CHAPTER 1 Globalization and International Business 1. Which of the following best defines international business? a. It includes all economic flows between two or more countries. b. It includes all private economic flows between two or more countries. c. It includes all business transactions involving two or more countries, whether the transactions are conducted by private or governmental organizations. d. It includes all business transactions in countries other than your home country. Answer: c. It includes all business transactions involving two or more countries, whether the transactions are conducted by private or governmental organizations. 2. The deepening relationship and broadening interdependence among people from different parts of the world is known as _____. a. globalization b. off-shoring c. economic geography d. outsourcing Answer: a. globalization 3. In the comparison of private and governmental conduct of international business, one can say that _____. a. the objectives are the same b. the private objective is profit; whereas, governments may or may not have profit as the objective c. governments operate strictly for nonprofit motives, but private organizations seek profits d. governments undertake international business for more long-term objectives than private companies Answer: b. the private objective is profit; whereas, governments may or may not have profit as the objective 4. All commercial transactions between two or more countries are known as _____. a. foreign trade b. the balance of payments c. globalization d. international business Answer: d. international business 5. Which of the following is not a reason to study international business? a. All business except that outside the territory of any nation is international. b. International business comprises a large and growing portion of the world's total business. c. The conditions within foreign countries affect the best way to conduct business there. d. A company operating internationally may engage in modes of business that differ from those it is accustomed to domestically. Answer: a. All business except that outside the territory of any nation is international. 6. Even if you never have direct international responsibilities, understanding some of the complexities of international business may be useful to you because _____. a. an understanding is essential for most managerial job interviews b. it may help you make more informed decisions in support of government policy c. you will need to supervise and evaluate subordinates who have international responsibilities d. it teaches you how to evade taxes in your country Answer: b. it may help you make more informed decisions in support of government policy 7. Today, we can say that because global events and competition affect almost all companies, you need to _____. a. pressure your government to become more independent of other countries b. take a job with a company headquartered in another country c. find employment with a company that does not compete against international companies d. gain some understanding of international business Answer: d. gain some understanding of international business 8. In terms of international business, we can say that _____. a. the best way to conduct business is the same from one country to another b. global competition affects large companies but not small ones c. most companies, regardless of industry, depend either on foreign markets and supplies or compete against companies that do d. government regulation of international business has little effect on companies' profits Answer: c. most companies, regardless of industry, depend either on foreign markets and supplies or compete against companies that do 9. Most of the world's goods and services are sold _____. a. in international markets b. in the countries where they are produced c. through exports of goods and services d. through production abroad by foreign investors Answer: b. in the countries where they are produced 10. According to the A.T. Kearny/Foreign Policy Globalization Index, which ranked countries on their extent of globalization across four dimensions (economic, technological, personal contact, and political), countries _____. a. tend to be ranked similarly on all four dimensions b. are similarly globalized c. that are large in land mass and population are more globalized than small countries d. sometimes rank high on one dimension and low on another Answer: d. sometimes rank high on one dimension and low on another 11. A difficulty in comparing the amount of business globalization over time is that _____. a. countries differ in their extent of globalization b. companies adopt different operating forms c. shifting borders obsolesce figures on what is international d. many private companies were once government owned Answer: c. shifting borders obsolesce figures on what is international 12. An indication of the increased globalization of business since the end of World War II is that _____. a. world trade has grown more rapidly than world production in almost every year b. most countries now depend on foreign output for more than half their consumption c. most countries now depend on foreign markets for more than half their sales d. countries have had to increase their import restrictions to counter the rising tide of imports Answer: a. world trade has grown more rapidly than world production in almost every year 13. Which of the following has been a major force behind recent globalization? a. lower tax rates b. the slower rise of prices in general than prices of transportation and communications c. greater prohibitions on the placement of capital in countries with secretive bank-holding laws d. cumulative institutional developments that aid foreign trade and investment Answer: d. cumulative institutional developments that aid foreign trade and investment 14. Cumulative institutional developments by business and government have aided the expansion of international business by _____. a. providing a universally agreed upon language for conducting international transactions b. removing immigration restrictions so that international firms can move personnel wherever they are most needed c. developing means to ease the flow of goods among countries d. assisting in the development of MNEs from low-income countries Answer: c. developing means to ease the flow of goods among countries 15. International business has recently grown at such a rapid pace because of _____. a. development of institutions to support and facilitate trade b. stricter government policies on cross-border movements c. decreasing global competition d. increased concerns about terrorism Answer: a. development of institutions to support and facilitate trade 16. Which of the following has influenced consumers to demand access to foreign-made products? a. Less global affluence has caused consumers to seek out lower-priced products from abroad. b. Consumers have become more efficient in using the Internet to compare prices worldwide. c. Fearing that their governments will enact restrictive policies on imports, final consumers are stocking up on foreign products before the restrictions are put in place. d. Expectations of rising prices of foreign products have caused consumers to seek foreign products before their prices become prohibitive. Answer: b. Consumers have become more efficient in using the Internet to compare prices worldwide. 17. How have improvements in communications affected managers' control of foreign operations? a. More control of decision-making has shifted from headquarters to foreign locations. b. Headquarters is better able to control foreign operations. c. Headquarters' managers no longer have to travel abroad to control foreign operations. d. Managers now have to choose between foreign and domestically owned communications services. Answer: b. Headquarters is better able to control foreign operations. 18. The recent expansion of technology has contributed to the growth in international business by _____. a. creating new products that are important in world trade b. speeding the clearance of goods through customs c. counting international transactions that heretofore did not appear in national statistics d. enabling governments to increase tax collections so as to develop trade-facilitating services Answer: a. creating new products that are important in world trade 19. Which of the following is a result of the recent expansion of transportation technology? a. Transportation costs have risen more rapidly than costs in general. b. Governments have increased restrictions to prevent competition among carriers from different countries. c. More countries are competing for sales in a given market. d. Companies have lessened their dependence on producing components in multiple countries. Answer: c. More countries are competing for sales in a given market. 20. All the following statements are true about the increase and expansion of technology except _____. a. it has eased the ability of headquarters to interact with their foreign operations b. small companies can more easily access global customers and suppliers c. companies from more countries can compete for sales in given markets d. most analysts agree that the development of new products will decelerate in the future Answer: d. most analysts agree that the development of new products will decelerate in the future 21. Which of the following is a reason for recent governmental decreases in restrictions on cross-border trade or resource movements? a. Governments hope to induce other nations to reduce their barriers in return. b. Governments believe this will decrease the need to make their own companies more innovative. c. Consumers increasingly want to buy goods and services produced in their own countries, thus making restrictions less necessary. d. Most countries face shortages of workers, thus by allowing entry of foreign workers they can produce more. Answer: a. Governments hope to induce other nations to reduce their barriers in return. 22. Which of the following is a reason for recent governmental decreases in restrictions on cross-border trade or resource movements? a. Governments believe that this will decrease the need to make their own companies more innovative. b. Consumers increasingly want to buy goods and services produced in their own countries, thus making restrictions less necessary. c. Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices. d. Most countries face shortages of workers, thus by allowing entry of foreign workers they can produce more. Answer: c. Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices. 23. Which of the following is a reason for recent governmental decreases in restrictions on cross-border trade or resource movements? a. Most countries face shortages of workers, thus by allowing entry of foreign workers they can produce more. b. Governments believe that this will decrease the need to make their own companies more innovative. c. Consumers increasingly want to buy goods and services produced in their own countries, thus making restrictions less necessary. d. Governments believe that domestic producers will become more efficient as a result of foreign competition. Answer: d. Governments believe that domestic producers will become more efficient as a result of foreign competition. 24. Because their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices, most governments have _____. a. placed restrictions on most exports so that more supply is available to their citizens b. liberalized cross-border trade and resource movements c. reduced taxes on consumption d. signed cross-national agreements to subsidize international transportation Answer: b. liberalized cross-border trade and resource movements 25. Why do firms increasingly face global competition? a. There are fewer wars and insurrections to interrupt business than in any other period of history. b. More countries now publish balance of payments statistics. c. Advancements in transport and communications make companies more aware of business developments and opportunities elsewhere. d. Social science advancements have helped break down nationalism. Answer: c. Advancements in transport and communications make companies more aware of business developments and opportunities elsewhere. 26. A company starting out with a global focus, usually because of the international experience of its founders, is called a _____. a. multinational enterprise b. transnational company c. strategically allianced company d. born-global company Answer: d. born-global company 27. Potential pressures of increased foreign competition can persuade companies to _____. a. use more domestic inputs in their production b. expand their business into international markets c. seek fewer barriers to imports d. raise prices to improve the quality-image of their products Answer: b. expand their business into international markets 28. When a company successfully responds to foreign production and market opportunities, _____. a. other companies likely emulate the successful practices b. it likely has a long-term advantage over competitors c. it downsizes its domestic operations d. its home government likely raises taxes on the company Answer: a. other companies likely emulate the successful practices 29. Which of the following is a reason why governments cooperate through treaties, agreements, and consultation? a. to gain a division of labor, such as by performing research and development in one country and production in another b. to be in compliance with United Nations' requirements c. to assure that all countries get an equitable share of taxes from multinational enterprises d. to deal with areas of concern that lie outside the territory of all countries Answer: d. to deal with areas of concern that lie outside the territory of all countries 30. In terms of nonterritorial areas (noncoastal areas of the oceans, outer space, Antarctica), there _____. a. is little short-term business potential b. are a number of treaties that specify their business use c. is a consensus that commercial benefits from exploitation should be shared by all countries d. is a consensus that companies technologically able to exploit opportunities should receive the benefits Answer: b. are a number of treaties that specify their business use 31. Governments have signed treaties to protect foreign-owned property rights, such as investments and patents. A reason for doing so is to _____. a. gain reciprocal advantages b. attack problems jointly c. deal with areas of concern outside the territory of any country d. prevent adverse spillover from one country to another Answer: a. gain reciprocal advantages 32. Which of the following is a reason why governments cooperate through treaties, agreements, and consultation? a. to gain a division of labor, such as by performing research and development in one country and production in another b. to be in compliance with United Nations' requirements c. to attack problems jointly that one country acting alone cannot solve d. to assure that all countries get an equitable share of taxes from multinational enterprises Answer: c. to attack problems jointly that one country acting alone cannot solve 33. All of the following are major criticisms of globalization except _____. a. countries lose control to act in their own best interest b. globalization brings economic growth that uses too many nonrenewable resources and despoils the environment c. globalization creates winners and losers, thus leading to greater inequality d. globalization increases the cost of production Answer: d. globalization increases the cost of production 34. Although critics complain that globalization causes the use of too many nonrenewable resources while despoiling the environment, those in favor of globalization counter that _____. a. globalization speeds the international dissemination of technologies that save natural resources and are less polluting b. economic growth created by globalization is largely in services, which neither use too many nonrenewable resources nor despoil the environment c. the biggest problem of environmental despoliation occurs in the countries that are least globalized d. pollution and toxic runoff problems do not increase with economic growth Answer: a. globalization speeds the international dissemination of technologies that save natural resources and are less polluting 35. Although globalization may bring economic growth, critics nevertheless contend that _____. a. the growth is not fast enough b. the inequality of gains puts some people in a relatively worse economic situation c. this growth is mainly for the future, thus ignoring present economic growth needs d. we should all embrace an attitude of antimaterialism Answer: b. the inequality of gains puts some people in a relatively worse economic situation 36. Curtailment of logging in the Amazon region is generally viewed as beneficial for the planet as a whole, nevertheless Brazil's president allowed the resumption of logging _____. a. because of acute lumber shortages in other countries b. in protest over the loss of the best Brazilian soccer players to European teams c. because of protests by Brazilian workers who wanted logging jobs d. because of pressures to pay the country's external debt Answer: c. because of protests by Brazilian workers who wanted logging jobs 37. The process of shifting production from a domestic to a foreign location is known as _____. a. off-shoring b. out-sourcing c. service imports d. a turnkey operation Answer: a. off-shoring 38. The major argument companies use to support off-shoring is that it _____. a. helps poor countries improve their economies b. saves costs c. reduces pollution. d. reduces home-country unemployment Answer: b. saves costs 39. Proponents of off-shoring claim all of the following except _____. a. the percentage of the world population living in poverty fell drastically between 1980 and 2000 b. off-shoring increases the number of high-value jobs in the home countries of off-shoring companies c. off-shoring is fundamentally different from the introduction of labor-saving technologies d. economic growth of poor countries increases those countries' purchase of goods from rich countries Answer: c. off-shoring is fundamentally different from the introduction of labor-saving technologies 40. Critics of off-shoring claim all of the following except _____. a. cost savings are seldom passed on to final consumers b. off-shoring exchanges good jobs for bad jobs c. the number of people living in poverty increased substantially in the last decade of the twentieth century d. off-shoring reduces the incomes of people in poor countries Answer: d. off-shoring reduces the incomes of people in poor countries 41. Companies may increase profits by seeking foreign sales, provided that _____. a. they can obtain resources abroad b. the costs to make the sales do not increase disproportionately c. they can off-shore their production d. they can reach the foreign market by exporting rather than making a foreign investment Answer: b. the costs to make the sales do not increase disproportionately 42. An advantage that an international company may have over a purely domestic one is that it can _____. a. save transportation costs b. more easily control its operating units c. acquire cheaper resources to use in production d. deal with a less complex external environment Answer: c. acquire cheaper resources to use in production 43. The televising of sports competition to viewers in multiple countries is an example of an objective of _____. a. acquiring scarce resources b. minimizing risk c. off-shoring d. sales expansion Answer: d. sales expansion 44. By operating internationally a company may reduce its risks because it _____. a. takes advantage of business-cycle differences among countries b. can buy competitive risk insurance not available in its home country c. prevents competitors from operating in the countries it has entered d. operates in less competitive environments than those at home Answer: a. takes advantage of business-cycle differences among countries 45. An example of a Mexican merchandise export would be a shirt made ______ and sold _______. a. in the United States by a Mexican company; in the United States b. in the United States by a Mexican company; outside the United States c. in Mexico by either a Mexican or a U.S. company; outside Mexico d. in Mexico by either a Mexican or a U.S. company; in Mexico Answer: c. in Mexico by either a Mexican or a U.S. company; outside Mexico 46. An example of a Japanese service export would be a visit by a _____. a. Japanese citizen to Disneyland in the United States b. Japanese citizen to the Japan Pavilion at Epcot Center in the United States c. U.S. citizen to the Japan Pavilion at Epcot Center in the United States d. U.S. citizen to Tokyo Disneyland in Japan Answer: d. U.S. citizen to Tokyo Disneyland in Japan 47. Visible exports and imports are _____. a. merchandise imports and exports b. the sum total of goods and services traded c. international transactions paid for in money rather than barter d. legal trade rather than products smuggled internationally Answer: a. merchandise imports and exports 48. Fees from the use of assets abroad, such as trademarks or patents, would be example of _____. a. merchandise trade b. service trade c. visible trade d. a joint venture Answer: b. service trade 49. A direct investment occurs _____. a. only when a company owns more than 50 percent of a foreign firm b. when a company controls a company abroad c. when foreign ownership is in private rather than government securities d. by buying a foreign firm rather than establishing a new company abroad Answer: b. when a company controls a company abroad 50. When two or more organizations share in ownership of a foreign direct investment, the operation is called a _____. a. portfolio investment b. transnational corporation c. turnkey operation d. joint venture Answer: d. joint venture 51. When a company owns foreign bonds or bills, this is an example of a _____. a. portfolio investment b. transnational corporation c. direct investment d. joint venture Answer: a. portfolio investment 52. Foreign direct investment _____. a. is owned only by large companies b. includes the ownership of foreign bonds c. includes partially owned foreign operations as long as the owner has controlling interest d. in terms of value, is mainly owned by small companies Answer: c. includes partially owned foreign operations as long as the owner has controlling interest 53. A multinational enterprise (MNE) is one that is _____. a. among the world's 500 largest companies b. owned and managed by companies whose headquarters are split among different countries c. licensed to operate by the United Nations Transnational Center d. willing to consider market and production locations anywhere in the world Answer: d. willing to consider market and production locations anywhere in the world 54. A company that takes a global approach to foreign markets and production is called a _____. a. multinational enterprise b. strategic alliance enterprise c. collaborative participant d. multiglobal company Answer: a. multinational enterprise 55. Although the term multinational enterprise (MNE) is sometimes defined differently, most writers today define it to include _____. a. only companies with production facilities in a minimum of five different countries b. only companies among the world's 100 largest c. any company that has operations in more than one country d. any company that competes with companies from foreign countries Answer: c. any company that has operations in more than one country 56. The term used by the United Nations as a synonym for multinational enterprise is _____. a. multinational corporation b. transnational company c. stateless company d. global enterprise Answer: b. transnational company 57. Why do international business managers need a working knowledge of their physical and societal environments? a. The aggregate of conditions outside the company influences its success. b. Governments require that foreign companies do business the way it is customarily carried out in their countries. c. This knowledge is required in order to obtain visas to work in many countries. d. This knowledge explains why the world's natural resources are located where they are. Answer: a. The aggregate of conditions outside the company influences its success. 58. In Japan, baseball games may end in a tie, but in the United States, teams play until one wins. This difference is most likely due to _____ factors. a. economic b. geographic c. behavioral d. legal Answer: c. behavioral 59. The uneven distribution of resources among countries results in _____. a. uneven enforcement of laws b. different capabilities to produce given products c. the determination of different economic levels d. the need for treaties to assure the sharing of them Answer: b. different capabilities to produce given products 60. Companies need to determine not only the laws affecting business where they plan to operate, but also the _____of those laws. a. origin b. ethical rationale c. legislating bodies d. degree of enforcement Answer: d. degree of enforcement 61. The competitive environment that companies face abroad is generally _____. a. more intense than they face in their domestic markets b. very similar among countries for a given industry c. varied by industry and country d. such that companies use the same operating methods in each country Answer: c. varied by industry and country 62. A company from a small country generally _____ than a company from a large country. a. must pay a higher tax rate b. has to become more dependent on foreign sales c. faces more competitors in its domestic market d. depends more on service exports Answer: b. has to become more dependent on foreign sales 63. Company A produces a product aimed at low- and middle-income consumers. Company B produces a product aimed at a niche of very high–income consumers. Most likely, A will be more interested than B in locating production where _____. a. business cycles are not very correlated with those in its home country b. the probability of natural disasters is low c. franchise operations are very popular d. labor costs are low Answer: d. labor costs are low 64. When companies face the same competitors in almost all countries where they operate, _____. a. what they learn about each other in one country is useful in predicting the other's strategies and actions elsewhere b. the market leader is the same everywhere c. there is less need to understand the physical and societal factors of each country d. they are more apt to enter joint ventures with each other Answer: a. what they learn about each other in one country is useful in predicting the other's strategies and actions elsewhere 65. The view that globalization is inevitable is primarily based on the belief that _____. a. international organizations will replace nation states b. protesters against globalization represent only a very small minority c. people want more global homogeneity of cultures d. technical advances in transportation and communications are too pervasive to stop globalization's growth Answer: d. technical advances in transportation and communications are too pervasive to stop globalization's growth 66. The belief that most international business in the future will be regional rather than global is based partly on the fact that _____. a. many treaties to remove trade barriers have been enacted on a regional basis b. transportation of most goods is impractical over great distances c. most people in adjacent countries understand each other's languages d. countries within a region share more similar political beliefs Answer: a. many treaties to remove trade barriers have been enacted on a regional basis 67. All of the following are reasons given for the future slowing or collapse of globalization except _____. a. antiglobalization interests have been successful in electing parties that are adverse to freer movement of trade or people b. technological advancements will slow in the future c. some major countries have either ignored international treaties or have refused to sign them d. neither institutions nor people can handle the complexities of a truly interconnected world Answer: b. technological advancements will slow in the future 68. Some observers feel that people working within international institutions cannot adequately handle the complexities of an interconnected world. Based on this, they premise that _____. a. international business will grow primarily on a regional basis b. globalization is nevertheless inevitable c. globalization will slow in the future d. private companies will replace international organizations in running the world's economy. Answer: c. globalization will slow in the future 69. International business includes all commercial transactions between two or more countries. Answer: True 70. All commercial transactions between two or more countries are known as globalization. Answer: False 71. Gaining some understanding of international business is important because global events and competitions affect almost all companies. Answer: True 72. Understanding some of the complexities of international business help you to make more informed decisions in support of government policies. Answer: True 73. It is difficult to compare globalization of business over time because shifting borders obsolesce figures on what is international. Answer: True 74. World production has grown more rapidly than world trade in almost every year since World War II. Answer: False 75. The lowering of tax rates around the world has been a major force behind recent globalization. Answer: False 76. Globalization of business has been stimulated by consumers' greater efficiency in using the Internet to compare prices worldwide. Answer: True 77. The recent expansion of technology has contributed to the growth in international business by creating new products that are important in world trade. Answer: True 78. As a result of expansions in transportation technology, more countries can compete for sales in a given market. Answer: True 79. Import restrictions have been becoming less important because consumers increasingly want to buy goods and services produced in their own countries. Answer: False 80. Countries have reduced import trade barriers because they believe their domestic producers will become more efficient as a result of foreign competition. Answer: True 81. Firms increasingly face global competition because more countries now publish balance of payments statistics. Answer: False 82. A born-global company is one that starts out with a global focus. Answer: True 83. Governments sometimes cooperate to deal with areas of concern that lie outside the territory of all countries. Answer: True 84. Governments cooperate through treaties, agreements, and consultation to assure that they all get an equitable share of taxes from multinational enterprises. Answer: False 85. A criticism of globalization is that by creating more economic growth, too many nonrenewable resources are used. Answer: True 86. People favoring globalization contend that the biggest problem of environment despoliation occurs in the countries that are least globalized. Answer: False 87. The process of shifting production to a foreign country is known as out-sourcing. Answer: False 88. The major argument companies use to support off-shoring is that it saves costs. Answer: True 89. By operating internationally a company may reduce its risks because of taking advantage of business-cycle differences among countries. Answer: True 90. The televising of sports competition to viewers in multiple countries is an example of an international objective of sales expansion. Answer: True 91. When a U.S. citizen visits Tokyo Disneyland, this is a service export for Japan. Answer: True 92. The production by a U.S. company in Canada for sale in Canada is a U.S. merchandise export. Answer: False 93. The ownership of foreign bonds is an example of a portfolio investment. Answer: True 94. A direct investment occurs when foreign ownership is in private rather than government securities. Answer: False 95. A multinational enterprise is a company that takes a global approach to foreign markets and production. Answer: True 96. Stateless company is a term used by the United Nations as a synonym for multinational enterprise. Answer: False 97. The uneven distribution of resources among countries results in different capabilities to produce given products. Answer: True 98. Managers need a working knowledge of their physical and societal environments to help them understand the aggregate of conditions outside their companies that influence their success. Answer: True 99. A company from a small country generally has to become more dependent on foreign sales than a company from a large country. Answer: True 100. When companies face the same competitors in almost all the countries where they operate, what they learn about each other in one country is useful in predicting the other's strategies and actions in other countries. Answer: True 101. The view that globalization is inevitable is primarily based on the belief that international organizations will replace nation states. Answer: False 102. The view that globalization will slow or collapse is based on the belief that technological advancements will slow in the future. Answer: False 103. In a short essay, define international business. Answer: International business is all commercial transactions—private and governmental— between two or more countries. Private companies undertake such transactions for profit; governments may or may not do the same in their transactions. These transactions include sales, investments, and transportation. 104. In a short essay, discuss why the study of international business is important to managers. Answer: A simple answer is that international business comprises a large and growing portion of the world's total business. Global events affect almost all companies. A more complex answer is that a company operating internationally will engage in modes of business, such as exporting and importing, that differ from those it is accustomed to domestically. To operate effectively, managers must understand these different modes. 105. In a short essay, list and describe the three primary reasons companies engage in international business. Answer: a. To expand sales—The number of people and the amount of their purchasing power are higher for the world as a whole than for a single country, so companies may increase their sales by reaching international markets. Ordinarily, higher sales mean higher profits, assuming each unit sold has the same markup. b. To acquire resources—Manufacturers and distributors seek out products, services, and components produced in foreign countries. They also look for foreign capital, technologies, and information they can use at home. Sometimes they do this to reduce costs. Acquiring resources may enable a company to improve its product quality and differentiate itself from competitors—in both cases, potentially increasing market share and profits. Although a company may initially use domestic resources to expand abroad, once the foreign operations are in place, the foreign earnings may then serve as resources for domestic operations. c. To minimize competitive risk—Many companies enter into international business for defensive reasons. They want to counter advantages competitors might gain in foreign markets that, in turn, could hurt them domestically. Companies harboring such a fear may enter foreign markets primarily to prevent a competitor from gaining advantages. 106. In a short essay, list and describe the factors that have led to this increased growth in international business in recent decades. Answer: a. Rapid increase in an expansion of technology—By increasing the demand for new products and services, technology has tremendous impact on international business. As the demand increases, so do the number of international business transactions. Improved communications and transportation speed up interactions and improve managers' ability to control foreign operations. b. Liberalization of cross-border movements—Although the past decrease in restrictions has been erratic, governments have lowered them because their citizens have expressed the desire for better access to a greater variety of goods and services at lower prices. They also reason that their domestic producers will become more efficient as a result of foreign competition, and they hope to induce other countries to reduce their barriers to international movements. c. Increase in global competition—The pressures of increased foreign competition can persuade a company to expand its business into international markets. Today companies can respond rapidly to many foreign sales opportunities. They can shift production quickly among countries if they're experienced in foreign markets and because they can transport goods efficiently from most places. d. Growing consumer pressures—Consumers are more savvy and have more income. They want to be able to buy the variety and low-cost products available from anywhere in the world. e. Development of supporting services—Companies and governments have developed services that ease international business. Today, producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country's currency into another's, and insurance that covers damage en route and nonpayment by the buyer. f. Changing political situations—The schism between communist and noncommunist countries is basically over as communist countries have moved toward transitioning their economies, thus trade between the two groups has increased. g. Expanded cross-national cooperation—Countries realize they can't go it alone. They cooperate to gain reciprocal advantages, to attack problems jointly, and to deal with areas outside the confines of any country. 107. In a short essay, discuss why governments have been liberalizing cross-border movements of goods, services, and resources. Answer: Generally, governments today impose fewer restrictions on cross-border movements than they did a decade or two ago. They have lowered them for the following reasons: a. Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices. b. They reason that their domestic producers will become more efficient as a result of foreign competition. c. They hope to induce other countries to reduce their barriers to international movements. 108. Give at least two examples of business and government services that ease the conduct of international business. Answer: Banks have developed efficient means for companies to receive payment for their foreign sales. Today, most producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country's currency into another's, and insurance that covers damage en route and nonpayment by the buyer. 109. In a short essay, define and give examples of merchandise and service imports and exports. Answer: a. Merchandise exports are tangible products—goods—sent out of a country. Merchandise imports are goods brought into a country. When a Chinese contractor sends toy action figures from China to Hasbro in the United States, the contractor exports and Hasbro imports. b. Service exports and imports are nonproduct international earnings. The company or individual receiving payment is making a service export. The company or individual paying is making a service import. 110. In a short essay, list and describe the various modes of international business as described in the text. Answer: a. Importing and exporting—More companies are involved in exporting and importing than in any other international mode. This is especially true of smaller companies, even though they are less likely than large companies to engage in exporting. For most countries, exporting and importing of goods are the major sources of international revenue and expenditures. b. Licensing and franchising—Licensing agreements are used when companies allow others to use their assets, such as trademarks, patents, copyrights, or expertise under contract. Franchising is a mode of business in which one party allows another party the use of a trademark that is an essential asset for the franchisee's business. c. Turnkey operations—Refers to construction, performed under contract, of facilities that are transferred to the owner when they are ready to begin operating. d. Management contracts—Refers to arrangements in which one company provides personnel to perform general or specialized management functions for another company. e. Direct and portfolio investment—A direct investment is one that gives the investor a controlling interest in a foreign company. A portfolio investment is a noncontrolling interest in a company or ownership of a loan to another party. 111. In a short essay, list and discuss the three sources of service exports and imports as described in the text. Answer: a. Tourism and transportation—International tourism and transportation are important sources of revenue for airlines, shipping companies, travel agencies, and hotels. Earnings from foreign tourism are more important for the Bahamian economy than are earnings from the export of merchandise. Similarly, the United States has in recent years earned more from foreign tourism than from its exports of agricultural goods. b. Performance of services—Some services, such as banking, insurance, rentals, engineering, and management services, net companies earnings in the form of fees. On an international level, for example, companies pay fees for engineering services that are often handled through turnkey operations. Companies also pay fees for management contracts. c. Use of assets—When companies allow others to use their assets, such as trademarks, patents, copyrights, or expertise under contracts, they receive earnings called royalties. Dividends and interest paid on foreign investments are also treated as service exports and imports because they represent the use of assets. 112. In a short essay, discuss how companies benefit from foreign direct investment (FDI). Answer: Companies may choose FDI as a mode to access certain resources or reach a market. Today, about 61,000 companies worldwide have FDIs that encompass every type of business function—extracting raw materials from the earth, growing crops, manufacturing products or components, selling output, and providing various services. Many small firms maintain their sales offices abroad to complement their export efforts, which are FDI along with the real estate they own abroad. 113. In a short essay, define a multinational enterprise. Answer: The multinational enterprise (MNE) is a company that takes a global approach to foreign markets and production. It is willing to consider market and production locations anywhere in the world. 114. In a short essay, discuss a company's physical and societal environments. Why should companies understand them when engaging in international business? Answer: To operate within a company's external environment, its managers should have, in addition to knowledge of business operations, a working knowledge of the basic social sciences: political science, law, anthropology, sociology, psychology, economics, and geography. Politics help shape business worldwide because political leaders control whether and how international business takes place. Domestic and international law determine largely what the managers of a company operating internationally can do. The related sciences of anthropology, sociology, and psychology describe, in part, people's social and mental development. Economics explains, among other concepts, why countries exchange goods and service with each other. Managers who know geography can better determine the location, quantity, quality, and availability of the world's resources, as well as the best means to exploit them. 115. The external environment is important in the planning strategy, especially in the international arena. In a short essay, list and describe the various factors that comprise the external environment Answer: a. Physical factors—Managers who know geography can better determine the location, quantity, quality, and availability of the world's resources, as well as the best means to exploit them. b. Societal factors—Includes a country's politics, law, culture, and economy. c. Competitive factors—Includes the number and strength of suppliers, customers, and rival firms. 116. To operate within a company's external environment, its managers should have, in addition to knowledge of business operations, a working knowledge of the basic social sciences. In a short essay, list and discuss the various social sciences that are discussed in the text. Answer: a. Political science—Politics helps shape business worldwide because the political leaders control whether and how international business takes place. Domestic and international law largely determine what the managers of a company operating internationally can do. Domestic law includes regulations in both the home and host countries on such matters as taxation, employment, and foreign exchange transactions. International law in the form of legal agreements between two countries governs how both tax the earnings. b. By studying anthropology, sociology, and psychology, managers can better understand societal values, attitudes, and beliefs concerning themselves and others. This understanding can help them function better in different countries. c. Economics explains, among other concepts, why countries exchange goods and services with each other, why capital and people travel among countries in the course of business, and why one country's currency has a certain value compared to another's. By studying economics, managers can better understand why, where, and when one country can produce goods or services less expensively than another can. d. Managers who know geography can better determine the location, quantity, quality, and availability of the world's resources, as well as the best means to exploit them. The uneven distribution of resources results in different products and services being produced or offered in different parts of the world. Geographical barriers such as high mountains, vast deserts, and inhospitable jungles affect communications and distribution channels for companies in many countries. Test Bank for International Business: Environments and Operations John D. Daniels, Lee H. Radebaugh, Daniel P. Sullivan 9780131869424, 9780201846188, 9780130308016, 9780201566260, 9780201107135, 9780132668668
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