DONE Global Business Chapter 1 Study Guide

Discuss how small- and medium-size firms can benefit from the globalization of markets.

A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets. In the United States, for example, according to the International Trade Administration, more than 300,000 small- and medium-size firms with fewer than 500 employees export, accounting for 98 percent of the companies that export. More generally, exports from small- and medium-size companies account for 33 percent of the value of U.S. exports of manufactured goods. Typical of these is B&S Aircraft Alloys, a New York company whose exports account for 40 percent of its $8 million annual revenues. The situation is similar in several other nations. For example, in Germany, a staggering 98 percent of small and midsize companies have exposure to international markets, via either exports or international production. Since 2009, China has been the world's largest exporter, sending more than $2 trillion worth of products and services last year to the rest of the world.

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. As an economy grows and income levels rise, initially pollution levels also rise. However, past some point, rising income levels lead to demands for greater environmental protection, and pollution levels then fall.

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

A) Canada, Mexico, and the United States. The North American Free Trade Agreement (NAFTA) was formed in 1994 among Canada, Mexico, and the United States.

Which of these companies is taking advantage of 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. 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).

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. Over the past 30 years, U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries such as

What country has seen a relative decline in its share of world output between 1960 and 2018?

A) United States In the early 1960s, the United States was still by far the world's dominant industrial power. In 1960, the United States accounted for 38.3 percent of world output, measured by gross domestic product (GDP). By 2018, the United States accounted for 15.8 percent of world output, still the world's largest industrial and commercial power but down significantly in relative size. Of course, the change in the U.S. position was not an absolute decline because the U.S. economy grew significantly between 1960 and 2018 (the economies of Germany, France, Italy, the United Kingdom, and Canada also grew during this time). Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly China as well as several other nations in Asia.

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

A) export or import products from other countries. All a firm has to do to engage in international business is export or import products from other countries.

Savvy Skin Care, a U.S.-based beauty products manufacturer, has set up a manufacturing plant in Hong Kong. This is an example of

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

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 is an example of the

A) globalization of production. 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).

Fast food chain restaurants promote different menu choices in different countries depending on a range of factors such as demographics, local taste, income levels, and cultural values. This demonstrates that

A) significant differences still exist among national markets. Significant differences still exist among national markets along many relevant dimensions, including consumer tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal regulations. These differences frequently require companies to customize marketing strategies, product features, and operating practices to best match conditions in a particular country.

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. A concern voiced by critics of globalization is that today's 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.

While the lowering of trade barriers made globalization of markets and production a theoretical possibility, what has made it a tangible reality?

A) the advances in communication, information processing, and transportation technologies. The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality.

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

A) unemployment One concern frequently voiced by globalization opponents is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and western Europe. In the past few years, the same fears have been applied to services, which have increasingly been outsourced to nations with lower labor costs. The popular feeling is that when corporations such as Dell, IBM, or Citigroup outsource service activities to lower-cost foreign suppliers—as all three have done—they are "exporting jobs" to low-wage nations and contributing to higher unemployment and lower living standards in their home nations (in this case, the United States).

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. Growing income inequality is a result of the wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted.

What statement best supports the claim that greater uniformity replaces diversity in the context of global markets?

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. As firms follow each other around the world, they bring with them many of the assets that served them well in other national markets—including their products, operating strategies, marketing strategies, and brand names—creating some homogeneity across markets. Thus, greater uniformity replaces diversity.

Which scenario best demonstrates foreign direct investment?

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

What is an accurate characterization of the role of international business investments in Latin America today?

B) Debt and inflation are down and foreign investment is welcomed. In the past two decades, much has changed in Latin America. Debt and inflation are down, governments have sold state-owned enterprises to private investors, foreign investment is welcomed, and the region's economies have expanded.

Clean Chemical Corp. recently moved its operations from Houston, Texas, to Somalia. The decision to move was the result of new federal regulations regarding clean air standards that all chemical corporations are subjected to. A critic of globalization would say this example demonstrates what concern?

B) Facilities in advanced nations are moving to less developed countries that have lower environmental regulations. 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. A source of concern 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.

Which global institution has focused on making low-interest loans to governments in poor nations that want to make significant infrastructure investments such as building a road or a bridge?

B) World Bank The World Bank was created in 1944 to promote economic development. It has focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments (such as building dams or roads).

Kellen's Karpets is headquartered in Las Vegas, Nevada, and has production plants in Mexico and Indonesia. Kellen's Karpets is an example of

B) a multinational enterprise. A multinational enterprise (MNE) is any business that has productive activities in two or more countries.

One suggestion for helping poor countries enjoy the benefits of free trade is for richer nations to reduce barriers to importing products from those nations particularly for textiles and ________ products.

B) agricultural The richest nations of the world also can help by reducing barriers to the importation of products from the world's poorest nations, particularly tariffs on imports of agricultural products and textiles. High-tariff barriers and other impediments to trade make it difficult for poor countries to export more of their agricultural production.

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

B) drive the global economy toward greater prosperity. Many influential economists, politicians, and business leaders argue that falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity.

When compared to the past, the gap between rich and poor nations today has

B) gotten bigger. Critics of globalization argue that despite the supposed benefits associated with free trade and investment, over the past 100 years or so the gap between the rich and poor nations of the world has gotten wider. In 2019, the 34 member states of the Organisation for Economic Co-operation and Development (OECD), which includes most of the world's rich economies, had an average gross national income (GNI) per person of more than $40,000, whereas the world's 40 least developed countries had a GNI of under $1,000 per capita—implying that income per capita in the world's 34 richest nations was 40 times that in the world's 40 poorest.

Opponents to globalization believe that when U.S. companies outsource service activities, such as call centers, to a lower-cost foreign supplier, it results in

B) higher unemployment in wealthy advanced economies such as the United States. The popular feeling is that when corporations outsource service activities to lower-cost foreign suppliers they are "exporting jobs" to low-wage nations and contributing to higher unemployment and lower living standards in their home nations.

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

B) invest resources in business activities outside its home country. Foreign direct investment (FDI) occurs when a firm invests 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. Royal Teas is most likely classified as a

B) mini-multinational firm. A trend in international business has been the growth of medium-size and small multinationals (mini-multinationals).

What is acting as a deterrent for foreign firms willing to do business with former communist nations of Eastern Europe and central Asia?

B) signs of growing unrest and totalitarian tendencies seen in these countries. Disturbing signs of growing unrest and totalitarian tendencies continue to be seen in several Eastern European and Central Asian states. Thus, the risks involved in doing business in such countries are high, but so may be the returns.

Those who support globalization recognize that while some concessions occur during the process of globalization, ultimately, it still works because

B) the benefits outweigh the costs. Supporters of globalization reply that critics of these trends miss the essential point about free trade agreements—the benefits outweigh the costs. They 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 country in Latin America has seen a significant expansion in their economy in the past two decades?

C) Chile In the past two decades, much of this has changed. Throughout most of Latin America, debt and inflation are down, governments have sold state-owned enterprises to private investors, foreign investment is welcomed, and the region's economies have expanded. Brazil, Mexico, and Chile have led the way. These changes have increased the attractiveness of Latin America, both as a market for exports and as a site for foreign direct investment.

Sharron purchased a computer for $500 in 2018. Compared to the $900 computer that she purchased in 2011, the new one seems better in terms of the price she has paid and the power of the microprocessor technology. This is best explained by

C) Moore's law. The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

What is implied by the fact that in today's marketplace, the volume of world trade has been growing faster than world GDP?

C) More companies are dispersing parts of their production process to locations around the globe. The fact that the volume of world trade has been growing faster than world GDP implies several things. First, more firms are doing what Boeing does with the 777 and 787 models: dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the world's nation-states are becoming ever more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services. Third, the world has become significantly wealthier in the last two decades. The implication is that rising trade is the engine that has helped pull the global economy along.

Connor assured his foreign counterpart that the items would be shipped from St. Louis, Missouri, and arrive in about ten days to Lisbon, Portugal because the parts would stay in the same packing crate and be lifted directly from the truck onto the airplane rather than having to be repackaged. What innovation is Connor referring to?

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

Michelle, an Italian fashion designer, sells her merchandise by exporting it to retail stores in the United States, United Kingdom, and Brazil. According to this information, Michelle is participating in

C) international trade. International trade refers to the exporting of goods or services to consumers in another country.

The stock of foreign direct investment refers to

C) the total cumulative value of foreign investments as a percentage of a country's GDP. The stock of foreign direct investment refers to the total cumulative value of foreign investments.

A supporter of globalization would agree that

C) tougher environmental regulations ultimately result in economic progress. Supporters argue that tougher environmental regulations and stricter labor standards go hand in hand with economic progress. In general, as countries get richer, they enact tougher environmental and labor regulations.

The WTO arbitrates trade disputes between its member states. What is one power of particular interest that the WTO can use?

D) It can issue a ruling instructing a member state to change trade policies that violate GATT regulations. The WTO arbitrates trade disputes between its 164 member states. The arbitration panel of the WTO can issue a ruling instructing a member state to change trade policies that violate GATT regulations. If the violator refuses to comply with the ruling, the WTO allows other states to impose appropriate trade sanctions on the transgressor.

Many believe that globalization has created a convergence in

D) consumer taste preferences. 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 and investment 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 create a global market.

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

D) developing nations of the world such as China, India, and Brazil. Many of tomorrow's economic opportunities may be found in the developing nations of the world, and many of tomorrow's most capable competitors will probably also emerge from these regions.

One result of the Uruguay Round was

D) enhanced protection for patents, trademarks, and copyrights. The Uruguay Round 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.

Agri-Corp manufactures large farm implements and currently sources component parts for these large machines from fifteen different companies around globe. They use these sources to take advantage of lower costs. This demonstrates the idea of

D) globalization of production. 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.

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

D) large-scale debt relief. Free trade alone is a necessary, but not sufficient prerequisite to help HIPCs bootstrap themselves out of poverty. Instead, large-scale debt relief is needed for the world's poorest nations to give them the opportunity to restructure their economies and start the long climb toward prosperity.

During early globalization efforts, outsourcing was typically confined to ________ activities.

D) manufacturing. Early outsourcing efforts were primarily confined to manufacturing activities, such as those undertaken by Boeing and Apple. Increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations.

What are mini-multinationals?

D) medium- and small-size multinationals Medium- and small-size multinationals are called mini-multinationals.

Silver Fire Electric Inc., a U.S.-based company, has productive activities in more than two countries. Silver Fire Electric is what type of enterprise?

D) multinational A multinational enterprise (MNE) is any business that has productive activities in two or more countries.

A positive economic change from 1960 to 2018 was seen in the

D) share of world output accounted for by developing nations. In 1960, the United States accounted for 38.3 percent of world output, measured by gross domestic product (GDP). By 2018, the United States accounted for 15.8 percent of world output, down significantly in relative size. The United States was not the only developed nation to see its relative standing slip. The same occurred to Germany, France, and the United Kingdom—all nations that were among the first to industrialize. This change in the U.S. position was not an absolute decline. Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly in Asia.

Gerald bought his son, David, a computer two years ago. Recently, he decided to buy his daughter, Julian, a computer of her own. When applying Moore's Law to the two-year gap between the purchase of the computers, it is most likely that

D) the microprocessor in Julian's computer will be more advanced in terms of power than that of David's. The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

Which statement is a general implication of globalization?

E) As a result of globalization, a severe crisis in one region of the world can affect the entire globe. During 2008-2009, a crisis that started in the financial sector of America, where banks had been too liberal in their lending policies to homeowners, swept around the world and plunged the global economy into its deepest recession since the early 1980s, illustrating once more that in an interconnected world a severe crisis in one region can affect the entire globe.

Countries that receive loans from the IMF are required to

E) adopt specific economic policies to attain stabilization. IMF loans come with strings attached. 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 maintain that by telling national governments what economic policies they must adopt, the IMF is usurping the sovereignty of nation-states.

Sun-Jun is the executive general manager of a U.S.-based multinational corporation. Marisol 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 business function will be most typically exclusive to Sun-Jun?

E) choosing an appropriate mode for entering a particular foreign country. The managers in an international business must decide which foreign markets to enter and which to avoid. They must choose the appropriate mode for entering a particular foreign country.

A macro factor underlying the trend toward greater globalization is the

E) dramatic developments in information processing and other technologies. Two macro factors underlie the trend toward greater globalization. The first is the decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II. The second factor is technological change, particularly the dramatic developments in recent decades in communication, information processing, and transportation technologies.

The labor, energy, land, and capital a country relies on to source goods and services are known as

E) factors of production. 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).

The main goal of GATT was to

E) reduce trade barriers. Having learned from this experience, the advanced industrial nations of the West committed themselves after World War II to progressively reducing barriers to the free flow of goods, services, and capital among nations. This goal was enshrined in the General Agreement on Tariffs and Trade.

The change in the United States' position as a dominant industrial power is characterized as a relative decline because it

E) reflects the faster economic growth of several other economies. Of course, the change in the U.S. position was not an absolute decline because the U.S. economy grew significantly between 1960 and 2018 (the economies of Germany, France, Italy, the United Kingdom, and Canada also grew during this time). Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly China as well as several other nations in Asia.

One advancement that has lowered the barriers many small firms face when building international sales is

E) the Internet. 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. The rise of the Internet is lowering the barriers that small firms face in building international sales.

To truly benefit from globalization, a firm needs to be a multinational conglomerate rather than a small or mid-size company.

FALSE A company does not have to be the size of a multinational giant to benefit from globalization. Currently, small and medium-size companies account for 33 percent of the value of U.S. exports of manufactured goods.

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

FALSE An international business is any firm that engages in international trade or investment. A firm does not have to become a multinational enterprise, investing directly in operations in other countries, to engage in international business, although multinational enterprises are international businesses.

The amount of foreign direct investment in China has been decreasing since the 1980s.

FALSE Between 1983 and today, annual foreign direct investment in China increased from less than $2 billion to $250 billion annually.

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

FALSE Cross-border transactions require that money be converted from the firm's home currency into a foreign currency and vice versa. Because currency exchange rates vary in response to changing economic conditions, managers in an international business must develop policies for dealing with exchange rate movements.

In today's marketplace, outsourcing efforts are confined to manufacturing activities.

FALSE Early outsourcing efforts were primarily confined to manufacturing activities. Increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations.

During the 1960s, centrally planned economies associated with the communist world became open to Western international businesses.

FALSE Half a century ago, four facts described the demographics of the global economy. The first was U.S. dominance in the world economy and world trade picture. The second was U.S. dominance in world foreign direct investment. Related to this, the third fact was the dominance of large, multinational U.S. firms on the international business scene. The fourth was that roughly half the globe—the centrally planned economies of the communist world—was off-limits to Western international businesses. All four of these facts have changed rapidly.

The United Nations created the Millennium Development Goals to increase the number of entrepreneurial activities around the world.

FALSE In 2000, the United Nations established the Millennium Development Goals to reduce the number of people who live in extreme poverty by 2015.

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 Many influential economists, politicians, and business leaders seem to think that the shift toward a more integrated and interdependent global economy is a good thing. They say increased international trade and cross-border investment will result in lower prices for goods and services.

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

FALSE Over the past five decades, a fundamental shift has been occurring in the world economy. We have been moving away from a world in which national economies were relatively self-contained entities, isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems.

Moore's law helps determine the most appropriate transportation method for a produced good.

FALSE The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

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

FALSE The economies of the world's nation-states are becoming more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services.

Explain how supporters of globalization view the idea that the decline in unskilled wage rates and the demand for unskilled workers is due to the migration of low-wage manufacturing jobs offshore.

Globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers. However, supporters of globalization see a more complex picture. They maintain that the weak growth rate in real wage rates for unskilled workers owes far more to a technology-induced shift within advanced economies away from jobs where the only qualification was a willingness to turn up for work every day and toward jobs that require significant education and skills. They point out that many advanced economies report a shortage of highly skilled workers and an excess supply of unskilled workers. Thus, growing income inequality is a result of the wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. In fact, evidence suggests that technological change has had a bigger impact than globalization on the declining share of national income enjoyed by labor. This suggests that a solution to the problem of slow real income growth among the unskilled is to be found not in limiting free trade and globalization but in increasing society's investment in education to reduce the supply of unskilled workers.

Discuss how supporters and opponents of globalization regard its effect on 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.

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.

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

TRUE In economic terms, the most important major innovations in transportation technology 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.

The range of problems that a manager in an international business faces is typically more complex than those faced by a manager in a domestic business.

TRUE In sum, 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 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.

The retaliatory trade policies of the 1920s and 1930s contributed to the Great Depression.

TRUE Many of the barriers to international trade in the 1920s and 1930s 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 1930s.

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 Over the past half century, a number of important global institutions have been created to help manage, regulate, and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system. These include the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO); the International Monetary Fund (IMF) and its sister institution, the World Bank; and the United Nations (UN). All these institutions were created by voluntary agreement between individual nation-states, and their functions are enshrined in international treaties.

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

TRUE 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.

The WTO polices the world trading system, and without this organization, the globalization of markets might not be where it is today.

TRUE The WTO is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states. Without an institution such as the WTO, the globalization of markets and production is unlikely to have proceeded as far as it has.

The lowering of trade and investment barriers creates more opportunities for companies to have the world as their market.

TRUE The lowering of trade and investment barriers allows firms to view the world, rather than a single country, as their market.

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

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

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

TRUE Throughout the 1990s, the amount of investment directed at both developed and developing nations increased dramatically, a trend that reflects the increasing internationalization of business corporations.

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 (such as building dams or roads).

Why did many nations impose high tariffs on imports of manufactured goods prior to World War II?

A) to protect domestic industries from foreign competition 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.

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. Globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers.

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. According to the UN charter, the UN has four purposes: to maintain international peace and security, to develop friendly relations among nations, to cooperate in solving international problems and in promoting respect for human rights, and to be a center for harmonizing the actions of nations.

When trade barriers began to fall, what was the motivation for much of the foreign direct investment by non-U.S. firms?

A) desire to disperse production activities to optimal locations. The motivation for much of the foreign direct investment by non-U.S. firms was the desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets.

What is the shift toward a more integrated and interdependent world economy called?

C) globalization. Globalization refers to the shift toward a more integrated and interdependent world economy. Globalization has several facets, including the globalization of markets and the globalization of production.

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 1930s.

A domestic enterprise is any business that has productive activities in at least two countries.

FALSE A multinational enterprise (MNE) is any business that has productive activities in two or more countries.

Define containerization and explain how it has changed the way goods are transported around the world.

In addition to developments in communications technology, several major innovations in transportation technology have occurred since the 1950s. 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. Because the international shipping industry is responsible for carrying about 90 percent of the volume of world trade in goods, this has been an extremely important development. Before the advent of containerization, moving goods from one mode of transport to another was very labor intensive, lengthy, and costly. It could take days and several hundred longshore workers to unload a ship and reload goods onto trucks and trains. With the advent of widespread containerization in the 1970s and 1980s, the whole process can now be executed by a handful of longshore workers in a couple of days. As a result of the efficiency gains associated with containerization, transportation costs have plummeted, making it much more economical to ship goods around the globe, thereby helping drive the globalization of markets and production.

Analyze the antiglobalization protest that took place in Seattle in December 1999. What was being protested? Did the protest succeed? How was the protest viewed by the world?

Popular demonstrations against globalization date back to December 1999, when more than 40,000 protesters blocked the streets of Seattle in an attempt to shut down a World Trade Organization meeting being held in the city. The demonstrators were protesting against a wide range of issues, including job losses in industries under attack from foreign competitors, downward pressure on the wage rates of unskilled workers, environmental degradation, and the cultural imperialism of global media and multinational enterprises, which was seen as being dominated by what some protesters called the "culturally impoverished" interests and values of the United States. All of these ills, the demonstrators claimed, could be laid at the feet of globalization. The World Trade Organization was meeting to try to launch a new round of talks to cut barriers to cross-border trade and investment. As such, it was seen as a promoter of globalization and a target for the protesters. The protests turned violent, transforming the normally placid streets of Seattle into a running battle between "anarchists" and Seattle's bemused and poorly prepared police department. Pictures of brick-throwing protesters and armored police wielding their batons were duly recorded by the global media, which then circulated the images around the world. Meanwhile, the WTO meeting failed to reach an agreement, and although the protests outside the meeting halls had little to do with that failure, the impression took hold that the demonstrators had succeeded in derailing the meetings.

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

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

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

TRUE Many of the former communist nations of Europe and Asia seem to share a commitment to democratic policies and free market economies. For half a century, these countries were essentially closed to Western international businesses. Now, they present a host of export and investment opportunities.

One criticism of globalization is that falling trade barriers encourage companies to locate manufacturing activities in another country to take advantage of lower wage rates.

TRUE One concern frequently voiced by globalization opponents is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and Western Europe. Critics argue that falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower.

Enhanced protection for patents and trademarks was one focus of the Uruguay Round.

TRUE 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.

Discuss the role of the United Nations and explain the four purposes of the organization.

The United Nations (UN) was established October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. Today, nearly every nation in the world belongs to the United Nations; membership now totals 193 countries. When states become members of the United Nations, they agree to accept the obligations of the UN Charter, an international treaty that establishes basic principles of international relations. According to the charter, the UN has four purposes: to maintain international peace and security, to develop friendly relations among nations, to cooperate in solving international problems and in promoting respect for human rights, and to be a center for harmonizing the actions of nations. Although the UN is perhaps best known for its peacekeeping role, one of the organization's central mandates is the promotion of higher standards of living, full employment, and conditions of economic and social progress and development—all issues that are central to the creation of a vibrant global economy. As much as 70 percent of the work of the UN system is devoted to accomplishing this mandate. To do so, the UN works closely with other international institutions such as the World Bank. Guiding the work is the belief that eradicating poverty and improving the well-being of people everywhere are necessary steps in creating conditions for lasting world peace.

Describe the implications that result as the volume of world trade continues to grow faster than world GDP.

The fact that the volume of world trade has been growing faster than world GDP implies several things. First, more firms are doing what Boeing does with the 777 and 787: dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the world's nation-states are becoming ever more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services. Third, the world has become significantly wealthier in the last two decades. The implication is that rising trade is the engine that has helped pull the global economy along.

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.

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.