Exam 2- International Business

Kantian Ethics

(Immanuel Kant) - people should be treated as ends and never purely as means to the ends of others, people have dignity and need to be respected

Foreign Direct Investment (FDI)

a firm invests directly in new facilities to produce or market in a foreign country

positive sum game

a game in which players as a group are better off at the end of the game, in trade- all parties gain

tariff quota

a hybrid of a quota and a tariff where a LOWER TARIFF IS APPLIED TO IMPORTS WITHIN THE QUOTA than to those over the quota

Specific Tariff

a tariff levied as a fixed charge for each unit of a good imported

Ad Valorem Tariff

a tariff levied as a proportion of the value of an imported good

Diminishing returns to specialization occur when: a) the quality of resources comes down as a result of producing more goods. b) more units of resources are required to produce each additional unit. c) the cost of producing goods reduces substantially with an increase in the number of goods produced. d) resources can move freely from the production of one good to another within a country. e) the quality of goods produced per unit of a resource begins to improve.

b

administrative trade policies

bureaucratic rules designed to make it difficult for imports to enter a country these policies hurt consumers by denying access to possibly superior foreign products

Personal Ethics

business ethics reflect personal ethics, expatriates face pressure to violate personal ethics bc they are away from an ordinary social context and supporting culture

According to the U.S. Department of Commerce, which of the following, occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity? a) asset divestment b) reciprocal foreign investment c) multilateral investment d) international divestment e) foreign direct investment

e

Which of the following formed the crux of Porter's study of national competitive advantage? a) organizing the relationship between factor endowments and economies of scale b) determining how trade barriers affect the prices of products in the international market c) identifying the various stages of the life cycle of a product d) determining how pre-industrialization theories predict international trade patterns e) determining why a country achieves international success in a particular industry

e

Which of the following indicates that a firm has a full outright stake in an acquisition? a) Arthur Enterprises acquires 98 percent of a company. b) Dream Animax acquires at least 85 percent of a company. c) Anderson Corporation acquires at least 75 percent of a company. d) Sheffield Enterprises acquires at least 60 percent of a company. e) Maximus Corporation acquires 100 percent of a company.

e

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the a) new trade theory. b) licensing theory. c) comparative advantage theory. d) distribution theory. e) internalization theory.

e: It argues that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing.

first-mover advantage

economic and strategic advantage gained by being the first company to enter an industry

The most common ethical issues in business involve

employment practices, human rights, environmental pollution- air/land aren't owned by a specific company are more likely to be depleted bc everyone doesn't follow the same rules, corruption- rules not always enforced

Mercantilism

encouraged exports and encouraged imports, in the country's best interests to maintain a trade surplus, makes a case for government involvement in promoting exports

societal culture

ethical policies differ by country, MNEs located in countries where individualism and uncertainty avoidance are strong are more likely to emphasize ethical behavior

Culture Relativism

ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate

Veil of Ignorance

everyone is imagined to be ignorant of all his or her particular characteristics each person is permitted max basic liberty compatible with a similar liberty for others

Friedman Doctrine

firms' main responsibility is to shareholders, firm must increase profit in a legal way

Strawmen approaches

friedman doctrine, cultural relativism, righteous moralist, naive moralist

Rights Theories

humans have fundamental rights and privileges that transcend national boundaries and cultures

External Stakeholders

individuals or groups that have some claim on a firm such as customers, suppliers, and unions

GATT (General Agreement on Tariffs and Trade)

international agreement first signed in 1947 aimed at lowering trade barriers

UN's Universal Declaration of Human Rights

main idea: some fundamental rights transcend national borders and cultures

Basic Factor Endowments

natural resources, climate, location, demographics

quota rent

the extra profit that producers make when supply is artificially limited by an import quota

T/F: According to Friedman's doctrine, the only social responsibility of business is to increase profits, so long as the company stays within the rules of law

true

T/F: Although mercantilism is an old and largely discredited doctrine, its echoes remain in modern political debate and in the trade policies of many countries.

true

T/F: Many of the ethical issues in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation.

true

T/F: The Foreign Corrupt Practices Act outlawed the paying of bribes to foreign government officials to gain business.

true

T/F: The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization.

true

Multipoint Competition

when two or more enterprises encounter each other in different regional markets, national markets, or industries

Direction of FDI

-Historically, most FDI has been directed at the developed nations of the world -The United States is a favorite target as is the European Union -More recently, developing nations have been the recipients of FDI -South, East, and Southeast Asia, and particularly China have received significant inflows -Latin America is also emerging as an important region for FDI

Political Arguments for Government Intervention

1. protecting jobs and industries 2. protecting national security 3. retaliating to unfair foreign competition- use intervention as bargaining tool and force trading partners to "play by the rules of the game" 4. protecting consumers from "dangerous" products 5. furthering the goals of foreign policy 6. protecting human rights

subsidy

A government payment that supports a business or market, help domestic producers, consumers typically absorb cost of them

Tariff

A tax on imported goods, increases gov revenues, provides protection to domestic producer, usually pro-producer and anti-consumer

countervailing duties

Antidumping duties. These duties protect domestic producers from unfair foreign competition

Organizational Culture and Leadership

Articulate values that emphasize ethical behavior, repeatedly emphasize their importance, provide incentives and rewards

Hiring and Promotion

Businesses should strive to identify and hire people with a strong sense of personal ethics Prospective employees should find out as much as they can about the ethical climate in an organization

Samuelson Critique

Dynamic gains can lead to less beneficial outcomes free trade has historically benefitted rich countries

Greenfield Investment

Establishing a new operation in a foreign country

balance of payments effects

FDI can help a country to achieve a current account surplus

T/F: A critical competitive feature of an oligopoly is independence of the major players.

False

T/F: "Facilitating payments" are payments to secure contracts that would not otherwise be secured.

False: Facilitating payments are not payments to secure contracts that would not otherwise be secured, nor are they payments to obtain exclusive preferential treatment.

T/F: When a firm exports its products to a foreign country, foreign direct investment occurs.

False: Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity.

T/F: Noblesse oblige is a French term referring to those multinationals that have unethically used their power for private gain.

False: Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth. In a business setting, it is taken to mean benevolent behavior that is the responsibility of successful enterprises.

strategic trade policy

Government policy that can help raise national income if it can ensure first-mover advantages in an industry are DOMESTIC it might be beneficial for a government to intervene in an industry by helping domestic firms overcome barriers to entry created by foreign firms with first-mover advantages Krugman is ANTI-STRATEGIC TRADE POLICY

Retaliation and Trade War

Krugman: strategic trade policies to establish domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries - a country that attempts to use such policies will provoke retaliation - don't engage in retaliation but help establish rules to minimize the use of trade-distorting subsidies - trade war can leave both countries worse off

Moral Courage

Managers must be able to walk away from decisions that are profitable but unethical

Internal Stakeholders

People who work for or own the business such as employees, directors, and stockholders

Firm strategy, structure, and rivalry

Porter's Diamond: nations are characterized by different management ideologies which influence the ability of firms to build national competitive advantage

Demand Conditions

Porter's Diamond: the nature of home demand for the industry's product or service demanding customers pressure firms to be more competitive and to produce high quality, innovate products

related and supporting industries

Porter's Diamond: the presence or absence of supplier industries and related industries that are internationally competitive successful industries tend to be grouped in clusters in countries --> knowledge flows btw firms

unrealistic performance goals

Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior

Voluntary Export Restraint (VER)

Quota on trade imposed by the exporting country, typically at the request of the importing country's government

Difference Principle

Rawls' suggestion that inequalities are justified if they benefit the position of the least advantaged person

Leontief Paradox

Since the U.S was relatively abundant in capital compared to other nations, the U.S would be an exporter of capital intensive goods and an importer of labor-intensive goods. differences in technology lead to differences in productivity which then drives trade patterns

Tariff Rate Quota (TRQ)

The applicable duty to be paid or charged for a product and a limitation of the quantity of that product that can be imported.

Factor Endowments

The extent to which a country is endowed with such resources as land, labor, and capital

Constant Returns to Specialization

The units of resources required to produce a good are assumed to remain constant, not realistic

Ricardo's theory of comparative advantage

Trade patterns reflect differences in labor productivity, a country should specialize in production of those goods that it produces most efficiently and import goods that it produces less efficiently

T/F: A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

True

A righteous moralist is most likely to claim that: a) a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. b) a firm should adopt the ethics of the culture in which it is operating. c) inequalities are justified if they benefit the position of the least-advantaged person. d) people should be treated as ends and never purely as means to the ends of others. e) human beings have fundamental rights and privileges that transcend national boundaries and cultures.

a

Which of the following best exemplifies noblesse oblige? a) multinational corporations funding schools, universities, and hospitals in developing countries b) multinational corporations gaining monopoly rights in developing countries in order to weaken the local competition c) multinational corporations moving production to developing countries to exploit their lower employment standards d) multinational corporations bribing poorly paid government officials in a foreign market e) multinational corporations altering the laws of a host country to suit their businesses

a

Advanced Factor Endowments

communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how

Economic Arguments for Intervention

concerned with boosting overall wealth of a nation: -infant industry argument -strategic trade policy

The market imperfections approach seeks to explain a) the pattern of sale of products from one country to another. b) the disadvantages associated with the adoption of a completely free market view. c) the benefits of exercising protectionism coupled with partial adoption of free market approach. d) why different nations import goods from other countries even when they are more capable of producing them efficiently. e) the preference for FDI over licensing by firms as a strategy to enter foreign markets.

e

Neo-mercantilists equate political power with economic power and economic power with: a. a trade monopoly. b. capitalism. c. corruption. d. regional dominance. e. a balance-of-trade surplus.

e: Neo-mercantilists equate political power with economic power and economic power with a balance-of-trade surplus.

Justice Theories

focus on the attainment of a just distribution of economic goods and services

Externalities

knowledge spillovers that occur when companies in the same industry locate in the same area

Internalization Theory/Market Imperfections

licensing is less attractive -firm could give away valuable tech -firm loses control over manufacturing, marketing, and strategy -firms competitive advantage may be based on its management, marketing, and manufacturing capabilities

Eclectic Paradigm

location-specific advantages and externalities in addition to strategic behavior and internalization theory

New Trade Theory

provides an economic rationale for a proactive trade policy that is at variance with other free trade theories increasing product variety and reducing costs

acquisition

quicker to execute than Greenfield investments, easier/less risky to acquire desired assets, firms believe they can increase efficiency of acquired unit by transferring capital, technology , or management skills

current account

records a country's export and import of goods and services

balance of payments accounts

records a country's payments to and receipts from other countries

free trade

refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country

Dumping

selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their "fair" market value

Ethics Officers Ensure:

- All employees are trained in ethics - Ethics is considered in the decision-making process - The company's code of conduct is followed

Porter's Diamond

- Firm strategy, structure, and rivalry: gov plays large role - Demand conditions: competition brought on by domestic economy - Related and supporting industries: education - Factor endowments: resources/time

Roots of Unethical Behavior

- Personal Ethics - Decision-Making Processes - Organization Culture - Unrealistic Performance Expectations - Leadership - Societal Culture

infant industry argument criticisms

- it's useless unless it makes the industry more efficient - If a country has the potential to develop a viable competitive position, its firms should be capable of raising necessary funds

Home Country Benefits of FDI

-The effect on the capital account of the home country's balance of payments from the inward flow of foreign earnings -The employment effects that arise from outward FDI -The gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country

Sullivan Principles

A 1977 code of conduct that required multinational corporations in South Africa to do business in a nondiscriminatory way.

Home Country Costs of FDI

Adverse balance-of-payment effects Negative employment effect

Advantages of FDI

FDI will be favored over exporting when: - Transportation costs are high - Trade barriers are high FDI will be favored over licensing when: - The firm wants control over its technological know-how - The firm wants control over its operations and business strategy - The firm's capabilities are not amenable to licensing

T/F: New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

False: New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms.

T/F: Leon Sullivan argued that it was ethically justified for Western businesses to operate in South Africa so long as the companies obeyed the apartheid laws.

False: Sullivan argued that it was ethically justified for General Motors to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws.

T/F: The globalization of the world economy is having a negative effect on the volume of FDI.

False: The globalization of the world economy is having a positive effect on the volume of FDI. Many firms now see the whole world as their market, and they are undertaking FDI in an attempt to make sure they have a significant presence in many regions of the world.

T/F: The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.

False: The viability of an exporting strategy is often constrained by transportation costs and trade barriers. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that have a low value-to-weight ratio and that can be produced in almost any location. For such products, the attractiveness of exporting decreases, relative to either FDI or licensing.

T/F: Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should simultaneously encourage both imports and exports.

False: countries should simultaneously encourage exports and discourage imports.

T/F: Some countries argue that government intervention to protect certain domestic industries can compromise national security.

False: they argue that it is important for national security

Source of FDI

US has been largest source country Other source countries: UK, Netherlands, France, Germany Japan Major foreign investor- Chinese firms

strategic behavior theory

Theory suggesting that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other's international investments in order to keep a competitor from gaining an advantage

T/F: An organizational culture that requires all decisions to be purely economic is more likely to allow unethical behavior to flourish and persist.

True

T/F: Government intervention in international trade can take the form of reducing restrictions on imports and adopting policies that promote exports.

True

T/F: Import tariffs protect domestic producers against foreign competitors.

True

T/F: The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges member-states and other signatories to make the bribery of foreign public officials a criminal offense.

True

T/F: When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.

True

T/F: According to Adam Smith, market mechanism, rather than government policy, should determine a country's imports and exports.

True: Adam Smith argued that the invisible hand of the market should determine what a country imports and what it exports.

T/F: Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

True: Knickerbocker's theory can be extended to embrace the concept of multipoint competition. Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. Economic theory suggests that rather like chess players jockeying for advantage, firms will try to match each other's moves in different markets to try to hold each other in check. The idea is to ensure that a rival does not gain a commanding position in one market and then use the profits generated there to subsidize competitive attacks in other markets.

T/F: Free trade is likely to increase a country's stock of resources and the efficiency with which it utilizes those resources.

True: Opening an economy to trade is likely to generate dynamic gains of two sorts. First, free trade might increase a country's stock of resources as increased supplies of labor and capital from abroad become available for use within the country. Second, free trade might also increase the efficiency with which a country uses its resources.

T/F: The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.

True: The effects of FDI on employment are both direct and indirect. Direct effects arise when a foreign MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. The indirect employment effects are often as large as, if not larger than, the direct effects.

T/F: According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.

True: The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently.

T/F: According to Alexander Hamilton, governments must temporarily support new industries until they have grown strong enough to meet international competition.

True: The infant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. According to this argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. To allow manufacturing to get a toehold, the argument is that governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition.

T/F: Subsidies are a trade policy instrument.

True: Trade policy uses seven main instruments: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties.

T/F: By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing.

True: Transportation costs aside, some firms undertake foreign direct investment as a response to actual or threatened trade barriers such as import tariffs or quotas. By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing. Similarly, by limiting imports through quotas, governments increase the attractiveness of FDI and licensing.

T/F: An acquisition does not result in a net increase in the number of players in a market.

True: When a foreign investor acquires two or more firms in a host country, and subsequently merges them, the effect may be to reduce the level of competition in that market, create monopoly power for the foreign firm, reduce consumer choice, and raise prices.

T/F: The concept of corporate social responsibility (CSR) refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions.

True: there should be a presumption in favor of decisions that have both good economic and social consequences.

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting? a) presence or threat of trade barriers b) costs of acquiring a foreign enterprise c) risk of giving away valuable technological know-how to a potential foreign competitor d) costs of establishing production facilities in a foreign country e) possibility of diminishing returns

a

Which of the following refers to the amount of FDI undertaken over a given period (normally a year)? a) flow b) portfolio c) status d) stock e) fragment

a

Corporate Social Responsibility (CSR)

a business's concern for society's welfare

Local Content Requirement (LCR)

a requirement that demands that some specific fraction of a good be produced domestically they benefit domestic producers and jobs, but consumers face higher prices

code of ethics

a set of guidelines for maintaining ethics in the workplace

zero-sum game

a situation in which an economic gain by one country results in an economic loss by another, according to Smith- trade is not a zero-sum game

Ethical Strategy

a strategy, or course of action, that does not violate these accepted principles

Which of the following is the term for when a lower tariff rate is applied to imports within the quota than those over the quota? a) tariff rate quota b) voluntary import restraint c) quota rent d) import quota e) import duty

a: A common hybrid of a quota and a tariff is known as a tariff rate quota. Under a tariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota.

The tiny South Pacific island country of Maroji produces a lot of milk and milk-based products. To protect this industry, Maroji mandates that only designated trading companies can import cheese, each of which is allocated the right to import a maximum number of pounds of cheese each year. By doing this, Maroji controls the amount of imported cheese. This is an example of a(n) a) import quota. b) subsidy. c) local content requirements. d) import duty. e) import tariff.

a: An import quota is a direct restriction on the quantity of some good that may be imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms. Import quotas benefit domestic producers by limiting import competition.

Which of the following groups would benefit the most from receiving subsidies? a) domestic producers b) governments c) importers d) foreign competitors e) international organizations such as the WTO

a: The main gains from subsidies accrue to domestic producers, whose international competitiveness is increased as a result. Advocates of strategic trade policy favor subsidies to help domestic firms achieve a dominant position in those industries in which economies of scale are important and the world market is not large enough to profitably support more than a few firms.

Which of the following factors is taken into consideration by David Ricardo's theory of comparative advantage in order to explain the pattern of international trade? a. international differences in labor productivity b. proportions in which the factors of production are available c. the ability of firms to capture first-mover advantages d. absolute advantage of a country with reference to natural resources e. ability of firms to cope with late-mover disadvantages

a: The theories of Smith, Ricardo, and Heckscher-Ohlin help to explain the pattern of international trade that we observe in the world economy. David Ricardo's theory of comparative advantage offers an explanation in terms of international differences in labor productivity.

A firm will favor FDI over exporting as an entry strategy when: a) the transportation costs or trade barriers are high. b) the firm wants to occupy a position that falls inside the efficiency frontier. c) the costs of establishing production facilities are high. d) there are problems associated with doing business in a different culture. e) the products involved have a high value-to-weight ratio.

a: The viability of an exporting strategy is often constrained by transportation costs and trade barriers. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. The desire to reduce the threat that trade barriers might be imposed is enough to justify foreign direct investment as an alternative to exporting.

Which of the following is most likely to involve establishment of a new operation in a foreign country? a) greenfield investment b) consolidation c) mass customization d) acquisition e) licensing agreement

a: this & acquiring or merging with an existing firm in the foreign country are the 2 main forms of FDI

Ethics

accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization

Naïve Immoralist

actions are ethically justified if everyone else is doing the same thing

Managerial Implications

actions managers can take to ensure ethics

Host Country Costs of FDI

adverse effects on competition- MNE could draw on funds generated elsewhere to subsidize costs in local market/drive out local companies, MNE can have too much power, adverse effects on the balance of payments- capital outflows repatriate earnings to parent company or debit on current account of host country's balance of payments associated with imports of input products by foreign subsidiary , national sovereignty and autonomy- loss of economic independence

John Rawl

all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage

Righteous Moralist

an MNEs home country standards of ethics are the most appropriate ones to follow in foreign countries

moral intent

an authority's degree of commitment to the ethical/moral course of action

A zero-sum game is a situation in which:

an economic gain by one country results in an economic loss by another.

Limitations of Exporting

an exporting strategy can be limited by transportation costs and trade barriers When transportation costs are high, exporting can be unprofitable

infant industry argument

an industry should be protected until it can develop and be viable and competitive internationally

location-specific advantages

arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets

Product Life Cycle Theory

as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade may not be as relevant today- many products are introduced simultaneously into many markets

In a business setting, managers sometimes do not realize they are behaving unethically, primarily because they a) ignore business variables such as cost, delivery, and product quality. b) fail to take into account the ethical dimension of business decisions. c) abide by the concept of noblesse oblige. d) believe that social investments made by their companies can always compensate for their unethical actions. e) have a strong system of personal ethics.

b

The process of ethical decision-making or ethical algorithm typically begins with a) auditing a decision to check for its consistency with ethical principles. b) identifying which stakeholders a decision would affect and in what ways. c) reviewing a decision to check for its consistency with Rawls's veil of ignorance. d) judging the ethics of the proposed strategic decision. e) managers establishing a moral intent.

b

Which of the following groups benefits the most from the imposition of tariffs? a) exporters and importers b) domestic producers c) consumers d) foreign producers e) international bodies such as WTO

b

Which of the following is in a country's best interests, according to the main tenet of mercantilism? a. importing less specialized goods rather than attempting to make them at home b. maintaining a trade surplus c. importing products even if they are efficiently produced at home d. importing products from developing rather than developed countries e. minimizing exports and maximizing imports

b

a multinational corporation that adopts the naive immoralist approach to ethics will most likely a) demonstrate moral imperialism. b) believe that, in a host country, any action is ethically justified if everyone is doing it. c) lack cultural sensitivity. d) be highly ethical in its business in a host nation irrespective of the ethical standards followed by other corporations in that host nation. e) demonstrate a high degree of ethnocentrism.

b

Which of the following is a straw man approach to business ethics? a) Just distribution b) Friedman doctrine c) Utilitarian philosophy d) Sullivan's principles e) Kantian ethics

b: Straw men approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise. Four such approaches to business ethics are commonly discussed in the literature. These approaches can be characterized as the Friedman doctrine, cultural relativism, the righteous moralist, and the naive immoralist.

Which of the following groups benefits the most from the imposition of tariffs? a) international bodies such as WTO b) domestic producers c) consumers d) foreign producers e) exporters and importers

b: The important thing to understand about an import tariff is who suffers and who gains. The government gains, because the tariff increases government revenues. Domestic producers gain, because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods. Consumers lose because they must pay more for certain imports.

A righteous moralist is most likely to claim that a) a firm should adopt the ethics of the culture in which it is operating b) people should be treated as ends and never purely as means to the ends of others. c) a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. d) human beings have fundamental rights and privileges that transcend national boundaries and cultures. e) inequalities are justified if they benefit the position of the least-advantaged person.

c

According to Krugman, the ideal way for a country to respond, when the foreign competitors of its companies are already being supported by government subsidies, is probably not to engage in retaliatory action, but to a) provide high levels of subsidies to the oldest industry in the country. b) provide a subsidy to a new industry where the foreign competitors have not had the benefit of such strategic trade policies. c) help establish rules that minimize the use of trade-distorting subsidies d) adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry. e) use a combination of home-market protection and export-promoting subsidies.

c

New Zealand is the largest exporter of dairy products in the United States. The United States is the world's third-largest supplier of machinery and exports heavy machinery to New Zealand. What explains the trade equation between New Zealand and the United States? a) Countries are simultaneously encouraging exports and discouraging imports. b) First entrants to the industry ensure their nations have the first-mover advantages. c) Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. d) Gold and silver are the mainstays of national wealth and essential to vigorous commerce. e) Tariff barriers determine the flow of goods and services between nations.

c

Once it undertakes FDI, a firm becomes a(n): a) national corporation. b) offshore company. c) multinational enterprise. d) outsourcer. e) retail chain.

c

The market imperfections approach seeks to explain: a) the disadvantages associated with the adoption of a completely free market view. b) the pattern of sale of products from one country to another. c) the preference for FDI over licensing by firms as a strategy to enter foreign markets. d) the benefits of exercising protectionism coupled with partial adoption of free-market approach. e) why different nations import goods from other countries even when they are more capable of producing them efficiently.

c

The term global commons refers to: a) common laws to be obeyed by companies involved in international business. b) social norms and values that are common across the globe. c) natural resources from which everyone benefits but for which no one is specifically responsible. d) arrangements, like common currencies, between countries to simplify international trading. e) a group of nations that share similar ideologies on globalization.

c

Which of the following is most likely to be considered unethical? a) Galaxy Inc. ceased its operations in some developing nations on account of low employment standards in those countries. b) Unicorn Inc. sells its medicines at a lower price in less developed nations. c) Orion Inc. sends its waste products for disposal to a developing nation because the pollution control laws in its home country are more strict than those in the developing nation. d) Centaur Inc. had to close down a production plant as the local management there had employed child labor. e) Capricorn Inc., a multinational company operating in developing nations, pays its labor 30 percent more than what the local competitors pay.

c

Davis is the manager of a pharmaceutical manufacturing facility in a developing country. The manufacturing unit does not meet the acceptable standards of the manufacturing facility in the home nation. He knows that demanding a better manufacturing unit will raise the cost of the drugs mainly exported to other less developed countries, and hence its price. But he also realizes that by not demanding a better unit, the employees are prone to serious health issues. Davis is facing: a) a role conflict. b) a negativity effect. c) an ethical dilemma. d) a positivity offset. e) the tragedy of the commons.

c: Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable. Doing the right thing, or even knowing what the right thing might be, is often far from easy.

The utilitarian philosophy for business ethics primarily focuses on a) ensuring justified treatment of any minority. b) maximizing business profits by increasing employee productivity. c) weighing the benefits, costs, and risks associated with a course of action. d) applying home-country standards of ethics in foreign countries. e) adopting the ethics of the culture in which a business operates.

c: Utilitarianism recognizes that actions have multiple consequences, some of which are good in a social sense and some of which are harmful. As a philosophy for business ethics, it focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs.

Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of the total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because they: a) control much of the operating structure of the WTO which governs international trade. b) pursued a policy of blocking or restricting FDI inflow into their own economies. c) provided subsidies for their domestic firms to protect them from foreign competition. d) were the most developed countries postwar and home to the largest and best-capitalized enterprises. e) were the governing body of the International Monetary Fund.

d

In the modern world, corporations can worsen the global tragedy of the commons by a) adopting costly pollution controls and in turn losing out on economic advantages. b) adhering to civil laws rather than common laws in case of any environmental violations. c) imposing stringent environmental standards on developing countries. d) moving production to locations where they are free to pump pollutants into the environment. e) creating common environmental and employment standards for all nations.

d

The United States has been an attractive target for FDI partly because of its a) abundance of cheap and skilled labor. b) low corporate tax rates. c) commitment to environmental issues. d) stable and dynamic economy. e) high trade barriers.

d

Which of the following specifies that U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage? a) Hawley-Burton Act b) Volcker Rule c) Helms-Burton Act d) Buy America Act e) Export Administration Act

d: A little-known law in the United States, the Buy America Act, specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. The law specifies a product as "American" if 51 percent of the materials by value are produced domestically.

Decision Making Process

decisions based on economic logic: if the manager can answer yes to the following, then it is ethical: - does my decision fall within accepted values of standards that are applied in organizational environment? - am I willing to see decision communicated to all stakeholders affected - would my friends/family approve

Licensing

granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit that the foreign entity sells

speed money

includes more serious bribes to influence a result

Host Country Benefits of FDI

increases level of competition in market, drives down prices, improves welfare of consumers, FDI in the form of Greenfield investment, product innovation, economic growth

Free Market View

international production should be distributed among countries according to the theory of comparative advantage MNEs increase overall efficiency of world economy

ethical dilemma

situations in which none of the available alternatives seems ethically acceptable

absolute advantage

the ability to make something using fewer resources than other producers use

Flow of FDI

the amount of FDI undertaken over a given time period

Utilitarian Approach

the moral worth of actions or practices is determined by their consequences

diminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

Tragedy of the Commons

the tendency of a shared, limited resource to become depleted because people act from self-interest for short-term gain

Stock of FDI

the total accumulated value of foreign-owned assets at a given time

organizational culture

the values and norms shape the culture of a firm and that culture influences decision making

Corporate Social Responsibility

there should be a presumption in favor of decisions that have both good economic and good social consequences

economies of scale

unit cost reductions associated with a large scale of output