International Business Chapter 1

A firm has to become a multinational enterprise to engage in international business.

False

A multinational enterprise (MNE) is any business that exports goods or services to consumers in another country.

False

According to many influential economists, the increase in international trade and cross-border investment will result in an increase in the prices of goods and services.

False

After World War II, the advanaced industrial nations of the West committed themselves to increasing barriers to the free flow of goods, services, and capital between nations.

False

As a result of globalization, compaines rarely need to customize marketing strategies, product features, and operating practices in different countries

False

As a result of globalization, international businesses can avoid the haggle of currency exchanges during cross-border transactions.

False

As a result of globalization, we have been moving toward a world in which national economies are relatively self-contained entities

False

In recent years, the economies of the world's nation-states have become less intertwined as a result of international trade

False

Moore's law predicts, that every 18 months, the power of microprocessor technology decreases, while its cost of production increases.

False

One result of the Uruguay Round was the creation of the United Nations

False

The United States accounted for a significantly larger share of the world output in 2014 than it did in the 1960s.

False

The WTO is 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

False

The globalization of markets and production and the resulting growth of world trade, foreign direct investment, and imports all imply that firms are finding it easier to protect themselves from attack by foreign competitors

False

The move toward a global economy has strengthened the adoption of conservative economic policies by developing nations.

False

Today, outsourcing efforts are confined eto manufacturing activities.

False

According to the UN Charter, one of the four purposes of the UN is to A. be a center for harmonizing the actions of nations. B. encourage high tariffs on imports of manufactured goods. C. provide enhanced protection for patents. D. promote the establishment of multinational treaties. E. facilitate globalization of production.

A be a center for harmonizing the actions of nations

. Econometric studies show a hump-shaped relationship between income levels and pollution levels. Which of these statements reflects that relationship? A. As an economy grows and income levels rise, initially pollution levels also rise. B. Decreasing income levels lead to an increase in pollution levels. C. As an economy grows, pollution levels show a constant increase. D. Economies that are in turmoil reflect pollution levels that are diminishing. E. Income levels do not have any correlation with pollution levels.

A) As an economy grows and income levels rise, initially pollution levels also rise

The North American Free Trade Agreement (NAFTA) was formed in 1994 among A. Canada, Mexico, and the United States. B. the United States, Brazil, and Argentina. C. Canada, Argentina, and Mexico. D. Colombia, Venezuela, and Brazil. E. Uruguay, Colombia, and Costa Rica.

A) Canada, Mexico and the United States

Which of the following best illustrates the globalization of production? A. Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process. B. Evan Swan, a U.S.-based fashion designer, is planning to open a flagship store in China to serve the Asian market. C. Uncle Crab, a U.K. fast food chain, has been serving customers worldwide through its franchises. D. Silver Unicorn Inc. uses sales personnel from the respective host country to sell its products and services. E. Pizza Gallery, an Italian pizza chain, customizes its pizzas and pastas to suit the tastes of its American and Australian customers.

A) Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process

West Electronic Corporation sources goods and services for its electronics products from different locations around the globe in an attempt to take advantage of differences in the cost and quality of labor and land. This practice demonstrates the A. globalization of production. B. globalization of markets. C. dislocation of a developing nation's economy. D. restriction on foreign direct investment. E. regulation of the environment.

A) Globalization of production

Which statement reflects the changing demographics of the global economy? A. U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries have taken a larger share of world exports. B. The change in the position of the United States in terms of the share of world output is the result of the absolute decline in the health of the U.S. economy. C. From 1960 to 2010, countries that experienced a large decrease in their share of world output include Japan, Thailand, Malaysia, Taiwan, and South Korea. D. The United States is the only developed nation to see its relative standing in the share of world output slip. E. Today, roughly half the globe—the centrally planned economies of the communist world—is off-limits to Western international businesses.

A) U.S. dominance in export markets has waned as Japan, Germany and a number of newly industrialized countries have taken a larger share of world exports

According to globalization opponents, which of the following has increased in wealthy advanced economies as a result of globalization? A. unemployment B. price of goods and services C. demand for unskilled workers D. standard of living E. income equality between workers in all sectors

A) Unemployment

Which of the following countries has seen a relative decline in its share of world output between 1960 and 2014? A. United States B. Brazil C. Thailand D. China E. South Korea

A) United States

Which of the following identifies the motivation for much of the foreign direct investment by non-U.S. firms? A. desire to disperse production activities to optimal locations B. need to suppress emerging economies such as China, India, and Brazil C. demand for skilled workers in foreign nations D. lack of adequate environmental regulations E. establishment of multinational treaties

A) desire to disperse production activities to optimal locations

The minimum that a firm has to do to engage in international business is to A. export or import products from other countries. B. invest directly in operations in another country. C. establish joint ventures or strategic alliances with companies in other countries. D. export low-wage manufacturing jobs to companies in other countries. E. develop franchises and subsidiaries in other countries

A) export or import products from other countries

Globalization critics argue that the decline in unskilled wage rates in advanced economies is due to the A. migration of low-wage manufacturing jobs offshore. B. technology-induced shift toward jobs that require significant education and skills. C. increased supply of highly skilled workers. D. increasing demand for unskilled workers. E. reducing national differences in the cost of labor between developed and developing nations.

A) migration of low-wage manufacturing jobs offshore

The motive behind the high tariffs imposed by nations on imports of manufactured goods, prior to World War II, was to: A. protect domestic industries from foreign competition. B. prevent the occurrence of the Great Depression. C. safeguard patents, copyrights, and trademarks. D. promote the trade of services over the trade of manufactured goods. E. deter any possible attempts to promote communism.

A) protect domestic industries from foreign competition

Automobile companies promote different car models in different countries depending on a range of factors such as demographics, local taste, local fuel costs, income levels, traffic congestion, and cultural values. This most likely demonstrates that A. significant differences still exist among national markets. B. cultural diversity has been replaced by global uniformity. C. the global market is less complex than national markets. D. only multinational giants can benefit from the globalization of markets. E. the social norms in a country do not affect purchase decisions of consumers.

A) significant differences still exist among national markets

A concern voiced by critics of globalization is that today's increasingly interdependent global economy shifts economic power toward A. supranational organizations such as the World Trade Organization. B. the communist states of eastern Europe and central Asia. C. the medium-size and small U.S. multinationals. D. the national governments of the countries participating in globalization. E. nations that have authoritarian forms of government.

A) supranational organizations such as the World Trade Organization

While the lowering of trade barriers made globalization of markets and production a theoretical possibility, which of the following has made it a tangible reality? A. the advances in communication, information processing, and transportation technologies B. the rise of communism and the need for independent economies on a global scale C. the increasing diversity in consumer tastes and preferences worldwide D. the increasing differences in the material culture the world over E. the decreasing significance of the World Trade Organization

A) the advances in communication, information processing, and transportation technologies

Growing income inequality between the skilled and unskilled workers in advanced nations, such as the United States, is a result of the A. wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. B. decrease in the outsourcing of low-wage manufacturing jobs offshore and a corresponding increase in demand for unskilled workers. C. shift within advanced economies toward jobs where the only qualification is the willingness to turn up for work every day. D. increasing wage gap between developing and developed nations. E. shortage of unskilled workers and an excess supply of highly skilled workers.

A) wages for skilled workers being bid up by the labor market and he wages for unskilled workers being discounted

ABC Toys, a U.S.-based toy manufacturer, has set up a manufacturing plant in Hong Kong. This is an example of A. foreign direct investment. B. international trade. C. exporting. D. global rivalry. E. the globalization of markets.

A. foreign direct investment

Which of the following statements supports the claim that the gap between the rich and poor nations of the world has gotten wider because of globalization? A. There are many countries that suffer from totalitarian governments. B. A quarter of the countries with a GDP per capita of less than $1,000 in 1960 had growth rates of less than zero from 1960 to 1995. C. There is a rapidly growing population in many developing nations. D. Unelected bureaucrats limit a nation's ability to control its own destiny. E. Endemic corruption has long been a problem in the national governments of developing nations.

B) A quarter of the countries with a GDP per capita of less than $1,000 in 1960 had growth rates of less than zero grom 1960 to 1995

In the past two decades, the majority of Latin American countries have A. experienced a decline in the health of their economies. B. sold state-owned enterprises to private investors. C. been characterized by low growth, high debt, and hyperinflation. D. restricted investment by foreign firms. E. discouraged both democracy and free market reforms.

B) solid state-owned enterprises to private investors

Which of the following statements best supports the claim that greater uniformity replaces diversity in the context of global markets? A. Differences in business systems and legal regulations lead companies to customize their marketing strategies, product features, and operating practices to best match conditions in a particular country. B. As rival global firms follow each other across countries, they bring with them their brand names, products, and marketing strategies from other national markets, thus creating some homogeneity across markets. C. Truly innovative companies succeed by developing products that serve specific needs of the local markets. D. The volume of goods, services, and investment crossing national borders has expanded at a slower rate than world output for more than half a century. E. The most global of markets are not typically markets for consumer products, as significant differences in consumer tastes and preferences still exist among national markets.

B) As rival global firms follow each other across countires, they bring with them their brand names, products, and marketing strategies from other national markets, thus creating some homogeneity across markets.

Which of the following best exemplifies foreign direct investment (FDI)? A. Pure Pearls, a jewelry store in the United States, imports harvested pearls from Indonesia, Philippines, and Australia. B. Chivalry, a U.S.-based phone manufacturing company, has set up its own assembly plant in Japan to cater to the needs of the Asian market. C. Delicate Love, a reputable florist company in Holland, exports tulips and roses throughout the globe. D. Samantha started an Italian restaurant in her home country, the United States, after she took cooking lessons from a well-known chef in Italy. E. Yin and Yang Inc., a Chinese firm, supplies buttons and zippers to major denim brands in the United Kingdom.

B) Chivalry, a U.s. - based phone manufacturing company, has set up its own assembly plant in Japan to cater to the needs of the Asian market

Which of the following is NOT a concern for managers in international businesses? A. Fundamental differences in culture B. Perceived distance between home country and operating nations C. Government restrictions on international trade D. Cross-border transactions involving currency exchange E. Ethical adherence to environmental standards

B) Perceived distance between home country and operating nations

ABC Company, which is headquartered in the United States, has production plants in Mexico and Vietnam. According to this information, ABC company is A. against globalization. B. a multinational enterprise. C. engaging in the globalization of markets. D. engaging in international trade. E. a local company.

B) a multinational enterprise

In the context of the environment, globalization critics argue that A. free trade discourages firms from advanced nations to move manufacturing facilities to less developed countries. B. adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises. C. manufacturing enterprises are put at a competitive disadvantage by moving their production facilities to nations that do not have burdensome regulations. D. as countries get richer, they relax their environmental and labor regulations. E. while pollution levels are rising in the world's richer countries, they have been falling in developing nations.

B) adhering to labor and enviornmental regulations significantly increases the costs of manufacturing enterprises

An argument in support of the falling barriers to international trade and investment is that the falling barriers A. prohibit countries from specializing in the production of goods and services. B. drive the global economy toward greater prosperity. C. reduce the need to export jobs overseas. D. increase the bargaining power of business firms by decreasing the incomes of consumers. E. reduce attacks from foreign competitors.

B) drive the global economy toward greater prosperity

Supporters of globalization insist that dislocation in the form of lost jobs is a trade-off that will ultimately lead to the economy being better off. Which of the following is being justified in this case? A. protectionism and retaliatory trade policy B. free trade of goods and services C. rise of communism D. high tariff on imports of manufactured goods E. the need to be a self-contained nation

B) free trade of goods and servies

Globalization opponents argue that "exporting jobs" to low-wage nations has contributed to A. higher living standards in those countries that "export" the jobs. B. higher unemployment in wealthy advanced economies such as the United States. C. an increase in the income levels in those nations that "export" the jobs. D. lower standards of living in those countries to which the jobs are exported. E. reduced specialization in the production of goods and services.

B) higher unemployment in wealthy advanced economies such as the Untied States

For foreign direct investment (FDI) to occur, a firm should primarily A. conduct cross-border bartering with neighboring countries. B. invest resources in business activities outside its home country. C. export goods or services to consumers in another country. D. import goods or services from producers in another country. E. erect formidable barriers to international trade.

B) invest resources in business activities outside its home country.

Royal Teas, a U.K.-based company employing just 30 people worldwide, generates $1.5 million in revenues of which 60 percent comes from exports to Asian countries. In this context, Royal Teas is most likely classified as a A. large domestic firm. B. mini-multinational firm. C. greenfield firm. D. foreign firm. E. multinational giant.

B) mini-multinational firm

Which of the following conditions is most likely to act as a deterrent for foreign firms willing to do business with former communist nations of Eastern Europe and central Asia? A. high levels of economic development in these countries B. signs of growing unrest and totalitarian tendencies seen in these countries C. strong commitment to market-based economic systems seen in these countries D. collapse of communism in these countries E. low returns involved in doing business in these countries

B) signs of growing unrest and totalitarian tendencies seen in these countries

Which of the following is the most appropriate solution to the problem of rising carbon dioxide emissions in developed economies? A. Roll back the trade liberalization efforts that have fostered economic growth and globalization. B. Tie free trade agreements to the implementation of fewer environmental and labor laws in less developed countries. C. Get the nations of the world to agree to policies designed to limit pollutant emissions. D. Increase the export of low-wage manufacturing jobs to developing nations. E. Restrict international trade and investment only to services.

C) Get the nations of the world to agree to policies designed to limit pollutant emissions

What is the shift toward a more integrated and interdependent world economy called? A. International trade B. Foreign direct investment C. Globalization D. Moore's Law E. Containerization

C) Globalization

Richard purchased a computer for $600 in 2015. Compared to the $900 computer that he had purchased back in 2011, the new one seems to be more efficient in terms of the price he has paid and the power of the microprocessor technology. This is best explained by A. product liability. B. property rights. C. Moore's law. D. purchasing power parity. E. sustainable strategies.

C) Moore's Law

The advent of containerization has A. made the economies of the world's nation-states less intertwined. B. made moving goods from one mode of transport to another extremely labor-intensive. C. significantly lowered the costs of shipping goods over long distances. D. slowed down the globalization of markets and production. E. increased costs of coordinating and controlling a global organization.

C) Significantly lowered the costs of shipping goods over long distances

Which of the following characterizes the lowering of trade and investment barriers A. protects domestic industries from foreign competition B. was not an agenda of the Uruguay Round C. allows firms to base production at optimal locations outside their home country D. creates an unfavorable environment for FDI E. caused the Great depression of the 1930s

C) allows firms to base production at optimal locations outside their home country

Which of the following has been reduced as a result of globalization? A. Volume of goods and services B. Foreign exchange transactions C. Environment and labor laws D. Differences in material culture E. Regulation of markets

D) Differences in material culture

Which of the following statements reflects the nature of the global economy of the twenty-first century? A. National economies are becoming less integrated into a single and interdependent economic system. B. The number of nations joining the ranks of the developed world has reduced. C. Countries have extensively adopted liberal economic policies. D. There are fewer instances of state-owned businesses privatized and markets being opened to more competition. E. The world is currently moving toward an economic system that is more unfavorable for international business.

C) countries have extensively adopted liberal economic policies

Michelle, an Italian fashion designer, sells her merchandise by exporting it to the United States, United Kingdom, and Brazil. According to this information, Michelle is most likely involved in A. foreign direct investment. B. globalization of production. C. international trade. D. multinational enterprise. E. outsourcing.

C) international trade

Which of the following refers to the total cumulative value of foreign investments? A. Purchasing power parity B. Multipoint pricing C. Stock of foreign direct investment D. Switch trading E. Bill of lading

C) stock of foreign direct investment

Which of the following 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 such as labor, energy, land, and capital? A. Globalization of markets B. Containerization of production C. Dispersal of production D. Globalization of production E. Industrialization of markets

D) Globalization of production

Which of the following is a power of the WTO? A. It can restrict the membership of nations in other supranational organizations such as the United Nations. B. It can grant loans to cash-strapped governments in poor nations. C. It supersedes IMF and has complete authority over IMF's actions. D. It can issue a ruling instructing a member-state to change trade policies that violate GATT regulations. E. It can make decisions related to international trade without considering the collective interests of member-states.

D) It can issue a ruling instructing a member-state to change trade policies that biolate GATT regulations

Which of the following was established to ensure that nation-states adhered to the rules laid down in trade treaties? A. United Nations B. International Monetary Fund C. Group of Twenty D. World Trade Organization E. World Bank

D) World Trade Organization

Due to the changing economic geography, many of tomorrow's economic opportunities are most likely to be found in the A. rich industrialized nations of the world like Great Britain and Germany. B. centrally planned economies of the communist world. C. United States. D. developing nations of the world such as China, India, and Brazil. E. countries that are currently not members of the World Trade Organization.

D) developing nations of the world such as China, India and Brazil

What was a result of the Uruguay Round? A. increased trade and investment barriers B. excluding the trade of services from international trade C. transforming the World Trade Organization into the GATT D. enhanced protection for patents, trademarks, and copyrights E. promoting the worldwide rise of communism

D) enhanced protection for patents, trademarks, and copyrights

Free trade alone, some argue, is a necessary but not sufficient prerequisite to help "highly indebted poorer countries" (HIPCs) bootstrap themselves out of poverty. They also recommend implementing A. a highly regulated command economy. B. weaker property rights laws. C. weaker labor regulations. D. large-scale debt relief. E. rapid expansion in population.

D) large-scale debt relief

What are mini-multinationals? A. multinational firms from relatively small countries in terms of area B. multinationals from the developing nations of the world C. multinational firms that operate in only one foreign country D. medium-sized and small multinationals E. subsidiaries of large multinationals in foreign countries

D) medium-sized and small multinationals

Silver Fire Electric Inc., a U.S.-based company, has productive activities in more than two countries. As a result, it would be most appropriate to refer to Silver Fire Electric as what type of enterprise? A. greenfield B. universal C. private D. multinational E. public

D) multinational

Gerald bought his son, David, a computer two years ago. Recently, he decided to buy his daughter, Julian, a computer of her own. In the context of the two-year gap between the purchase of both the computers and Moore's law, it is most likely that A. Gerald paid a higher price for Julian's computer. B. David's computer will have a microprocessor with better power than that of Julian's. C. both David's and Julian's computers would cost Gerald the same price. D. the microprocessor in Julian's computer will be more advanced in terms of power than that of David's. E. the power of the microprocessors, in both David and Julian's computers, would be the same.

D) the microprocessor in Julian's computer will be more advanced in terms of power than that of David's

Which of the following has seen a positive change from 1960 to 2014? A. growth of the centrally planned economies of the communist world B. U.S. position in the world economy and world trade picture C. the share of world output enjoyed by rich industrialized countries such as Great Britain, Germany, and France D. the share of world output accounted for by developing nations E. prevalence of independent and self-contained national economies

D) the share of world output accounted for by developing nations

Ryan is the executive general manager of a U.S.-based multinational corporation. Veronica is a manager in a similar position, but works for an American company that operates only in the U.S. and does not engage in international business. In this context, which of the following business functions will be most typically exclusive to Ryan? A. Marketing a product or service B. Maintaining healthy relations with the U.S. government C. Developing a business strategy D. Adhering to labor and environmental standards E. Choosing an appropriate mode for entering a particular foreign country

E) Choosing an appropriate mode for entering a particular foreign country

Which of the following reasons contributed to the Great Depression of the 1930s? A. Inability to meet the increasing world demand for products B. Several countries accepting the General Agreement on Tariffs and Trade C. Increasing attack from foreign competitors on domestic industries D. Privatization of state-owned organizations E. Countries progressively raising trade barriers against each other

E) Countries progressively raising trade barriers against each other

Which of the following is a macro factor underlying the trend toward greater globalization? A. Rise of communism across the globe B. Increase in nationalization of private organizations C. Increase in diversity in consumer tastes and preferences D. Increase in trade regulations across the globe E. Dramatic developments in information processing and other technologies

E) Dramatic developments in information processing and other technologies

Which of the following statements reflects an important trend in the changing nature of multinational enterprises? A. Global business activity is increasingly being dominated by large U.S. multinational corporations. B. The number of medium-size and small multinationals is decreasing continuously. C. The ranks of the world's largest 100 multinationals are dominated by firms from developing economies. D. The Internet is increasing the barriers that small firms face in building international sales. E. International business is conducted not just by large firms but also by medium-size and small enterprises.

E) International business is conducted not just by large firms but also by medium-size and small enterprises

Which of the following is an argument put forth by critics of the IMF? A. It only makes agreements with nation-states whose economies are stabilized. B. It provides assistance only to developing nations and completely ignores the developed nations. C. It is not powerful enough to ensure that the nation-states adhere to the rules laid down in trade treaties. D. It promotes the rise of communism across the globe. E. It usurps the sovereignty of nation-states by telling governments what economic policies they must adopt.

E) It usurps the soveriegnty of nation-states by telling governments what economic policies they must adopt

Which of the following statements is a general implication of globalization? A. Globalization is inevitable. B. From a purely economic perspective, globalization is all good. C. Globalization has no negative impacts on the economies of the developed world. D. Globalization has reduced the risks associated with global financial contagion. E. As a result of globalization, a severe crisis in one region of the world can affect the entire globe.

E) as a result of globalization, a severe crisis in one region of hte world can affect the entire globe

Which of the following is most likely to be observed in today's global economy? A. increasing U.S. share of world output B. large U.S. entrepreneurial firms dominating the international business scene C. increasing U.S. dominance in the world economy and world trade picture D. most of the nations being governed by centrally planned economies of the communist world E. continued rise in the share of world output accounted for by developing nations such as China and India

E. Continued rise in the share of world output accounted for by developing nations such as China and India

Which of the following services CANNOT be outsourced to foreign nations? A. debugging software B. handling consumer queries C. transcribing medical files D. interpreting MRI scans E. delivering closing arguments for a lawsuit

E. delivering closing arguments for a lawsuit

Why was the World Bank set up? A. to preserve peace through international cooperation B. to promote economic development C. to maintain order in the international monetary system D. to formulate a coordinated policy response to financial crises E. to police the world trading system

To promote economic development

Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances.

True

Despite all the talk about the emerging global village, differences between countries, such as differences in cultures and political systems, can be very profound and enduring.

True

Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country

True

In general, as countries get richer, they enact tougher environmental and labor regulations.

True

The Uruguay Round extended GATT to cover services as well as manufactured goods.

True

The World Trade Organization, the International Monetary Fund and its sister institution the World Bank and the United Nations were all created by voluntary agreement between individual nation-states

True

The lowering of trade and investment barriers allows firms to base production at the optimal location for that activity

True

The stock of foreign direct investment refers to the total cumulative value of foreign investments.

True

Throughout the 1990s, the amount of investment directed at both developed and developing nations increased dramatically.

True

Today, many of the former Communist nations of Europe and Asia seem to share a commitment to democratic policies and free market economies.

True