INTB CH 1

Which of the following is the most appropriate solution to the problem of rising carbon dioxide emissions in developed economies?

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?

Globalization

Which of the following identifies the motivation for much of the foreign direct investment by non-U.S. firms?

desire to disperse production activities to optimal locations

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?

free trade of goods and services

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?

multinational

A concern voiced by critics of globalization is that today's increasingly interdependent global economy shifts economic power toward

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?

the advances in communication, information processing, and transportation technologies

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

true

According to globalization opponents, which of the following has increased in wealthy advanced economies as a result of globalization?

unemployment

Why are supranational organizations, such as the World Trade Organization and the United Nations, criticized?

A concern voiced by critics of globalization is that todays increasingly interdependent global economy shifts economic power away from national governments and toward supranational organizations such as the World Trade Organization, the European Union, and the United Nations. As perceived by critics, unelected bureaucrats now impose policies on the democratically elected governments of nation-states, thereby undermining the sovereignty of those states and limiting the nation's ability to control its own destiny.

What is a multinational enterprise? What have been the two most notable trends in the demographics of multinational enterprise of the 1960's

A multinational enterprise is any business that has productive activities in two or more countries. The two most notable trends in multinational enterprises since the 1960s have been (1) the rise of non-U.S. multinationals and (2) the growth of mini-multinationals. The globalization of the world economy has resulted in a relative decline in the dominance of U.S. firms in the global marketplace. Another trend in international business has been the growth of medium-size and small multinationals (mini-multinationals). Although most international trade and investment is still conducted by large firms, many medium-size and small businesses are becoming increasingly involved in international trade and 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 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.

Discuss the concerns voiced by critics of globalization regarding labor policies and the environment.

A source of concern for critics of globalization is that free trade encourages firms from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse by the unscrupulous. Globalization critics often argue that adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises and puts them at a competitive disadvantage in the global marketplace vis-à-vis firms based in developing nations that do not have to comply with such regulations. Firms deal with this cost disadvantage, the theory goes, by moving their production facilities to nations that do not have such burdensome regulations or that fail to enforce the regulations they have.

Which of the following statements is a general implication of globalization?

As a result of globalization, a severe crisis in one region of the world can affect the entire globe.

Econometric studies show a hump-shaped relationship between income levels and pollution levels. Which of these statements reflects that relationship?

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

Which of the following statements best supports the claim that greater uniformity replaces diversity in the context of global markets?

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.

The North American Free Trade Agreement (NAFTA) was formed in 1994 among

Canada, Mexico, and the United States.

Which of the following best exemplifies foreign direct investment (FDI)?

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.

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?

Choosing an appropriate mode for entering a particular foreign country

Which of the following statements reflects the nature of the global economy of the twenty-first century?

Countries have extensively adopted liberal economic policies.

Which of the following reasons contributed to the Great Depression of the 1930s?

Countries progressively raising trade barriers against each other

Which of the following best illustrates the globalization of production?

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

Which of the following has been reduced as a result of globalization?

Differences in material culture

Which of the following is a macro factor underlying the trend toward greater globalization?

Dramatic developments in information processing and other technologies

Explain the factors that led to the Great Depression of the 1930s.

During the 1920s and 1930s, many of the world's nation-states erected formidable barriers to international trade and foreign direct investment. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. One consequence, however, was "beggar thy neighbor" retaliatory trade policies, with countries progressively raising trade barriers against each other. Ultimately, this depressed world demand and contributed to the Great Depression of the 1930's

Briefly trace the history of the G20 and describe its current role in international business.

Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank. Originally established to formulate a coordinated policy response to financial crises in developing nations, in 2008 and 2009 it became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis that started in America and then rapidly spread around the world, ushering in the first serious global economic recession since 1981.

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 advanced 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, companies 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 to manufacturing activities.

False

Explain the concepts of globalization of markets and globalization of production

Globalization has several facets, including the globalization of markets and the globalization of production. The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. The globalization of production 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 of production (such as labor, energy, land, and capital). By doing this, companies hope to lower their overall cost structure or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively.

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

Globalization of Product

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?

Globalization of Product

Discuss the arguments for and against globalization regarding jobs and income.

Globalization opponents argue that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and Western Europe. Falling barriers allow firms to move manufacturing activities to countries where wage rates are much lower. Because of this, wage rates of poorer Americans have fallen significantly over the past quarter of a century. Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently.

What is globalization? Explain, with examples, how global companies can facilitate the creation of a global market.

Globalization refers to the shift toward a more integrated and interdependent world economy. One facet, the globalization of markets, refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross- border trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation video games, McDonald's hamburgers, Starbucks coffee, IKEA furniture, and Apple iPhones are frequently held up as prototypical examples of this trend; they are also facilitators of it. By offering the same basic product worldwide, they help to create a global market.

Which of the following statements reflects an important trend in the changing nature of multinational enterprises?

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

Which of the following is a power of the WTO?

It can issue a ruling instructing a member-state to change trade policies that violate GATT regulations.

Which of the following is an argument put forth by critics of the IMF?

It usurps the sovereignty of nation-states by telling governments what economic policies they must adopt.

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

Large-scale debt relief.

What are some of the challenges faced by managers of an international business?

Managing an international business is challenging in many ways and involves a great deal of complexity. The managers of an international business must decide where in the world to site production activities to minimize costs and to maximize value added. They must decide whether it is ethical to adhere to the lower labor and environmental standards found in many less developed nations. Then they must decide how best to coordinate and control globally dispersed production activities. The managers in an international business also must decide which foreign markets to enter and which to avoid. They must choose the appropriate mode for entering a particular foreign country. These managers must also deal with government restrictions on international trade and investment. They must find ways to work within the limits imposed by specific governmental interventions.

How is managing an international business different from managing a purely domestic business?

Managing an international business is different from managing a purely domestic business for at least four reasons: (1) countries are different, (2) the range of problems confronted by a manager in an international business is wider and the problems themselves are more complex than those confronted by a manager in a domestic business, (3) an international business must find ways to work within the limits imposed by government intervention in the international trade and investment system, and (4) international transactions involve converting money into different currencies.

In the context of international trade and investment, describe how the former communist nations of Europe and Asia have been changing

Many of the former communist nations of Europe and Asia seem to share a commitment to democratic politics and free market economics. For half a century, these countries were essentially closed to Western international businesses. Now, they present a host of export and investment opportunities. The economies of many of the former communist states are still relatively undeveloped, and their continued commitment to democracy and free market economics cannot be taken for granted. Disturbing signs of growing unrest and totalitarian tendencies continue to be seen in several Eastern European and Central Asian states, including Russia, which has shown signs of shifting back toward greater state involvement in economic activity and authoritarian government. Thus, the risks involved in doing business in such countries are high, but so may be the returns.

What are the various reasons for economic stagnation in many of the world's poorest countries?

Many of the world's poorest countries have suffered from totalitarian governments, economic policies that destroyed wealth rather than facilitated its creation, endemic corruption, scant protection for property rights, and prolonged civil war. Such factors help explain why countries such as Afghanistan, Cuba, Haiti, Iraq, Libya, Nigeria, Sudan, and North Korea have failed to improve the economic lot of their citizens during recent decades. A complicating factor is the rapidly expanding populations in many of these countries. Without a major change in government, population growth may exacerbate their problems.

What are mini-multinationals?

Medium-sized and small multinationals

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

Moore's Law

Which of the following is NOT a concern for managers in international businesses?

Perceived distance between home country and operating nations

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

Significant differences still exist among national markets.

86. What are the roles of the International Monetary Fund (IMF) and the World Bank? Which of these institutions is more controversial? why?

The International Monetary Fund (IMF) and the World Bank were both created in 1944 by 44 nations that met at Bretton Woods, New Hampshire. The IMF was established to maintain order in the international monetary system; the World Bank was set up to promote economic development. The IMF is the more controversial of the two sister institutions. The IMF is often 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. IMF loans come with strings attached, however; in return for loans, the IMF requires nation-states to adopt specific economic policies aimed at returning their troubled economies to stability and growth. These requirements have sparked controversy. Some critics charge that the IMF's policy recommendations are often inappropriate; others maintain that by telling national governments what economic policies they must adopt, the IMF is usurping the sovereignty of nation-states. On the other hand, the World Bank has focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments

Briefly discuss the ways in which technological change has affected globalization.

The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. Since the end of World War II, the world has seen major advances in communication, information processing, and transportation technology, including the explosive emergence of the Internet. Over the past 30 years, global communications have been revolutionized by developments in satellite, optical fiber, wireless technologies, and the Internet. These technologies rely on the microprocessor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. Viewed globally, the Internet has emerged as an equalizer. It rolls back some of the constraints of location, scale, and time zones. The Internet makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. It allows businesses, both small and large, to expand their global presence at a lower cost than ever before. Just as important, it enables enterprises to coordinate and control a globally dispersed production system in a way that was not possible 25 years ago.In economic terms, the most important are probably the development of commercial jet aircraft and superfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances

Elaborate on why globalization is not inevitable.

The world may be moving toward a more global economic system, but globalization is not inevitable. Countries may pull back from the recent commitment to liberal economic ideology if their experiences do not match their expectations. There are clear signs, for example, of a retreat from liberal economic ideology in Russia. If Russia's hesitation were to become more permanent and widespread, the liberal vision of a more prosperous global economy based on free market principles might not occur as quickly as many hope. Clearly, this would be a tougher world for international businesses.

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 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

Which statement reflects the changing demographics of the global economy?

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 the UN Charter, one of the four purposes of the UN is to

be a center for harmonizing the actions of nations.

What were the results of the Uruguay Round? What are the implications of these results for international business?

Under the umbrella of GATT, eight rounds of negotiations among member states worked to lower barriers to the free flow of goods and services. The most recent negotiations to be completed, known as the Uruguay Round, were finalized in December 1993. The Uruguay Round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization to police the international trading system. This has contributed to both the globalization of markets and the globalization of production. The lowering of barriers to international trade enables firms to view the world, rather than a single country, as their market. At the same time, it helps companies source goods and services from optimal locations.

Which of the following countries has seen a relative decline in its share of world output between 1960 and 2014?

United States

Which of the following was established to ensure that nation-states adhered to the rules laid down in trade treaties?

World Trade Organization

In the context of the environment, globalization critics argue that

adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises.

Which of the following characterizes the lowering of trade and investment barriers?

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

Which of the following is most likely to be observed in today's global economy?

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?

delivering closing arguments for a lawsuit

Due to the changing economic geography, many of tomorrow's economic opportunities are most likely to be found in the

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

An argument in support of the falling barriers to international trade and investment is that the falling barriers

drive the global economy toward greater prosperity.

What was a result of the Uruguay Round?

enhanced protection for patents, trademarks, and copyrights

The minimum that a firm has to do to engage in international business is to

export or import products from other countries.

ABC Toys, a U.S.-based toy manufacturer, has set up a manufacturing plant in Hong Kong. This is an example of

foreign direct investment

Globalization opponents argue that exporting jobs to low-wage nations has contributed to

higher unemployment in wealthy advanced economies such as the United States.

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

international trade

For foreign direct investment (FDI) to occur, a firm should primarily

invest resources in business activities outside its home country.

Globalization critics argue that the decline in unskilled wage rates in advanced economies is due to the

migration of low-wage manufacturing jobs offshore.

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

mini multinational firm

ABC Company, which is headquartered in the United States, has production plants in Mexico and Vietnam. According to this information, ABC company is

multinational enterprise

The motive behind the high tariffs imposed by nations on imports of manufactured goods, prior to World War II, was to

protect domestic industries from foreign competition.

The advent of containerization has:

significantly lowered the costs of shipping goods over long distances.

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?

signs of growing unrest and totalitarian tendencies seen in these countries

In the past two decades, the majority of Latin American countries have

sold state-owned enterprises to private investors.

Which of the following refers to the total cumulative value of foreign investments?

stock of foreign direct investment

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

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?

the share of world output accounted for by developing nations

Why was the World Bank set up?

to promote economic development

Growing income inequality between the skilled and unskilled workers in advanced nations, such as the United States, is a result of the

wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted.