IB 600 - Midterm Exam

Laissez-Faire

"Leave things alone," holds that government should not interfere in business affairs.

Three conditions a company must examine before forming or developing an international strategy:

1. Physical Factors - geography and demography 2. Social Factors - politics, law, culture, and economy 3. Competitive Factors - number and strength of a company's suppliers, customers, and rival firms

Hierarchy-of-needs Theory (1 being bottom of the pyramid and 5 being the top)

1. Physiological - food, water and sex 2. Security - safe physical and emotional environments 3. Affiliation - social needs and acceptance 4. Esteem - bolstering or self-image through recognition, attention, and appreciation 5. Self-Actualization - self-fulfillment or becoming all that we are capable of becoming

What are the three issues that are raised when considering the Costs of Globalization

1. Threats to national sovereignty 2. Growth and environmental stress 3. Growing income inequality and personal stress

What percentage of exporting firms in the United States are small businesses that employ less than 100 people?

90

Common Law System

A common law system relies on tradition, judge-made precedent, and usage. It respects established case law in resolving disputes. Judicial officials refer to statutory codes and legislation, but only after considering the rules of the court, custom, judicial reasoning, prior court decisions, and principles of equity.

Democracy

A government "of the people, by the people, and for the people."

Rule of Law

A hallmark of democracy; absent, democracy cannot exist. It institutes a just political and social environment, guarantees the enforceability of commercial contracts and business transactions, and safeguards property rights and individual freedom.

Mixed Law System

A legal system that emerges when a nation uses two or more of the legal systems discussed.

Portfolio Investment

A noncontrolling financial interest in another entity. It usually takes one of two forms: stock in a company or loans to a company (or country) in the form of bonds, bills, or notes purchased by the investor.

Customary Law System

A system that reflects the wisdom of daily experience or, more elegantly, spiritual legacies and philosophical traditions. It anchors the law in many indigenous communities, defining the rights and responsibilities of members.

Theocratic Law System

A system that relies on religious doctrine, precepts, and beliefs. Ultimate legal authority is vested in religious leaders, who regulate business transactions and social relations based on the interpretation of the sacred text.

Civil Law System

A system that relies on systematic codification of accessible, detailed laws. It assigns political officials, not government-employed judges, the responsibility to translate legal principles into a compendium of statues. Judges do not create law but instead apply the relevant statues to resolve disputes.

Ethnocentrism

An organization or individual that tends to believe that the conviction of that one's own culture is superior to that of other countries.

Polycentrism

An organization or individual that tends to believe that their business units abroad should act like local companies

Individualism

Describes an employee's preference to fulfill leisure time and improve skills outside the organization, receive direct monetary compensation as opposed to fringe benefits, engage in personal decision making and on-the-job challenges.

What are the four dimensions countries are ranked on to determine their globalization rank?

Economic, Technological, Personal Contact, Political

The most widely spoken language in the world is:

English

Civil and Commercial Law

Ensures fairness and efficiency in business transactions. It speaks to private rights and remedies in regulating relations and conduct between individuals and/or organizations

Not Free Country

Few to now political rights and civil liberties. The government allows minimal to no exercise of personal choice, relies on the rule of man as the basis of law, constrains religious and social freedoms, and controls a large share, if not all, of business activity. China, Russia, Saudi Arabia, and Vietnam

Rule of Man

Holds the ultimate power resides in a person whose word and whim, no matter how unfair or unjust, is law.

Although the number of societies with caste systems diminished rapidly during the twentieth century, one partial example still remains:

India

Which of the following is a country that has been strongly influenced by social democracy?

India

Multinational Enterprise (MNE)

Refers to any company with foreign direct investments. Terms also used are Multinational Corporation or Company (MNC) and Transnational Company (TNC)

Prominent types of Democracy

Representative, Multiparty, Parliamentary, Social

Criminal Law

Safeguards society by specifying what conduct is criminal and prescribing punishment to those who breach these standards.

Foreign Direct Investment (FDI)

Sometimes referred to simply as direct investment, the investor takes a controlling interest in a foreign company. Control need not be a 100% or even a 50% interest; if a foreign investor holds a minority stake and the remaining ownership is widely dispersed, no other owner may effectively counter the investor's decisions.

Political System

The structural dimensions and power dynamics of a county's government that (1) specify institutions, organizations, and interest groups and (2) define the norms and rules that govern political activities.

In the opening case on the Java Lounge in Saudi Arabia, Saudi businessmen engaged in chit-chat while drinking coffee at a café during the conduct of business. Which of the following was the most likely reason for their behavior?

They come from a high-context culture in which small talk and seemingly unrelated information is important to decision making.

Service Exports and Imports take what three forms?

Tourism and transportation; service performance; and asset use

Constitutional Law

Translates the country's constitution into an open and just legal system, setting the framework for the system of government, and defining the authority and procedure of political bodies to establish laws.

Collectivism

Typifies an employee's penchant for dependence on the organization through training, satisfactory workplace conditions, and good benefits.

In which of the following countries would business activity be under the greatest government control?

Vietnam

Joint Venture

When two or more companies share ownership of an FDI.

Power Distance

With high power distance, people prefer little consultation between the two tiers and one of two management styles: autocratic (ruling with unlimited authority) or paternalistic (regulating conduct by supplying needs). With low power distance, they prefer "consultative" styles.

Under the ________ form of totalitarianism, the regime confines itself to political control of the state. It does not regulate the economic and social structure of society.

authoritarian

The approach a company takes when it bases foreign operations on an informed knowledge of its organizational culture along with home- and host-country needs, capabilities, and constraints is called ________.

geocentrism

Curtailment of logging in the Amazon region is generally viewed as environmentally beneficial for the planet as a whole. However, unemployed Brazilian workers have felt that job creation inside Brazil is more important than climate protection outside Brazil. This example best illustrates which of the following?

how global interests can conflict with a country's local interests

Foreign direct investment ________.

includes partially owned foreign operations as long as the owner has controlling interest

The growing integration of the world economy into a single, huge marketplace is:

increasing the intensity of competition in a range of manufacturing and service industries.

The raising of eyebrows in surprise, a frown of disapproval, and an approving thumbs-up are all examples of:

nonverbal communication.

In the opening case on the Java Lounge in Saudi Arabia, people in the port city of Jeddah were less culturally conservative than people in the interior of the country. The most likely reason for this is that ________.

people in the port cities have more contact with foreigners

In the closing case on Uganda, Charles Martin made small "tips" to speed up the installation of phones and the issuance of licenses. His actions are best categorized as an example of ________.

polycentrism

Merchandise Imports

tangible products that are brought into a country

Merchandise Exports

tangible products that are sent out of a country

In the closing case regarding Charles Martin in Uganda, the national characteristic concerning the importance of family in Uganda is illustrated by ________.

the prevalence of nepotism

Which of the following problems in China is blamed for the annual loss of $250 billion by American MNEs?

theft of intellectual property

In Chapter One's closing case on Carnival Cruise Lines, we saw that cruise lines pay little or no taxes because ________.

they take advantage of different taxation and employment laws in foreign countries

According to your text, which of the following is NOT one of the three main reasons governments cooperate with each other?

to establish bribery laws

What are the three reasons why companies engage in international business?

1. Expanding Sales 2. Acquiring resources 3. Reducing risk

What factors have contributed to the growth of globalization in recent decades?

1. Increase in and application of technology 2. Liberalization of cross-border trade and resource movements 3. Development of services that support international business 4. Growing consumer pressures 5. Increased global competition 6. Changing political situations 7. Expanded cross-national cooperation

Four types of risk-taking behavior?

1. Uncertainty Avoidance - employees prefer to follow set rules even if breaking them may be in the company's best interests 2. Trust 3. Future Orientation - employees live for the future 4. Fatalism - belief that every event in life is inevitable - causes employees to be less likely to accept the basic cause-and-effect relationship between work and reward

Eight areas to examine for successful change:

1. Value systems 2. Cost-benefit analysis of change 3. Resistance to too much change 4. Participation 5. Reward sharing 6. Opinion Leadership 7. Timing 8. Learning abroad

Geocentrism

An organization or individual that tends to integrate a company and host-country practices as well as some entirely new ones.

Prominent types of Totalitarianism

Authoritarianism, Fascism, Secular, Theocratic

Which of the following countries has an individualistic orientation?

Canada

The four most dominant religions in terms of number of adherents in the world today are:

Christianity, Islam, Hinduism, and Buddhism.

A(n) ________ law system is based on a systematic and extensive codification of laws and puts political officials in charge of specifying accessible, detailed, and written law that applies to all citizens.

Civil

Types of Legal Systems

Common Law, Civil Law, Theocratic Law, Customary law, or Mixed Law

Countries with a ________ legal system tend to encourage precise, detailed contracts, whereas countries with a ________ legal system tend to encourage shorter and less specific contracts.

Common;civil

____ is a form of totalitarianism that advocates achieving socialism through totalitarian dictatorship.

Communist totalitarianism

In _____ thought, loyalty to one's superiors is regarded as a sacred duty—an absolute obligation.

Confucian

International Business

Consists of all commercial transactions between two or more countries. The goal of private business is to make profits. Government business may or may not be motivated by profit.

Strategic Legal Concerns of IB

Country of Origin and Local Content, Marketplace Behavior, Product Safety and Liability, Legal Jurisdiction, and Intellectual Property: Rights and Protection

Partly Free Country

Exhibits limited political rights and civil liberties, corruption, weak rule of law, ethnic and religious strife, unfair elections, and censorship. Often, democracy is a convenient slogan for the single political party that dominates within a facade of regulated pluralism. Guatemala, Pakistan, and Tanzania

Free Country

Exhibits open political competition, respect for civil liberties, independent civic life, and independent media. There are inalienable freedoms of expression, assembly, association, education, and religion. Australia, Brazil, India, and the USA.

A joint venture is an example of a portfolio investment. True or False

False

Operational Legal Concerns of IB

Getting Started, Making and Enforcing Contracts, Hiring and Firing, Getting Out or Going Under, and Key Relationships

_____ refers to the shift toward a more integrated and interdependent world economy.

Globalization

Acquired Group Memberships

Group affiliations such as religion, political affiliation, and professional and other associations

Ascribed Group Memberships

Group affiliations that are determined by birth; gender, family, age, caste, and ethnic, racial, or national origin.

How does the operation of a conventional bank differ from that of an Islamic bank?

Islamic banks cannot pay or charge interest.

How has the WTO helped globalization of markets and production?

It sought to create a more open global business system unencumbered by barriers to trade and investment between countries.

Culture

Learned norms based on the values, attitudes, and beliefs of a group of people

A U.S. firm with manufacturing facilities in Nigeria will most likely be faced with a ________ legal system.

Mixed

Cultural Collision

Occurs when divergent cultures come in contact. In IB, the major problems arise under two conditions: 1. When a company implements practices that are less effective than intended 2. When a company's employees encounter distress because of difficulty in accepting or adjusting to foreign behaviors.

The process of shifting production from a domestic to a foreign location is known as ________.

Offshoring

A software company that uses Indian engineers to perform maintenance functions on software designed in the United States is benefiting from:

Outsourcing

Although Boeing is incorporated in the United States, a supplier in Singapore makes the doors for the nose landing gear, and suppliers in Italy manufacture wing flaps. Boeing is taking part in:

Outsourcing

Polychronic Cultures

People are more comfortable when working simultaneously on a variety of tasks, such as dealing immediately with multiple customers who need service

Low-context Cultures

People generally regard as relevant only firsthand information that bears directly on the subject at hand. United States and Northern Europe

Monochronic Cultures

People prefer to work sequentially, such as finishing transactions with one customer before dealing with another.

High-context Cultures

People tend to regard seemingly peripheral information as pertinent to infer meaning from things said either indirectly or casually.

Strategic Alliance

Sometimes used to mean the same as Collaborative Arrangements, but it usually refers either to an agreement that is of critical importance to one or more partners or to an agreement that does not involve joint ownership.

All of the following countries have totalitarian systems EXCEPT ________.

South Korea

Legal System

Specifies the rules that regulate behavior, the process by which laws are enforced, and the procedures used to resolve grievances

Totalitarian System

Subordinates the individual to the interests of the collective.

What are the primary types of political risk, from least to most disruptive?

Systemic Procedural Distributive Catastrophic

The term used by the United Nations as a synonym for multinational enterprise is ________.

Transnational Company

Four major forms of totalitarianism exist in the world today. These are secular totalitarianism, authoritarianism, fascism, and theocratic totalitarianism. True or False

True

The ownership of foreign bonds is an example of a portfolio investment. True or False

True

In Chapter One's opening case on the globalization of sports, the owner of a U.S. football team and the owner of a Canadian hockey team bought a British soccer team. This is an example of ________.

a joint venture

Flower producers from Ecuador, Israel, and New Zealand all compete for sales in the same American markets. This is due primarily to ________.

advances in transportation

Ethnocentrism in international business refers to the ________.

belief that what works best at home should work best everywhere

A company starting out with a global focus, usually because of the international experience of its founders, is called a ________.

born-global company

Proponents of ________ argue that individual interests are not as important as the welfare of the group.

collectivism

Political systems based on the ________ paradigm, such as those of Japan and China, promote the principle that government may intervene to ensure that business practices benefit society.

collectivistic

A ________ law system is based on tradition, judge-made precedent, and usage and assigns a preeminent position to existing case law as a guide to dispute resolution.

common

Hinduism is of the belief that the way to achieve spiritual perfection is:

devoting life to a spiritual rather than material quest.

The term globalization is sometimes used to mean the ________.

integration of world economies through the reduction of barriers to the movement of trade, capital, technology, and people

Collaborative Arrangements

joint ventures, licensing agreements, management contracts, minority ownership, and long-term contractual arrangements

Reebok pays a royalty to the German Soccer League to use the team's logo on t-shirts that it sells. Reebok and the German Soccer League most likely have a ________.

licensing agreement

Recently, the Economist Intelligence Unit investigated the status of democracies around the globe. Relying on 60 indicators that focus on the performance of free elections, civil liberties, government functioning, political participation, and political culture in a country, the study found that ________.

nearly half of the world's democracies qualify as "full" or "flawed" democracies

A problem of using the nation as a reference point for culture is that ________.

variations tend to be great within a country

A foreign direct investment occurs ________.

when a company controls a company abroad

Which of the following describes one of the conditions under which the major problems of cultural collision arise in international business?

when a company's employees encounter distress because of difficulty in accepting or adjusting to foreign behaviors