CHAPTER 1 1)
Discuss the characteristics of globalization. Use an example in your discussion.
2) Explain what is meant by the globalization of markets. Provide an example. What are the most global markets?
3)
Discuss the concept of the globalization of production.
4)
What is the World Trade Organization? What is its role in the world economy?
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5) What is the International Monetary Fund? What is the World Bank? What is their relationship, if any, with each other?
6)
What is the Uruguay Round? List the measures implemented in the Uruguay Round.
7)
Explain the trends in world trade and foreign direct investment since 1960.
8)
Explain how the COVID-19 global pandemic has impacted globalization.
9)
Discuss the impact of technological change and automation on global markets.
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10) 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?
11) Why does China represent both opportunities and threats for established international businesses?
12) 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.
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13) 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.
14) Falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies. Discuss this statement. Do you agree? Why or why not?
15) Why is managing an international business different from managing a purely domestic business?
16) What are some of the issues a manager of an international business must confront that a manager of a domestic business never confronts?
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17) __________ refers to the shift toward a more integrated and interdependent world economy. A) Outsourcing B) International marketing C) Privatization D) Globalization
18) In 2008 and 2009, the __________ became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis, which started in America. A) United Nations B) Group of Seven (G7) C) Group of Twenty (G20) D) World Trade Organization
19)
Which factor has contributed to the globalization of markets? A) a decrease in foreign direct investment B) global convergence of consumer tastes and preferences C) an increase in cross-border barriers to trade D) the trend to separate a homogeneous market into separate national markets
20)
Globalization has resulted in A) less interdependence between national economies. B) an increase in the use of outsourcing. C) a collective material culture becoming more diverse. D) increasing barriers to cross-border trade.
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21)
Which factor hinders globalization of consumer goods market? A) national and cultural differences in tastes and preferences B) increasing incomes in emerging markets C) homogenization of material culture D) increased outsourcing of goods and services
22)
Globalization of markets results in markets becoming A) less interdependent. B) less diverse. C) more protected. D) less competitive.
23) A U.S. investment firm set up a customer service call center in India to take advantage of lower labor costs. This is called A) homogenizing markets. B) vertical integration. C) outsourcing. D) horizontal integration.
24)
Early outsourcing efforts were primarily confined to A) health care. B) service activities. C) technological research. D) manufacturing activities.
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25) What impedes firms from achieving the optimal dispersion of their productive activities to locations around the globe? A) transportation costs B) government deregulations C) reduction of barriers to trade between countries D) reduction of barriers to foreign direct investment
26)
The General Agreement on Tariffs and Trade (GATT) was responsible for A) protecting government-owned enterprises. B) promoting free trade and reducing trade barriers. C) limiting nuclear testing. D) promoting environment friendly technology.
27) 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) International Development Association B) World Bank C) International Court of justice D) World Trade Organization
28)
The World Trade Organization promotes A) the lowering of barriers to cross-border trade and investment. B) the development of poor nations through low-interest loans. C) state ownership of major enterprises. D) the regulation of national economies.
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29)
Which statement is true about the International Monetary Fund (IMF)?
A) It is primarily responsible for policing the world trading system. B) It is seen as the lender of last resort to nation-states whose economies are in turmoil. C) It is responsible for establishing multinational treaties to govern the global business system. D) It was established to formulate a coordinated policy response to financial crises in developing nations.
30) The __________ was established on October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. A) World Trade Organization B) United Nations C) G20 D) World Bank
31)
The G20 was originally established to A) preserve peace through international cooperation and collective security. B) maintain order in the international monetary system. C) formulate a coordinated policy response to financial crises in developing nations. D) manage, regulate, and police the global marketplace.
32)
Which item is a factor of production? A) tariffs B) transportation costs C) capital D) government
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33) Which institution focuses on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments? A) the WTO B) the GATT C) the World Bank D) the IMF
34)
Which institution was established to maintain order in the international monetary system? A) the WTO B) the G20 C) the World Bank D) the IMF
35)
Which statement is true of the International Monetary Fund (IMF)?
A) It is often seen as the lender of first choice to nation-states whose economies are in turmoil. B) Its loans come with no strings attached. C) It is the less controversial of the two sister institutions, the IMF and the World Bank. D) It has emerged as a significant player in the global economy.
36) The volume of world merchandise trade and production is growing faster than world GDP. This implies that
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A) more firms are dispersing their production processes to global locations. B) the economies of the world’s nation-states are becoming more independent from each other. C) the global economy is headed for a large downward correction. D) the world is becoming poorer.
37) __________ occurs when a firm exports goods or services to consumers in another country. A) International trade B) Foreign direct investment C) Inward investment D) Outsourcing
38)
The negotiations in the Uruguay Round of GATT led to A) an easing of lending restrictions for cash-strapped nation-states. B) enhanced protection for patents, trademarks, and copyrights. C) increased trade barriers. D) reduced coverage of services and manufactured goods.
39) __________ predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months. A) Keynes’s Law B) Say’s Law C) Moore’s Law D) Sullivan Principle
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40)
Containerization has revolutionized the transportation business by A) reducing the time needed to get from one location to another. B) simplifying the transportation process and lowering the cost of shipping goods. C) providing a means for buyers and sellers to find each other easily in a global economy. D) offering enterprises to coordinate and control a globally dispersed production system.
41)
The volume of world trade in merchandised goods has been A) growing at the same rate as world GDP. B) growing faster than world GDP. C) growing slower than world GDP. D) declining faster than world GDP.
42) Smith Global Industries has decided to invest resources in business activities outside its home country. This is called A) foreign direct investment (FDI). B) direct international investment (DII). C) international trade (IT). D) foreign direct production (FDP).
43)
In 2009, the financial crisis in the United States was triggered by A) the global hike in the price of crude oil. B) the slowdown in U.S. imports, due to political pressure. C) liberal lending policies by U.S. banks to homeowners. D) the artificial fixing of the currency rate by China.
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44) The relative decline of the United States in the share of world output and world exports reflects A) an increase in the barriers to foreign trade in the United States. B) the deepening of the global financial crisis. C) the reduced industrialization in developing nations. D) the growth in the economic development of emerging markets and other industrialized countries.
45)
Why did many Japanese firms invest in North America and Europe in the 1970s?
A) to avoid a highly competitive domestic market B) to exploit high domestic tariff barriers C) to provide a hedge against unfavorable currency movements and imposition of trade barriers D) to take advantage of the removal of all trade barriers
46) Throughout the 1990s, the amount of foreign direct investment directed at both developed and developing nations increased dramatically. This trend reflects A) a slowdown in global economic activity. B) the increasing share of the United States in the total FDI stock. C) the decline in cross-border flows of foreign direct investment. D) the increasing internationalization of business corporations.
47) Which country has been the largest recipient of foreign direct investment and, in 2020, received about $250 billion in inflows? A) Brazil B) Russia C) India D) China
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48)
Procter & Gamble is a multinational enterprise (MNE), which is a firm that A) exports its products to multiple countries. B) owns business operations in more than one country. C) does most of its business on the Internet. D) lists its securities on a public exchange.
49) Since the 1960s, what has been a notable trend in the demographics of the multinational enterprise? A) the decline of multinational companies in the manufacturing sector B) the growth of government-owned multinational enterprises C) the decline of non-U.S. multinationals D) the growth of mini-multinationals
50)
In the last two decades, Latin American countries such as Brazil, Mexico, and Chile have A) embraced communist principles. B) promoted government ownership of enterprises. C) experienced increasing debt and inflation. D) welcomed foreign investment.
51)
What is a risk associated with globalization? A) restrictions on competition B) global financial contagion C) excessive market regulation D) differentiation of markets
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52)
The rise in the number of mini-multinationals means that
A) small businesses are becoming increasingly involved in international trade and investment. B) it is increasingly difficult to enter the large multinational market. C) countries are working together to minimize MNE influence. D) there is greater state involvement in industry.
53)
The downside of increased globalization is A) global financial contagions are less likely. B) a severe crisis in one region can affect the entire globe. C) one nation may become too powerful. D) the potential for increased exploitation of undeveloped nations by developed nations.
54)
During the past two decades, change in Latin America has been characterized by A) an increase in debt. B) hyperinflation. C) the sale of state-owned enterprises to private investors. D) protests against foreign investment.
55)
If China continues to move toward greater free market reforms it A) may move from being an industrial superpower to a struggling economy. B) will likely see a decrease in GDP per capita. C) may move from a third-world business giant to an industrial superpower. D) will likely give global market share to Western and Japanese enterprises.
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56) To be classified as an MNE, a company must have productive activities in at least ____________ countries. A) two B) three C) ten D) twenty
57) Supporters of globalization maintain that the apparent decline in real wage rates of unskilled workers A) is due to technological changes and automation that create greater demand for skilled workers. B) is due to the migration of low-wage manufacturing jobs offshore. C) can be checked by increasing government ownership of enterprises. D) can be checked by limiting free trade and foreign investment.
58) Several studies published by the Organisation for Economic Co-operation and Development (OECD) noted that A) the real household income of unskilled workers in the United States increased more in comparison to that of skilled workers. B) in almost all countries real income levels declined over the 20-year period studied. C) the falling unemployment rates brought gains to low-wage workers and fairly broadbased wage growth. D) the gap between the poorest and richest segments of society in some OECD countries had widened.
59) 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 Version 1
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A) initially pollution levels remain low. B) after a while, pollution levels decrease. C) pollution levels also rise in proportion to the economic growth. D) there is increasing industrialization, which leads to greater pollution.
60)
The trade agreement known as NAFTA was passed only after A) China agreed to establish a higher minimum wage. B) the United States agreed to limit the number of jobs that could be outsourced. C) Mexico committed to tougher enforcement of environmental protection regulations. D) Canada committed to establish new limits on FDI.
61)
Globalization is criticized because it increases the power of A) governments to own enterprises. B) unskilled labor to form labor unions. C) supranational organizations over nation-states. D) nation-states to regulate markets and reduce competition.
62) The World Trade Organization has estimated that the developed nations of the world can raise global economic welfare by $128 billion by A) removing subsidies given to their agricultural producers. B) increasing tariff barriers to trade in agriculture. C) increasing outsourcing of manufacturing processes. D) reducing defense expenditure.
63) Which factor is viewed by large segments of the population in many countries as a detrimental effect of globalization? Version 1
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A) joint ventures B) franchises C) licensing agreements D) wholly owned subsidiaries
39)
How can a firm protect its proprietary information in a joint venture?
A) Share only the technology that is central to the core competence of the firm. B) Hold majority ownership in the venture so that the firm has greater control over the technology. C) Share only the technology of the firm, not the patents and copyrighted information. D) Hold minority ownership in the venture so that the firm does not have to give over control of the technology.
40) Firms entering a market via a __________ must bear all the costs and risks associated with the venture. A) licensing contract B) joint venture C) turnkey contract D) wholly owned subsidiary
41)
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.
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42) 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
43) 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
44)
Turnkey projects are most common in which 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
45)
Which statement is true of turnkey projects?
A) Turnkey projects are most common in industries that use simple, inexpensive production technologies. B) A turnkey strategy can be more risky than conventional FDI, particularly in unstable political environments. 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.
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46) 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.
47) Booze Brothers developed an alcohol-flavored additive that can be added to water to mimic the taste of a margarita, but without the alcohol. The company granted the right to use this technology to a major bottled water manufacturer. The water manufacturer produced a line of water bottles with the flavored additive and Booze Brothers receives a $1.00 royalty for every “margarita” water bottle that is sold. This is an example of A) a turnkey project. B) licensing. C) franchising. D) an acquisition.
48)
What 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.
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49) Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all forms of A) licensing agreements. B) franchising agreements. C) intangible property. D) tangible property.
50)
What is the primary advantage of licensing?
A) It helps a firm avoid the development costs and risks 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.
51)
What is a drawback of licensing as a mode of entry into foreign markets?
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.
52) Under __________ 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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A) an integrated licensing B) a chartering C) a franchising D) a cross-licensing
53)
Cross-licensing agreements are increasingly common in which industry? A) transportation B) high technology C) construction D) consumer durables
54) __________ 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
55) If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it should employ A) chartering. B) exporting. C) a turnkey strategy. D) franchising.
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56) Charlie wants to open a Domino’s Pizza restaurant in Singapore and has an agreement with the pizza chain in which he can use the trademark, but he must also follow a strict set of guidelines detailing how the business should operate. Domino’s will receive a percentage of Charlie’s revenues from his restaurant. What type of entry mode does this represent? A) wholly owned subsidiary B) turnkey operation C) franchising D) licensing
57)
What 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.
58) 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
59)
The most typical joint venture is a __________ venture.
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A) 50–50 B) 60–40 C) 75–25 D) 10–90
60)
What is one way a wholly owned subsidiary can be established in a foreign market? A) by exporting directly to the market B) by setting up a greenfield venture C) through a turnkey project with a local partner D) through a franchising agreement
61) Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence? A) franchising B) joint ventures C) wholly owned subsidiaries D) turnkey projects
62)
A wholly owned subsidiary is appropriate when the firm wants A) to share the cost and risk of developing a foreign market. B) 100 percent of the profits generated in a foreign market. C) a plant that is ready to operate. D) to test a market.
63) A __________ entails establishing a firm that is owned together by two or more otherwise independent firms. Version 1
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A) joint venture B) licensing agreement C) franchisee D) turnkey contract
64)
An advantage of exporting products to another country is that it A) minimizes exchange rate risks. B) provides the ability to achieve experience curve and location economies. C) faces less trade barriers. D) gives firms access to local knowledge.
65) When technological know-how constitutes a firm’s core competence, which entry mode is the optimal choice? A) foreign franchises controlled by joint ventures B) licensing agreements C) wholly owned subsidiaries D) turnkey contracts
66) Firms pursuing global standardization or transnational strategies tend to prefer __________ arrangements. A) wholly owned subsidiary B) franchising C) joint-venture D) licensing
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67) 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
68) Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries? A) It has the lowest costs and least risks associated with establishing a foreign market. B) It gives the firm the best chance of realizing location and experience curve economies. C) It allows firms to use the profits generated in one market to improve its competitive position in another market. D) It is the most politically accepted mode of entry into foreign markets.
69) The valuable asset of firms, whose competitive advantage is based on management know-how, is their A) executive strategy. B) human capital. C) advertisements. D) brand name.
70) Most service firms have found that __________ with local partners work best for the primary controlling subsidiaries.
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A) joint ventures B) licensing agreements C) greenfield investments D) turnkey projects
71) 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.
72)
What is true of acquisitions?
A) It is a time-consuming process. B) Managers view them as more risky than greenfield ventures. 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.
73) 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
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74)
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) rush to beat out other competitors. D) screen the foreign enterprise to be acquired.
75) Firms entering markets where there are no incumbent competitors to be acquired should choose A) greenfield investments. B) joint ventures. C) acquisitions. D) takeovers.
76)
__________ allow a firm to rapidly build its presence in the target foreign market. A) Joint ventures B) Acquisitions C) Subsidiaries D) Turnkey contracts
77) The main advantage of __________ is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. A) an acquisition B) strategic alliances C) greenfield investment D) franchising
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78) 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) a franchise. B) a greenfield investment. C) a joint venture. D) an acquisition.
79)
Which statement is true of establishing a greenfield venture in a foreign country?
A) Greenfield investments are less risky than acquiring an existing company in a foreign market. B) A degree of uncertainty is associated with a greenfield venture because of future revenue and profit prospects. C) Greenfield investments virtually eliminate the possibility of a more aggressive global competitor entering the market via acquisitions. D) Greenfield investments are quick to establish.
80)
__________ refer to cooperative agreements between potential or actual competitors. A) Greenfield investments B) Strategic alliances C) Takeovers D) Licensing agreements
81)
Which statement is true of strategic alliances?
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