Chapter 10

Conglomerate investments usually are rated as low risk, because foreign governments see them as providing fewer benefits to the MNC and greater benefits to the country other than investments.

False

Examples of ownership-control risks include tariffs on exports and imports, as well as restrictions on exports.

False

International political developments have a major impact on MNC's strategic plans, and domestic political developments have a minor impact on those plans.

False

Local knowledge can be internalized primarily as a result of an MNC operating in that market.

False

Macro risk issues often take forms such as industry regulations, taxes of specific types of business activity, and various restrictive local laws

False

Since the terrorist attacks of 9/11, political risk assessment has become less vital to MNCs.

False

The most difficult cultural differences to manage in international strategic alliances are power distance and uncertainty avoidance.

False

There are three sectors of economic activity: the primary sector, the secondary sector, and the service sector.

False

When host governments do not require alliances as a condition for entry, many MNCs:

Find that having an alliance is advantageous to their entry and expansion

___ risks stem from government policies that limit the transfer of capital, payments, production, people, and technology in or out of a country.

Transfer

Tariffs on exports and imports, restrictions on exports, dividend remittance and capital repatriation are examples of:

Transfer risks

Political risks can be broken down into three basic categories. These are:

Transfer risks, operational risks, and ownership-control risks

Host government mandates that require foreign investors to partner with local state-owned firms or follow local-content rules may still have a positive impact on MNC.s

True

In some instances, it is not clear whether macro or micro political risk is at work.

True

In the context of international strategic alliances, value-claiming activities are competitive and distributive.

True

Micro political risk analysis is directed toward government policies and actions that influence selected sectors of the economy or specific foreign businesses.

True

Operational risk result from government policies and procedures that directly constrain the management and performance of local operations.

True

Political risk is the likelihood that a multinational corporation's foreign investment will be constrained by a host government's policies.

True

Tensions continue to rise as U.S. politicians have become frustrated by China's unwillingness to revalue the yuan, and concerns have grown over the safety of goods imported from China.

True

Typically, terrorists target business areas or businesses that have a high status or those that have great influence on initiating change.

True

Vertical investments run the risk of being taken over by government because they are export-oriented and governments like a business that helps it to generate foreign capital.

True

Vietnam has passed a domestic enterprise law and investment law easing and clarifying foreign investment and business rules, signed a trade agreement with the U.S., and joined the WTO.

True

The following actions raise the political risk of doing business in China except:

Concerns on safety and reliability of product quality

In a ___ investment, the goods or services produced are not similar to those produced at home.

Conglomerate

The ratings factors that are quantified in order for MNCs to manage political risk reflect all of the following except:

Social conditions

Alliances and joint ventures are increasingly less-common modes of entry and operation in international business.

False

Comprehensive political strategies are most important in stable policy environments.

False

Over the past two decades, political risk has become:

A vital area for MNCs to manage

The primary sector of economic activity includes:

Agriculture, forestry, and mineral exploration and extraction

The following is not an external factor used by MNCs for evaluating political risks:

Anti-establishment movements

MNCs can take a wide variety of strategies to minimize their chances of expropriation. Those strategies do not include:

Avoiding countries that have experienced a terrorist incident

When terrorism entails a specific, well-defined objective pursued by well-trained, professional, underground members, it is called:

Classic terrorism

The following is not an example of risk factors for an MNC:

Complying with contractual terms of agreements

All of the following are examples of integrative techniques except:

Doing as little local manufacturing as possible and conducting all research and development outside the country

Examples of proactive political strategies include all of the following except:

Downsizing and transferring business elsewhere

Which of the following criteria involves maximum political risk?

Effectiveness of public administration

The seizure of businesses by a host country with little, if any, compensation to the owners is referred to as:

Expropriation

___ investments involve the production of goods or services that are the same as those produced at home.

Horizontal

___ investments typically are made with an eye toward satisfying the host country's market demands. As a result, they are not very likely to be takeover targets.

Horizontal

Laws that require that nations hold a majority interest in the operation are known as:

Indigenization laws

___ techniques are designed to help the overseas operation become part of the host country's infrastructure.

Integrative

China's decision regarding restrictions on foreign exchange transactions is a ___ political risk because it affects all MNCs.

Macro

In recent years ___ risk analysis has become of increasing concern to MNCs because of the growing number of countries that are finding their economies in trouble as in Southeast Asia or even worse, unable to make the transition to a market-driven economy.

Macro

The economies of China, Russia, India, and Vietnam present ___ political risk for MNCs.

Macro

___ reviews major political decisions that are likely to affect all business conducted in a particular country.

Macro political risk analysis

China's government policies regarding investment in the telecommunications industry fall into the ___ political risk category.

Micro

___ risk issues often take forms such as industry regulation, taxes on specific types of business activity, and various restrictive local laws.

Micro

According to the 2012 Transparency International Corruption Perceptions Index, which of the following is the least corrupt nation?

New Zealand

Expropriation is more likely to occur in:

Non-Western governments that are poor, relatively unstable, and suspicious of foreign multinationals

Price controls, financing restrictions, export commitments, taxes, and local-sourcing requirements are examples of:

Operational risks

The special nature of foreign direct investment is not related to:

Operations

___ risks are brought about by government policies or actions that inhibit ownership or control of local operations.

Ownership-control

Foreign ownership limitations, pressure for local participation, confiscation, expropriation, and abrogation of property rights are examples of:

Ownership-control risks

Which of the following is not a critical legal issue for successful termination of international alliances?

People-related issues

According to the text, the following are all forms of terrorism, except:

Political terrorism

Not all MNCs are confident about international investment in countries with:

Political unrest

In their attempts to forestall harm in risky venues, MNCs must thoroughly evaluate the political environment, install modern security systems, compile a crisis handbook, and

Prepare employees for situations that may arise

Broadly, ___ strategies may include leveraging bilateral, regional, and international trade and investment agreements, drawing on bilateral and multilateral financial support, and using project finance structures to separate project exposure from overall firm risk.

Proactive political strategies

Examples of protective and defensive techniques include all of the following except:

Producing as much of the product locally as possible with the use of in-country suppliers and subcontractors, thus making it a "domestic" product

___ techniques are designed to discourage the host government from interfering in operations.

Protective and defensive

Benefits of proactive political strategies include all of the following except:

Providing support for national and sub-central governments in transitional economies

Some multinational corporations attempt to manage political risk through simultaneously analyzing a range of variables to derive an overall rating of the degree of political risk in a given jurisdiction. This is referred to as a:

Quantification process

The following are listed as techniques for responding to political risks except:

Realistic bargaining power analysis

The following are internal factors which MNCs may use to evaluate political risk except:

Regional instabilities

The theory behind ___ is quite simple. The MNC works to maintain a stronger bargaining power position than that of the host country.

Relative bargaining power

Which of the following is not a critical business issue for successful termination of international alliances?

Rights over sales territories and obligations to customers

According to the 2012 Transparency International Corruption Perceptions Index, which of the following is the most corrupt nation?

Somalia

Which of the following is not a challenge of doing business in Russia?

Strong faith in government policies

Which of the following cultural differences tend to be more disruptive for international joint ventures than the others?

Uncertainty avoidance

___ investments include the production of raw materials or intermediate goods that are to be processed into final products.

Vertical