demographi
. cs
Factors such as communication infrastructure, sophisticated and skilled labor, research
facilities, and technological know-how are examples of and advanced factors. Porter argues
that advanced factors are the most significant for competitive advantage.
76.
Porter argues that a nation's firms gain competitive advantage if _____.
A their domestic consumers lack technical
. awareness
B they function in a labor intensive
. market
C the country has abundant supply of unskilled
. workers
D their domestic consumers are
. demanding
Porter argues that a nation's firms gain competitive advantage if their domestic consumers
are sophisticated and demanding.
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77.
Textile industry in a nation is characterized by vigorous domestic rivalry. Which of the
following observations of this nation's international competency is most likely to be true?
A The nation will have access to such basic factors of textile industry as natural
. resources.
B The nation's textile firms will have a competitive advantage in international
. trade.
C The domestic customers of the textile firms will be less
. demanding.
D The nation's textile industry will lack the advanced factors that are necessary to be
. internationally competent.
Porter's second point is that there is a strong association between vigorous domestic rivalry
and the creation and persistence of competitive advantage in an industry. Vigorous domestic
rivalry induces firms to look for ways to improve efficiency, which makes them better
international competitors.
78.
A country's balance-of-payments accounts keep track of the _____.
A basic factor endowments and advanced factor endowments that the nation
. possesses
B payments to and receipts from other countries for a particular time
. period
C income taxes paid by domestic firms and the spending on the
. firms
D total value of taxes paid by domestic firms and the spending on the
. firms
A country's balance-of-payments accounts keep track of the payments to and receipts from
other countries for a particular time period.
79.
Which of the following balance-of-payment accounts records one-time changes in the stock
of assets?
A Capital
. account
B Current
. account
C Financial
. account
D Monetary
. account
The capital account records one-time changes in the stock of assets.
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80.
Which of the following accounts records transactions that involve the purchase or sale of
assets?
A Capital
. account
B Current
. account
C Principal
. account
D Financial
. account
The financial account (formerly the capital account) records transactions that involve the
purchase or sale of assets.
Essay Questions
81.
Explain the concept of free trade.
Free trade refers to a situation where a government does not attempt to influence through
quotas or duties what its citizens can buy from another country, or what they can produce
and sell to another country. Smith, who proposed free trade, argued that the invisible hand
of the market mechanism, rather than government policy, should determine what a country
imports and what it exports.
82.
How does the Heckscher-Ohlin theory explain international trade?
The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the
factors of production (such as land, labor, and capital) are available in different countries and
the proportions in which they are needed for producing particular goods. This explanation
rests on the assumption that countries have varying endowments of the various factors of
production.
83.
Explain how the theories of trade differ in terms of their support to governmental
intervention.
The theories of Smith, Ricardo, and Heckscher-Ohlin form part of the case for unrestricted
free trade. The argument for unrestricted free trade is that both import controls and export
incentives (such as subsidies) are self-defeating and result in wasted resources. Both the
new trade theory and Porter's theory of national competitive advantage can be interpreted
as justifying some limited government intervention to support the development of certain
export-oriented industries.
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84.
What is the main principle of mercantilism?
The main tenet of mercantilism is that it is in a country's best interests to maintain a trade
surplus, to export more than it imported. By doing so, a country would accumulate gold and
silver and, consequently, increase its national wealth, prestige, and power.
85.
Identify a major flaw associated with mercantilism.
The flaw with mercantilism was that it viewed trade as a zero-sum game. A zero-sum game
is one in which a gain by one country results in a loss by another.
86.
Explain Smith's theory of absolute advantage.
A country has an absolute advantage in the production of a product when it is more efficient
than any other country in producing it.
According to Smith, countries should specialize in the production of goods for which they
have an absolute advantage and then trade these for goods produced by other countries.
87.
Explain Ricardo's theory of comparative advantage.
According to Ricardo's theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy the
goods that it produces less efficiently from other countries, even if this means buying goods
from other countries that it could produce more efficiently itself.
88.
What are the assumptions that we make when we discuss a simple Ricardian model to
support free trade?
1. We have assumed a simple world in which there are only two countries and two goods.
2. We have assumed away transportation costs between countries.
3. We have assumed away differences in the prices of resources in different countries.
4. We have assumed that resources can move freely from the production of one good to
another within a country.
5. We have assumed constant returns to scale.
6. We have assumed that each country has a fixed stock of resources and that free trade
does not change the efficiency with which a country uses its resources.
7. We have assumed away the effects of trade on income distribution within a country.
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89.
Briefly differentiate between constant returns to specialization and diminishing returns to
specialization.
By constant returns to specialization we mean the units of resources required to produce a
good (cocoa or rice) are assumed to remain constant no matter where one is on a country's
production possibility frontier (PPF). Diminishing returns to specialization occurs when more
units of resources are required to produce each additional unit.
90.
Explain how the principle of diminishing returns weakens the Ricardian model.
Diminishing returns show that it is not feasible for a country to specialize to the degree
suggested by the simple Ricardian model outlined earlier. Diminishing returns to
specialization suggest that the gains from specialization are likely to be exhausted before
specialization is complete.
91.
Explain the dynamic gains that are generated by opening an economy to trade.
First, free trade might increase a country's stock of resources as increased supplies of labor
and capital from abroad become available for use within the country.
Second, free trade might also increase the efficiency with which a country uses its
resources.
92.
Explain the Paul Samuelson's critique.
Paul Samuelson's critique looks at what happens when a rich country enters into a free
trade agreement with a poor country that rapidly improves its productivity after the
introduction of a free trade regime. Samuelson's model suggests that in such cases, the
lower prices that the rich country's consumers pay for goods imported from the poor country
following the introduction of a free trade regime may not be enough to produce a net gain for
the rich country's economy if the dynamic effect of free trade is to lower real wage rates in
the rich country.
93.
What are factor endowments?
Factor endowments refer to the extent to which a country is endowed with such resources
as land, labor, and capital. Nations have varying factor endowments, and different factor
endowments explain differences in factor costs.
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94.
Briefly explain Vernon's product life-cycle theory.
Vernon's theory was based on the observation that for most of the twentieth century a very
large proportion of the world's new products had been developed by U.S. firms and sold first
in the U.S. market. To explain this, Vernon argued that the wealth and size of the U.S.
market gave U.S. firms a strong incentive to develop new consumer products.
95.
Identify a major disadvantage of the product life-cycle theory.
Viewed from an Asian or European perspective, Vernon's argument that most new products
are developed and introduced in the United States seems ethnocentric and increasingly
dated. This is a major disadvantage of the product life-cycle theory.
96.
What are the sources of economies of scale?
Economies of scale are unit cost reductions associated with a large scale of output.
Economies of scale have a number of sources, including the ability to spread fixed costs
over a large volume, and the ability of large-volume producers to utilize specialized
employees and equipment that are more productive than less specialized employees and
equipment.
97.
What are first-mover advantages?
First-mover advantages are the economic and strategic advantages that accrue to early
entrants into an industry. The ability to capture scale economies ahead of later entrants, and
thus benefit from a lower cost structure, is an important first-mover advantage.
98.
Do you think a new trade theorist would stress the role of luck and entrepreneurship?
Explain.
Perhaps the most contentious implication of the new trade theory is the argument that it
generates for government intervention and strategic trade policy. New trade theorists stress
the role of luck, entrepreneurship, and innovation in giving firm first-mover advantages.
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99.
What are the four attributes that are discussed in Porter's diamond?
The four factors are:
(1) Factor endowments — a nation's position in factors of production such as skilled labor or
the infrastructure necessary to compete in a given industry.
(2) Demand conditions — the nature of home demand for the industry's product or service.
(3) Relating and supporting industries — the presence or absence of supplier industries and
related industries that are internationally competitive.
(4) Firm strategy, structure, and rivalry — the conditions governing how companies are
created, organized, and managed and the nature of domestic rivalry.
100.
Explain how the rivalry within an industry affects international competence.
Porter's second point is that there is a strong association between vigorous domestic rivalry
and the creation and persistence of competitive advantage in an industry. Vigorous domestic
rivalry induces firms to look for ways to improve efficiency, which makes them better
international competitors. Domestic rivalry creates pressures to innovate, to improve quality,
to reduce costs, and to invest in upgrading advanced factors. All this helps to create worldclass competitors.
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International business test bank chapter 7 mid-term
International Business (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)
Scan to open on Studocu
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Chapter 07 The Political Economy of International Trade Answer
Key
True / False Questions
1.
Tariffs are unambiguously pro-consumer and anti-producer.
FALSE
Tariffs are generally pro-producer and anti-consumer. While they
protect producers from foreign competitors, this restriction of supply
also raises domestic prices.
2.
Specific tariffs are levied as a proportion of the value of the imported
good.
FALSE
Tariffs fall into two categories. Specific tariffs are levied as a fixed
charge for each unit of a good imported. Ad valorem tariffs are levied
as a proportion of the value of the imported good.
3.
Export tariffs are far less common than import tariffs.
TRUE
Export tariffs are far less common than import tariffs.
4.
A subsidy helps domestic producers to compete against foreign
imports.
TRUE
A subsidy is a government payment to a domestic producer. By
lowering production costs, subsidies help domestic producers in two
ways: (1) competing against foreign imports and (2) gaining export
markets.
5.
Under a tariff rate quota, a higher tariff rate is applied to imports
within the quota than those over the quota.
FALSE
Under a tariff rate quota, a lower tariff rate is applied to imports
within the quota than those over the quota.
6.
A common hybrid of a quota and a rent is known as a quota rent.
FALSE
The extra profit that producers make when supply is artificially
limited by an import quota is referred to as a quota rent.
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7.
Unlike other trade policies, local content regulations tend to benefit
consumers and not producers.
FALSE
Local content regulations provide protection for a domestic producer
of parts in the same way an import quota does: by limiting foreign
competition. As with all trade policies, local content regulations tend
to benefit producers and not consumers.
8.
The Buy America Act specifies that government agencies must give
preference to American products when putting contracts for
equipment out to bid unless the foreign products have a significant
price disadvantage.
FALSE
A little-known law in the United States, the Buy America Act, specifies
that government agencies must give preference to American
products when putting contracts for equipment out to bid unless the
foreign products have a significant price advantage.
9.
Bureaucratic rules designed to make it difficult for imports to enter a
country are called local content requirements.
FALSE
A local content requirement is a requirement that some specific
fraction of a good be produced domestically. Administrative trade
policies are bureaucratic rules designed to make it difficult for
imports to enter a country.
10.
Local content regulations provide protection for a domestic producer
of parts by limiting foreign competition.
TRUE
Local content regulations provide protection for a domestic producer
of parts in the same way an import quota does: by limiting foreign
competition. The aggregate economic effects are also the same;
domestic producers benefit, but the restrictions on imports raise the
prices of imported components.
11.
A company that sells its product in a foreign market below the cost of
production may be accused of dumping.
TRUE
In the context of international trade, dumping is variously defined as
selling goods in a foreign market at below their costs of production or
as selling goods in a foreign market at below their "fair" market
value.
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12.
Antidumping policies are designed to punish foreign firms that are
engaged in dumping.
TRUE
Antidumping policies are designed to punish foreign firms that
engage in dumping. The ultimate objective is to protect domestic
producers from unfair foreign competition.
13.
Antidumping policies vary drastically from country to country.
FALSE
Although antidumping policies vary somewhat from country to
country, the majority are similar to those used in the United States.
14.
Protecting industries deemed important for national security, and
retaliating against unfair foreign competition are economic
arguments for intervention.
FALSE
Political arguments for government intervention cover a range of
issues, including preserving jobs, protecting industries deemed
important for national security, retaliating against unfair foreign
competition, protecting consumers from "dangerous" products,
furthering the goals of foreign policy, and advancing the human
rights of individuals in exporting countries.
15.
The Helms-Burton Act of 1996 was aimed at foreign companies that
were undermining U.S. trade sanctions against Libya and Iran.
FALSE
In 1996 the U.S. Congress passed the Helms-Burton Act. This act
allows Americans to sue foreign firms that use property in Cuba
confiscated from them after the 1959 revolution.
16.
According to the infant industry argument, many developing
countries have a potential comparative advantage in manufacturing,
but new manufacturing industries cannot initially compete with
established industries in developed countries.
TRUE
The infant industry argument is by far the oldest economic argument
for government intervention. According to this argument, many
developing countries have a potential comparative advantage in
manufacturing, but new manufacturing industries cannot initially
compete with established industries in developed countries.
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17.
The infant industry argument is the latest argument for government
intervention in trade.
FALSE
The infant industry argument is by far the oldest economic argument
for government intervention. Alexander Hamilton proposed it in 1792.
18.
Strategic trade policy suggests that a government should use
subsidies to support promising firms that are active in newly
emerging industries.
TRUE
It is argued that by appropriate actions, a government can help raise
national income if it can somehow ensure that the firm or firms that
gain first-mover advantages in an industry are domestic rather than
foreign enterprises. Thus, according to the strategic trade policy
argument, a government should use subsidies to support promising
firms that are active in newly emerging industries.
19.
GATT has not recognized the infant industry argument as a legitimate
reason for protectionism.
FALSE
The infant industry argument has had substantial appeal for the
governments of developing nations during the past 50 years, and the
GATT has recognized the infant industry argument as a legitimate
reason for protectionism.
20.
Krugman has suggested that trade policy designed to retaliate
against another country's trade policy would hurt the citizens of both
countries.
TRUE
Krugman argues that a strategic trade policy aimed at establishing
domestic firms in a dominant position in a global industry is a beggarthy-neighbor policy that boosts national income at the expense of
other countries. In many cases, the resulting trade war between two
or more interventionist governments will leave all countries involved
worse off than if a hands-off approach had been adopted in the first
place.
21.
Governments do not always act in the national interest when they
intervene in the economy; politically important interest groups often
influence them.
TRUE
Governments do not always act in the national interest when they
intervene in the economy; politically important interest groups often
influence them.
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22.
The Smoot-Hawley Act raised tariff barriers in the hope of protecting
jobs and diverting consumer demand away from foreign products.
TRUE
Aimed at avoiding rising unemployment by protecting domestic
industries and diverting consumer demand away from foreign
products, the Smoot-Hawley Act erected an enormous wall of tariff
barriers.
23.
The Great Depression had roots in the failure of the world economy to
mount a sustained economic recovery after the end of World War I in
1918.
TRUE
By the 1930s, the British attempt to stimulate free trade was buried
under the economic rubble of the Great Depression. The Great
Depression had roots in the failure of the world economy to mount a
sustained economic recovery after the end of World War I in 1918.
Things got worse in 1929 with the U.S. stock market collapse and the
subsequent run on the U.S. banking system.
24.
During the 1980s and early 1990s, the world trading system erected
by the GATT gained momentum as protectionist demands generally
decreased across the world.
FALSE
During the 1980s and early 1990s, the world trading system erected
by the GATT came under strain as pressures for greater protectionism
increased around the world.
25.
A key goal of the 1986 Uruguay Round was to extend GATT to cover
trade in commodities.
FALSE
In the Uruguay Round, member countries sought to extend GATT
rules to cover trade in services. They also sought to write rules
governing the protection of intellectual property, to reduce
agricultural subsidies, and to strengthen the GATT's monitoring and
enforcement mechanisms.
26.
The World Trade Organization was created as part of the Uruguay
Round.
TRUE
The Uruguay Round dragged on for seven years before an agreement
was reached December 15, 1993. It went into effect July 1, 1995. The
World Trade Organization was created to implement the GATT
agreement.
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27.
The WTO does not have the power to impose trade sanctions.
FALSE
Arbitration panel reports on trade disputes between member
countries are automatically adopted by the WTO. Countries that have
been found by the arbitration panel to violate GATT rules may appeal
to a permanent appellate body, but its verdict is binding. If offenders
fail to comply with the recommendations of the arbitration panel,
trading partners have the right to compensation or, in the last resort,
to impose trade sanctions.
28.
A key issue in the "millennium round" of the WTO was to increase
barriers to cross-border trade in agricultural products.
FALSE
At the end of November 1999, representatives from the WTO's
member states met in Seattle, Washington. The goal of the meeting
was to launch a new round of talks—dubbed "the millennium
round"—aimed at further reducing barriers to cross-border trade and
investment.
29.
Human rights activists see WTO rules as outlawing the ability of
nations to stop imports from countries where child labor is used or
working conditions are hazardous.
TRUE
Human rights activists see WTO rules as outlawing the ability of
nations to stop imports from countries where child labor is used or
working conditions are hazardous.
30.
The WTO has the ability to force any member nation to take an action
to which it is opposed.
FALSE
The WTO lacks the ability to force any member nation to take an
action to which it is opposed. The WTO can allow member nations to
impose retaliatory tariffs on countries that do not abide by WTO
rules, but that is the limit of its power.
31.
One issue at the forefront of the current agenda of the WTO is the
increase in tariff rates on nonagricultural goods and services in many
nations.
TRUE
Four issues at the forefront of the current agenda of the WTO are the
increase in antidumping policies, the high level of protectionism in
agriculture, the lack of strong protection for intellectual property
rights in many nations, and continued high tariff rates on
nonagricultural goods and services in many nations.
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32.
WTO rules do not allow countries to impose antidumping duties on
foreign goods that are being sold cheaper than at home, or below
their cost of production, even when domestic producers can show
that they are being harmed.
FALSE
WTO rules allow countries to impose antidumping duties on foreign
goods that are being sold cheaper than at home, or below their cost
of production, when domestic producers can show that they are
being harmed.
33.
Antidumping actions are concentrated in certain sectors of the
economy such as basic metal industries, chemicals, plastics, and
machinery and electrical equipment.
TRUE
Antidumping actions seem to be concentrated in certain sectors of
the economy such as basic metal industries (e.g., aluminum and
steel), chemicals, plastics, and machinery and electrical equipment.
These four sectors since 1995 have been characterized by periods of
intense competition and excess productive capacity, which have led
to low prices and profits (or losses) for firms in those industries.
34.
Free trade in agriculture could jump-start economic growth among
the world's poorer nations and alleviate global poverty.
TRUE
Developing nations have been pushing hard for reforms that would
allow their producers greater access to the protected markets of the
developed nations. Free trade in agriculture could help to jump-start
economic growth among the world's poorer nations and alleviate
global poverty.
35.
The TRIPS regulations oblige WTO members to grant and enforce
patents lasting at least 20 years and copyrights lasting 50 years.
TRUE
The TRIPS regulations oblige WTO members to grant and enforce
patents lasting at least 20 years and copyrights lasting 50 years. Rich
countries had to comply with the rules within a year. Poor countries,
in which such protection generally was much weaker, had five years'
grace, and the very poorest had 10 years.
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36.
Inadequate protections for intellectual property reduce the incentive
for innovation.
TRUE
Inadequate protections for intellectual property reduce the incentive
for innovation. Because innovation is a central engine of economic
growth and rising living standards, the argument has been that a
multilateral agreement is needed to protect intellectual property.
37.
Tariffs on industrial goods remain higher than tariffs on services.
FALSE
Tariffs on services remain higher than on industrial goods. The
average tariff on business and financial services imported into the
United States, for example, is 8.2 percent, into the EU it is 8.5
percent, and into Japan it is 19.7 percent. Given the rising value of
cross-border trade in services, reducing these figures can be
expected to yield substantial gains.
38.
Tariff barriers lower the costs of exporting products to a country.
FALSE
Trade barriers constrain a firm's ability to disperse its productive
activities in such a manner. Tariff barriers raise the costs of exporting
products to a country (or of exporting partly finished products
between countries).
39.
The threat of antidumping action limits the ability of a firm to use
aggressive pricing to gain market share in a country.
TRUE
The threat of antidumping action limits the ability of a firm to use
aggressive pricing to gain market share in a country. Firms in a
country also can make strategic use of antidumping measures to limit
aggressive competition from low-cost foreign producers.
40.
To conform to local content regulations, a firm may have to locate
more production activities in a given market than it would otherwise.
TRUE
To conform to local content regulations, a firm may have to locate
more production activities in a given market than it would otherwise.
Again, from the firm's perspective, the consequence might be to raise
costs above the level that could be achieved if each production
activity was dispersed to the optimal location for that activity.
Multiple Choice Questions
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41.
Which of the following is NOT one of the main instruments of trade
policy?
A. Tariff
s
B. Credit
portfolios
C. Local content
requirements
D. Administrative
policies
Trade policy uses seven main instruments: tariffs, subsidies, import
quotas, voluntary export restraints, local content requirements,
administrative policies, and antidumping duties. Tariffs are the oldest
and simplest instrument of trade policy.
42.
Specific tariffs are:
A. levied as a proportion of the value of the
imported good.
B. government payment to domestic
producers.
C. in the form of manufacturing or production requirements
of goods.
D. levied as a fixed charge for each unit of a good
imported.
Specific tariffs are levied as a fixed charge for each unit of a good
imported (for example, $3 per barrel of oil).
43.
Tariffs do not benefit:
A. consume
rs.
B. domestic
producers.
C. governmen
ts.
D. domestic
firms.
The important thing to understand about an import tariff is who
suffers and who gains. The government gains, because the tariff
increases government revenues. Domestic producers gain, because
the tariff affords them some protection against foreign competitors
by increasing the cost of imported foreign goods. Consumers lose
because they must pay more for certain imports.
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44.
Import tariffs:
A. reduce the price of foreign
goods.
B. create efficient utilization of
resources.
C. reduce the overall efficiency of the world
economy.
D. are unambiguously pro-consumer and antiproducer.
Import tariffs reduce the overall efficiency of the world economy.
They reduce efficiency because a protective tariff encourages
domestic firms to produce products at home that, in theory, could be
produced more efficiently abroad. The consequence is an inefficient
utilization of resources.
45.
By lowering production costs, _____ help domestic producers
compete against foreign imports.
A. subsidi
es
B. dutie
s
C. quota
s
D. tariff
s
By lowering production costs, subsidies help domestic producers in
two ways: (1) competing against foreign imports and (2) gaining
export markets.
46.
Which of the following observations about subsidies is true?
A. Government subsidies must be paid for, typically by taxing
individuals and corporations.
B. Subsidies are used to reduce exports from a sector, often for
political reasons.
C. Whether subsidies generate national benefits that exceed their
national costs is debatable.
D. Subsidies help foreign producers gain a competitive advantage
over domestic producers.
A subsidy is a government payment to a domestic producer.
Government subsidies must be paid for, typically by taxing
individuals and corporations.
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47.
Which of the following is a consequence of subsidies?
A. Subsidies make domestic producers vulnerable to foreign
competition.
B. Subsidies lead to lowered
production.
C. Subsidies protect inefficient domestic
producers.
D. Subsidies produce revenue for the
government.
In practice, many subsidies are not that successful at increasing the
international competitiveness of domestic producers. Rather, they
tend to protect the inefficient and promote excess production.
48.
According to the _____ policy, subsidies can help a firm achieve a
first-mover advantage in an emerging industry.
A. strategic
trade
B. antidumpi
ng
C. tariff
quota
D. free
trade
Advocates of strategic trade policy favor subsidies to help domestic
firms achieve a dominant position in those industries in which
economies of scale are important and the world market is not large
enough to profitably support more than a few firms. According to this
argument, subsidies can help a firm achieve a first-mover advantage
in an emerging industry.
49.
_____ is a direct restriction on the quantity of some good that may be
imported into a country.
A. Import
tariff
B. Import
quota
C. Import
subsidy
D. Ad valorem
tariff
An import quota is a direct restriction on the quantity of some good
that may be imported into a country. The restriction is usually
enforced by issuing import licenses to a group of individuals or firms.
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50.
A common hybrid of a quota and a tariff is known as a(n):
A. import tariff
quota.
B. voluntary export
restraint.
C. ad valorem
tariff.
D. tariff rate
quota.
A common hybrid of a quota and a tariff is known as a tariff rate
quota. Under a tariff rate quota, a lower tariff rate is applied to
imports within the quota than those over the quota.
51.
_____ is a quota on trade imposed by the exporting country, typically
at the request of the importing country's government.
A. Voluntary export
restraint
B. Specific tariff
quota
C. Trade
reconciliation
D. Ad valorem
tariff
A voluntary export restraint (VER) is a quota on trade imposed by the
exporting country, typically at the request of the importing country's
government.
52.
The Japanese government was pressurized by the U.S. government to
place limits on the number of vehicles exported to the United States
by Japanese automobile producers in 1981. This is an example of:
A. tariff rate
quota.
B. specific
tariffs.
C. voluntary export
restraint.
D. ad valorem
tariff.
A voluntary export restraint (VER) is a quota on trade imposed by the
exporting country, typically at the request of the importing country's
government. One of the most famous historical examples is the
limitation on auto exports to the United States enforced by Japanese
automobile producers in 1981.
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53.
Tariff rate quotas are common in agriculture, where their goal is to:
A. reduce the use of synthetic
fertilizers.
B. limit imports over
quota.
C. increase agricultural
imports.
D. increase foreign
competition.
Under a tariff rate quota, a lower tariff rate is applied to imports
within the quota than those over the quota. Tariff rate quotas are
common in agriculture, where their goal is to limit imports over
quota.
54.
A quota rent is:
A. a quota on trade imposed by the exporting
country.
B. levied as a fixed charge for each unit of a good
imported.
C. levied as a proportion of the value of the
imported good.
D. the extra profit producers make when supply is artificially limited
by an import quota.
The extra profit that producers make when supply is artificially
limited by an import quota is referred to as a quota rent.
55.
Foreign producers typically agree to voluntary export restrictions
because:
A. their manufacturing capacity is
limited.
B. they can divert their exports to other countries and charge more
for their products.
C. they fear far more damaging punitive tariffs or import quotas
might follow if they do not.
D. they are required to by the World Trade
Organization.
Foreign producers agree to VERs because they fear more damaging
punitive tariffs or import quotas might follow if they do not. Agreeing
to a VER is seen as a way to make the best of a bad situation by
appeasing protectionist pressures in a country.
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56.
Which of the following statements concerning a voluntary export
restraint is NOT true?
A. It benefits domestic producers by limiting import
competition.
B. In most cases, it benefits
consumers.
C. It raises the domestic price of an imported
good.
D. It is a variant of the import
quota.
As with all restrictions on trade, quotas do not benefit consumers. An
import quota or VER always raises the domestic price of an imported
good. When imports are limited to a low percentage of the market by
a quota or VER, the price is bid up for that limited foreign supply.
57.
According to _____, some specific fraction of a good must be
produced domestically.
A. import
quotas
B. voluntary export
restraints
C. local content
requirements
D. antidumping
duties
A local content requirement is a requirement that some specific
fraction of a good be produced domestically. The requirement can be
expressed either in physical terms or in value terms.
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58.
According to the Buy America Act, if a company wishes to win a
contract from a U.S. government agency to provide some equipment,
it must ensure that at least 51 percent of the product by value is
manufactured in the United States. This is an example of:
A. antidumping
duties.
B. voluntary export
restraints.
C. import
quotas.
D. local content
requirements.
The Buy America Act specifies that government agencies must give
preference to American products when putting contracts for
equipment out to bid unless the foreign products have a significant
price advantage. The law specifies a product as "American" if 51
percent of the materials by value are produced domestically. This
amounts to a local content requirement.
59.
Local content regulations:
A. protect domestic producers by limiting foreign
competition.
B. lower the prices of imported
components.
C. tend to benefit consumers and not
producers.
D. encourage outsourcing of production
units.
Local content regulations provide protection for a domestic producer
of parts in the same way an import quota does: by limiting foreign
competition. The aggregate economic effects are also the same;
domestic producers benefit, but the restrictions on imports raise the
prices of imported components.
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60.
Administrative trade policies are:
A. requirements that some specific fraction of a good be produced
domestically.
B. quotas on trade imposed by the exporting
country.
C. bureaucratic rules designed to make it difficult for imports to enter
a country.
D. designed to punish foreign firms that engage in
dumping.
Administrative trade policies are bureaucratic rules designed to make
it difficult for imports to enter a country. It has been argued that the
Japanese are the masters of this trade barrier.
61.
The Netherlands exported tulip bulbs to almost every country in the
world except Japan. This was because in Japan, customs inspectors
insisted on checking every tulip bulb by cutting it vertically down the
middle. This is an example of which of the following trade barriers?
A. Export
restraint
B. Administrative trade
policies
C. Local content
requirement
D. Ad
valorem
Administrative trade policies are bureaucratic rules designed to make
it difficult for imports to enter a country. It has been argued that the
Japanese are the masters of this trade barrier.
62.
_____ is variously defined as selling goods in a foreign market at
below their costs of production or as selling goods in a foreign market
at below their "fair" market value.
A. Export
restraint
B. Dumpin
g
C. Local content
requirement
D. Ad
valorem
In the context of international trade, dumping is variously defined as
selling goods in a foreign market at below their costs of production or
as selling goods in a foreign market at below their "fair" market
value.
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63.
In 1997, two South Korean manufacturers of semiconductors, LG
Semicon and Hyundai Electronics, were accused of selling dynamic
random access memory chips (DRAMs) in the U.S. market at below
their costs of production. It was alleged that the firms were trying to
unload their excess production in the United States. This is an
example of:
A. ad valorem
tariff.
B. subsidy
.
C. dumpin
g.
D. import
quota.
In the context of international trade, dumping is variously defined as
selling goods in a foreign market at below their costs of production or
as selling goods in a foreign market at below their "fair" market
value.
64.
The U.S. government has used the threat of punitive trade sanctions
to try to get the Chinese government to enforce its intellectual
property laws. This is an example of government intervention based
on:
A. human rights
protection.
B. national
security.
C. consumer
protection.
D. retaliatio
n.
Some argue that governments should use the threat to intervene in
trade policy as a bargaining tool to help open foreign markets and
force trading partners to "play by the rules of the game." The U.S.
government has used the threat of punitive trade sanctions to try to
get the Chinese government to enforce its intellectual property laws.
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65.
Which of the following acts allows Americans to sue foreign firms that
use property in Cuba confiscated from them after the 1959
revolution?
A. D'Amato
Act
B. Smoot-Hawley
Act
C. Helms-Burton
Act
D. Antidumping
Act
In 1996 the U.S. Congress passed the Helms-Burton Act. This act
allows Americans to sue foreign firms that use property in Cuba
confiscated from them after the 1959 revolution. Later in 1996,
Congress passed a similar law, the D'Amato Act, aimed at Libya and
Iran.
66.
According to the _____ argument, governments should temporarily
support new industries until they have grown strong enough to meet
international competition.
A. retaliatory
action
B. human
rights
C. infant
industry
D. antidumpi
ng
The infant industry argument is by far the oldest economic argument
for government intervention. According to this argument, many
developing countries have a potential comparative advantage in
manufacturing, but new manufacturing industries cannot initially
compete with established industries in developed countries.
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67.
The infant industry argument is criticized because it relies on an
assumption that:
A. new manufacturing industries in developing nations can initially
compete with established industries in developed countries.
B. selling goods in a foreign market at below their "fair" market value
is legally and ethically justified.
C. the domestic industry in a developing nation lacks the capacity to
meet demand.
D. firms are unable to make efficient long-term investments by
borrowing money from the domestic or international capital
market.
The infant industry argument relies on an assumption that firms are
unable to make efficient long-term investments by borrowing money
from the domestic or international capital market. Consequently,
governments have been required to subsidize long-term investments.
68.
According to the strategic trade policy argument:
A. government intervention is not required because firms can borrow
money from the capital markets to finance the required
investments.
B. selling goods in a foreign market at below their "fair" market value
is legally and ethically justified.
C. government support can help domestic firms overcome the firstmover advantages enjoyed by foreign competitors.
D. a government should use subsidies to support promising firms that
are active in old, established industries.
According to the strategic trade policy argument, a government can
help raise national income if it can somehow ensure that the firm or
firms that gain first-mover advantages in an industry are domestic
rather than foreign enterprises. The second component of the
strategic trade policy argument is that it might pay a government to
intervene in an industry by helping domestic firms overcome the
barriers to entry created by foreign firms that have already reaped
first-mover advantages.
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69.
Economic problems during the Great Depression were compounded
in 1930 when the U.S. Congress passed the _____, aimed at avoiding
rising unemployment by protecting domestic industries and diverting
consumer demand away from foreign products.
A. Smoot-Hawley
Act
B. Antidumping
Act
C. Helms-Burton
Act
D. D'Amato
Act
Economic problems were compounded in 1930 when the U.S.
Congress passed the Smoot-Hawley tariff. Aimed at avoiding rising
unemployment by protecting domestic industries and diverting
consumer demand away from foreign products, the Smoot-Hawley
Act erected an enormous wall of tariff barriers.
70.
The Smoot-Hawley Act aimed at:
A. diverting consumer demand toward foreign
products.
B. promoting unrestricted free
trade.
C. limiting global
warming.
D. avoiding rising
unemployment.
Aimed at avoiding rising unemployment by protecting domestic
industries and diverting consumer demand away from foreign
products, the Smoot-Hawley Act erected an enormous wall of tariff
barriers. Almost every industry was rewarded with its "made-toorder" tariff.
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71.
Which of the following is a reason for the pressure for greater
protectionism that occurred during the 1980s and early 1990s?
A. The U.S. Congress erected an enormous wall of tariff
barriers.
B. Japanese economic failure strained the world trading
system.
C. The persistent trade surplus in the United States strained the world
trading system.
D. Many countries found ways to get around GATT
regulations.
The world trading system was strained by the persistent trade deficit
in the world's largest economy, the United States. From a political
perspective, the matter was worsened in 1992 by the $45 billion U.S.
trade deficit with Japan, a country perceived as not playing by the
rules.
72.
Until 1995, GATT rules applied to all of the following EXCEPT:
A. manufactured
goods.
B. service
s.
C. textile
s.
D. agricultural
products.
Until 1995, GATT rules applied only to industrial goods (i.e.,
manufactured goods and commodities). Until the Uruguay Round,
GATT rules had applied only to trade in manufactured goods and
commodities. In the Uruguay Round, member countries sought to
extend GATT rules to cover trade in services.
73.
According to the 1986 Uruguay Round, the _____ was to be created to
implement the GATT agreement.
A. World Trade
Organization
B. International Monetary
Fund
C. United
Nations
D. World
Bank
The Uruguay Round contained the following provision: The World
Trade Organization was to be created to implement the GATT
agreement.
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74.
After the Uruguay Round of GATT extended global trading rules to
cover trade in services, the first two industries targeted for reform by
the WTO were:
A. textiles and
technology.
B. telecommunications and financial
services.
C. automotives and
aerospace.
D. agriculture and consulting
services.
The WTO was encouraged to extend its reach to encompass
regulations governing foreign direct investment, something the GATT
had never done. Two of the first industries targeted for reform were
the global telecommunication and financial services industries.
75.
The "millennium round" ended in 1999 with:
A. a successful record on agricultural
products.
B. a new agenda for the next round focusing on financial
services.
C. no agreement on the reduction of barriers to cross-border trade
and investment.
D. a decision to avoid
FDI.
At the end of November 1999, representatives from the WTO's
member states met in Seattle, Washington. The goal of the meeting
was to launch a new round of talks—dubbed "the millennium
round"—aimed at further reducing barriers to cross-border trade and
investment. The talks ended December 3, 1999, without reaching any
agreement.
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76.
The WTO argues that removing tariff barriers and subsidies in the
agricultural sector could:
A. protect domestic agriculture in developed
nations.
B. lower the overall level of agricultural
trade.
C. restrict global economic
growth.
D. lower prices to
consumers.
The WTO argues that removing tariff barriers and subsidies could
significantly boost the overall level of trade, lower prices to
consumers, and raise global economic growth by freeing
consumption and investment resources for more productive uses.
77.
The TRIPS regulations established at the 1995 Uruguay Round:
A. established regulations on patents and
copyrights.
B. set a new level of agriculture
subsidies.
C. organized OECD countries to eliminate tariffs on
textiles.
D. established new tariff levels on
technology.
The 1995 Uruguay agreement that established the WTO also
contained an agreement to protect intellectual property (the TradeRelated Aspects of Intellectual Property Rights, or TRIPS, agreement).
The TRIPS regulations oblige WTO members to grant and enforce
patents lasting at least 20 years and copyrights lasting 50 years.
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78.
TRIPS regulations oblige WTO members to all of the following
EXCEPT:
A. grant and enforce patents lasting at least 20
years.
B. grant and enforce copyrights lasting 50
years.
C. comply with the rules within five years in the case of rich
countries.
D. comply with the rules within 10 years in the case of the poorest
countries.
The 1995 Uruguay agreement that established the WTO also
contained an agreement to protect intellectual property (the TradeRelated Aspects of Intellectual Property Rights, or TRIPS, agreement).
The TRIPS regulations oblige WTO members to grant and enforce
patents lasting at least 20 years and copyrights lasting 50 years. The
very poorest countries had 10 years to comply with the rules.
79.
_____ are the highest rate that can be charged, which is often, but not
always, the rate that is charged.
A. Ad valorem tariff
rates
B. Tariff
rents
C. Specific tariff
rates
D. Bound tariff
rates
Bound tariff rates are the highest rate that can be charged, which is
often, but not always, the rate that is charged. Australia and South
Korea, both OECD countries, still have bound tariff rates of 15.1
percent and 24.6 percent, respectively, on imports of transportation
equipment.
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80.
Identify the INCORRECT statement about trade barriers.
A. They raise the costs of exporting products to a
country.
B. They may put a firm at a competitive advantage to indigenous
competitors.
C. They may limit a firm's ability to serve a country from locations
outside of that country.
D. To conform to local content regulations, a firm may have to locate
more production activities in a given market than it would
otherwise.
Tariff barriers raise the costs of exporting products to a country (or of
exporting partly finished products between countries). This may put
the firm at a competitive disadvantage to indigenous competitors in
that country.
Essay Questions
81.
Compare and contrast import quotas and voluntary export restraints.
An import quota is a direct restriction on the quantity of some good
that may be imported into a country. The restriction is normally
enforced by issuing import licenses to a group of individuals or firms.
In contrast, a voluntary export restraint (VER) is a quota on trade
imposed by the exporting country, typically at the request of the
importing country's government. Foreign producers agree to VERs
because they fear more damaging punitive tariffs or import quotas
might follow if they do not. Both import quotas and VERs benefit
domestic producers, but hurt consumers through higher prices.
82.
What is a quota rent? Provide an example of how an import quota
affects price.
The extra profit that producers make when supply is artificially
limited by an import quota is referred to as a quota rent. If a
domestic industry lacks the capacity to meet demand, an import
quota can raise prices for both the domestically produced and the
imported good. This happened in the U.S. sugar industry, in which a
tariff rate quota system has long limited the amount foreign
producers can sell in the U.S. market. According to one study, import
quotas have caused the price of sugar in the United States to be as
much as 40 percent greater than the world price.
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83.
Discuss the Buy America Act and its connection with local content
requirements.
The Buy America Act specifies that government agencies must give
preference to American products when putting contracts for
equipment out to bid unless the foreign products have a significant
price advantage. The law specifies a product as being "American" if
51 percent of the materials by value are produced domestically. This
amounts to a local content requirement that calls for a specific
fraction of a good to be produced locally.
84.
Explain how governments use administrative trade policies to boost
exports and restrict imports. Provide an example of an administrative
trade policy.
Administrative trade policies are bureaucratic rules that are almost
always deliberately designed to restrict the flow of a particular import
into a country. The Japanese are considered masters of this trade
barrier. Students will probably use the example of tulip bulbs when
discussing this question. The Netherlands exports tulip bulbs to
almost every country of the world except Japan. The reason is that
Japanese customs inspectors insist on checking every tulip bulb by
cutting it vertically down the middle, which in effect ruins the bulb.
85.
What is dumping? How do governments respond to charges of
dumping?
Dumping is defined as selling goods in a foreign market at below
their costs of production, or as selling goods in a foreign market at
below their "fair" market value. Antidumping policies are designed to
punish foreign firms that engage in dumping. If a firm is found to be
dumping, countervailing duties may be imposed. These duties can be
fairly substantial and stay in place for up to five years.
86.
Explain the notion of predatory behavior with regard to dumping.
A firm that is dumping is selling its product in a foreign market at
below their costs of production, or is selling goods in a foreign market
at below their "fair" market value. Dumping may be the result of
predatory behavior, with producers using substantial profits from
their home markets to subsidize profits in a foreign market with a
goal of driving indigenous competitors out of that market. Once the
firm achieves its goal, the company will raise prices and earn
substantial profits.
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87.
What are the political reasons for governments to intervene in
markets?
There are a number of political reasons why governments intervene
in markets. The most common reason for intervention is to protect
jobs and industries. Governments may also intervene to protect
national security, to threaten punitive retaliatory actions, to protect
consumers or to protect human rights, and to further foreign policy
objectives.
88.
Discuss the economic reasons for government intervention in
markets.
The economic reasons for government intervention have undergone
a renaissance in recent times as more economists support economic
reasons for intervention. The oldest argument for intervention is the
infant industry argument. According to this argument, many
developing countries have a potential comparative advantage in
manufacturing, but new manufacturing industries cannot initially
compete with established industries in developed countries.
Strategic trade policy is the other main reason given for economic
government intervention in markets.
89.
Discuss the infant industry argument for intervention in markets.
What is GATT's position on the argument?
Alexander Hamilton proposed the infant industry argument for
intervention in markets in 1792. According to this argument, many
developing countries have a potential comparative advantage in
manufacturing, but new manufacturing industries cannot initially
compete with established industries in developed countries. To allow
manufacturing to get a toehold, the argument is that governments
should temporarily support new industries until they have grown
strong enough to meet international competitors. GATT has
recognized the infant industry argument as a legitimate reason for
protectionism.
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90.
What is strategic trade policy? Provide an example.
Strategic trade policy suggests that in industries where the existence
of substantial scale economies implies that the world will profitably
support only a few firms, countries may predominate in the export of
certain products simply because they had firms that were able to
capture first-mover advantages. Boeing's dominance in the
aerospace industry has been attributed to these types of factors.
According to strategic trade policy, a government can help raise
national incomes if it can ensure that the firms that gain first-mover
advantages in such industries are domestic rather foreign. Further,
the theory argues that it might pay governments to intervene in an
industry if it helps domestic firms overcome the barriers to entry
created by foreign firms that have already reaped first-mover
advantages.
91.
What is Paul Krugman's position on strategic trade policy?
Paul Krugman suggests that strategic trade policy aimed at
establishing domestic firms in a dominant position in a global
industry is a beggar-thy-neighbor policy that boosts national income
at the expense of other countries. Consequently, a country that uses
this type of policy will probably draw retaliatory action. The resulting
trade war would leave both countries worse off than if a free trade
approach had been implemented to start. Krugman suggests that to
avoid the disruptions a trade war would create, countries should
instead help establish the rules of the game that minimize the use of
trade-distorting subsidies.
92.
Discuss the establishment of GATT. What was GATT's objective?
The GATT was a multilateral agreement whose objective was to
liberalize trade by eliminating tariffs, subsidies, import quotas, and
other trade barriers. GATT was established in 1947 with 19 members.
Membership increased to more than 120 nations by the time it was
superseded by the WTO. Under GATT, tariff reduction was spread
over eight rounds. The last round, the Uruguay Round, resulted in the
establishment of the WTO which, among other things took over the
role of GATT in the global economy.
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93.
What happened to GATT during the 1980s and early 1990s?
During the 1980s and early 1990s, the world trading system
established by GATT came under significant strain as pressures for
greater protectionism mounted around the world. Three issues in
particular were important. First, the economic success of Japan
strained the world trading system. Second, the world's trading
system was further strained by the persistent trade deficit in the
world's largest economy, the United States. Finally, many countries
found ways to get around GATT regulations.
94.
What has been the experience of the WTO to date? What does the
future look like for the organization?
By 2011, the WTO had 153 members with more in the application
process. The WTO has remained at the forefront of efforts to promote
free trade. So far, it appears that its policing and enforcement
mechanisms are having a positive effect. Countries are using the
WTO to settle trade disputes, which represents an important vote of
confidence in the organization's dispute resolution procedures. So far,
the users of the system have included both developed and
developing countries, which is also a promising development. In
addition, some powerful developed countries, including the United
States, have been willing to accept WTO rulings that have gone
against them, which attest to the organization's legitimacy.
95.
What are the central issues facing the WTO at the present time?
Four issues at the top of the agenda for the WTO are the increase in
antidumping policies, the high level of protectionism in agriculture,
the lack of strong protection for intellectual property rights in many
nations, and continued high tariff rates on nonagricultural goods and
services in many nations.
96.
Why are tariff rates on agricultural products generally higher than
tariff rates on manufactured products or services?
Tariff rates on agricultural products are typically higher than tariffs on
manufactured products. High tariff rates on agricultural products
were designed to protect domestic agriculture and traditional farming
communities from foreign competition. IMF estimates indicate that
removing the tariffs and subsidies could raise global economic
welfare by $128 billion annually.
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97.
What is the TRIPS agreement? Why was it established?
The 1995 Uruguay agreement that established the WTO also
contained an agreement to protect intellectual property (the TradeRelated Aspects of Intellectual Property Rights, or TRIPS, agreement).
The TRIPS regulations oblige WTO members to grant and enforce
patents lasting at least 20 years and copyrights lasting 50 years. The
basis for this agreement was a strong belief among signatory nations
that the protection of intellectual property through patents,
trademarks, and copyrights must be an essential element of the
international trading system. Inadequate protections for intellectual
property reduce the incentive for innovation. Because innovation is a
central engine of economic growth and rising living standards, the
argument has been that a multilateral agreement is needed to
protect intellectual property.
98.
Discuss the Doha Round of trade talks.
The Doha Round began in 2001. Its agenda focused on cutting tariffs
on industrial goods and services, phasing out subsidies to agricultural
producers, reducing barriers to cross-border investment, and limiting
the use of antidumping laws. Estimates suggest that a successful
Doha Round would raise global incomes by as much as $300 billion
annually, with 60 percent of the gain going to the world's poorer
nations, which would help to pull 150 million people out of poverty.
As of early 2011, the goal was to reduce tariffs for manufactured and
agricultural goods by 60 to 70 percent, and to cut subsidies to half of
their current level, but getting nations to agree to these goals was
proving exceedingly difficult.
99.
Explain how trade barriers affect a firm's strategy.
There are four main ways trade barriers affect a firm's strategy. First,
tariffs raise the cost of exporting, putting the firm at a competitive
disadvantage. Second, quotas may limit a firm's ability to serve a
country from outside of that country. Third, to conform to local
content regulations, a firm may have to locate more production
activities in a given market than it would otherwise. Finally, the threat
of antidumping actions limits the firm's ability to use aggressive
pricing to gain market share in a country.
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100. What are the drawbacks of government intervention?
Government intervention has three drawbacks. Intervention can be
self-defeating because it tends to protect the inefficient rather than
help firms become efficient global competitors. Intervention is
dangerous; it may invite retaliation and trigger a trade war. Finally,
intervention is unlikely to be well executed, given the opportunity for
such a policy to be captured by special-interest groups.
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IB testbank chap 8 - GGHF
International business (UEH-International School of Business)
Scan to open on Studocu
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Chapter 08 Foreign Direct Investment Answer Key
True / False Questions
1.
A Japanese car manufacturer acquires an Italian producer of car tires. This is an
example of a greenfield investment.
FALSE
This is an example of an acquisition. A greenfield investment involves the
establishment of a new operation in a foreign country.
2.
The amount of FDI undertaken over a given time period is known as the flow of FDI.
TRUE
The flow of FDI refers to the amount of FDI undertaken over a given time period
(normally a year).
3.
FDI has been declining in the last few decades because protectionist pressures have
become less intense.
FALSE
Despite the general decline in trade barriers over the past 30 years, firms still fear
protectionist pressures. Executives see FDI as a way of circumventing future trade
barriers.
4.
Developing nations currently account for the largest share of FDI inflows.
FALSE
Even though developed nations still account for the largest share of FDI inflows, FDI
into developing nations has increased.
5.
Other things being equal, the greater the capital investment in an economy, the more
favorable its future growth prospects are likely to be.
TRUE
FDI can be seen as an important source of capital investment and a determinant of the
future growth rate of an economy.
6.
The largest source country for FDI has been China.
FALSE
Since World War II, the United States has been the largest source country for FDI, a
position it retained during the late 1990s and early 2000s. Other important source
countries include the United Kingdom, France, Germany, the Netherlands, and Japan.
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7.
The majority of cross-border investment in the developed world is in the form of
greenfield investments rather than mergers and acquisitions.
FALSE
The majority of cross-border investment is in the form of mergers and acquisitions
rather than greenfield investments.
8.
Mergers and acquisitions are quicker to execute than greenfield investments.
TRUE
Mergers and acquisitions are quicker to execute than greenfield investments. This is an
important consideration in the modern business world where markets evolve very
rapidly.
9.
Licensing involves the establishment of a new operation in a foreign country.
FALSE
Licensing involves granting a foreign entity (the licensee) the right to produce and sell
the firm's product in return for a royalty fee on every unit sold.
10.
When transportation costs are added to production costs, it becomes unprofitable to
ship some products over a large distance. This is particularly true of products that have
a high value-to-weight ratio.
FALSE
When transportation costs are added to production costs, it becomes unprofitable to
ship some products over a large distance. This is particularly true of products that have
a low value-to-weight ratio and that can be produced in almost any location.
11.
By placing tariffs on imported goods, governments can increase the cost of exporting
relative to foreign direct investment and licensing.
TRUE
By placing tariffs on imported goods, governments can increase the cost of exporting
relative to foreign direct investment and licensing.
12.
Internalization theory seeks to explain why firms often prefer foreign direct investment
over licensing as a strategy for entering foreign markets.
TRUE
Internalization theory seeks to explain why firms often prefer foreign direct investment
over licensing as a strategy for entering foreign markets.
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13.
Licensing gives a firm tight control over manufacturing, marketing, and strategy in a
foreign country that may be required to maximize its profitability.
FALSE
Licensing does not give a firm the tight control over manufacturing, marketing, and
strategy in a foreign country that may be required to maximize its profitability.
14.
An oligopoly is an industry composed of a limited number of large firms.
TRUE
An oligopoly is an industry composed of a limited number of large firms (e.g., an
industry in which four firms control 80 percent of a domestic market would be defined
as an oligopoly).
15.
Rivals rarely imitate what a firm does in an oligopoly.
FALSE
Rivals often quickly imitate what a firm does in an oligopoly.
16.
Knickerbocker's theory explains why the first firm in an oligopoly decides to undertake
FDI rather than to export or license.
FALSE
Knickerbocker's theory and its extensions can help to explain imitative FDI behavior by
firms in oligopolistic industries, it does not explain why the first firm in an oligopoly
decides to undertake FDI rather than to export or license.
17.
John Dunning pioneered the eclectic paradigm.
TRUE
The eclectic paradigm has been championed by the British economist John Dunning.
18.
According to the pragmatic nationalistic view, the MNE is a tool for exploiting host
countries to the exclusive benefit of their capitalist-imperialist home countries.
FALSE
According to the radical view, the MNE is a tool for exploiting host countries to the
exclusive benefit of their capitalist-imperialist home countries.
19.
The radical view traces its roots to Marxist political and economic theory.
TRUE
The radical view traces its roots to Marxist political and economic theory.
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20.
The free market view argues that FDI is a benefit to both the source country and to the
host country.
TRUE
The free market view argues that international production should be distributed among
countries according to the theory of comparative advantage.
21.
In practice only a few countries country have adopted the free market view in its pure
form.
FALSE
In practice no country has adopted the free market view in its pure form.
22.
The pragmatic nationalist view highlights only the benefits of FDI.
FALSE
The pragmatic nationalist view is that FDI has both benefits and costs.
23.
Countries adopting a pragmatic stance pursue policies designed to maximize the
national benefits and minimize the national costs.
TRUE
Countries adopting a pragmatic stance pursue policies designed to maximize the
national benefits and minimize the national costs. According to this view, FDI should be
allowed so long as the benefits outweigh the costs.
24.
An aspect of pragmatic nationalism is the tendency to aggressively court FDI believed
to be in the national interest by, for example, offering subsidies to foreign MNEs in the
form of tax breaks or grants.
TRUE
An aspect of pragmatic nationalism is the tendency to aggressively court FDI believed
to be in the national interest by, for example, offering subsidies to foreign MNEs in the
form of tax breaks or grants.
25.
Recent years have seen a marked increase in the number of countries that adhere to a
radical ideology regarding FDI.
FALSE
Recent years have seen a marked decline in the number of countries that adhere to a
radical ideology regarding FDI.
26.
Research supports the view that multinational firms often transfer significant
technology when they invest in a foreign country.
TRUE
Research supports the view that multinational firms often transfer significant
technology when they invest in a foreign country.
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27.
Direct effects of FDI arise when jobs are created in local suppliers as a result of the FDI
and when jobs are created because of increased local spending by employees of the
MNE.
FALSE
Indirect effects arise when jobs are created in local suppliers as a result of the
investment and when jobs are created because of increased local spending by
employees of the MNE.
28.
Host country citizens that are employed by an MNE following an FDI are an example of
an indirect effect of FDI.
FALSE
Direct effects of FDI arise when a foreign MNE employs a number of host-country
citizens.
29.
A country's balance of payments accounts keep track of both its payments to and its
receipts from other countries.
TRUE
A country's balance-of-payments accounts track both its payments to and its receipts
from other countries.
30.
Governments normally are concerned when their country is running a surplus on the
current account of their balance of payments.
FALSE
Governments normally are concerned when their country is running a deficit on the
current account of their balance of payments.
31.
If the FDI is a substitute for imports of goods or services, the effect can be to improve
the current account of the host country's balance of payments.
TRUE
If the FDI is a substitute for imports of goods or services, the effect can be to improve
the current account of the host country's balance of payments.
32.
In general, FDI in the form of greenfield investments should increase competition.
TRUE
In general, while FDI in the form of greenfield investments should increase competition,
it is less clear that this is the case when the FDI takes the form of acquisition of an
established enterprise in the host nation
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33.
FDI does not benefit the host country's balance of payments if the foreign subsidiary
creates demand for home-country exports of capital equipment, intermediate goods, or
complementary products.
FALSE
FDI can benefit the home country's balance of payments if the foreign subsidiary
creates demands for home-country exports of capital equipment, intermediate goods,
complementary products, and the like.
34.
For the home-country, the current account of the balance of payments improves if the
purpose of the foreign investment is to serve the home market from a low-cost
production location.
FALSE
The current account of the balance of payments suffers if the purpose of the foreign
investment is to serve the home market from a low-cost production location.
35.
Offshore production refers to FDI undertaken to serve the host market.
FALSE
The term offshore production refers to FDI undertaken to serve the home market.
36.
The two most common methods of restricting inward FDI are ownership restraints and
performance requirements.
TRUE
Host governments use a wide range of controls to restrict FDI in one way or another.
The two most common are ownership restraints and performance requirements.
37.
The WTO supports the promotion of international trade in services.
TRUE
The WTO embraces the promotion of international trade in services.
38.
As transportation costs or trade barriers increase, exporting becomes unprofitable,
compared to FDI and licensing.
FALSE
As transportation costs or trade barriers increase, exporting becomes unprofitable, and
the choice is between FDI and licensing.
39.
Licensing is usually a good option for firms in high-tech industries where protecting
firm-specific expertise is of paramount importance.
FALSE
Licensing is usually not a good option for firms in high-tech industries where protecting
firm-specific expertise is of paramount importance.
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40.
The product life-cycle theory and Knickerbocker's theory of horizontal FDI tend to be
very useful from a business perspective because the theories are more descriptive than
analytical.
FALSE
The product life-cycle theory and Knickerbocker's theory of FDI tend to be less useful
from a business perspective.
Multiple Choice Questions
41.
FDI occurs when a firm:
A. ships its products from one country to
another.
B. invests directly in facilities to produce a product in a
foreign country.
C. invests in the shares of another company operating in the
same country.
D. grants permission to another company in a different country to use its
brand name.
Foreign direct investment (FDI) occurs when a firm invests directly in facilities to
produce or market a product in a foreign country.
42.
Which of the following is an example of a greenfield investment?
A. A Chinese sugar maker setting up a sugar crushing facility
in Cuba.
B. A Serbian automobile company purchasing a Croatian component
manufacturer.
C. A Finnish mobile phone manufacturer expanding its production facility
in Finland.
D. An Indian oil exploration company acquiring an oil refining
company.
A greenfield investment involves the establishment of a new operation in a foreign
country.
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43.
The stock of FDI is:
A. the amount of FDI undertaken over a given period
of time.
B. the total accumulated value of foreign-owned assets at a
given time.
C. the flow of FDI out of a
country.
D. the amount of foreign direct investment made by domestic companies over a given
period of time.
The stock of FDI refers to the total accumulated value of foreign-owned assets at a
given time.
44.
The _____ of FDI refers to the amount of FDI undertaken over a year.
A. stoc
k
B. net
value
C. accumulated
value
D. flo
w
The flow of FDI refers to the amount of FDI undertaken over a given time period
(normally a year).
45.
Which of the following is the prime reason why Africa has attracted FDI in recent
years?
A. Growth of the services
sector
B. Complete deregulation of
markets
C. Wave of
privatization
D. Raw material
availability
In recent years, Chinese enterprises have emerged as major investors in Africa,
particularly in extraction industries where they seem to be trying to assure future
supplies of valuable raw materials.
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46.
Which of the following summarizes the total amount of resources invested in factories,
stores, office buildings, and the like?
A. Gross capital
index
B. Gross fixed capital
formation
C. Gross domestic
product
D. Gross national
product
Gross fixed capital formation summarizes the total amount of capital invested in
factories, stores, office buildings, and the like.
47.
Which of the following primarily explains why developing nations are characterized by
lower percentage of cross-border mergers and acquisitions compared to developed
nations?
A. Fewer target firms to acquire in developing
nations
B. Fierce opposition to mergers and acquisitions in developed
nations
C. Unwillingness of foreign companies to invest in
developing nations
D. Presence of import quotas in developing
nations
In the case of developing nations, only about one-third of FDI is in the form of crossborder mergers and acquisitions. The lower percentage of mergers and acquisitions
may simply reflect the fact that there are fewer target firms to acquire in developing
nations.
48.
When contemplating FDI, why do firms apparently prefer to acquire existing assets
rather than undertake greenfield investments?
A. Greenfield investments are characterized by reduced
management control
B. Mergers and acquisitions are preferred because most greenfield
investments fail.
C. It is easier and less risky for a firm to build strategic assets than acquire
similar assets.
D. Mergers and acquisitions are quicker to execute than greenfield
investments.
Mergers and acquisitions are quicker to execute than greenfield investments. This is an
important consideration in the modern business world where markets evolve very
rapidly.
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49.
A French wind power company gives an Indonesian company the right to produce and
sell wind turbines in return for a royalty fee on every unit sold. Which business practice
is this an example of?
A. Acquisiti
on
B. Licensin
g
C. Exportin
g
D. Greenfield
investment
Licensing involves granting a foreign entity (the licensee) the right to produce and sell
the firm's product in return for a royalty fee on every unit sold.
50.
Which of the following specifically reduces the viability of an exporting strategy
specifically for products with low value-to-weight ratios?
A. Foreign exchange
controls
B. Trade
barriers
C. Transportation
costs
D. Output
quality
When transportation costs are added to production costs, it becomes unprofitable to
ship some products over a large distance. This is particularly true of products that have
a low value-to-weight ratio and that can be produced in almost any location.
51.
Which of the following is a way in which governments increase the attractiveness of FDI
and licensing relative to exporting?
A. By implementing import
quotas
B. By imposing FDI limits in
industries
C. By increasing tax
rates
D. By limiting free flow of
capital
By limiting imports through quotas, governments increase the attractiveness of FDI and
licensing.
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52.
Identify the theory that seeks to explain why firms often prefer foreign direct
investment over licensing as a strategy for entering foreign markets.
A. Internalization
theory
B. Product life-cycle
theory
C. Perfect markets
theory
D. Random walk
theory
A branch of economic theory known as internalization theory seeks to explain why firms
often prefer foreign direct investment over licensing as a strategy for entering foreign
markets (this approach is also known as the market imperfections approach).
53.
In which of the following situations does the internalization theory recommend FDI as
opposed to licensing?
A. When the firm has know-how that can be adequately protected by a
licensing contract
B. When the firm produces products that have a low value-toweight ratio
C. When a firm's skills and know-how are amenable to
licensing
D. When the firm needs tight control over a
foreign entity
Licensing does not give a firm the tight control over manufacturing, marketing, and
strategy in a foreign country that may be required to maximize its profitability. When
tight control over a foreign entity is desirable, foreign direct investment is preferable to
licensing.
54.
Which of the following best describes an industry composed of a limited number of
large firms?
A. An
oligopoly
B. A
monopoly
C. An
oligarchy
D. A perfectly competitive
market
An oligopoly is an industry composed of a limited number of large firms (e.g., an
industry in which four firms control 80 percent of a domestic market would be defined
as an oligopoly).
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55.
Which of the following is a direct consequence of the interdependence between firms in
an oligopoly?
A. Increased
regulation
B. Increased consumer
welfare
C. Imitative
behavior
D. Longer product lifecycles
The interdependence between firms in an oligopoly leads to imitative behavior; rivals
often quickly imitate what a firm does in an oligopoly.
56.
Which of the following observations concerning Knickerbocker's theory is true?
A. It does not explain imitative FDI behavior by firms in oligopolistic
industries.
B. Economists favor this theory as an explanation for FDI compared to the
internalization theory.
C. It addresses the issue of whether FDI is more efficient than exporting or licensing for
expanding abroad.
D. It does not explain why the first firm in an oligopoly decides to undertake FDI rather
than to export or license.
Although Knickerbocker's theory and its extensions can help to explain imitative FDI
behavior by firms in oligopolistic industries, it does not explain why the first firm in an
oligopoly decides to undertake FDI rather than to export or license.
57.
_____ arises when two or more enterprises encounter each other in different regional
markets, national markets, or industries.
A. Horizontal
integration
B. Multipoint
competition
C. An
oligopoly
D. Vertical
integration
Multipoint competition arises when two or more enterprises encounter each other in
different regional markets, national markets, or industries.
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58.
According to Knickerbocker's theory:
A. when a firm has valuable know-how that cannot be adequately protected by a
licensing contract it engages in FDI.
B. when a firm's skills and know-how are not amenable to licensing, it usually prefers
the FDI route.
C. by placing tariffs on imported goods, governments indirectly increase the cost of
exporting relative to foreign direct investment and licensing.
D. when a firm that is part of an oligopolistic industry expands into a foreign market,
other firms in the industry will be compelled to make similar investments.
Imitative behavior can take many forms in an oligopoly. One firm raises prices, the
others follow; one expands into a foreign market, and the rivals imitate lest they be left
at a disadvantage in the future.
59.
Which of the following observations was made by Raymond Vernon?
A. Firms undertake FDI at particular stages in the life cycle of a product they have
pioneered.
B. Firms will favor exporting over FDI as an entry strategy when trade
barriers are high.
C. FDI is prompted by imitative behavior in oligopolistic
industries.
D. Impediments to the sale of know-how increase the profitability of FDI relative
to licensing.
Raymond Vernon's product life-cycle theory is used to explain FDI. Vernon's view is that
firms undertake FDI at particular stages in the life cycle of a product they have
pioneered.
60. Which of the following is a major drawback of using the product life-cycle theory in
explaining FDI?
A. It ignores the fact that firms invest in a foreign country when demand in that country
will support local production.
B. It does not explain why firms invest in developing countries when cost pressures
become intense.
C. It fails to identify when it is profitable to invest
abroad.
D. It ignores the fact that licensing as an entry strategy has its
limitations.
The product life-cycle theory simply argues that once a foreign market is large enough to
support local production, FDI will occur. This limits its explanatory power and its
usefulness to business in that it fails to identify when it is profitable to invest abroad.
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61.
The _____ suggests that a firm will establish production facilities where foreign assets or
resource endowments that are important to the firm are located.
A. product life-cycle
theory
B. internalization
theory
C. multipoint competition
theory
D. eclectic
paradigm
According to the eclectic paradigm, it requires the firm to establish production facilities
where those foreign assets or resource endowments are located.
62.
Advantages that arise from using resource endowments or assets that are tied to a
particular place and that a firm finds valuable to combine with its own unique assets
are known as:
A. location-specific
advantages.
B. capital-specific
advantages.
C. absolute
advantages.
D. production factor
advantages.
By location-specific advantages, John Dunning means the advantages that arise from
utilizing resource endowments or assets that are tied to a particular foreign location
and that a firm finds valuable to combine with its own unique assets
63.
According to the _____ view of FDI, MNEs extract profits from the host country and take
them to their home country, giving nothing of value to the host country in exchange.
A. imperiali
st
B. conservati
ve
C. free
market
D. radic
al
Radical writers see the MNE as a tool for exploiting host countries to the exclusive
benefit of their capitalist-imperialist home countries.
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64.
Which view of FDI traces its roots to classical economics and the international trade
theories of Adam Smith and David Ricardo?
A. Imperiali
st
B. Conservati
ve
C. Free
market
D. Radic
al
The free market view traces its roots to classical economics and the international trade
theories of Adam Smith and David Ricardo. The intellectual case for this view has been
strengthened by the internalization explanation of FDI.
65.
Which political view allows FDI so long as the benefits outweigh the costs?
A. The traditional
view
B. The pragmatic nationalist
view
C. The radical
view
D. The free market
view
The pragmatic nationalist view is that FDI has both benefits and costs. According to this
view, FDI should be allowed so long as the benefits outweigh the costs.
66.
A country rejects FDI proposals in certain industries. It does so because the tangible
advantages of such investments are lesser than potential costs like loss of employment
and reduction of overall well-being. However, it aggressively pursues inviting foreign
investments in sectors like infrastructure, education, and healthcare because of the
benefits that accrue with them. Which political view of FDI is discussed in this
example?
A. The pure market
view
B. The free market
view
C. The radical
view
D. The pragmatic nationalist
view
The pragmatic nationalist view is that FDI has both benefits and costs. According to this
view, FDI should be allowed so long as the benefits outweigh the costs.
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67.
Why is it said that not all the new jobs created by FDI represent net additions in
employment?
A. Because of the uncertainty of the overall economic
environment
B. Because most of the job creation is indirect in
nature
C. Because jobs created by an investment may be offset by the jobs lost in
domestic companies
D. Because the unemployment rate more or less remains constant over the
short-term
Cynics argue that not all the "new jobs" created by FDI represent net additions in
employment. In the case of FDI by Japanese auto companies in the United States, some
argue that the jobs created by this investment have been more than offset by the jobs
lost in U.S.-owned auto companies, which have lost market share to their Japanese
competitors.
68.
When a company brings capital and/or technology to a host country, the host country
benefits from the:
A. political effect of
FDI.
B. resource-transfer effect of
FDI.
C. balance-of-payments effect of
FDI.
D. bandwagon effect of
FDI.
Foreign direct investment can make a positive contribution to a host economy by
supplying capital, technology, and management resources that would otherwise not be
available and thus boost that country's economic growth rate.
69.
A country's _____ keeps track of its payments to and its receipts from other countries.
A. federal payments
ledgers
B. concurrent
accounts
C. checks-and-balances
accounts
D. balance-of-payments
accounts
A country's balance-of-payments accounts track both its payments to and its receipts
from other countries.
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70.
Which of the following arises when a country is importing more goods and services than
it is exporting?
A. Current account
surplus
B. Trade
deficit
C. Trade
surplus
D. Trade
balance
A current account deficit, or trade deficit as it is often called, arises when a country is
importing more goods and services than it is exporting.
71.
Which of the following arises when a country is exporting more goods and services than
it is importing?
A. Current account
surplus
B. Trade
deficit
C. Trade
surplus
D. Trade
balance
A current account surplus, or trade surplus as it is often called, arises when a country is
exporting more goods and services than it is importing.
72.
In which of the following situations would FDI improve the current account of the host
country's balance of payments?
A. If the foreign subsidiary imports a substantial number of its inputs
from abroad
B. If the FDI reduces existing employment
opportunities
C. If the FDI is a substitute for imports of goods or
services
D. If the FDI results in substitution of products produced
domestically
If the FDI is a substitute for imports of goods or services, the effect can be to improve
the current account of the host country's balance of payments. Much of the FDI by
Japanese automobile companies in the United States and Europe, for example, can be
seen as substituting for imports from Japan.
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73.
In which way can the source country's balance of payments benefit from an FDI made
in a foreign country?
A. From cash outflow during the initial investment to
finance the FDI
B. If the purpose of the foreign investment is to serve the home market from a low-cost
production location
C. From the inward flow of foreign
earnings
D. If FDI is a substitute for direct
exports
FDI can benefit the home (source) country's balance of payments from the inward flow
of foreign earnings.
74.
How is the adverse effect of the balance of payments for the home country due to an
FDI usually offset?
A. By increased imports to the home country as a result of
the FDI
B. By the subsequent inflow of foreign
earnings
C. By substituting direct exports made earlier from the
home country
D. By further investments usually made to expand foreign
operations
For the home country, the balance of payments suffers from the initial capital outflow
required to finance the FDI. This effect, however, is usually more than offset by the
subsequent inflow of foreign earnings.
75.
FDI undertaken to serve the home market is known as:
A. outsourcin
g.
B. FDI
substitution.
C. offshore
production.
D. home market
FDI.
The term offshore production refers to FDI undertaken to serve the home market.
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76.
How can FDI undertaken to serve the home market stimulate economic growth in the
home country?
A. By freeing home-country resources to concentrate on activities where the home
country has a comparative advantage
B. By importing more goods and services than it is
exporting
C. By circumventing trade barriers that may have prevented direct exports
in the past
D. By reducing demand for home-country exports of capital equipment, intermediate
goods, and complementary products
Far from reducing home-country employment, such FDI may actually stimulate
economic growth (and hence employment) in the home country by freeing homecountry resources to concentrate on activities where the home country has a
comparative advantage.
77.
What is double taxation in the context of FDI?
A. Taxation at twice the normal rate for foreign
companies
B. Taxing the producers as well as
suppliers
C. Taxation of income in both home and host
country
D. Taxation of both income as well as
dividends paid
As an incentive to encourage domestic firms to undertake FDI, many countries have
eliminated double taxation of foreign income (i.e., taxation of income in both the host
country and the home country).
78.
Which of the following is a home-country policy aimed at limiting outward FDI flow?
A. Taxing domestic companies' foreign earnings at a higher rate than their
domestic earnings
B. Implementation of government-backed insurance programs to cover major types of
foreign investment risk
C. Eliminating double taxation of foreign
income
D. Persuading host countries to relax their restrictions on
inbound FDI
Countries have occasionally manipulated tax rules to try to encourage their firms to
invest at home. The objective behind such policies is to create jobs at home rather than
in other nations.
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79.
Licensing would be a good option for firms in which of the following industries?
A. High-technology industries in which protecting firm-specific expertise is of
paramount importance.
B. Global oligopolies, in which competitive interdependence requires that multinational
firms maintain tight control over foreign operations.
C. Industries in which intense cost pressures require that multinational firms maintain
tight control over foreign operations.
D. In fragmented, low-technology industries in which globally dispersed manufacturing
is not an option.
Licensing tends to be more common, and more profitable, in fragmented, lowtechnology industries in which globally dispersed manufacturing is not an option.
80.
_____ is essentially the service-industry version of licensing, although it normally
involves much longer term commitments.
A. Franchisin
g
B. Subsidizin
g
C. Greenfield
investment
D. Patentin
g
Franchising is essentially the service-industry version of licensing, although it normally
involves much longer-term commitments than licensing.
Essay Questions
81.
Discuss the two main forms of FDI.
FDI takes on two main forms. The first is a greenfield investment, which involves the
establishment of a new operation in a foreign country. The second involves acquiring or
merging with an existing firm in the foreign country. Acquisitions can be a minority
(where the foreign firm takes a 10 percent to 49 percent interest in the firm's voting
stock), majority (foreign interest of 50 percent to 99 percent), or full outright stake
(foreign interest of 100 percent). The majority of cross-border investment is in the form
of mergers and acquisitions rather than greenfield investments.
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82.
Discuss the trends in FDI over the last 30 years. Be sure to differentiate between the
stock of FDI and the flow if FDI.
The flow of FDI refers to the amount of FDI undertaken over a given period, while the
stock of FDI refers to the total accumulated value of foreign-owned assets at a given
time. Over the last 30 years, there has been a marked increase in both the flow and the
stock of FDI in the world economy. Over this period, the flow of FDI accelerated faster
than the growth in world trade and world output.
83.
Discuss the reasons for the growth in FDI over the last 30 years.
FDI has grown more rapidly than world trade and world output for several reasons. First,
many companies see FDI as a means of circumventing potential trade barriers. Second,
political and economic changes in many of the world developing nations has been
encouraging FDI. Finally, the globalization of the world economy is having a positive
impact on the volume of FDI as firms now see the whole world as their market.
84.
What is a greenfield investment? How does it compare to an acquisition? Which form of
FDI is a firm more likely choose? Explain your answer.
FDI can take the form of a greenfield investment in a new facility or an acquisition of or
a merger with an existing local firm. Research shows that most FDI takes the form of
mergers and acquisitions rather than greenfield investments. Mergers and acquisitions
are more popular for three reasons. First, mergers and acquisitions are quicker to
execute than greenfield investments. Second, foreign firms are acquired because those
firms have valuable strategic assets. Third, firms make acquisitions because they
believe they can increase the efficiency of the acquired firm by transferring capital,
technology, or management skills.
85.
Discuss why firms selling products with low value-to-weight ratios choose FDI over
exporting.
Products with low value-to-weight ratios such as soft drinks or cement are frequently
produced in the market where they are consumed. When transportation costs are
added to production costs, it becomes unprofitable to shift such products over a long
distance. For firms that can produce low value-to-weight products at almost any
location, the attractiveness of exporting decreases and FDI or licensing becomes more
appealing.
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86.
What is licensing? How does it work?
Licensing occurs when a domestic firm, the licensor, licenses to a foreign firm, the
licensee, the right to produce its product, to use its production processes, or to use its
brand name or trademark. In return, the licensor collects royalty fees on every unit the
licensee sells, or on total licensee revenues. The licensor also benefits from the
arrangement in that the licensee bears the cost and risk of expanding into a foreign
market.
87.
What are the major drawbacks of licensing according to the internalization theory?
According to the internalization theory, licensing has three major drawbacks as a
strategy for exploiting foreign market opportunities. First, licensing may result in a
firm's giving away valuable technological know-how to a potential foreign competitor. A
second problem is that licensing does not give a firm the tight control over
manufacturing, marketing, and strategy in a foreign country that may be required to
maximize its profitability. A third problem with licensing arises when the firm's
competitive advantage is based not as much on its products as on the management,
marketing, and manufacturing capabilities that produce those products. The problem
here is that such capabilities are often not amenable to licensing.
88.
What is an oligopoly? Discuss the impact of interdependence in an oligopoly.
An oligopoly is an industry composed of a limited number of large firms. A critical
competitive feature of such industries is interdependence of the major players: What
one firm does can have an immediate impact on the major competitors, forcing a
response in kind. By cutting prices, one firm in an oligopoly can take market share away
from its competitors, forcing them to respond with similar price cuts to retain their
market share. Thus, the interdependence between firms in an oligopoly leads to
imitative behavior; rivals often quickly imitate what a firm does in an oligopoly.
Imitative behavior can take many forms in an oligopoly. One firm raises prices, the
others follow; one expands capacity, and the rivals imitate lest they be left at a
disadvantage in the future.
89.
What is multipoint competition? How do firms respond to multipoint competition?
Multipoint competition arises when two or more enterprises encounter each other in
different regional markets, national markets, or industries. Economic theory suggests
that firms will try to match each other's moves in different markets to try to hold each
other in check. If a firm is successful with this strategy, the firm will ensure that a rival
does not take a commanding position in one market and then use the profits generated
in that market to underwrite competitive attacks in other markets.
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90.
Why do many economists favor internalization theory as an explanation for FDI
compared to Knickerbocker's theory?
Although Knickerbocker's theory and its extensions can help to explain imitative FDI
behavior by firms in oligopolistic industries, it does not explain why the first firm in an
oligopoly decides to undertake FDI rather than to export or license. Internalization
theory addresses this phenomenon. The imitative theory also does not address the
issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
Again, internalization theory addresses the efficiency issue. For these reasons, many
economists favor internalization theory as an explanation for FDI.
91.
Explain the product life-cycle theory and its connection with FDI.
The product life-cycle theory, developed by Raymond Vernon, suggests that the same
firms that pioneer a product in their home country will undertake FDI to produce a
product for consumption in foreign markets. According to the theory, firms will invest in
industrialized countries when demand in those countries is sufficient to support local
production. They subsequently shift production to developing countries when product
standardization and market saturation give rise to price competition and cost
pressures. Investment in developing countries, where labor costs are lower, is seen as
the best way to reduce costs.
92.
What are location-specific advantages? How do they help explain FDI?
Location-specific advantages are advantages that arise from using resource
endowments or assets that are tied to a particular foreign location and that a firm finds
valuable to combine with its own unique assets. Natural resources such as oil and
minerals, for example, are specific to certain locations. Firms must undertake FDI to
exploit such foreign resources.
93.
Explain John Dunning's position on FDI. What is the eclectic paradigm?
John Dunning argued that to fully understand FDI it is important to consider the role of
location-specific advantages. According to Dunning, a firm will be prompted to
undertake FDI in an effort to exploit assets that are specific to a particular location.
Dunning's theory, the eclectic paradigm, combines the arguments of internalization
theory with the notion of location-specific advantages to suggest that combining
location-specific assets or resource endowments and the firm's own unique capabilities
often requires the firm to establish production facilities where the foreign assets or
resource endowments are located.
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94.
How does the free market view support FDI?
The intellectual case for the free market view has been strengthened by the
internalization explanation of FDI. The free market view argues that international
production should be distributed among countries according to the theory of
comparative advantage. Countries should specialize in the production of those goods
and services that they can produce most efficiently. Within this framework, the MNE is
an instrument for dispersing the production of goods and services to the most efficient
locations around the globe. Viewed this way, FDI by the MNE increases the overall
efficiency of the world economy.
95.
Discuss the pragmatic nationalist view toward FDI.
The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a
host country by bringing capital, skills, technology, and jobs, but those benefits come at
a cost.
According to this view, FDI should be allowed so long as the benefits outweigh the
costs. Another aspect of pragmatic nationalism is the tendency to aggressively court
FDI believed to be in the national interest by, for example, offering subsidies to foreign
MNEs in the form of tax breaks or grants.
96.
Discuss the benefits and costs of FDI from the perspective of a host country and from
the perspective of the home country.
The main benefits of inward FDI for a host country arise from resource-transfer effects,
employment effects, balance-of-payments effects, and effects on competition and
economic growth. Three costs of FDI concern host countries. They arise from possible
adverse effects on competition within the host nation, adverse effects on the balance of
payments, and the perceived loss of national sovereignty and autonomy.
The benefits of FDI to the home (source) country arise from three sources. First, the
home country's balance of payments benefits from the inward flow of foreign earnings.
Second, benefits to the home country from outward FDI arise from employment effects.
Third, benefits arise when the home-country MNE learns valuable skills from its
exposure to foreign markets that can subsequently be transferred back to the home
country. The most important cost/concern of FDI for the home country centers on the
balance-of-payments and employment effects of outward FDI.
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97.
What are the possible adverse effects of FDI on a host country's balance-of-payments
position?
The possible adverse effects of FDI on a host country's balance-of-payments position
are twofold. First, set against the initial capital inflow that comes with FDI must be the
subsequent outflow of earnings from the foreign subsidiary to its parent company. Such
outflows show up as capital outflow on balance-of-payments accounts. Some
governments have responded to such outflows by restricting the amount of earnings
that can be repatriated to a foreign subsidiary's home country. A second concern arises
when a foreign subsidiary imports a substantial number of its inputs from abroad, which
results in a debit on the current account of the host country's balance of payments.
98.
Describe some of the home country policies that encourage outward FDI.
Many investor nations now have government-backed insurance programs to cover
major types of foreign investment risk. The types of risks insurable through these
programs include the risks of expropriation, war losses, and the inability to transfer
profits back home.
In addition, several advanced countries also have special funds or banks that make
government loans to firms wishing to invest in developing countries. As a further
incentive to encourage domestic firms to undertake FDI, many countries have
eliminated double taxation of foreign income. Last, and perhaps most significant, a
number of investor countries (including the United States) have used their political
influence to persuade host countries to relax their restrictions on inbound FDI.
99.
What are the ways in which host governments restrict inward FDI?
Host governments use a wide range of controls to restrict FDI in one way or another.
The two most common are ownership restraints and performance requirements.
Ownership restraints can take several forms. In some countries, foreign companies are
excluded from specific fields. In other industries, foreign ownership may be permitted
although a significant proportion of the equity of the subsidiary must be owned by local
investors. Performance requirements can also take several forms. Performance
requirements are controls over the behavior of the MNE's local subsidiary. The most
common performance requirements are related to local content, exports, technology
transfer, and local participation in top management.
100.
Describe the situations when licensing is not a good option for a firm.
Licensing is not a good option in three situations. First, licensing is hazardous in hightech industries where protecting firm-specific expertise is very important. Second,
licensing is not attractive in global oligopolies where tight control is necessary so that
firms have the ability to launch coordinated attacks against global competitors.
Finally, in industries where intense cost pressures require that MNEs maintain tight
control over foreign operations, licensing is not the best option.
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IB testbank chap 13
International business (Trường Đại học Ngoại thương)
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Chapter 13 The Strategy of International Business Answer Key
True / False Questions
1.
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.
2.
The preeminent strategic goal for most firms is to maximize the value of the firm for its owners.
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. For
most firms, the preeminent goal is to maximize the value of the firm for its owners, its shareholders.
3.
Profit growth is measured by the percentage increase in net profits over time.
TRUE
Profit growth is measured by the percentage increase in net profits over time. In general, higher
profitability and a higher rate of profit growth will increase the value of an enterprise and thus the returns
garnered by its owners, the shareholders.
4.
The amount of value a firm creates is measured by the difference between its costs of production and the
price that it charges for its products.
FALSE
The amount of value a firm creates is measured by the difference between its costs of production and
the value that consumers perceive in its products.
5.
The customer is able to garner the benefit of the consumer surplus because one firm is competing
with other firms for the customer's business, so the firm must charge a lower price than it could if it
were a monopoly supplier.
TRUE
The price a firm charges for a good or service is typically less than the value placed on that good or
service by the customer. This is because the customer captures some of that value in the form of what
economists call a consumer surplus. The customer is able to do this because the firm is competing with
other firms for the customer's business, so the firm must charge a lower price than it could, were it a
monopoly supplier.
6.
According to Porter, the way to create superior value is to drive down the cost structure of the business
and/or differentiate the product in some way so that consumers value it more.
TRUE
Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and
attaining a competitive advantage in an industry. According to Porter, superior profitability goes to those
firms that can create superior value, and the way to create superior value is to drive down the cost
structure of the business and/or differentiate the product in some way so that consumers value it more
and are prepared to pay a premium price.
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7.
Diminishing returns imply that when a firm already has significant value built into its product offering,
increasing value by a relatively small amount requires significant additional costs.
TRUE
Diminishing returns imply that when a firm already has significant value built into its product offering,
increasing value by a relatively small amount requires significant additional costs.
8.
For a firm, all positions on the efficiency frontier are viable.
FALSE
Not all positions on the efficiency frontier are viable. In the international hotel industry, for example,
there might not be enough demand to support a chain that emphasizes very low cost and strips all the
value out of its product offering. International travelers are relatively affluent and expect a degree of
comfort (value) when they travel away from home.
9.
The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to
attain a competitive advantage and achieve superior profitability.
TRUE
The strategy, operations, and organization of the firm must all be consistent with each other if it is to
attain a competitive advantage and garner superior profitability.
10.
Support activities include the design, creation, and delivery of a product.
FALSE
Primary activities have to do with the design, creation, and delivery of the product; its marketing; and
its support and after-sale service.
11.
R&D, production, marketing and sales, and customer service are all examples of primary activities.
TRUE
Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its
support and after-sale service. The primary activities include research and development, production,
marketing and sales, and customer service.
12.
Support activities are always less important than the primary activities in achieving a competitive
advantage.
FALSE
The support activities of the value chain provide inputs that allow the primary activities to occur. In
terms of attaining a competitive advantage, support activities can be as important as, if not more
important than, the "primary" activities of the firm.
13.
Top management should be viewed as part of the firm's infrastructure.
TRUE
The final support activity is the company infrastructure, or the context within which all the other value
creation activities occur. Because top management can exert considerable influence in shaping these
aspects of a firm, top management should also be viewed as part of the firm's infrastructure.
14.
Global expansion offers companies the opportunity to generate greater profits than companies that focus
strictly on the domestic market.
TRUE
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15.
Expanding globally allows firms to increase their profitability and rate of profit growth in ways not
available to purely domestic enterprises.
The success of many multinational corporations is based not just upon the goods or services that they sell
in foreign nations, but also upon the core competencies that underlie the development, production, and
marketing of those goods or services.
TRUE
The success of many multinational companies that expand in this manner is based not just upon the
goods or services that they sell in foreign nations, but also upon the core competencies that underlie the
development, production, and marketing of those goods or services.
16.
The skills within the firm that a competitor cannot easily match or imitate are known as core
competence.
TRUE
The term core competence refers to skills within the firm that competitors cannot easily match or imitate.
17.
Core competencies enable a firm to reduce the costs of value creation and/or to create perceived value in
such a way that premium pricing is possible.
TRUE
Core competencies are the bedrock of a firm's competitive advantage. They enable a firm to reduce the
costs of value creation and/or to create perceived value in such a way that premium pricing is possible.
18.
Economies that arise from performing a value creation activity in the optimal location are known as
location economies.
TRUE
Location economies are the economies that arise from performing a value creation activity in the
optimal location for that activity, wherever in the world that might be (transportation costs and trade
barriers permitting).
19.
Systematic increases in sales that have been observed to occur over the life of the product are referred to
as the experience curve.
FALSE
The experience curve refers to systematic reductions in production costs that have been observed to
occur over the life of a product.
20.
Cost savings that come from learning by doing are known as economies of scale.
FALSE
Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by
repetition how to carry out a task, such as assembling airframes, most efficiently.
21.
Learning effects tend to be more significant when a technologically simple task is repeated.
FALSE
Learning effects tend to be more significant when a technologically complex task is repeated, because
there is more that can be learned about the task. Thus, learning effects will be more significant in an
assembly process involving 1,000 complex steps than in one of only 100 simple steps.
22.
One of the sources of economies of scale is the ability to spread fixed costs over a large volume.
TRUE
Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a
product. Attaining economies of scale lowers a firm's unit costs and increases its profitability.
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23.
Moving up the experience curve allows a firm to reduce its cost of creating value and increase its
profitability.
FALSE
Moving down the experience curve allows a firm to reduce its cost of creating value and increase its
profitability. The firm that moves down the experience curve most rapidly will have a cost advantage visà-vis its competitors.
24.
Once a firm has established a low-cost position, it can act as a barrier to new competition.
TRUE
Once a firm has established a low-cost position, it can act as a barrier to new competition. Specifically,
an established firm that is well down the experience curve can price so that it is still making a profit
while new entrants, which are farther up the curve, are suffering losses.
25.
In a multinational enterprise, skills are always generated at the headquarters location and are then
dispersed to the rest of the organization.
FALSE
Skills can be created anywhere within a multinational's global network of operations, wherever people
have the opportunity and incentive to try new ways of doing things. The creation of skills that help to
lower the costs of production, or to enhance perceived value and support higher product pricing, is not
the monopoly of the corporate center.
26.
To leverage subsidiary skills, companies should establish incentive systems that encourage local
employees to acquire new skills.
TRUE
Managers of the multinational enterprise must establish an incentive system that encourages local
employees to acquire new skills. This is not as easy as it sounds. Creating new skills involves a degree
of risk.
27.
Two types of competitive pressure that affect the ability of multinational enterprises to compete in the
global marketplace are pressure for cost reductions and pressure for local responsiveness.
TRUE
Firms that compete in the global marketplace typically face two types of competitive pressure that affect
their ability to realize location economies and experience effects, to leverage products and transfer
competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be
locally responsive.
28.
Because differentiation across countries can involve significant duplication and a lack of product
standardization, it may reduce costs.
FALSE
Firms that compete in the global marketplace face pressures for cost reductions and pressures to be
locally responsive. Because differentiation across countries can involve significant duplication and a lack
of product standardization, it may raise costs.
29.
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not
identical.
TRUE
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Universal needs exist when the tastes and preferences of consumers in different nations are similar if
not identical. This is the case for conventional commodity products such as bulk chemicals,
petroleum, steel, sugar, and the like.
30.
Pressures for cost reduction are minimal in industries where major competitors are based in low-cost
locations, where there is persistent excess capacity, and where consumers are powerful and face low
switching costs.
FALSE
Pressures for cost reductions are intense in industries where major competitors are based in low-cost
locations, where there is persistent excess capacity, and where consumers are powerful and face low
switching costs.
31.
When consumer tastes and preferences differ significantly between countries, there is low pressure for
local responsiveness.
FALSE
Strong pressures for local responsiveness emerge when customer tastes and preferences differ
significantly between countries, as they often do for deeply embedded historic or cultural reasons.
32.
A multinational firm may need to delegate marketing functions to national subsidiaries to be responsive
to local differences in distribution channels.
TRUE
A firm's marketing strategies may have to be responsive to differences in distribution channels among
countries, which may necessitate the delegation of marketing functions to national subsidiaries.
33.
Threats of protectionism, economic nationalism, and local content rules dictate that international
businesses manufacture locally.
TRUE
Economic and political demands imposed by host-country governments may require local
responsiveness. Threats of protectionism, economic nationalism, and local content rules (which require
that a certain percentage of a product should be manufactured locally) dictate that international
businesses manufacture locally.
34.
Pressures for local responsiveness imply that it may not be possible to leverage skills and products
associated with a firm's core competencies wholesale from one nation to another.
TRUE
Pressures for local responsiveness imply that it may not be possible to leverage skills and products
associated with a firm's core competencies wholesale from one nation to another. Concessions often have
to be made to local conditions.
35.
A global standardization strategy is appropriate when a firm is facing low pressures for cost reduction
but high pressure for local responsiveness.
FALSE
Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by
reaping the cost reductions that come from economies of scale, learning effects, and location economies;
that is, their strategic goal is to pursue a low-cost strategy on a global scale. This strategy makes most
sense when there are strong pressures for cost reductions and demands for local responsiveness are
minimal.
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36.
When a firm focuses on increasing profitability by customizing the product or service so that they
provide a good match to tastes and preferences in different national markets, the firm is following a
transnational strategy.
FALSE
A localization strategy focuses on increasing profitability by customizing the firm's goods or services so
that they provide a good match to tastes and preferences in different national markets.
37.
When the firm simultaneously faces both strong cost pressures and strong pressures for local
responsiveness, the ideal strategy to follow is the transnational strategy.
TRUE
Sometimes a firm simultaneously faces both strong cost pressures and strong pressures for local
responsiveness. How can managers balance the competing and inconsistent demands such divergent
pressures place on the firm? According to some researchers, the answer is to pursue what has been called
a transnational strategy.
38.
A localization strategy makes most sense when demands for local responsiveness are high, but cost
pressures are moderate or low.
TRUE
Localization is most appropriate when there are substantial differences across nations with regard to
consumer tastes and preferences, and where cost pressures are not too intense. By customizing the
product offering to local demands, the firm increases the value of that product in the local market.
39.
The distinguishing feature of many firms that pursue an international strategy is that they are selling a
product that serves local needs, but they do not face significant competitors.
FALSE
Many enterprises have pursued an international strategy, taking products first produced for their
domestic market and selling them internationally with only minimal local customization. The
distinguishing feature of many such firms is that they are selling a product that serves universal needs,
but they do not face significant competitors.
40.
As competition intensifies, global standardization strategies and transnational strategies tend to become
less viable, and managers need to orientate their companies toward either an international strategy or a
localization strategy.
FALSE
International strategy may not be viable in the long term, and to survive, firms need to shift toward a
global standardization strategy or a transnational strategy in advance of competitors. The same can
be said about a localization strategy.
Multiple Choice Questions
41.
_____ can be defined as the rate of return that the firm makes on its invested capital, which is
calculated by dividing the net profits of the firm by total invested capital.
A. Profitability
B. Performance
C. Cash flow
D. Efficiency
Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which
is calculated by dividing the net profits of the firm by total invested capital. To maximize the value of a
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firm, managers must pursue strategies that increase the profitability of the enterprise and its rate of profit
growth over time.
42.
The percentage increase in net profits over time measures:
A. capital return.
B. profitability.
C. market growth.
D. profit growth.
Profit growth is measured by the percentage increase in net profits over time. In general, higher
profitability and a higher rate of profit growth will increase the value of an enterprise and thus the returns
garnered by its owners, the shareholders.
43.
Which of the following statements is NOT true?
A. The way to increase the profitability of a firm is to create more value.
B. The amount of value a firm creates is measured by the difference between its costs of production and
the value that consumers perceive in its products.
C. The more value customers place on a firm's products, the higher the price the firm is able to charge
for those products.
D. The price a firm charges for a good or service is typically more than the value the customer
places on that good or service.
The price a firm charges for a good or service is typically less than the value placed on that good or
service by the customer. This is because the customer captures some of that value in the form of what
economists call a consumer surplus.
44.
The price a firm charges for a good or service is typically less than the value placed on that good or
service by the customer. This is because:
A. the customer's disposable income is significantly higher than what the market demands.
B. the customer captures some of that value in the form of a consumer surplus.
C. regulator mechanisms ensure that the customer is not overcharged for products/services.
D. marketers implement psychological pricing tactics to ensure that customers perceive the prices to be
low.
The price a firm charges for a good or service is typically less than the value placed on that good or
service by the customer. This is because the customer captures some of that value in the form of what
economists call a consumer surplus.
45.
The value of a product to an average consumer is V; and the average price that the firm can charge
a consumer for that product is P. Here, V - P can be termed as:
A. consumer surplus per unit.
B. producer surplus per unit.
C. profit growth.
D. profit per unit sold.
The value of a product to an average consumer is V; the average price that the firm can charge a
consumer for that product given competitive pressures and its ability to segment the market is P; and the
average unit cost of producing that product is C. The firm's profit per unit sold (π) is equal to P - C, while
the consumer surplus per unit is equal to V - P.
46.
A consumer surplus can be best described as:
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A. what the consumer has "left-over" after a purchase.
B. how much extra a consumer has to pay for a product.
C. value for the money.
D. the premium charged for a quality product.
The value of a product to an average consumer is V; the average price that the firm can charge a
consumer for that product given competitive pressures and its ability to segment the market is P. The
consumer surplus per unit is equal to V — P (another way of thinking of the consumer surplus is as
"value for the money"; the greater the consumer surplus, the greater the value for the money the
consumer gets).
47.
A strategy that focuses on increasing the attractiveness of a product is referred to as a(n):
A. differentiation strategy.
B. low cost strategy.
C. effectiveness strategy.
D. efficiency strategy.
A strategy that focuses primarily on increasing the attractiveness of a product is known as a
differentiation strategy. Michael Porter has argued that low cost and differentiation are two basic
strategies for creating value and attaining a competitive advantage in an industry.
48.
The efficiency frontier has a convex shape because of:
A. consumer surplus.
B. diminishing returns.
C. profitability.
D. differentiation strategy.
The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding
value to the product (V) and low cost (C) assuming that its internal operations are configured efficiently
to support a particular position. The efficiency frontier has a convex shape because of diminishing
returns.
49.
_____ imply that when a firm already has significant value built into its product offering,
increasing value by a relatively small amount requires significant additional costs.
A. Efficiency matrixes
B. Diminishing returns
C. Cost plus curves
D. Strategy convex curves
The efficiency frontier has a convex shape because of diminishing returns. Diminishing returns imply
that when a firm already has significant value built into its product offering, increasing value by a
relatively small amount requires significant additional costs.
50.
The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the
following, EXCEPT:
A. choose, according to strategy, any position on the efficiency frontier as all positions are viable.
B. pick a position on the efficiency frontier that is viable in the sense that there is enough demand to
support that choice.
C. configure its internal operations so that they support the position on the efficiency frontier.
D. make sure that the right organization structure is in place to execute the strategy.
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Porter emphasizes that it is very important for management to decide where the company wants to be
positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage
them efficiently to make sure the firm is operating on the efficiency frontier. However, not all positions
on the efficiency frontier are viable.
51.
_____ activities are basically concerned with creating the product, marketing and delivering the
product to buyers, and providing support and after-sales service.
A. Support
B. Subordinate
C. Ancillary
D. Primary
Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its
support and after-sale service.
52.
Which of the following is an example of a primary activity in a firm's value chain?
A. Information systems
B. Research and development
C. Logistics
D. Human relations
Research and development (R&D) is concerned with the design of products and production processes.
Although we think of R&D as being associated with the design of physical products and production
processes in manufacturing enterprises, many service companies also undertake R&D.
53.
Which of the following is an example of a support activity in a firm's value chain?
A. R&D
B. Customer service
C. Human resources
D. Marketing and sales
The support activities of the value chain provide inputs that allow the primary activities to occur. The
human resource functions ensure that people are adequately trained, motivated and compensated to
perform their value creation tasks.
54.
_____ activities of the value chain provide inputs that allow the primary activities to occur.
A. Complementary
B. Basic
C. Core
D. Support
The support activities of the value chain provide inputs that allow the primary activities to occur.
55.
A firm benefits by basing each value creation activity it performs at that location where economic,
political, and cultural conditions, including relative factor costs, are most conducive to the
performance of that activity. Firms that pursue such a strategy can realize:
A. differentiation.
B. location economies.
C. vertical integration.
D. horizontal integration.
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For a firm that is trying to survive in a competitive global market, this implies that trade barriers and
transportation costs permitting, the firm will benefit by basing each value creation activity it performs at
that location where economic, political, and cultural conditions, including relative factor costs, are most
conducive to the performance of that activity.
56.
Economies that arise from performing a value creation activity in the optimal place for that
activity are referred to as:
A. factor economies.
B. production economies.
C. location economies.
D. value creation economies.
Locating a value creation activity in the optimal location for that activity can have one of two effects. It
can lower the costs of value creation and help the firm to achieve a low-cost position, and/or it can
enable a firm to differentiate its product offering from those of competitors.
57.
When companies disperse different stages of the value chain to those locations around the world where
perceived value is maximized or where the costs of value creation are minimized, companies create:
A. a differentiated organization.
B. a location economy curve.
C. economies of scale.
D. a global web of value creation activities.
The creation of a global web of value creation activities results with different stages of the value chain
being dispersed to those locations around the globe where perceived value is maximized or where the
costs of value creation are minimized.
58.
Lenovo's ThinkPad laptop computers is designed in the United States, the case, keyboard, and
hard drive are made in Thailand; the display screen and memory in South Korea; the built-in
wireless card in Malaysia; and the microprocessor in the United States. In each case, these
components are manufactured and sourced from the optimal location given current factor costs. In
this example, Lenovo has:
A. vertical integration advantages.
B. a global web of value creation activities.
C. learning effects.
D. high local responsiveness.
Locating a value creation activity in the optimal location for that activity can have one of two effects. It
can lower the costs of value creation and help the firm to achieve a low-cost position, and/or it can
enable a firm to differentiate its product offering from those of competitors. One result of this kind of
thinking is the creation of a global web of value creation activities, with different stages of the value
chain being dispersed to those locations around the globe where perceived value is maximized or where
the costs of value creation are minimized.
59.
_____ refer(s) to systematic reductions in production costs that have been observed to occur over
the life of a product.
A. Experience curve
B. Economies of scale
C. Location economies
D. Production possibility
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The experience curve refers to systematic reductions in production costs that have been observed to
occur over the life of a product.
60.
It has been observed that a product's production costs decline by some quantity about each time,
cumulative output:
A. increases by twenty five percent.
B. quadruples.
C. doubles.
D. triples.
The experience curve refers to systematic reductions in production costs that have been observed to
occur over the life of a product. A number of studies have observed that a product's production costs
decline by some quantity about each time, cumulative output doubles.
61.
It has been observed in the aircraft industry that, each time cumulative output of airframes was
doubled, unit costs typically declined to 80 percent of their previous level. This is an example of:
A. the core performance curve.
B. the location curve.
C. the strategic curve.
D. the experience curve.
The experience curve refers to systematic reductions in production costs that have been observed to
occur over the life of a product. A number of studies have observed that a product's production costs
decline by some quantity about each time cumulative output doubles.
62.
When individuals gain knowledge of the most efficient ways to perform particular tasks, they are
saving costs through:
A. location economies.
B. value creation effects.
C. experience curve effects.
D. learning effects.
Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by
repetition how to carry out a task, such as assembling airframes, most efficiently.
63.
Learning effects:
A. tend to be less significant when a technologically complex task is repeated.
B. will be less significant in an assembly process involving 1,000 complex steps than in one of only 100
simple steps.
C. typically disappear after a while, in spite of the complexity of the task.
D. are more significant after two or three years of the introduction of a new process.
Learning effects tend to be more significant when a technologically complex task is repeated, because
there is more that can be learned about the task. No matter how complex the task, however, learning
effects typically disappear after a while.
64.
It has been suggested that learning effects are important only during the start-up period of a new process
and that they cease after two or three years. Any decline in the experience curve after such a point is due
to:
A. reduction in fixed costs.
B. higher depreciation costs.
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C. economies of scale.
D. obsolescence.
No matter how complex the task, learning effects typically disappear after a while. It has been
suggested that they are important only during the start-up period of a new process and that they cease
after two or three years. Any decline in the experience curve after such a point is due to economies of
scale.
65.
Economies of scale arise from all of the following sources, EXCEPT:
A. increasing fixed costs by limiting them to small volumes.
B. serving domestic and international markets from the same production facilities
C. serving global markets.
D. bargaining with suppliers to bring down the cost of key inputs.
Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a
product. Attaining economies of scale lowers a firm's unit costs and increases its profitability.
66.
Moving down the experience curve:
A. increases the cost of a firm's raw material.
B. allows a firm to reduce its cost of creating value.
C. decreases a firm's profitability.
D. increases the R & D expenditure of a firm.
Moving down the experience curve allows a firm to reduce its cost of creating value and increase its
profitability. The firm that moves down the experience curve most rapidly will have a cost advantage visà-vis its competitors.
67.
Firms usually respond to pressures for cost reduction by trying to:
A. lower the costs of value creation.
B. be locally responsive.
C. undertaking product differentiation.
D. diversifying product lines.
In competitive global markets, international businesses often face pressures for cost reductions.
Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation.
68.
Responding to pressure for _____ requires that a firm differentiate its product offering and
marketing strategy from country to country.
A. cost reductions
B. experience effects
C. lowering the costs of value creation
D. being locally responsive
Responding to pressures to be locally responsive requires that a firm differentiate its product offering and
marketing strategy from country to country in an effort to accommodate the diverse demands arising
from national differences in consumer tastes and preferences, business practices, distribution channels,
competitive conditions, and government policies.
69.
_____ exists when the tastes and preferences of consumers in different nations are similar if not
identical.
A. Universal needs
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B. Homogenous needs
C. Basic needs
D. Bundled needs
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not
identical. This is the case for conventional commodity products such as bulk chemicals, petroleum, steel,
sugar, and the like.
70.
Which of the following is less likely to add to the pressure for a firm to be locally responsive?
A. National differences in consumer tastes and preferences
B. Differences in infrastructure and traditional practices
C. Switching costs for consumers
D. Host-government demands
Pressures for local responsiveness arise from national differences in consumer tastes and preferences,
infrastructure, accepted business practices, and distribution channels, and from host-government
demands. Responding to pressures to be locally responsive requires a firm to differentiate its products
and marketing strategy from country to country to accommodate these factors, all of which tends to raise
the firm's cost structure.
71.
When a firm has a strategic goal of pursuing a low-cost strategy on a worldwide scale, the firm
should follow a(n) _____ strategy.
A. global standardization
B. localization
C. international
D. customization
Firms pursuing a global standardization strategy try not to customize their product offering and
marketing strategy to local conditions because customization involves shorter production runs and the
duplication of functions, which tends to raise costs. Instead, they prefer to market a standardized product
worldwide so that they can reap the maximum benefits from economies of scale and learning effects.
72.
Which of the following is NOT associated with firms following the global standardization strategy?
A. Low pressures for local responsiveness
B. Use cost advantage to support aggressive pricing in world markets
C. High pressures for cost reductions
D. Customize product offering and marketing strategy to local conditions
Firms pursuing a global standardization strategy try not to customize their product offering and
marketing strategy to local conditions because customization involves shorter production runs and the
duplication of functions, which tends to raise costs. Instead, they prefer to market a standardized product
worldwide so that they can reap the maximum benefits from economies of scale and learning effects.
73.
_____ strategy is most appropriate when there are substantial differences across nations with
regard to consumer tastes and preferences, and where cost pressures are not too intense.
A. Localization
B. Transnational
C. Global standardization
D. International
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Localization is most appropriate when there are substantial differences across nations with regard to
consumer tastes and preferences, and where cost pressures are not too intense. By customizing the
product offering to local demands, the firm increases the value of that product in the local market.
74.
Which strategy focuses on increasing profitability by customizing the firm's goods or services so
they provide a good match to tastes and preferences in different national markets?
A. Global standardization strategy
B. Transnational strategy
C. Localization strategy
D. International strategy
A localization strategy focuses on increasing profitability by customizing the firm's goods or services so
that they provide a good match to tastes and preferences in different national markets.
75.
Which of the following is a disadvantage of the localization strategy?
A. Decrease in the value of the product in the local market
B. Duplication of functions
C. Inability to accommodate varying tastes and preferences in different markets
D. Reduced customization
On the downside, because the localization strategy involves some duplication of functions and smaller
production runs, customization limits the ability of the firm to capture the cost reductions associated with
mass-producing a standardized product for global consumption.
76.
A firm that is facing both strong cost pressures and strong pressures for local responsiveness
should follow a(n) _____ strategy.
A. localization
B. global standardization
C. international
D. transnational
Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location
economies, economies of scale, and learning effects; differentiate their product offering across
geographic markets to account for local differences; and foster a multidirectional flow of skills between
different subsidiaries in the firm's global network of operations.
77.
A firm that is pursuing a(n) _____ strategy is simultaneously trying to achieve low costs through
location economies, economies of scale, and learning effects, and trying to differentiate its product
offering across geographic markets.
A. global customization
B. international
C. localization
D. transnational
Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location
economies, economies of scale, and learning effects; differentiate their product offering across
geographic markets to account for local differences; and foster a multidirectional flow of skills between
different subsidiaries in the firm's global network of operations.
78.
A firm facing low pressures for cost reductions and low pressures for local responsiveness, is most
likely to follow a(n) _____ strategy.
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A. global standardization
B. localization
C. international
D. transnational
There are multinational firms that find themselves in the fortunate position of being confronted with low
cost pressures and low pressures for local responsiveness. Many of these enterprises have pursued an
international strategy, taking products first produced for their domestic market and selling them
internationally with only minimal local customization.
79.
For firms that are selling a product that serves universal needs, and that do not face significant
competition, a(n) _____ strategy makes sense.
A. localization
B. international
C. transnational
D. global standardization
Many enterprises have pursued an international strategy, taking products first produced for their
domestic market and selling them internationally with only minimal local customization. The
distinguishing feature of many such firms is that they are selling a product that serves universal needs,
but they do not face significant competitors, and thus unlike firms pursuing a global standardization
strategy, they are not confronted with pressures to reduce their cost structure.
80.
Which of the following is true of the international strategy?
A. Product development tends to be highly decentralized.
B. Manufacturing and marketing are typically located in the headquarters location.
C. Extensive production customization is common.
D. The strategy is not viable in the long-run.
An international strategy may not be viable in the long term, and to survive, firms need to shift toward a
global standardization strategy or a transnational strategy in advance of competitors.
Essay Questions
81.
What is strategy? How does strategy relate to a firm's profitability?
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. For most
firms, the key goal is to maximize the value of the firm for its owners. To maximize the value of the firm,
managers must pursue strategies that increase profitability, or rate of return the firm makes on its
invested capital. Managers can increase profitability by pursuing strategies that lower costs and strategies
that add value to the firm's products.
82.
What is the difference between profitability and profit growth?
Profitability can be defined as the rate of return that the firm makes on its invested capital which is
calculated by dividing the net profits of the firm by total invested capital. The percentage increase in net
profits over time is profit growth. In general, the value of the firm will increase when both profitability
and profit growth are high.
83.
How can a firm increase its profitability?
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The way to increase the profitability of a firm is to create more value. The amount of value a firm creates
is measured by the difference between its costs of production and the value that consumers perceive in its
products. In general, the more value customers place on a firm's products, the higher the price the firm
can charge for those products.
84.
Discuss Michael Porter's interpretation of value creation and competitive advantage.
According to Michael Porter, low cost and differentiation are two basic strategies for creating value and
attaining a competitive advantage in an industry.
Porter argues that those firms that create superior value will achieve superior profitability. Porter notes
that it is not necessary for a firm to have the lowest cost structure or create the most valuable product;
rather it is only important that the gap between value and the cost of production be greater than that of
competitors.
85.
Discuss efficiency frontier. How does strategic positioning relate to the efficiency frontier?
The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding
value to the product and low cost assuming that its internal operations are configured efficiently to
support a particular position. It is important that managers decide where a firm should be positioned with
regard to value and cost, configure operations accordingly, and manage them efficiently to ensure the
firm is operating on the efficiency frontier. A central tenet of the basic strategy paradigm is that to
maximize its profitability, a firm must do three things:
(a) pick a position on the efficiency frontier that is viable in the sense that there is enough demand to
support that choice;
(b) configure its internal operations, such as manufacturing, marketing, logistics, information
systems, human resources, and so on, so that they support that position; and
(c) make sure that the firm has the right organization structure in place to execute its strategy.
86.
Consider the firm in terms of a value chain. What is the difference between primary activities and
support activities? Provide examples of each.
The operations of a firm can be thought of as a value chain composed of a series of distinct value
creation activities. Primary activities have to do with the design, creation, and delivery of the product; its
marketing; and its after-sale-service. Normally, primary activities are divided into R&D, production,
marketing and sales, and customer service. The support activities of the value chain provide inputs that
allow the primary activities to occur. Support activities include information systems, company
infrastructure, logistics, and human resources.
87.
How can the marketing and sales functions of a firm create value?
There are several ways the marketing and sales functions of a firm can help create value. The marketing
function can create value through brand positioning and advertising. If the firm can create a favorable
impression of the firm's product in the minds of consumers, it can increase the price that can be charged.
Marketing and sales can also create value by identifying consumer needs and passing that information
along to the R&D department.
Resolving customer problems and supporting customers after they have purchased the product can also
create the perception of superior value.
88.
Describe the benefits of global expansion for firms.
Expanding globally allows firms to increase their profitability and rate of profit growth in ways not
available to purely domestic enterprises. Firms that operate internationally are able to:
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1. Expand the market for their domestic product offerings by selling those products in international
markets.
2. Realize location economies by dispersing individual value creation activities to those locations
around the globe where they can be performed most efficiently and effectively.
3. Realize greater cost economies from experience effects by serving an expanded global market from a
central location, thereby reducing the costs of value creation.
4. Earn a greater return by leveraging any valuable skills developed in foreign operations and
transferring them to other entities within the firm's global network of operations.
89.
What is a core competence? Why is it essential to the success of the firm?
The term core competence refers to skills within the firm that competitors cannot easily match or imitate.
These skills may exist in any of the firm's value creation activities—production, marketing, R&D, human
resources, logistics, general management, and so on. Such skills are typically expressed in product
offerings that other firms find difficult to match or imitate. Core competencies are the bedrock of a firm's
competitive advantage. They enable a firm to reduce the costs of value creation and/or to create
perceived value in such a way that premium pricing is possible.
90.
Explain the concept of location economies.
Location economies are the economies that arise from performing a value creation activity in the optimal
location for that activity, wherever in the world that might be. For a firm that is trying to survive in a
competitive global market, basing each value creation activity it performs at that location where
economic, political, and cultural conditions are most conducive to the performance of that activity will
provide benefits to the firm. As firms pursue location economies, they may also be in the process of
creating a global web of value creation activities, with different stages of the value chain being dispersed
to those locations around the globe where perceived value is maximized or the costs of value creation are
minimized.
91.
Discuss the creation of a global web of value creation activities.
The creation of a global web of value creation activities involves different stages of the value chain being
dispersed to those locations around the globe where perceived value is maximized or where the costs of
value creation are minimized. In theory, a firm that realizes location economies by dispersing each of its
value creation activities to its optimal location should have a competitive advantage vis-à-vis a firm that
bases all of its value creation activities at a single location.
92.
What is an experience curve?
The experience curve refers to systematic reductions in production costs that have been observed to
occur over the life of a product. A number of studies have observed that a product's production costs
decline by some quantity about each time cumulative output doubles.
93.
What are learning effects? When are learning effects most significant?
Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by
repetition how to carry out a task, such as assembling airframes, most efficiently. Labor productivity
increases over time as individuals learn the most efficient ways to perform particular tasks. Learning
effects tend to be more significant when a technologically complex task is repeated, because there is
more that can be learned about the task.
94.
How can firms successfully leverage the skills developed at the subsidiary level?
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Firms can successfully leverage skills developed at the subsidiary level by doing four things. First,
managers must have the humility to recognize that valuable skills that lead to competencies can arise
anywhere within the firm's global network, not just at the corporate center. Second, the firm must
establish an incentive system that encourages local employees to acquire new skills. Third, managers
must have a process for identifying when valuable new skills have been created in a subsidiary. Finally,
managers must act as facilitators helping to transfer valuables skills within the firm.
95.
What are the two types of competitive pressures that firms competing in the global marketplace
face? How do firms respond to these pressures?
Firms that compete in the global marketplace typically face two types of competitive pressure that affect
their ability to realize location economies and experience effects, to leverage products and transfer
competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be
locally responsive. These competitive pressures place conflicting demands on a firm.
Responding to pressures for cost reductions requires that a firm try to minimize its unit costs.
Responding to pressures to be locally responsive requires that a firm differentiate its product offering and
marketing strategy from country to country in an effort to accommodate the diverse demands arising
from national differences in consumer tastes and preferences, business practices, distribution channels,
competitive conditions, and government policies.
96.
Discuss the factors that lead to pressure for local responsiveness.
There are many factors that contribute to the need for local responsiveness. When consumer tastes and
preferences differ significantly between countries, a firm's products and marketing message must be
customized to the local market. Differences in infrastructure and traditional practices among countries
may require the firm to delegate manufacturing and production facilities to foreign subsidiaries. A firm's
marketing strategies may have to be responsive to differences in distribution channels among countries.
Finally, economic and political demands imposed by host country governments may require local
responsiveness.
97.
What are the four basic strategies that firms use to compete in international markets?
The four basic strategies that firms use to compete in international markets are the international strategy,
the global standardization strategy, the localization strategy, and the transnational strategy.
98.
Describe localization strategy.
A localization strategy focuses on increasing profitability by customizing the firm's goods or services so
that they provide a good match to tastes and preferences in different national markets. This strategy is
most appropriate when there are substantial differences across nations with regard to consumer tastes and
preferences.
99.
Consider a transnational strategy. Why would a firm choose this strategic alternative? What are
the disadvantages of this strategy?
Firms that are pursuing a transnational strategy are trying to simultaneously achieve low costs through
location economies, economies of scale, and learning effects; differentiate their product offering across
geographic markets to account for local differences; and foster a multidirectional flow of skills between
different subsidiaries in the firm's global network of operations. In essence, a transnational strategy
requires a firm to simultaneously achieve cost efficiencies, global learning, and local responsiveness.
This strategy makes sense when a firm faces high pressures for cost reductions and high pressures for
local responsiveness. Building an organization that is capable of supporting a transnational strategic
posture is complex and difficult. It is difficult to pursue this strategy because it puts conflicting demands
on the company.
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100.
Discuss the evolution of strategy. How does cost become important in the long term?
An international strategy is typically not considered to be a sustainable long-term strategy. Over time,
more efficient competitors emerge, forcing firms to make cost reductions or risk losing significant
market share. To survive, companies following an international strategy need to move toward a global
standardization strategy or a transnational strategy prior to the emergence of competition. Similarly, a
localization strategy is not considered a long-term strategy. Instead, companies following a localization
strategy need to reduce their cost structures, and the only way to achieve that are to move toward a
transnational strategy.
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IB testbank chap 15
International business (Trường Đại học Ngoại thương)
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Chapter 15 Entry Strategy and Strategic Alliances Answer Key
True / False Questions
1.
The choice of which markets to enter should be driven by an assessment of relative long-run growth and
profit potential.
TRUE
The choice of which markets to enter should be driven by an assessment of relative long run growth
and profit potential.
2.
The attractiveness of a country as a potential market for an international business depends on balancing
the benefits, costs, and risks associated with doing business in that country.
TRUE
The attractiveness of a country as a potential market for an international business depends on balancing
the benefits, costs, and risks associated with doing business in that country.
3.
The costs and risks associated with doing business in a foreign country are typically high in an
economically advanced and politically stable democratic nation.
FALSE
The costs and risks associated with doing business in a foreign country are typically lower in
economically advanced and politically stable democratic nations, and they are greater in less developed
and politically unstable nations.
4.
The value an international business created in a foreign market depends on the suitability of its product
offering to that market and the nature of indigenous competition.
TRUE
The value an international business can create in a foreign market depends on the suitability of its
product offering to that market and the nature of indigenous competition.
5.
First-mover advantages are the advantages associated with entering a market early.
TRUE
The advantages frequently associated with entering a market early are commonly known as first-mover
advantages.
6.
Costs that an early entrant has to bear that a later entrant can avoid are known as first-mover costs.
FALSE
Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid.
7.
Educating customers is a part of pioneering costs.
TRUE
Pioneering costs include the costs of promoting and establishing a product offering, including the costs
of educating customers.
8.
A strategic commitment can be reversed by the top management according to their convenience.
FALSE
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A strategic commitment has a long-term impact and is difficult to reverse.
9.
Large strategic commitments increase strategic flexibility.
FALSE
Strategic commitments, such as rapid large-scale market entry, can have an important influence on the
nature of competition. Large strategic commitments limit strategic flexibility.
10.
A small-scale entrant is more likely than a large-scale entrant to capture first-mover advantages
associated with demand preemption, scale economies, and switching costs
FALSE
The large-scale entrant is more likely than the small-scale entrant to be able to capture first-mover
advantages associated with demand preemption, scale economies, and switching costs.
11.
Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to
that market.
TRUE
Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that
market.
12.
Exporting is advantageous because it avoids the cost of establishing manufacturing operations in the host
country and because it may help a firm achieve experience curve and location economies.
TRUE
Exporting has two distinct advantages. First, it avoids the often substantial costs of establishing
manufacturing operations in the host country. Second, exporting may help a firm achieve experience
curve and location economies.
13.
Exporting is most appropriate when lower-cost locations for manufacturing the product can be found
abroad.
FALSE
Exporting may not be appropriate if lower-cost locations for manufacturing the product can be found
abroad.
14.
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client.
TRUE
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client.
15.
An advantage of turnkey projects is that the firm that enters into a turnkey deal will have no long-term
interest in the foreign country.
FALSE
A drawback of turnkey projects is that the firm that enters into a turnkey deal will have no long-term
interest in the foreign country.
16.
Tangible property includes patents, designs, copyrights, and trademarks.
FALSE
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Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and
trademarks.
17.
Licensing limits the firm's ability to realize experience curve and location economies by producing its
product in a centralized location.
TRUE
Licensing limits the firm's ability to realize experience curve and location economies by producing its
product in a centralized location.
18.
By its very nature, licensing increases a firm's ability to utilize a coordinated strategy.
FALSE
Competing in a global market may require a firm to coordinate strategic moves across countries by
using profits earned in one country to support competitive attacks in another. By its very nature,
licensing limits a firm's ability to do this.
19.
McDonald's is an example of a firm that uses a franchising strategy.
TRUE
The franchiser often assists the franchisee to run the business on an ongoing basis. As with licensing, the
franchiser typically receives a royalty payment, which amounts to some percentage of the franchisee's
revenues. McDonald's is a good example of a firm that has grown by using a franchising strategy.
20.
Franchising enables a firm to quickly build a global presence.
TRUE
Using a franchising strategy, a service firm can build a global presence quickly and at a relatively low
cost and risk.
21.
The most typical joint venture is a 25/75 venture.
FALSE
The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a
50 percent ownership stake and contributes a team of managers to share operating control.
22.
An advantage of joint ventures with a local partner is the knowledge of the local environment that the
local partner contributes to the venture.
TRUE
A firm benefits from a local partner's knowledge of the host country's competitive conditions, culture,
language, political systems, and business systems.
23.
A wholly owned subsidiary limits a firm's control over operations in different countries.
FALSE
A wholly owned subsidiary gives a firm tight control over operations in different countries.
24.
Firms entering a market via a wholly owned subsidiary must bear all the costs and risks associated with
the venture.
TRUE
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Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market
from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting
up overseas operations.
25.
Brand names are generally well-protected by international laws pertaining to trademarks.
TRUE
Brand names are generally well-protected by international laws pertaining to trademarks.
26.
A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree
of local knowledge to the subsidiary.
TRUE
The subsidiaries may be wholly owned or joint ventures, but most service firms have found that joint
ventures with local partners work best for the controlling subsidiaries. A joint venture is often politically
more acceptable and brings a degree of local knowledge to the subsidiary.
27.
Firms pursuing global standardization or transnational strategies tend to prefer joint-venture
arrangements over wholly owned subsidiaries.
FALSE
Firms pursuing global standardization or transnational strategies tend to prefer establishing wholly
owned subsidiaries.
28.
Acquisitions are quick to execute.
TRUE
By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign
market.
29.
Acquisitions rarely produce disappointing results.
FALSE
Acquisitions often produce disappointing results.
30.
Overpayment for assets of an acquired firm is one reason acquisitions fail.
TRUE
Acquisitions fail for several reasons. The acquiring firms often overpay for the assets of the acquired
firm.
31.
The main advantage of greenfield investment is that it gives the firm a much greater ability to build the
kind of subsidiary company that it wants.
TRUE
The big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a
much greater ability to build the kind of subsidiary company that it wants.
32.
Greenfield ventures are less risky than acquisitions in the sense that there is less potential for unpleasant
surprises.
TRUE
Greenfield ventures are less risky than acquisitions in the sense that there is less potential for
unpleasant surprises.
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33.
If a firm is trying to enter a market where there are already well-established companies, and where global
competitors are also interested in establishing a presence, the firm should choose a greenfield
investment.
FALSE
If the firm is seeking to enter a market where there are already well-established incumbent enterprises,
and where global competitors are also interested in establishing a presence, it may pay the firm to enter
via an acquisition.
34.
Unlike joint ventures, strategic alliances require the firm to bear all the costs and risks of foreign
expansion.
FALSE
Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new
products or processes.
35.
An alliance is a way to bring together complementary skills and assets that neither company could
easily develop on its own.
TRUE
An alliance is a way to bring together complementary skills and assets that neither company could easily
develop on its own.
36.
A good ally will expropriate the firm's technological know-how while giving away little in return.
FALSE
A good partner is unlikely to try to opportunistically exploit the alliance for its own ends, that is, to
expropriate the firm's technological know-how while giving away little in return.
37.
Contractual safeguards cannot be written into an alliance agreement to guard against the risk of
opportunism by a partner.
FALSE
Contractual safeguards can be written into an alliance agreement to guard against the risk of opportunism
by a partner.
38.
Cross-licensing agreements can be used to formalize arrangements to swap skills and technology in a
strategic alliance.
TRUE
Both parties to an alliance can agree in advance to swap skills and technologies that the other covets,
thereby ensuring a chance for equitable gain. Cross-licensing agreements are one way to achieve this
goal.
39.
Relational capital refers to the building of interpersonal relationships between the firms' managers in a
strategic alliance.
TRUE
Managing an alliance successfully requires building interpersonal relationships between the firms'
managers, or what is sometimes referred to as relational capital.
40.
To maximize the learning benefits of an alliance, a firm must try to learn from its partner and then apply
the knowledge within its own organization.
TRUE
To maximize the learning benefits of an alliance, a firm must try to learn from its partner and then apply
the knowledge within its own organization.
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Multiple Choice Questions
41.
Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in:
A. politically unstable developing nations that operate with a mixed or command economy.
B. nations where there is a dramatic upsurge in either inflation rates or private-sector debt.
C. politically stable developed and developing nations that have free market systems.
D. developing nations where speculative financial bubbles have led to excess borrowing.
The trade-off is likely to be least favorable in politically unstable developing nations that operate with a mixed or
command economy or in developing nations where speculative financial bubbles have led to excess borrowing.
42.
Early entrants to a market that are able to create switching costs that tie the customer to the
product are capitalizing on ______.
A. first-mover advantages
B. pioneering cost
C. economies of scale
D. late-mover advantages
The advantages frequently associated with entering a market early are commonly known as first-mover advantages.
43.
Which of the following is a first-mover advantage?
A. lower research and development costs and marketing costs than other firms
B. ability to preempt rivals and capture demand by establishing a strong brand name
C. ability to capitalize on the work done by other firms
D. creation of innovative products at lower costs than other firms
The advantages frequently associated with entering a market early are commonly known as first-mover advantages.
One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name.
44.
Switching costs:
A. drive early entrants out of the market.
B. make it easy for later entrants to win business.
C. make it difficult for later entrants to win business.
D. give later entrants a cost advantage over early entrants.
The ability of early entrants to create switching costs that tie customers into their products or services is a firstmover advantage.
45.
The costs of promoting and establishing a product offering when a firm enters a foreign market
prior to its rivals are known as _____.
A. switching costs
B. market development costs
C. pioneering costs
D. promotional development costs
Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid.
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46.
A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover
advantages associated with _____.
A. scale economies
B. diseconomies of scale
C. pioneering costs
D. diseconomies of scope
The large-scale entrant is more likely than the small-scale entrant to be able to capture first-mover advantages
associated with demand preemption, scale economies, and switching costs.
47.
Which of the following statements about small-scale entry is true?
A. The commitment associated with a small-scale entry makes it possible for the small-scale entrant to
capture first-mover advantages.
B. Small-scale entry is a way to gather information about a foreign market before deciding
whether to enter on a significant scale.
C. By giving a firm time to collect information, small-scale entry increases the risks associated with a
subsequent large-scale entry.
D. Small-scale entry limits a firm's ability to learn about a foreign market thereby also limiting the
firm's exposure to that market.
Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. By
giving the firm time to collect information, small-scale entry reduces the risks associated with a subsequent largescale entry. But the lack of commitment associated with small-scale entry may make it more difficult for the smallscale entrant to build market share and to capture first-mover or early-mover advantages.
48.
If a firm can realize location economies by moving production elsewhere, it should avoid:
A. exporting.
B. turnkey contracts.
C. licensing.
D. wholly owned subsidiaries.
Particularly for firms pursuing global or transnational strategies, it may be preferable to manufacture where the mix
of factor conditions is most favorable from a value creation perspective and to export to the rest of the world from
that location.
49.
Which of the following is a distinct advantage of exporting?
A. It avoids the threat of tariff barriers by the host-country government.
B. Firms benefit from a local partner's knowledge of the host country's competitive conditions.
C. It avoids the often substantial costs of establishing manufacturing operations in the host
country.
D. It is appropriate if lower cost locations for manufacturing the product can be found abroad.
Another advantage of exporting is that it helps a firm achieve experience curve and location economies.
50.
When an exporting firm finds that its local agent is also carrying competitors' products, the firm
may switch to a _____ to handle local marketing, sales, and service.
A. wholly owned subsidiary
B. franchising arrangement
C. turnkey operation
D. licensing agreement
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By doing this, the firm can exercise tight control over marketing and sales in the country while reaping the cost
advantages of ma nufacturing the product in a single location, or a few choice locations.
51.
In _____, the contractor agrees to handle every detail of the project for a foreign client, including
the training of operating personnel.
A. exporting
B. licensing
C. franchising
D. turnkey projects
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client,
including the training of operating personnel. At completion of the contract, the foreign client is handed
the "key" to a plant that is ready for full operation—hence, the term turnkey.
52.
Turnkey projects are most common in which of the following industries?
A. fresh fruit, grain, and meat products
B. chemical, pharmaceutical, and metal refining
C. consumer durables, computer peripherals, and automotive parts
D. apparel, shoes, and leather products
Turnkey projects are most common in the chemical, pharmaceutical, petroleum-refining, and metalrefining industries, all of which use complex, expensive production technologies.
53.
Which of the following statements is true of turnkey projects?
A. Turnkey projects are most common in industries which use simple, inexpensive production
technologies.
B. A turnkey strategy can be more risky than conventional FDI.
C. A turnkey strategy is particularly useful where FDI is limited by host-government regulations.
D. Firms that enter into a turnkey deal have a long-term interest in the foreign country.
Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly
useful where FDI is limited by host-government regulations.
54.
Many American firms that sold oil-refining technology to firms in the Gulf now find themselves
competing with these firms in the world oil market. This is an example of:
A. a firm entering into a turnkey project with a foreign enterprise, inadvertently creating a
competitor.
B. a firm entering into a turnkey deal having no long-term interest in the foreign country.
C. a country subsequently proving to be a major market for the output of the process that has been
exported.
D. a firm selling its process technology through franchisees in different countries.
A drawback of turnkey strategy is that if the firm's process technology is a source of competitive
advantage, then selling this technology through a turnkey project is also selling competitive advantage to
potential and/or actual competitors.
55.
An arrangement whereby a firm grants the right of intangible property to another entity for a
specified time period in exchange for royalties is a(n) _____ agreement.
A. turnkey
B. licensing
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C. greenfield
D. acquisition
A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to
another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from
the licensee.
56.
Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all forms of
_____.
A. licensing agreements
B. franchising agreements
C. intangible property
D. tangible property
Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and
trademarks.
57.
What is the primary advantage of licensing?
A. It helps a firm avoid the development costs associated with opening a foreign market.
B. It gives a firm the tight control over manufacturing, marketing, and strategy.
C. It helps a firm achieve experience curve and location economies.
D. It increases a firm's ability to utilize a coordinated strategy.
The primary advantage of licensing is that the firm does not have to bear the development costs and risks
associated with opening a foreign market.
58.
Which of the following is a disadvantage of licensing?
A. It does not help firms that lack capital to develop operations overseas.
B. It does not give a firm the tight control over strategy that is required for realizing experience
curve and location economies.
C. It cannot be used when a firm possesses some intangible property that might have business
applications.
D. The firm has to bear the development costs and risks associated with opening a foreign market.
Licensing typically involves each licensee setting up its own production operations. This severely limits
the firm's ability to realize experience curve and location economies by producing its product in a
centralized location.
59.
Under a(n) _____ agreement, a firm might license some valuable intangible property to a foreign
partner, but in addition to a royalty payment, the firm might also request that the foreign partner
license some of its valuable know-how to the firm.
A. integrated licensing
B. chartering
C. franchising
D. cross-licensing
Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign
partner, but in addition to a royalty payment, the firm might also request that the foreign partner license
some of its valuable know-how to the firm.
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60.
Cross-licensing agreements are increasingly common in the _____ industries.
A. transportation
B. high-technology
C. construction
D. consumer durables
Cross-licensing agreements enable firms to hold each other hostage, which reduces the probability that
they will behave opportunistically toward each other. Such cross-licensing agreements are increasingly
common in high-technology industries.
61.
_____ is pursued primarily by manufacturing firms and _____ is employed primarily by service
firms.
A. Licensing; franchising
B. Franchising; licensing
C. Franchising; exporting
D. Exporting; licensing
Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by
service firms.
62.
If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it
must employ _____.
A. chartering
B. exporting
C. a turnkey strategy
D. franchising
Franchising is similar to licensing and is employed primarily by service firms.
63.
Which of the following statements about franchising is true?
A. It guarantees consistent product quality.
B. It tends to involve more short-term commitments than licensing.
C. It is a specialized form of licensing.
D. It is employed primarily by manufacturing firms.
Franchising is a specialized form of licensing in which the franchiser not only sells intangible property
(normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict
rules as to how it does business.
64.
Which of the following is an advantage of franchising?
A. A firm takes profits out of one country to support competitive attacks in another.
B. A firm is relieved of many of the costs and risks of opening a foreign market on its own.
C. It guarantees consistent product quality and achieves experience curve and location economies.
D. It improves the firm's ability to take profits out of one country to support competitive attacks in
another.
The advantages of franchising as an entry mode are very similar to those of licensing. The firm is
relieved of many of the costs and risks of opening a foreign market on its own. Instead, the franchisee
typically assumes those costs and risks. This creates a good incentive for the franchisee to build a
profitable operation as quickly as possible.
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65.
Firms engaging in a _____ with a local company can benefit from a local partner's knowledge of
the host country's competitive conditions, culture, language, political systems, and business
systems.
A. turnkey project
B. joint venture
C. greenfield investment
D. licensing arrangement
In a joint venture, a firm benefits from a local partner's knowledge of the host country's competitive
conditions, culture, language, political systems, and business systems.
66.
The most typical joint venture is a _____ venture.
A. 50/50
B. 60/40
C. 75/25
D. 10/90
The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a
50 percent ownership stake and contributes a team of managers to share operating control.
67.
Which of the following is an advantage of establishing a joint venture?
A. Joint ventures with local partners do not face any risk of being subject to nationalization or other
forms of adverse government interference.
B. Joint ventures give a firm a tight control over subsidiaries that it might need to realize experience
curve or location economies.
C. When the development costs and/or risks of opening a foreign market are high, a firm might
gain by sharing these costs and or risks with a local partner.
D. The firm is deprived of the knowledge of the host country's competitive conditions, culture,
language, etc.
A firm benefits from a local partner's knowledge of the host country's competitive conditions, culture,
language, political systems, and business systems. When the development costs and/or risks of opening a
foreign market are high, a firm might gain by sharing these costs and or risks with a local partner.
68.
In a _____, the firm owns 100 percent of the stock.
A. joint venture
B. wholly owned subsidiary
C. turnkey project
D. franchising agreement
In a wholly owned subsidiary, the firm owns 100 percent of the stock and must bear the full costs and
risks of entering a foreign market.
69.
Which of the following is true of wholly owned subsidiaries?
A. It is the least expensive method of serving a foreign market from a capital investment standpoint.
B. It the most feasible entry mode due to the political considerations.
C. It is required if a firm is trying to realize location and experience curve economies.
D. It is particularly useful where FDI is limited by host-government regulations.
A wholly owned subsidiary may be required if a firm is trying to realize location and experience curve
economies (as firms pursuing global and transnational strategies try to do).
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70.
A wholly owned subsidiary is appropriate when:
A. the firm wants to share the cost and risk of developing a foreign market.
B. the firm wants 100 percent of the profits generated in a foreign market.
C. the firm wants a plant that is ready to operate.
D. the firm wants to test a market.
Establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a
foreign market.
71.
If a firm's core competency is based on control over proprietary technological know-how, _____
and _____ arrangements should be avoided if possible to minimize the risk of losing control over
that technology.
A. licensing; joint-venture
B. wholly owned subsidiary; exporting
C. turnkey contracts; exporting
D. exporting; joint-venture
If a firm's core competence is based on control over proprietary technological know-how, licensing and
joint-venture arrangements should be avoided if possible to minimize the risk of losing control over that
technology.
72.
If a high-tech firm sets up operations in a foreign country to profit from a core competency in
technological know-how, which of the following entry strategy is best?
A. joint ventures
B. licensing
C. wholly owned subsidiaries
D. turnkey contacts
If a high-tech firm sets up operations in a foreign country to profit from a core competency in
technological know-how, it will probably do so through a wholly owned subsidiary.
73.
The valuable asset of firms, whose competitive advantage is based on management know-how, is
their _____.
A. top management staff
B. USP
C. advertisements
D. brand name
These firms' valuable asset is their brand name, and brand names are generally well protected by
international laws pertaining to trademarks.
74.
Most service firms have found that _____ with local partners work best for controlling
subsidiaries.
A. joint ventures
B. licensing agreements
C. greenfield investments
D. turnkey projects
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The subsidiaries may be wholly owned or joint ventures, but most service firms have found that joint
ventures with local partners work best for the controlling subsidiaries. A joint venture is often
politically more acceptable and brings a degree of local knowledge to the subsidiary.
75.
A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the
ground up, called the _____.
A. joint venture
B. turnkey strategy
C. licensing agreement
D. greenfield strategy
A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up,
the so-called greenfield strategy, or by acquiring an enterprise in the target market.
76.
Which of the following is true of acquisitions?
A. It is a time-consuming process and takes a lot of time to execute.
B. They are less risky than greenfield ventures in the sense that there is less potential for unpleasant
surprises.
C. They give the firm a much greater ability to build the kind of subsidiary company that it wants.
D. In many cases, firms make acquisitions to preempt their competitors.
The need for preemption is particularly great in markets that are rapidly globalizing, such as
telecommunications, where a combination of deregulation within nations and liberalization of
regulations governing cross-border foreign direct investment has made it much easier for enterprises to
enter foreign markets through acquisitions.
77.
According to the _____, top managers typically overestimate their ability to create value from an
acquisition.
A. misvaluation theory
B. performance extrapolation hypothesis
C. market timing theory
D. hubris hypothesis
The hubris hypothesis postulates that top managers typically overestimate their ability to create value
from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated
sense of their own capabilities.
78.
To increase the potential for a successful acquisition, a firm should:
A. always bid low to allow for partial failure.
B. try to acquire a firm with a very different corporate culture so there is no forced "overlap."
C. screen the foreign enterprise to be acquired.
D. seek companies only from similar national cultures.
Screening the foreign enterprise to be acquired, including a detailed auditing of operations, financial
position, and management culture, can help to make sure the firm does not pay too much for the acquired
unit, does not uncover any nasty surprises after the acquisition, and acquires a firm whose organization
culture is not antagonistic to that of the acquiring enterprise.
79.
Firms entering markets where there are no incumbent competitors to be acquired should choose:
A. greenfield investments.
B. joint ventures.
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C. acquisitions.
D. takeovers.
In such cases, it may be better to enter by the slower route of a greenfield venture than to make a bad
acquisition.
80.
_____ refer to cooperative agreements between potential or actual competitors.
A. Greenfield investments
B. Strategic alliances
C. Takeovers
D. Licensing agreements
Strategic alliances refer to cooperative agreements between potential or actual competitors.
81.
Which of the following statements is true of strategic alliances?
A. The fixed costs and associated risks of developing new products or processes are borne by the
alliance partner.
B. They are a way to bring together complementary skills and assets that both companies develop.
C. They limit the entry of firms into foreign markets.
D. Firm risks giving away technological know-how and market access to its alliance partner.
The disadvantage of a strategic alliance is that the firm risks giving away technological know-how and
market access to its alliance partner.
82.
Managing an alliance successfully requires building interpersonal relationships between the firms'
managers. This is sometimes referred to as _____.
A. relational capital
B. relational assets
C. operational assets
D. venture capital
Managing an alliance successfully requires building interpersonal relationships between the firms'
managers, or what is sometimes referred to as relational capital.
Essay Questions
83.
What are first-mover advantages? Discuss the advantages associated with them.
First-mover advantages are the advantages frequently associated with entering a market early. One firstmover advantage is the ability to preempt rivals and capture demand by establishing a strong brand
name. A second advantage is the ability to build sales volume in that country and ride down the
experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants. A third
advantage is the ability of early entrants to create switching costs that tie customers into their products
or services. Such switching costs make it difficult for later entrants to win business.
84.
Explain the relationship between first-mover disadvantages and pioneering costs.
When a firm enters a market prior to other international businesses, it can have first-mover
disadvantages. These disadvantages may give rise to pioneering costs, costs that an early entrant has to
bear that a later entrant can avoid. Pioneering costs arise when the business system in a foreign country
is so different from that in a firm's home market that the enterprise has to devote considerable effort,
time, and expense to learning the rules of the game. Pioneering costs also include the costs of promoting
and establishing a product offering. Finally, an early entrant may be put at a disadvantage, relative to a
later entrant, if regulations change in a way that diminishes the value of the early entrant's investments.
85.
Discuss the trade-offs associated with large-scale entry versus small-scale entry.
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It is important for a firm to think through the implications of large-scale entry into a market and act
accordingly. Of particular relevance is trying to identify how actual and potential competitors might
react to large-scale entry into a market. Also, the large-scale entrant is more likely than the small-scale
entrant to be able to capture first-mover advantages associated with demand preemption, scale
economies, and switching costs.
86.
Balanced against the value and risks of the commitments associated with large-scale entry are the
benefits of a small-scale entry. Small-scale entry allows a firm to learn about a foreign market while
limiting the firm's exposure to that market. Small-scale entry is a way to gather information about a
foreign market before deciding whether to enter on a significant scale and how best to enter. By giving
the firm time to collect information, small-scale entry reduces the risks associated with a subsequent
large-scale entry. But the lack of commitment associated with small-scale entry may make it more
difficult for the small-scale entrant to build market share and to capture first-mover or early-mover
advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential
losses, but it may also miss the chance to capture first-mover advantages.
Discuss Bartlett and Ghoshal's perspective on how firms from developing countries should
approach international expansion.
Bartlett and Ghoshal suggest that companies based in developing countries should use the entry of
foreign multinationals as an opportunity to learn from these competitors by benchmarking their
operations and performance against them. They argue that the local company might be able to find ways
to differentiate itself from foreign companies by focusing on market niches that the multinational ignores
or is unable to serve effectively if it has a standardized global product offering. Then, the firm from the
developing nation may then be in a position to pursue its own international expansion strategy.
87.
Why should a firm choose exporting as a means of foreign market expansion? Discuss the
advantages and disadvantages of exporting.
Exporting has two distinct advantages. First, it avoids the often substantial costs of establishing
manufacturing operations in the host country. Second, exporting may help a firm achieve experience
curve and location economies. However, there are several disadvantages of exporting. First, exporting
may not be appropriate if lower-cost manufacturing locations are available abroad. Second, high
transportation costs may make exporting uneconomical. Finally, tariff barriers may make exporting less
attractive.
88.
Explain the idea of a turnkey project. Why should a firm use this arrangement to expand
internationally? In what industries are turnkey arrangements most common?
In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client,
including the training of operating personnel. At completion of the contract, the foreign client is handed
the "key" to a plant that is ready for full operation.
The know-how required to assemble and run a technologically complex process is a valuable asset.
Turnkey projects are a way of earning great economic returns from that asset. The strategy is
particularly useful where FDI is limited by host-government regulations. A turnkey strategy can also be
less risky than conventional FDI. In a country with unstable political and economic environments, a
longer-term investment might expose a firm to unacceptable political or economic risks.
Turnkey projects are most common in the chemical, pharmaceutical, petroleum refining, and metal
refining industries.
89.
Define licensing agreements. What are the advantages of this mode of international expansion?
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A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to
another entity for a specified period in exchange for royalties.
The primary advantage of licensing is that the firm does not have to bear the development costs and
risks associated with opening a foreign market. As a result, licensing is a very attractive option for firms
that lack the capital to open overseas markets. Licensing is also an attractive option when a firm is
interested in pursuing a foreign market but does not want to commit substantial resources to an
unfamiliar or potentially volatile foreign market. Licensing is also used when a firm wishes to
participate in a foreign market, but is prohibited from doing so by barriers to investment. Finally,
licensing is used when a firm possesses some intangible property but does not want to pursue a potential
application itself.
90.
Why should a firm be cautious about entering a licensing agreement?
In a licensing agreement, the licensor grants the rights to intangible property to the licensee for a
specified period in exchange for royalty payments. Firms considering this type of arrangement should be
cautious on three fronts. First, if a firm licenses any of its proprietary know-how (such as its production
processes) to another company, it risks losing control over this knowledge by permitting access to it by
another firm. Second, licensing is not an effective way of realizing experience curve and location
economies by manufacturing a product in a centralized location. If these attributes are important to a
firm, licensing may be a poor choice. Finally, competing in a global market may require a firm to
coordinate strategic moves across countries by using profits from one country to support competitive
attacks in another. Licensing severely limits a firm's ability to do this. A licensee is unlikely to allow a
multinational firm to use its profits (beyond the royalty payments) to support a different licensee
operating in another country.
91.
What is intangible property? How can intangible property be protected in a licensing agreement?
Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and
trademarks.
A licensor can reduce the risk of losing intangible property, or proprietary know-how, to a foreign
partner by entering into a cross-licensing agreement. Under a cross-license agreement, a firm licenses
some valuable intangible property (such as a production process) to a foreign partner, but in addition to
royalty payments, the firm also requires the foreign partner to license some of its valuable know-how to
the firm. Cross-licensing agreements enable firms to hold each other "hostage," thereby reducing the
risk they will behave in an opportunistic manner toward each other.
92.
Compare and contrast licensing agreements and franchising agreements.
A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to
another entity for a specified period in exchange for royalties. In contrast, franchising is basically a
specialized form of licensing in which the franchiser not only sells intangible property to the franchisee,
but also insists that the franchisee agree to abide by strict rules as to how it does business. Franchising
tends to involve longer-term commitments than licensing.
93.
Briefly explain the advantages and disadvantages of franchising agreements.
There are several advantages of franchising as an entry mode. In particular, the firm is relieved of many
of the costs and risks of opening a foreign market on its own. This creates a good incentive for the
franchisee to build a profitable operation as quickly as possible. However, franchising may inhibit the
firm's ability to take profits out of one country to support competitive attacks in another. Furthermore,
quality control may become an issue if a franchisee does not maintain an appropriate quality level.
94.
What is a joint venture? What type of joint venture is most common? Provide an example of a
joint venture.
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A joint venture involves establishing a firm that is jointly owned by two or more otherwise independent
firms.
The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a
50 percent ownership stake and contributes a team of managers to share operating control.
Fuji-Xerox is an example of a joint venture that was established between Fuji Photo and Xerox.
95.
Discuss the advantages of using a joint venture to enter foreign markets.
There are several advantages to expanding into foreign markets via a joint venture. First, firms benefit
from a local partner's knowledge of the host market. Second, a firm can share the costs and/or risks of
operating in a foreign market. Third, in many countries, political considerations make joint ventures the
only feasible entry mode.
96.
Imagine that you are meeting with your superiors to discuss entering a foreign market. Your boss
has asked you to analyze a joint venture prospect. Why might you tell your boss that the joint
venture is not a good idea?
There are major disadvantages with joint ventures. A firm that enters into a joint venture risks giving
control of its technology to its partner. In addition, a joint venture does not give the firm the tight control
over subsidiaries that it might need in order to realize experience curve or location economies. Finally, a
joint venture might not be a good strategy because the shared ownership structure can lead to conflicts
and battles for control between the investing firms if their goals and objectives change or if they do not
share a common vision for the venture.
97.
How can a firm protect its proprietary information in a joint venture arrangement?
There are several things a firm can do to protect proprietary information in a joint venture arrangement.
One option is to hold majority ownership in the venture so that the firm has greater control over the
technology. A second option is to "wall off" from a partner technology that is central to the core
competence of the firm, while sharing other technology.
98.
What are the two methods of entering foreign marketing using a wholly owned subsidiary?
Firms entering a foreign market via a wholly owned subsidiary, where the firm owns 100 percent of the
stock, can either make the investment in a greenfield operation or in an acquisition. A greenfield
operation involves the establishment of a new operation, whereas an acquisition involves buying an
established firm in the host country and using that firm to promote the company's products.
99.
Consider why a firm should enter a market via a wholly owned subsidiary. What are the
advantages and disadvantages of this type of strategy?
In a wholly owned subsidiary, the firm owns 100 percent of the stock. Wholly owned subsidiaries can
take two forms, a greenfield investment which involves the establishment of a new company, or an
acquisition.
Establishing a wholly owned subsidiary as an entry strategy into a foreign market is appropriate when a
firm's competitive advantage is based on technological competence. By establishing a wholly owned
subsidiary, a firm reduces the risk of losing control over that competence. In addition, expanding via a
wholly owned subsidiary gives a firm tight control over its operations in various countries. This strategy
maximizes a firm's potential to engage in global strategic coordination. Furthermore, a wholly owned
subsidiary strategy may be required if a firm is trying to realize location and experience curve
economies. However, establishing a wholly owned subsidiary is generally the most costly method of
serving a foreign market, and since the firm owns 100 percent of the operation, the risks are also the
highest.
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100.
Draw a distinction between firms based on their core competency.
The optimal choice of entry mode depends on the firm's strategy. When technological know-how
constitutes a firm's core competence, wholly owned subsidiaries are preferred, since they best control
technology. When management know-how constitutes a firm's core competence, foreign franchises
controlled by joint ventures seem to be optimal. When the firm is pursuing a global standardization or
transnational strategy, the need for tight control over operations to realize location and experience
curve economies suggests wholly owned subsidiaries are the best entry mode.
101.
Why do acquisitions fail?
Acquisitions fail for several reasons. First, the acquiring firm often overpays for the assets of the
acquired firm. Second, many acquisitions fail because there is a clash between the cultures of the
acquired and the acquiring firms. Third, many acquisitions fail because attempts to realize synergies by
integrating the operations of the acquired and acquiring entities often run into roadblocks and take
much longer than forecast. Finally, many acquisitions fail due to inadequate pre-acquisition screening.
102.
Discuss strategic alliances. How successful are they? Why do firms form strategic alliances?
The term strategic alliance refers to cooperative agreements between potential or actual competitors.
Strategic alliances run the range from formal joint ventures, in which two or more firms have equity
stakes, to short-term contractual arrangements, in which two companies agree to cooperate on a
particular task. Firms enter into strategic alliances for four main reasons. First, strategic alliances may
facilitate entry into a foreign market. Second, strategic alliances allow firms to share the fixed costs of
developing new products or processes. Third, strategic alliances allow firms to bring together
complementary skills and assets that neither company could easily develop on its own. Fourth, strategic
alliances can help firms establish technological standards for an industry.
103.
Discuss the three primary characteristics of a good ally.
A good ally, or partner, has three characteristics. First, a good partner helps the firm achieve its strategic
goals, whether they are market access, sharing the costs and risks of product development, or gaining
access to critical core competencies. The partner must have capabilities that the firm lacks and that it
values. Second, a good partner shares the firm's vision for the purpose of the alliance. If two firms
approach an alliance with radically different agendas, the chances are great that the relationship will not
be harmonious, will not flourish, and will end in divorce. Third, a good partner is unlikely to try to
opportunistically exploit the alliance for its own ends, that is, to expropriate the firm's technological
know-how while giving away little in return. In this respect, firms with reputations for "fair play" to
maintain probably make the best allies.
104.
How can a firm increase the probability of selecting a good partner?
To increase the probability of selecting a good partner, the firm should:
1. Collect as much pertinent, publicly available information on potential allies as possible.
2. Gather data from informed third parties. These include firms that have had alliances with the
potential partners, investment bankers that have had dealings with them, and former employees.
3. Get to know the potential partner as well as possible before committing to an alliance. This should
include face-to-face meetings between senior managers (and perhaps middle-level managers) to ensure
that the chemistry is right.
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