Chapter 3 International Business

Which of the following exemplifies privatization?

A country sells its postal services to a consortium of companies that runs it as a profit making venture without any state funding. Privatization transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.

In calculating GNI data in some countries, the official figures take into account the barter agreements that take place as part of daily business transactions.

False. In some countries, the "official" figures do not tell the entire store about gross national income. Large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. People engage in such transactions to avoid paying taxes.

It can be more costly to do business in a country where there are no laws and regulations with regard to product safety.

False. It can be more costly to do business in a country where local laws and regulations set strict standards with regard to product safety, safety in the workplace, environmental pollution, and the like (since adhering to such regulations is costly).

"Not free" countries are characterized by some restrictions on political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife, or civil war.

False. Political freedom of countries basically falls into three broad groupings: free, partly free, and not free. In "free" countries, citizens enjoy a high degree of political and civil freedoms. "Partly free" countries are characterized by some restrictions on political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife, or civil war. In "not free" countries, the political process is tightly controlled and basic freedoms are denied.

Which of the following is true about planned economies?

In a planned economy, the state owns all means of production. In a planned economy, the state owns all means of production. Consequently, entrepreneurial individuals have few economic incentives to develop valuable new innovations, because it is the state, rather than the individual, that captures most of the gains.

Which of the following is true about the economic risks of doing business in a country?

The inflation rate in a country is an indicator of the economic risks of doing business in a country. One visible indicator of economic mismanagement tends to be a country's inflation rate. Another is the level of business and government debt in the country.

Many of the national markets of Eastern Europe, Latin America, Africa, and Asia may still be underdeveloped, but they are potentially enormous. Which of the following is a risk to businesses moving into these regions?

There is no guarantee that democracy will thrive in many of the world's newer democratic states. Many of the national markets of Eastern Europe, Latin America, Africa, and Asia may still be underdeveloped, but they are potentially enormous. Just as the potential gains are large, so are the risks. There is no guarantee that democracy will thrive in many of the world's newer democratic states, particularly if these states have to grapple with severe economic setbacks. Totalitarian dictatorships could return, although they are unlikely to be of the communist variety.

Which of the following is a reason for the spread of democracy?

Totalitarian regimes failing to deliver economic progress to the vast bulk of their populations. In many countries the economic advances of the past quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms. Entrepreneurs and other business leaders, eager to protect their property rights and ensure the dispassionate enforcement of contracts, are another force pressing for more accountable and open government.

Deregulation involves the establishment and operation of private enterprises.

True. Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

GNI per person figures can be misleading because they don't consider differences in the cost of living.

True. GNI measures the total annual income received by residents of a nation. GNI per person figures can be misleading because they don't consider differences in the cost of living.

During the late 1980s and early 1990s, a wave of democratic revolutions swept the world.

True. The political economy of many of the world's nation-states has changed radically since the late 1980s. First, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world.

It may be more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.

True. With regard to economic factors, one of the most important variables is the sophistication of a country's economy. It may be more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.

In Samuel Huntington's thesis, global terrorism is a product of the _____.

clash of value systems and ideology. In Huntington's thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology.

Innovation and entrepreneurial activity help increase economic activity by

creating new products and markets. Innovation and entrepreneurial activity help increase economic activity by creating new products and markets that did not previously exist. Moreover, innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates.

Amazon.com was the earliest, major online bookstore, which allowed it to generate brand awareness and have a significant presence in the market. Amazon.com had a head start on later entrants to the online bookstore market. In this example, Amazon.com has _____.

first-mover advantages. First-mover advantages are the advantages that accrue to early entrants into a market. In the language of business strategy, early entrants into potential future economic stars may be able to reap substantial first-mover advantages, while late entrants may fall victim to late-mover disadvantages.

Countries with free market economies in which property rights are protected tend to have _____ than command economies or economies where property rights are poorly protected.

greater economic growth rates. Countries with free market economies in which property rights are protected tend to achieve greater economic growth rates than command economies or economies where property rights are poorly protected.

During the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments that were typically _____ than their predecessors had been.

more committed to free market capitalism. During the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been.

United Nations has developed the Human Development Index (HDI) to measure the

quality of human life in different nations. Amartya Sen's influential thesis has been picked up by the United Nations, which has developed the Human Development Index (HDI) to measure the quality of human life in different nations.

In the case of command economies, deregulation involves _____.

removing price controls. Deregulation in these cases involved removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade.

Newly privatized entities often have little incentive to restructure their operations to become more efficient when

they continue to receive subsidies from the state. Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms continue to receive subsidies from the state and if they are protected from foreign competition by barriers to international trade and foreign direct investment.