International Management Across Borders and Cultures.docx

International Management Chapter 1 Assessing the Environment: Political, Economic, Legal, Technological 1) Which of the following is characterized by networks of international linkages that bind countries, institutions, and people in an interdependent economy? A) communism B) nationalization C) socialism D) globalization Answer: D 2) ________ results from the lessening of trade barriers and the increased flow of goods and services, capital, labor, and technology around the world. A) Economic integration B) Nationalization C) Protectionism D) Mercantilism Answer: A 3) In which of the following groups of trade blocs does most of today's world trade takes place? A) Middle East, China, and India B) North America, Africa, and Canada C) Western Europe, Asia, and the Americas D) Saudi Arabia, Western Europe, and the Gulf Answer: C 4) The European Union currently consists of how many nations? A) 12 B) 27 C) 34 D) 46 Answer: B 5) Which of the following best explains China's success in exporting? A) low costs and steady stream of capital B) geographic location in the world C) high educational standards D) close ties with Japan Answer: A 6) Which of the following countries is today known as the world's services supplier, providing highly skilled and educated workers to foreign companies. A) China B) Brazil C) Mexico D) India Answer: D 7) Which of the following agreements is a free trade pact among seven South Asian nations, signed in order to lower tariffs? A) SAARC B) ASEAN C) NAFTA D) MERCOSUR Answer: A 8) Emerson is a global manufacturing company headquartered in St. Louis, Missouri. The company employs almost 130,000 workers at its 250 manufacturing facilities located on five different continents. Emerson manufactures a wide range of products including air-conditioning compressors, garbage disposers, and automotive parts. Emerson's Asian operations employ over 50,000 people at manufacturing facilities in Asia. Emerson needs to build a new manufacturing facility to produce automotive parts for cars manufactured in Detroit. Emerson executives are considering whether to build the new facility in China or in the U.S. Which of the following, if true, supports the argument to build a new Emerson facility in China? A) The Chinese courts recently ruled in favor of an MNC in an intellectual property rights lawsuit. B) The Chinese Commonwealth network is investing large amounts of capital in China. C) China has increased Internet controls and blocked most international search sites. D) China is revoking its membership from the World Trade Organization. Answer: A 9) Emerson is a global manufacturing company headquartered in St. Louis, Missouri. The company employs almost 130,000 workers at its 250 manufacturing facilities located on five different continents. Emerson manufactures a wide range of products including air-conditioning compressors, garbage disposers, and automotive parts. Emerson's Asian operations employ over 50,000 people at manufacturing facilities in Asia. Emerson needs to build a new manufacturing facility to produce automotive parts for cars manufactured in Detroit. Emerson executives are considering whether to build the new facility in China or in the U.S. Which of the following, if true, undermines the argument to build a new Emerson facility in China? A) China has committed over $500 billion to infrastructure projects. B) U.S. firms continue outsourcing service jobs despite the economy. C) Fuel costs in China have risen sharply and are not expected to drop. D) China is the world's largest exporter of manufactured goods. Answer: C 10) Emerson is a global manufacturing company headquartered in St. Louis, Missouri. The company employs almost 130,000 workers at its 250 manufacturing facilities located on five different continents. Emerson manufactures a wide range of products including air-conditioning compressors, garbage disposers, and automotive parts. Emerson's Asian operations employ over 50,000 people at manufacturing facilities in Asia. Emerson needs to build a new manufacturing facility to produce automotive parts for cars manufactured in Detroit. Emerson executives are considering whether to build the new facility in China or in the U.S. Which of the following questions is LEAST relevant to Emerson's decision regarding where to build a new facility? A) How will China's underdeveloped infrastructure affect Emerson's ability to manufacture and ship products? B) How is China's political and economic agenda likely to affect Emerson's investment? C) What is the likelihood of expropriation occurring to Emerson if it builds in China? D) How will e-commerce affect Emerson's ability to export products from China? Answer: D 11) To which of the following free-trade agreements do Costa Rica, Guatemala, Honduras, El Salvador, and Nicaragua all belong? A) NAFTA B) ASEAN C) CAFTA D) MERCOSUR Answer: C 12) Political risks are best described as any governmental actions or politically motivated events that ________. A) suggest the firm is legally responsible for specific wrongdoings B) negatively affect the firm's long-run profitability or value. C) interfere with the personal safety of the firm's employees D) harm the firm's capacity to meet consumer demands Answer: B 13) Which of the following best describes nationalization? A) outsourcing of governmental functions to private entities B) hiring preferences given to locals rather than expatriates C) government's gradual and subtle actions against a firm D) forced sale of an MNC's assets to local buyers Answer: D 14) ________ occurs when the local government seizes the foreign-owned assets of the MNC and provides inadequate compensation. A) Privatization B) Expropriation C) Private action D) Repatriation Answer: B 15) Expropriation is most likely to occur in a country that has ________. A) numerous MNCs in operation B) constant political upheaval and change C) a capitalistic economic system in place D) stable economic growth and political consistency Answer: B 16) The government of Jonovia seizes all assets of Refresh, a world-famous, soft-drink brand in Jonovia, without offering any compensation to the company. This action by the government of Jonovia is an example of ________. A) private action B) repatriation C) privatization D) confiscation Answer: D Skill: Application 17) Which of the following is an example of a macropolitical risk event? A) a terrorist attack B) forced sale of equity to host-country nationals C) expropriation of corporate assets without prompt and adequate compensation D) barriers to repatriation of funds Answer: A 18) Zagreb Inc., a transnational energy company, negotiates a multimillion dollar contract with the government to provide electricity to Pilladia. The government is voted out of power shortly after. The new government cancels all contracts it has with all oil companies but not contracts with firms in other industries. This is an example of ________. A) barriers to repatriation B) protectionism C) confiscation D) micropolitical risk Answer: D Skill: Application AACSB: Analytic skills 19) Intelligentia is attempting to do business in Bazania, but the Bazanian government purposely delays granting Intelligentia the necessary licenses and permissions required to conduct business in the country. Which of the following best describes this situation? A) creeping expropriation B) nationalization C) barriers to repatriation D) confiscation Answer: A Skill: Application AACSB: Analytic skills 20) Micropolitical risk events are those that affect ________. A) multiple industries and companies B) several other nations in the same region C) one industry or company or a few companies D) domestic industries or companies Answer: C 21) Loss of technology and interference in managerial decision making are forms of ________. A) legal risk events B) political risk events C) cultural risk events D) economic risk events Answer: B 22) Expropriation of corporate assets without prompt and adequate compensation is an example of ________. A) economic risk B) political risk C) legal risk D) cultural risk Answer: B 23) For autonomous international subsidiaries, most of the impact from political risks will be in which of the following areas? A) financial operations B) ownership and control C) marketing and sales operations D) managerial strategy and policy-making Answer: B 24) For global corporations, the primary impact of political risks is likely to be on the firm's ________. A) ownership and control B) hiring and recruiting policies C) transfers of money or products D) managerial strategy and policy-making Answer: C 25) ________ is a means of adapting to political risk, which requires that a firm actively involve nationals, including those in labor organizations or government, in the management of its subsidiary. A) Development assistance B) Equity sharing C) Localization of the operation D) Participative management Answer: D 26) Which of the following means of political risk reduction is best suited for firms that decide a high-risk environment is worth the potential returns? A) avoidance B) adaptation C) hedging D) dependency Answer: B 27) Which of the following is a method of dependency? A) local debt financing B) localization of the operation C) political risk insurance D) maintaining control over technology Answer: D 28) Which of the following strategies is a firm most likely to use, if it initiates a joint venture with a local company in a foreign country, as a way of adapting to risk? A) equity sharing B) participative management C) localization of the operation D) development assistance Answer: A 29) Which of the following means of adaptation to political risk requires that a firm actively involve nationals in the management of its subsidiary? A) equity sharing B) participative management C) localization of the operation D) development assistance Answer: B 30) In addition to avoidance and adaptation, two other means of risk reduction available to managers are ________ and ________. A) qualitative approach; quantitative approach B) dependency; hedging C) checklisting; blocklisting D) protectionist approach; stability approach Answer: B 31) Which of the following is a form of protectionist policies? A) patents B) tariffs C) foreign direct investment D) bribes Answer: B 32) ________ poses a severe and random political risk to company personnel and assets, and interrupts the conduct of business. A) Plagiarism B) An election C) Privatization D) Terrorism Answer: D Skill: Application 33) If a foreign-based firm borrows money from a host country bank as a hedge against being forced out of operation without adequate compensation, the firm is managing political risk with ________. A) local debt financing B) position control C) development assistance D) adaptation Answer: A Skill: Application 34) Political risk insurance and local debt financing are both forms of ________. A) input control B) adaptation C) equity sharing D) hedging Answer: D 35) Which of the following is a form of hedging? A) expatriate control in key positions B) development assistance C) local debt financing D) localization of the operation Answer: C 36) A country's ability or intention to meet its financial obligations determines its ________. A) technological risk B) legal risk C) political risk D) economic risk Answer: D 37) Which of the following is analyzed through the quantitative approach, qualitative approach, and the checklist approach? A) the legal risks of a country B) the creditworthiness of a country C) the political risks of a country D) the cultural atmosphere of a country Answer: B 38) The ________ method of analyzing economic risk attempts to measure statistically a country's ability to honor its debt obligation by assigning different weights to economic variables. A) quantitative B) qualitative C) checklist D) objective Answer: A 39) Which two factors are primarily assessed when using the qualitative approach to measure a country's economic risk? A) the country's natural resources and its long-term national debt B) the competence of the country's leader and the economic policy direction C) the probability of terrorism and the likelihood that the country's debts will be repaid D) the country's purchasing power overseas and the consistency of the country's leadership Answer: B 40) Representatives of a multinational firm seek an interview with local government leaders in the Department of Commerce in Argonia with a view to assess the types of policies likely to be implemented. According to Mathis, this is an example of ________. A) qualitative approach B) quantitative approach C) checklist approach D) systemic approach Answer: A Skill: Application 41) The ________ approach to analyzing economic risk relies on a few easily measurable and timely criteria believed to reflect or indicate changes in the creditworthiness of the country. A) qualitative B) checklist C) quantitative D) systemic Answer: B 42) Which of the following best explains why many foreign companies find operating in China a difficult experience from a business perspective? A) China lacks the financial and legal systems needed to support the country's foreign trade. B) China's local market is not large enough to support its extensive exporting to the U.S. C) China's government mandates that workers receive high wages and benefits. D) China's exchange rate changes too frequently for U.S. businesses to compete. Answer: A 43) Past court decisions serve as precedents to the interpretation of the law under ________. A) civil law B) common law C) theocratic law D) contract law Answer: B 44) An international agreement which regulates international business by spelling out the rights and obligations of the seller and buyer is known as ________. A) Agreement to Technical Barriers to Trade B) International Standards on Accounting and Reporting C) General Agreement on Tariffs and Trade D) Contracts for International Sale of Goods Answer: D 45) ________ is based on a comprehensive set of laws organized into a code. A) Theocratic law B) Civil law C) Common law D) Contract law Answer: B 46) Which of the following terms refers to an agreement by the parties concerned to establish a set of rules for governing a business transaction? A) charter B) policy C) contract D) license Answer: C 47) Under which law system must the details of the promises be written into a contract in order for it to be enforced? A) common law B) theocratic law C) civil law D) company law Answer: A 48) In the context of doing business in Asia, what is meant by the phrase "the contract is in the relationship, not on the paper"? A) Asian contracts are not legally binding for MNCs. B) Contracts are ceremoniously destroyed after they are written. C) Managers risk being offensive to Asians by requiring contracts. D) Managers should nurture the relationship to ensure the reliability of the contract. Answer: D 49) The appropriability of technology is best defined as ________. A) the potential of a firm's technology to become obsolete within a few years B) the likelihood that a firm's technology will generate long-term debts C) the degree of ease with which new technology can be learned and used by host-nation employees D) the ability of a firm to protect its technology from competitors and to profit from that technology Answer: D 50) Which type of country is most likely to use its investment laws to acquire appropriate technology? A) post-industrial country B) newly industrializing country C) less-developed country D) highly developed country Answer: C 51) The Paris Union was established for the purpose of ________. A) enforcing contract laws B) reducing trade barriers C) protecting patents D) reducing pollution Answer: C 52) Some countries rigorously enforce employee secrecy agreements in order to ________. A) protect a firm's intellectual property B) limit the influence of organized labor C) avoid litigation between competing firms D) strengthen international contract laws Answer: A 53) Robert is a technology officer in an Umerian firm and he manages the firm's operations at its facility in Elador. Robert is considering the idea of installing new technology in the facility that would significantly improve productivity and reduce labor costs. Which of the following undermines the argument that Robert should install the new technology? A) Elador's government leaders encourage firms to install the most modern machinery available. B) The high school graduation rate in Elador is higher than in neighboring countries. C) Elador is currently experiencing a very high rate of unemployment. D) The firm's competitors recently installed the same technology. Answer: C 54) Which of the following terms refers to the integration of systems, processes, organizations, value chains, and entire markets using Internet-based technologies? A) horizontal integration B) e-business C) vertical integration D) technological leapfrogging Answer: B 55) The term ________ refers directly to the marketing and sales process via the Internet. A) e-commerce B) virtualization C) peer production D) database management Answer: A 56) Which of the following is an advantage of e-business? A) lower cost of production B) easy availability of technology C) convenience in conducting business worldwide D) increased availability of information Answer: C 57) Experts suggest that firms wanting to globalize through e-commerce must first localize, which means firms need to ________. A) use local suppliers, vendors, and distributors to manufacture products for the local market B) modify their products and services to meet the needs and interests of local cultures C) sell their products in a brick-and-mortar store before selling them through an e-market D) test their products and services in local markets before selling them over the Internet Answer: B 58) Small- and medium-sized enterprises contribute to their national economies by creating new jobs. Answer: TRUE 59) SAARC is an agreement that came into force to bring faster growth, more jobs, better working conditions, and a cleaner environment for all as a result of increased exports and trade. Answer: FALSE 60) NAFTA is an agreement that came into force to lower tariffs to 25 percent within three to five years, and to eliminate them within seven years. Answer: FALSE 61) Confiscation occurs when a local government seizes and provides inadequate compensation for the foreign-owned assets of an MNC. Answer: FALSE 62) Expropriation occurs when a local government seizes and does not provide any compensation for the foreign-owned assets of an MNC. Answer: FALSE 63) Privatization refers to the forced sale of an MNC's assets to local buyers with some compensation to the firm, perhaps leaving a minority ownership with the MNC. Answer: FALSE 64) An event that affects all foreign firms doing business in a country or region is called a micropolitical risk event. Answer: FALSE 65) An event that affects one industry or company or only a few companies is called a macropolitical risk event. Answer: FALSE 66) Political risk insurance and local debt financing are forms of dependency. Answer: FALSE 67) The quantitative approach evaluates a country's economic risk by assessing the competence of its leaders and analyzing the types of policies they are likely to implement. Answer: FALSE 68) The checklist approach relies on a few easily measurable and timely criteria believed to reflect or indicate changes in the creditworthiness of the country. Answer: TRUE 69) Under civil law, past court decisions act as precedents to the interpretation of the law and to common custom. Answer: FALSE 70) Common law is based on a comprehensive set of laws organized into a code. Answer: FALSE 71) Under civil law, it is assumed a contract reflects promises that will be enforced without specifying the details in the contract. Answer: TRUE 72) Differences in laws and regulations from country to country are very few and simple. Answer: FALSE 73) Firms use e-business to help build new relationships between businesses and retailers. Answer: FALSE 74) Internet is a completely open platform and it does not have to abide by any laws. Answer: FALSE 75) What is the European Union (EU)? Discuss how the EU affects both Europe and international managers working in Europe. Answer: The EU now comprises a 27-nation, unified market of over 400 million people. Since the euro became a legally tradable currency, Europe's business environment has been transformed. The vast majority of legislative measures have been adopted to create an internal market with free movement of goods and people among the EU countries. The elimination of internal tariffs and customs, as well as financial and commercial barriers, has not eliminated national pride. Global managers face two major tasks in the EU. One is strategic: how firms outside of Europe can deal with the implications of the EU and of what some have called a "Fortress Europe"—that is, a market giving preference to insiders. The other task is cultural: how to deal effectively with multiple sets of national cultures, traditions, and customs within Europe, such as differing attitudes about how much time should be spent on work versus leisure activities. 76) What is SAARC? Answer: SAARC stands for South Asia Association of Regional Cooperation—an association of seven developing South Asian nations. According to the Agreement that was effective January 1, 2006, the countries will lower tariffs by 25% within three to five years and eliminate them within seven years. Trade in South Asia is estimated at $14 billion, although the majority of that trade will take place between India and Pakistan, the two largest members. 77) What is globalization? What is the relationship between globalization and information technology? Answer: Globalization is defined as global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy. Information technology, more than anything else, is making those networks of international linkages more possible by boosting the efficiency of that "connectedness." The Internet is propelling electronic commerce around the world. Companies around the world are linked electronically with employees, customers, distributors, suppliers, and alliance partners in many countries making the world a global marketplace. 78) How does the phenomenon of ethnicity affect the international manager? Answer: Ethnicity is a driving force of political instability around the world. Many uprisings and conflicts are expressions of differences in ethnic groupings, and religious disputes often lie at the heart of those differences. Managers must understand the ethnic and religious composition of the host country in order to anticipate problems of general instability as well as those of an operational nature—such as effects on their workforce, on production and access to raw materials, and also the market as a whole. 79) What is political risk? Give an example of how political risk can affect an MNC. Answer: Political risks are any government action or politically motivated event that could adversely affect the long-run profitability or value of the firm. For example, Bolivia nationalized its natural gas industry ordering foreign companies to give up control of fields and accept much tougher operating terms within six months or leave the country. 80) Identify and describe four means of political risk adaptation. Answer: The four means of political risk adaptation are: (1) equity sharing—shared ownership or partial ownership with nationals; (2) participative management—actively involving nationals in the management of the firm; (3) localization of operations—modifications to the company's management style, company name, etc., to accommodate national issues; and (4) development assistance—corporate aid for infrastructure development. 81) What is currency translation exposure? Provide an example to illustrate your answer. Answer: The risk of exchange-rate volatility results in currency translation exposure to the firm when the balance sheet of the entire corporation is consolidated, and may cause a negative cash flow from the foreign subsidiary. Currency translation exposure occurs when the value of one country's currency changes relative to that of another. When exchange-rate changes are radical, repercussions are felt around the world. For example, a U.S. company operating in Mexico at the time of the peso devaluation in the late 1990s meant that the company's assets in that country were worth less when translated into U.S. dollars. The company's liabilities, however, were also less. 82) What is the difference between common law, Islamic law, and civil law? Answer: In common law, past court decisions act as precedents to the interpretation of law. Civil law is based on a comprehensive set of laws organized into a code. Interpretations of civil law are based on reference to codes and statutes. In Islamic countries, such as Saudi Arabia, the dominant legal system is Islamic law; based on religious beliefs; it dominates all aspects of life. Islamic law is followed in approximately 27 countries and combines, in varying degrees, civil, common, and indigenous law. 83) What methods are used by MNCs to protect intellectual property rights? Answer: The most common methods of protecting proprietary technology are the use of patents, trademarks, trade names, copyrights, and trade secrets. Various international conventions afford some protection in participating countries; more than 80 countries adhere to the International Convention for the Protection of Industrial Property, often referred to as the Paris Union, for the protection of patents. However, restrictions and differences in the rules in some countries not signatory to the Paris Union, as well as industrial espionage, pose continuing problems for firms trying to protect their technology. 84) How does the Internet facilitate both e-commerce and business-to-business transactions? Answer: The Internet and e-business provide a number of uses and advantages in business-to-consumer transactions: (1) convenience in conducting business worldwide—facilitating communication across borders contributes to the shift toward globalization and a global market; (2) an electronic meeting and trading place, which adds efficiency in conducting business sales; (3) a corporate Intranet service, merging internal and external information for enterprises worldwide; (4) power to consumers as they gain access to limitless options and price differentials; and (5) a link and efficiency in distribution. Although most early attention was on e-commerce, experts now believe the real opportunities are in business-to-business (B2B) transactions where the Internet offers assistance with supply chain, procurement, and distribution channels.