International Management Chapter 1

1A. IBM's June 4, 2006 strategic meeting was held in which city?

Bangalore, India

Emerging-market companies have yet to buy stakes in any of the large scale corporations of the developed countries.

False

Japan, with a growth rate in GDP of over 9% in 2003, has experienced the fastest growth rate in the world.

False

Market control, as a method of keeping the subsidiary and the host nation dependent on the parent corporation, involves keeping certain key subsidiary management positions in the hands of expatriate or home-office managers.

False

Nationalization occurs when a government takes possession of the foreign owned assets of a MNC.

False

Under civil law, past court decisions act as precedents to the interpretation of the law and common customs.

False

Explain how the globalization of human capital is predicted to impact the world's labor market. Who do you predict will be the big winners and the big losers?

Globalization of Human Capital While firms have been outsourcing manufacturing jobs for decades, they are now also outsourcing white collar jobs too. Jobs will be moving from higher labor cost countries to lower cost ones. Technology jobs will most likely lead the next wave of outsourcing Big losers (in relation to number of jobs) will be U.S. and other developed countries Big winners will include countries with low cost educated employees (e.g., India, China, Taiwan).

For an MNC, what is the most important resource for current information on the political environment in the host country?

Host-country national managers

Which development has had the greatest impact on international managers?

Information technology

What method would most likely be successful in keeping a subsidiary and the host nation dependent on the parent corporation?

Input control

Which method of risk reduction would most likely be classified as a hedging technique?

Local debt financing

Why are so many people from Mexico crossing the border from Mexico to USA to find jobs despite the fact that there have been noticeable growths in Mexico's economy including an increase in GDP from $403 billion in 1993 to $893.4 billion in 2007?

MNCs displaced farming in Mexico. Higher wages in the U.S. means that immigrants to the U.S. can send back money to their families. Competition from China: Recently some manufacturing facilities and some service facilities migrated from Mexico to China in a race for the lowest cost operations. This caused Mexicans to migrate to USA in search for jobs.

The World Economic Forum held in Davos Switzerland in 2009 had as its theme:

"Shaping the Post-Crisis World"

An advantage of quantitative systems of political risk assessment is the use and primary reliance on past events.

False

Which country listed below is *not* a member of CAFTA?

Venezuela

An event which affects all foreign firms doing business in a country is called __?

A macropolitical risk event

If an event occurred that only impacted one industry or only a few companies in a country, the event would most likely be classified as:

A micropolitical risk event

The major concern for multi-national corporations is which of the following?

Appropriability of technology

Which country experienced the greatest growth rate in gross domestic product between 2000 and 2006?

China

Which type of law would most likely be defined as a comprehensive set of laws organized into a code?

Civil law

Which event would not be considered a political risk event?

Consumer preference toward a national company

If a government were to seize the assets of a MNC and not provide adequate compensation to the owners, the government would be following which practice?

Expropriation

1D. The vast majority of businesses in developed economies are multinational corporations (MNCs).

FALSE

Political risk is one of the major areas of concern with MNCs. Explain the various types of political risk and describe the various ways that political risk can be assessed. Finally, explain the various ways of managing political risk.

Political Risks are any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm. Macropolitical risk event - an event that affects all foreign firms doing business in a country or region. Micropolitical risk event - an event that affects one industry or company or only a few companies. Examples of political risk events: Expropriation of corporate assets without prompt and adequate compensation Forced sale of equity to host-country nationals, usually at or below depreciated book value Discriminatory treatment against foreign firms in the application of regulations or laws Barriers to repatriation of funds (profits or equity) Loss of technology or other intellectual property (such as patents, trademarks, or trade names) Interference in managerial decision making Dishonesty by government officials, including canceling or altering contractual agreements, extortion demands, and so forth. Ways of Managing Political Risk: Adaption Equity sharing Participative management Localization of the operation Development assistance Dependency Input control Market control Position control Staged contribution strategies Hedging Political risk insurance Local debt financing

The "Triad" of free-trade blocs includes all of the following except:

Russian Federation

1B. In the open systems model, which factor would be part of the operating environment?

Social responsibility

1C. Behind the U.S., China is the second-largest recipient of foreign investment.

TRUE

1E. An event that impacts all companies in a country would be considered a macropolitical risk event.

TRUE

1F. A countries political stability is very closely related to its economic environment.

TRUE

1G. The checklist approach to assessing economic risk relies on a few easily measurable and timely criteria believed to reflect or indicate changes in the creditworthiness of the country.

TRUE

Which method of analyzing economic risk relies on a few easily measurable and timely criteria believed to reflect or indicate changes in the creditworthiness of the country?

The checklist approach

When examining trends in the globalization of human capital, Forrester Research, and several other researchers have predicted which effect on the U.S. labor market?

The labor market in the U.S. will decrease because more jobs will be shifted offshore

Clearly, the global business environment has been changing rapidly. In particular, several regional trading blocks have been developed. List and describe the "TRIAD" of regional trading blocks. Also explain why countries are so interested in joining various trading blocks.

Triad of regional trading blocks include: (1) North American Free Trade Agreement (NAFTA); (2) European Union; and (3) Association of Southeast Asian Nations (ASEAN). Much of today's world trade takes place within the three regional free-trade blocks. Countries are interested in joining the various trading blocks in order to increase their access to these markets. Countries within the trading blocks also benefit from the reduction or elimination of internal tariffs and customs as well as the other financial and commercial barriers. Further, as evidenced by Mexico's involvement in NAFTA, countries involved in free-trade agreements can benefit from increases in GDP, and exports.

A country's tax system influences the attractiveness of investing in that country and affects the relative level of profitability for an MNC.

True

Business-to-business transactions provide the greatest opportunities for the use of e-business.

True

China has become the world's largest exporter, surpassing Germany in 2009.

True

Contract law plays a major role in international business transactions because of the complexities arising from differences in legal systems.

True

Equity sharing is a method of managing political risk that includes the initiation of joint ventures with nationals to reduce political risk.

True

Political risk often has a direct effect on the ownership and control of the foreign firm.

True

The globalization of human capital is predicted to decrease the number of service-sector jobs available in the U.S.

True

The qualitative approach to evaluating economic risk assesses the competence of that country's leaders and analyzing the types of policies they are likely to implement.

True

Use of patents, trademarks, trade names, copyrights, and trade secrets are the most common methods of protecting proprietary technology.

True