CHAPTER 5 Globalization and Society 1. Because of the relatively large size of MNEs in terms of revenues, _____. a. they have considerable power when negotiating business arrangements with governments b. they can influence foreign government actions as long as their operations in the foreign country are through FDI instead of exporting c. no single country is important for business purposes d. pressure groups in both home and host countries are not able to develop policies to restrict the power of the MNEs Answer: a. they have considerable power when negotiating business arrangements with governments 2. Which of the following statements reflects the impact of MNEs on host countries? a. Because of the large size of MNEs in terms of revenues, host countries do not have the power to influence their policies. b. FDI seems to have the greatest impact on host countries, although other forms of doing business abroad can also have an influence. c. Although a few MNEs have large revenues, their revenues are not significant compared with the GNI of most countries. d. Local pressure groups have given up devising policies to restrict MNE movements and are more interested in how to let them do what is necessary to be profitable. Answer: b. FDI seems to have the greatest impact on host countries, although other forms of doing business abroad can also have an influence. 3. A major concern about FDI is that _____. a. executives of MNEs rarely deal directly with heads of state when negotiating terms under which their companies may operate b. the sheer size of MNEs does not affect their negotiating power c. the number of MNEs will decrease in the future, causing host countries to gain more revenue d. the global orientation of MNEs might make them insensitive to national interests and concerns Answer: d. the global orientation of MNEs might make them insensitive to national interests and concerns 4. Which of the following statements is true regarding MNEs? a. Because most MNEs are so large, their power in negotiations with foreign governments is unlimited. b. MNEs are the only forms of business that cause problems in host countries. c. MNEs have their greatest impact on other countries when they engage in FDI. d. Government policies usually restrict only FDI by MNEs. Answer: c. MNEs have their greatest impact on other countries when they engage in FDI. 5. To survive, a company must ultimately satisfy which of the following stakeholder groups? a. employees b. family members c. competitors d. advertisers Answer: a. employees 6. Which of the following groups want additional sales and increased productivity, which result in higher profits and larger returns going to them? a. customers b. shareholders c. society at large d. government Answer: b. shareholders 7. Which of the following statements is true regarding MNEs' relationship with their stakeholders? a. It is possible for MNEs to satisfy the needs of each stakeholder. b. Satisfying the needs of stakeholders is easier for MNEs than for domestic companies. c. In the short term, the aims of different stakeholders usually conflict. d. If one stakeholder wins, every other stakeholder must lose. Answer: c. In the short term, the aims of different stakeholders usually conflict. 8. Which of the following statements is true regarding MNEs' relationship with their stakeholders? a. No individual stakeholder group is powerful enough to cause the demise of an MNE. b. An MNE may serve each stakeholder group equally at any given time. c. All stakeholders of an MNE have the same goals and interests. d. Satisfying the needs of each stakeholder is easier for domestic companies than for MNEs. Answer: d. Satisfying the needs of each stakeholder is easier for domestic companies than for MNEs. 9. Proponents of FDI link their actions to which of the following consequences? a. higher tax revenues b. higher imports c. political corruption d. inequitable income distribution Answer: a. higher tax revenues 10. Which of the following variables can complicate the cause-effect analysis of FDI? a. cultural values, technological developments, and governmental policies b. competitors' actions, weather patterns, and technological developments c. increases in unemployment, cultural values, and competitors' actions d. technological developments, governmental policies, and competitors' actions Answer: d. technological developments, governmental policies, and competitors' actions 11. Usually, governments should not make general assumptions about the effects of FDI because _____. a. many critics and defenders take general situations and apply them to individual companies b. it is too time-consuming and costly c. MNEs are very different in their functions and behaviors, and it is dangerous to make policies based on exceptions rather than the convention d. governments have a successful history of predicting future impacts of MNEs on the host country Answer: c. MNEs are very different in their functions and behaviors, and it is dangerous to make policies based on exceptions rather than the convention 12. Opponents of FDI link the actions of MNEs to which of the following consequences? a. political stability b. inequitable income distribution c. preservation of the environment d. societal prosperity Answer: b. inequitable income distribution 13. Which of the following assumptions explains why both the home and host countries may gain from FDI? a. Capital and technology cannot be easily transferred from one industry to another. b. Production resources are always fully employed. c. The gains in the host country are always greater than the gains in the home country. d. Restrictions on labor outflow reduce future earnings inflows from foreign investments. Answer: a. Capital and technology cannot be easily transferred from one industry to another. 14. From the standpoint of home countries, restrictions on _____ improve the availability of short-term capital. a. capital inflow b. capital outflow c. labor inflow d. labor outflow Answer: b. capital outflow 15. Why are MNEs' investments initially favorable to the host country but later more favorable to the home country? a. MNEs fear host-country restrictions on capital outflow, which increases capital inflows and discourages capital flight. b. MNEs usually remain in the host country for only four to six years before removing their operations and returning home. c. Although MNEs increase employment in the host country, they do not transfer any technology or capital to the host country. d. Nearly all foreign investors plan eventually to have their subsidiaries remit dividends back to the parent company in excess of what they sent abroad. Answer: d. Nearly all foreign investors plan eventually to have their subsidiaries remit dividends back to the parent company in excess of what they sent abroad. 16. Which of the following statements is true regarding the potential economic effects of MNEs? a. FDI brings only capital inflows to the host country. b. MNEs' investments are initially favorable to the home country and unfavorable to the host country. c. Host country restrictions on capital outflow increase confidence in the economy and encourage MNEs to invest in the host country. d. The effects of MNEs on growth and employment are not a zero-sum game—both countries may benefit. Answer: d. The effects of MNEs on growth and employment are not a zero-sum game—both countries may benefit. 17. The host country losses due to FDI include _____. a. the transfer of capital and technology b. enhanced capacity or capability of existing companies c. creation of new jobs d. displacement of local entrepreneurs Answer: d. displacement of local entrepreneurs 18. How can MNEs be a threat to local entrepreneurs? a. They make investments that local entrepreneurs otherwise would not have made. b. Consolidation of MNEs destroys the reasonable expectation of success and makes the local population feel incapable of competing. c. MNEs may serve as role models for local companies to emulate. d. They increase the competition, forcing local companies to improve performance and service. Answer: b. Consolidation of MNEs destroys the reasonable expectation of success and makes the local population feel incapable of competing. 19. In what ways can FDI benefit the host country? a. through the transfer of technology and capital and the creation of new jobs b. forcing local companies to pay higher wages to their laborers c. destroying the local entrepreneurial spirit d. exploiting natural resources and polluting the environment Answer: a. through the transfer of technology and capital and the creation of new jobs 20. In what way can MNEs harm the host-country economy? a. encouraging new local entrepreneurs b. transferring new technology to the host country c. borrowing money in the host country at higher interest rates d. preventing the host country from enjoying the economic benefits of the innovations developed by its residents Answer: d. preventing the host country from enjoying the economic benefits of the innovations developed by its residents 21. When a company faces pressures to comply with another country's norms, these pressures may include _____. a. competitive advantages for rivals who do not adapt to local norms b. accusations of meddling if a company tries not to impose its home-country practices in the foreign country c. laws that permit or even require certain practices d. its home-country government Answer: c. laws that permit or even require certain practices 22. Moral dilemmas are _____ for MNE managers than for domestic managers. a. greater b. less complex c. easier to decide d. about the same Answer: a. greater 23. A company can face pressures not to comply with host-country norms from _____. a. the host country government b. constituencies that threaten to boycott its products c. its competitors d. constituencies threatening to spread positive publicity about it Answer: b. constituencies that threaten to boycott its products 24. Why have many individuals and organizations established minimum levels of business practice based on honesty and fairness? a. to protect themselves against possible lawsuits b. to create competitive advantages c. MNEs are not required to set good examples or set the standard for responsible behavior. d. to prevent implementation of harmful practices, even though they may be legal according to host-country norms or laws Answer: d. to prevent implementation of harmful practices, even though they may be legal according to host-country norms or laws 25. _____ affirms that ethical truths depend on the groups holding them, making intervention by outsiders unethical. a. Normativism b. Dogmatism c. Existentialism d. Relativism Answer: d. Relativism 26. The belief that there are universal standards of behavior that all cultures should follow is called _____. a. humanism b. relativism c. normativism d. naturalism Answer: c. normativism 27. A manager practicing relativism would _____. a. adapt to local conditions instead of implementing home-country practices b. enforce home-country laws on employees and suppliers c. refuse to change company policy to comply with local norms d. feel that universal laws exist, which should apply to each country, despite local traditions Answer: a. adapt to local conditions instead of implementing home-country practices 28. A manager who refuses to bribe customs officials in a foreign country even though it is morally acceptable in that country believes in _____. a. relativism b. normativism c. humanism d. existentialism Answer: b. normativism 29. Which of the following is a business objective for pursuing ethical behavior? a. decrease competitive advantages b. increase competitive advantages c. create better advertisements d. improve the firm's image of social irresponsibility Answer: b. increase competitive advantages 30. Which of the following is a competitive advantage created by ethical behavior? a. Consumers are more willing to trust an ethical company. b. The government has promised bonuses to companies who are not engaged in any ethical lawsuits. c. gaining the support of nongovernmental organizations d. Ethical behavior allows a company more access to natural resources. Answer: a. Consumers are more willing to trust an ethical company. 31. Why would MNEs want to avoid being perceived as socially irresponsible? a. Companies who are socially irresponsible lose support from their home governments. b. Socially irresponsible companies usually have fewer exports and more imports. c. Cultural barriers increase for companies who are socially irresponsible, preventing them from expanding into more countries. d. Social irresponsibility may lead to negative publicity from nongovernmental and other organizations, which could hurt a company's reputation. Answer: d. Social irresponsibility may lead to negative publicity from nongovernmental and other organizations, which could hurt a company's reputation. 32. Which of the following is a business objective for pursuing ethical behavior? a. create a better relationship with the home-country government b. improve profit margins c. avoid being perceived as socially irresponsible d. impose home-country behavior in the foreign country Answer: c. avoid being perceived as socially irresponsible 33. A(n) _____ is a nongovernmental organization that monitors and publicizes the actions of international companies. a. UN b. WTO c. NGO d. ICCR Answer: c. NGO 34. In what way may the behavior of NGOs pose a problem to the market system? a. Some NGOs are beginning to determine what constitutes socially responsible behavior instead of simply reporting on violations of existing laws. b. NGOs report only violations of existing standards of behavior to the appropriate government authorities. c. They have encouraged many companies to change environmentally unsafe practices. d. NGOs increase shareholder value by promoting more efficient and effective business practices. Answer: a. Some NGOs are beginning to determine what constitutes socially responsible behavior instead of simply reporting on violations of existing laws. 35. Which of the following examples demonstrates why social responsibility is such a complicated issue for MNEs? a. A manager's personal beliefs never clash with the MNE's goals or the cultural practices of the host country. b. Although DDT is banned in most high-income countries, it has been used in lower-income countries to fight malaria. c. The French government fined the Body Shop for using French in its advertisements and store displays. d. When making labor decisions, any MNE can turn to the universal corporate guidelines that govern employment practices and human rights in the workplace. Answer: b. Although DDT is banned in most high-income countries, it has been used in lower-income countries to fight malaria. 36. Which of the following examples illustrates the potentially useful roles of NGOs? a. An NGO informs the Environmental Protection Agency about a firm who deliberately violates pollution laws. b. An NGO threatens to pull funding from a clothing company whose overseas plants utilize child labor. c. An NGO in France bombs a foreign fast-food chain because the citizens don't like the food. d. An NGO boycotts an American company that sells DDT to low-income countries to fight malaria. Answer: a. An NGO informs the Environmental Protection Agency about a firm who deliberately violates pollution laws. 37. Which of the following reasons explains why the argument that "anything legal is ethical" insufficient? a. Courts can anticipate all future ethical dilemmas. b. The law is extremely efficient. c. Everything that is unethical is also illegal. d. The law is often in need of testing by the courts. Answer: d. The law is often in need of testing by the courts. 38. _____ teaches that "people have a responsibility to do what is right and to avoid doing what is wrong." a. Moral courage b. Implied normativism c. Ethics d. Cultural relativism Answer: c. Ethics 39. Which of the following is a reason for MNEs to comply with the law? a. The law embodies many of a country's moral beliefs but is an inadequate guide for proper conduct. b. The law contains unenforceable rules that are impossible to follow. c. The law represents a consensus derived from significant experience and deliberation. d. The law provides a vaguely defined set of rules. Answer: c. The law represents a consensus derived from significant experience and deliberation. 40. Why is the argument that "anything legal is ethical" insufficient? a. The law is often based on vague moral concepts that cannot be separated from legal concepts. b. Everything that is unethical is also illegal. c. Laws can never be changed; thus, rules for all possible ethical dilemmas are found in the law. d. The law is an extremely efficient way to solve every ethical problem. Answer: a. The law is often based on vague moral concepts that cannot be separated from legal concepts. 41. _____ occur(s) when a government applies its laws to the foreign operations of its domestic companies. a. Privatization b. Extraterritoriality c. Imitation lag d. Country disposition Answer: b. Extraterritoriality 42. Which of the following is an example of extraterritoriality? a. a U.S. subsidiary operating in China that is forced to follow some U.S. laws, even though China has no comparable laws b. a U.S. sweatshop operating in Thailand that does not follow U.S. labor laws but allows children to work 60 hours a week c. an MNE manager who, after working in the host country, tries to implement foreign practices in the home-country office d. a British subsidiary operating in Indonesia that maintains the same health and safety standards for its foreign factories that are required in Great Britain Answer: a. a U.S. subsidiary operating in China that is forced to follow some U.S. laws, even though China has no comparable laws 43. Extraterritoriality _____. a. is always a source of problems between foreign subsidiaries and host-country governments b. is practiced only by the U.S. government c. may cause tension between the foreign subsidiary and the host-country government d. is applied only to health and safety standards Answer: c. may cause tension between the foreign subsidiary and the host-country government 44. A government that enforces its own laws on foreign subsidiaries of its domestic companies practices _____. a. civil law b. normativism c. imitation lag d. extraterritoriality Answer: d. extraterritoriality 45. _____ countries tend to have a large body of laws that specify the legality of various behaviors. a. Court law b. Common law c. Case law d. Civil law Answer: d. Civil law 46. Common law countries tend to rely more on _____ than on _____ regulations. a. precedents; statutory b. precedents; court c. statutes; case d. court decisions; government Answer: a. precedents; statutory 47. Many U.S. laws are the result of Supreme Court case decisions. This is an example of _____. a. court law b. case law c. common law d. civil law Answer: c. common law 48. _____countries tend to rely more on cases and precedents than on statutory regulations. a. Civil law b. Case law c. Court law d. Common law Answer: d. Common law 49. Which of the following statements accurately describes the effects of bribery on countries and companies? a. lower levels of corruption b. higher growth c. inflated operation costs d. higher levels of per capita income Answer: c. inflated operation costs 50. Which of the following is a possible motive for bribery? a. secure government contracts that have already been settled b. increase tax liabilities c. gain government approval for price decreases d. facilitate services that officials might delay Answer: d. facilitate services that officials might delay 51. Which of the following examples illustrates how bribery can affect a company or country? a. Company employees may receive higher salaries. b. Government officials or company executives may be jailed or fined. c. Product costs and prices may be more accurately stated. d. A government's legitimacy may increase. Answer: b. Government officials or company executives may be jailed or fined. 52. Bribery payments _____. a. must always be in cash b. are always paid directly to government officials c. can include anything of value d. are never made via intermediaries Answer: c. can include anything of value 53. The FCPA applies _____. a. only to companies registered in the United States b. only to U.S. companies with foreign subsidiaries c. only to foreign firms quoted on any stock exchange in the United States d. to companies registered in the United States and to foreign firms quoted on any stock exchange in the United States Answer: d. to companies registered in the United States and to foreign firms quoted on any stock exchange in the United States 54. Which of the following statements describes an inconsistency of the FCPA? a. Facilitation payments (also known as grease money) are classified as bribery. b. Facilitation payments (or grease money) are excluded from the FCPA's definition of bribery. c. Payments to officials who are not directly responsible for carrying out the law are legal. d. Payments to foreign officials who carry out the law are illegal. Answer: b. Facilitation payments (or grease money) are excluded from the FCPA's definition of bribery. 55. The FCPA allows the payment of bribes by U.S. firms to _____. a. foreign officials who have visited the United States b. foreign political parties c. foreign party officials d. foreign government officials to expedite compliance with the law Answer: d. foreign government officials to expedite compliance with the law 56. Which of the following is a possible disadvantage of the FCPA? a. The FCPA has not been shown to deter bribery. b. Firms from other countries are not allowed to make bribery payments either, so there is no disadvantage. c. U.S. firms must take bribery payments as a tax deduction. d. The FCPA may be viewed as an attempt by the United States to impose its laws on foreign governments. Answer: d. The FCPA may be viewed as an attempt by the United States to impose its laws on foreign governments. 57. As the efforts of international organizations become implemented in national laws, companies will find that _____. a. laws and practices from country to country will become more uniform and easier to implement b. bribery will not entirely disappear; rather, it will take on new forms c. the punishments for bribery will become less harsh d. they will need to use bribery to gain a competitive advantage Answer: a. laws and practices from country to country will become more uniform and easier to implement 58. Which of the following statements most accurately describes the recent fight against corruption? a. Only public organizations, such as the United Nations, have taken measures to reduce and prevent bribery. b. Only private organizations, such as Transparency International, are trying to control corruption at various levels. c. Many industries have established initiatives to clean up corruption within their respective fields. d. In general, organizations around the world are becoming less likely to enforce punishments for bribery. Answer: c. Many industries have established initiatives to clean up corruption within their respective fields. 59. The U.S. government has issued general guidelines for establishing an effective antibribery compliance program, including _____. a. establish and adhere to an oral code of conduct b. reduce auditing and internal controls c. establish disciplinary actions for corporate offenders d. enact anticorruption measures only on lower management levels Answer: d. enact anticorruption measures only on lower management levels 60. In dealing with bribery, managers must be aware of _____. a. the pressures they face b. the countries in which bribery is permissible c. the forms in which bribery is permissible d. only the domestic consequences of breaking the law Answer: a. the pressures they face 61. What is the Kyoto Protocol? a. It is an agreement that requires all members of the United Nations to reduce their greenhouse gas emissions by 5.2 percent. b. It is an agreement between the United States and Japan requiring both countries to control greenhouse gas emissions more tightly. c. It is an agreement that requires the signatory countries to cut greenhouse gas emissions to 5.2 percent below 1990 levels. d. It is an agreement that requires each country to report its emissions levels each year. Answer: c. It is an agreement that requires the signatory countries to cut greenhouse gas emissions to 5.2 percent below 1990 levels. 62. Companies that have adopted the Kyoto Protocol are under pressure to _____. a. increase greenhouse gas emissions b. adhere to the same emissions standards as the United States c. increase emissions levels while maintaining the same business strategy d. buy credits from companies that have reduced their emissions below the target levels Answer: d. buy credits from companies that have reduced their emissions below the target levels 63. How has the Kyoto Protocol affected U.S. companies operating in Europe? a. Companies are changing the way they do business in order to comply with new emissions standards in Europe. b. The Kyoto Protocol has not affected U.S. companies with subsidiaries in Europe because the United States has not signed the Kyoto Protocol. c. Before U.S. companies can open any more European subsidiaries, they must sign the Kyoto Protocol. d. Because the United States is not a party to the Kyoto Protocol, U.S. companies may not operate in European countries that have signed the Kyoto Protocol. Answer: a. Companies are changing the way they do business in order to comply with new emissions standards in Europe. 64. Which of the following countries is not a party to the Kyoto Protocol? a. Germany b. France c. the United Kingdom d. the United States Answer: d. the United States 65. Which of the following is a labor issue facing many MNEs? a. paying workers too much b. providing working conditions that are too nice c. work weeks that are too short d. hiring children that are too young Answer: d. hiring children that are too young 66. In which industry or industries are labor exploitation issues most critical? a. retail and clothing b. banking c. technology d. education Answer: a. retail and clothing 67. Which of the following is an argument against MNEs leaving countries with different labor policies? a. MNEs have been shown to have an influence on government labor policies in foreign countries. b. Many MNEs have substantially improved the working conditions of their foreign plants. c. MNEs are required to pay workers more than local companies. d. If MNEs employ native workers in their foreign plants, they can deduct the labor expense on their U.S. tax return. Answer: b. Many MNEs have substantially improved the working conditions of their foreign plants. 68. Which of the following statements explains best why the globalization of the supply chain poses problems for MNEs? a. MNEs are pressured by outside to stay in foreign countries in order to improve the working conditions in those countries. b. MNEs are expected to solve all problems of child labor. c. Local law sometimes allows policies that are against home-country standards. d. Due to globalization, MNEs have too many suppliers and cannot adequately choose between them. Answer: c. Local law sometimes allows policies that are against home-country standards. 69. Which of the following is a reason for companies to act more responsibly? a. Companies face no outside pressures to act responsibly. b. Companies who have good ethical behavior are proven to have higher earnings than unethical companies. c. Unethical or irresponsible behavior can negatively impact employee morale. d. The U.S. government provides tax breaks to companies who donate to international charities. Answer: c. Unethical or irresponsible behavior can negatively impact employee morale. 70. Unethical and _____ behavior by an MNE could result in _____. a. irresponsible; higher employee morale b. irresponsible; legal sanctions c. responsible; fewer consumer boycotts d. responsible; higher sales Answer: b. irresponsible; legal sanctions 71. How can good corporate behavior impact an MNE? a. Both foreign and domestic workers may be proud of their company's behavior, thus increasing employee morale. b. Employees may become suspicious of the company's intent and seek employment elsewhere. c. The IRS may suspect an attempt by the company to cover up tax evasion and audit the company's tax records to ensure that evasion has not occurred. d. The good corporate behavior will result in a decreased net income, thus motivating investors to move their money elsewhere. Answer: a. Both foreign and domestic workers may be proud of their company's behavior, thus increasing employee morale. 72. A company looking to improve its corporate behavior and public image could do which of the following? a. send lobbyists to Washington to promote the company's new humanitarian policies b. use employee time and profits to donate to international charities c. pull out of a country with unfair child labor laws d. cut costs in order to improve profits and shareholder satisfaction Answer: b. use employee time and profits to donate to international charities 73. A guideline for responsible action by a firm in its operations worldwide is a(n) _____. a. code of conduct b. corporate monitoring policy c. education program d. honor code Answer: a. code of conduct 74. A(n) _____ code of conduct is a set of guidelines, recommendations, and rules issued by entities within society with the intent to affect the behavior of international business entities in order to enhance corporate responsibility. a. internal b. external c. government-imposed d. voluntary Answer: b. external 75. Which of the following statements is a dimension in setting an internal code of conduct? a. set a national policy that must be complied with everywhere b. communicate the code of conduct only to employees so as to maintain a competitive advantage c. ensure that its policies are carried out d. report results to internal stakeholders Answer: c. ensure that its policies are carried out 76. How can a company ensure compliance with its code of conduct? a. Have employees sign a notarized statement that they have read and understand the code of conduct. b. Put security cameras in every plant and building to catch violations. c. Make the code of conduct inaccessible to employees and staff. d. Hire a global audit firm to conduct compliance audits. Answer: d. Hire a global audit firm to conduct compliance audits. 77. A major concern about FDI is that the global orientation of MNEs might make them insensitive to national interests and concerns. Answer: True 78. Companies that engage in activities such as exporting do not generate problems in host countries. Answer: False 79. Making necessary tradeoffs between stakeholders is easier in the international environment than in the home environment. Answer: False 80. In the long run, MNEs must satisfy the needs of all stakeholders in order to prosper and survive. Answer: True 81. An increase in overall unemployment in a country and an increase in FDI means that FDI caused unemployment. Answer: False 82. The analysis of MNEs' effects on host countries can be distorted by technological developments or government policies. Answer: True 83. The effects of MNEs on growth and employment are always a zero-sum game (gains must equal losses) among countries. Answer: False 84. Usually, MNEs' investments are initially favorable to the host country and unfavorable to the home country. Answer: True 85. GM's infusion of capital and expertise into Daewoo is an example of how an MNE can save jobs in the home country. Answer: True 86. An argument against FDI is that it is harder for MNEs to raise low-cost funds in different countries because they are so well known. Answer: False 87. Personal beliefs about right and wrong can be complicated by foreign laws, company policies, and economic circumstances. Answer: True 88. MNEs can face pressures both to comply and not to comply with a country's norms. Answer: True 89. Relativism is the theory that ethical truths depend on the groups holding them; thus, MNEs should adhere to or adopt the cultures of the countries in which they are located. Answer: True 90. A manager practicing normativism would adapt to local conditions on the assumption that because every country is different, each country and situation must be treated differently. Answer: True 91. Socially responsible acts usually lead to increased trust and commitment from customers. Answer: True 92. MNEs that are perceived as socially irresponsible usually have the most financial success. Answer: False 93. An NGO is a nongovernmental organization that monitors and publicizes the actions of international companies. Answer: True 94. NGOs are helpful because they take the place of elected government officials in deciding what constitutes socially acceptable behavior. Answer: False 95. The legal justification for ethical behavior is the only important one, meaning that one can do anything that is not illegal, even if it is unethical. Answer: False 96. The law is often based on vaguely defined moral concepts that cannot be separated from legal concepts. Answer: True 97. Every home country tries to extend its legal and ethical practices to the foreign subsidiaries of its domestic countries. Answer: False 98. Extraterritoriality is always a source of tension between the foreign subsidiary and the host-country government. Answer: False 99. The United States is an example of a common law country. Answer: True 100. When faced with conflicting laws, an MNE should always follow the common law. Answer: False 101. Bribery deflates the costs of an MNE's operations and its products. Answer: False 102. Common motives for bribery include securing government contracts, reducing tax liabilities, and protecting employees. Answer: True 103. The FCPA prohibits all forms of bribery, including speed or grease payments. Answer: False 104. The FCPA may cause U.S. businesses to lose business because firms from other countries may take bribery expenses as tax deductions. Answer: True 105. Transparency International, the OECD, and the ICC are all working to stop bribery around the world. Answer: True 106. The United Nations is not involved in the fight against bribery. Answer: False 107. The United States spearheaded signing of the Kyoto Protocol. Answer: False 108. U.S. MNEs that operate in Europe are under pressure to conform to the emissions standards of the Kyoto Protocol. Answer: True 109. MNEs face pressure to conform to home-country child labor laws but are challenged by local customs that permit child labor. Answer: True 110. The best thing for MNEs operating in countries where labor laws differ from those in the home market is to leave. Answer: False 111. MNEs face many pressures to act responsibly, including the possibility of legal sanctions, consumer boycotts, employee morale, and publicity. Answer: True 112. Employee morale is largely unaffected by a company's corporate behavior. Answer: False 113. A code of conduct is always set within a company. Answer: False 114. Creating a code of conduct includes steps such as establishing a global policy, communicating the code to employees, ensuring that the policies are followed, and reporting results to external stakeholders. Answer: True 115. Which stakeholders must companies satisfy? Why is this process more difficult for companies operating abroad? Answer: Stakeholders include stockholders, employees, customers, and society at large. In the short term, the aims of these groups conflict. Stockholders want additional sales and increased productivity, which result in higher profits and larger returns going to them. Employees want additional compensation. Customers want lower prices. And society at large would like to see increased corporate taxes or corporate involvement in social functions. In the long term, all of these aims must be achieved adequately, or none will be attained at all because each stakeholder group is powerful enough to cause the company's demise. Management must be aware of these various interests but serve them unevenly at any given period. At one time, gains may go to consumers; at another, to stockholders. Making necessary trade-offs is difficult enough in the domestic environment. However, abroad, where corporate managers are not so familiar with customs and power groups, the problem of choosing the best alternative is compounded—particularly if dominant interests differ among countries. 116. What factors make it difficult to evaluate whether the overall effects of FDI are sufficiently positive? Answer: MNEs may affect countries' balance-of-payments, growth, and employment objectives. Under different scenarios, these effects may be positive or negative for either host or home countries. a. Home-country gains—Countries want capital inflows because they allow them to increase their imports. However, because FDI brings both capital inflows and outflows, countries worry that the balance-of-payments effect may be negative. Unlike balance-of-payments effects, the effects of MNEs on growth and employment are not necessarily a zero-sum game among countries. The argument that both the home and the host countries may gain from FDI assumes that resources are not necessarily fully employed and that capital and technology cannot be easily transferred from use in one industry to another. b. Home-country losses—The United States is the home country for the largest amounts of foreign licensing and direct investment. Therefore, its policies understandably invite criticism. One of its critics is organized labor, which argues that foreign production often displaces what would otherwise be U.S. production. Critics also cite many examples of highly advanced technology that has been at least partially developed through governmental contracts and then transferred abroad. In fact, some MNEs are moving their most advanced technologies abroad and in some cases producing abroad before they do so in the United States. c. Host-country gains—Most observers agree that an inflow of investment from MNEs can initiate greater local development through the employment of unused labor and other resources. A company will want to move resources such as capital and technology abroad when the potential return is high—especially in an area where they are in short supply. Most observers also agree that an inflow of investment from MNEs can initiate an upgrading of resources by educating local personnel to use equipment, technology, and modern production methods. d. Host-country losses—Some critics have claimed that there are examples of MNEs making investments that domestic companies otherwise would have undertaken. The result may be the displacement of local entrepreneurs and entrepreneurial drive. Or they may bid up prices by competing with local companies for labor and other resources. Critics also contend that FDI destroys local entrepreneurial drive, which has an important effect on development. Another argument is that investors learn abroad by observing foreign companies closely. This may give them earlier access to technology abroad that they may copy in their home countries. Critics also say that MNEs absorb local capital, either by borrowing locally or by receiving investment incentives. 117. Discuss the difference between relativism and normativism. Answer: a. Relativism affirms that ethical truths depend on the groups holding them. This makes intervention by outsiders unethical. The idea of relativism can be expressed by the statement "When in Rome, do as the Romans do." b. Normativism holds that there are universal standards of behavior (based on people's own values) that all cultures should follow, making nonintervention unethical. Managers thus struggle with implementing a "universal" set of truths versus adapting to local conditions on the assumption that every place is different and should be treated differently. 118. Explain why the argument that "anything that is legal is ethical" is insufficient. Answer: a. The law is not appropriate for regulating all business activity because not everything that is unethical is illegal. b. The law is slow to develop in emerging areas of concern. Laws take time to be legislated and tested in courts. Further, they cannot anticipate all future ethical dilemmas; basically, they are a reaction to issues that have already surfaced. c. The law often is based on moral concepts that are not precisely defined and that cannot be separated from legal concepts. Moral concepts must be considered along with legal ones. d. The law is often in need of testing by the courts. This is especially true of case law, in which the courts establish precedent. e. The law is not very efficient. Efficiency in this case implies achieving ethical behavior at a very low cost, and it would be impossible to solve every ethical behavioral problem with a law. 119. In a short essay, explain the idea of extraterritoriality. Answer: Extraterritoriality takes place when governments apply their laws to the foreign operations of their domestic companies. Generally, though, host countries abhor any weakening of their sovereignty over local business practices. MNEs fear that home-country and host-country laws will conflict, because settlement inevitably must be between governments, with companies caught in the middle. Laws need not be in complete conflict to trigger charges of extraterritoriality. Home-country laws that require companies to remit earnings or pay taxes at home on foreign earnings certainly have affected companies' foreign expansion and host governments' control over such expansion. Although extraterritoriality may result from legal differences between any two countries, and often does, the United States has been criticized the most for attempting to control what U.S. companies do abroad. 120. What types of payments are legal and illegal under the Foreign Corrupt Practices Act (FCPA) of the United States? Answer: Payments to officials to expedite their compliance with the law are legal (officially called facilitation payments but sometimes referred to as speed money or grease money), but payments to other officials who are not directly responsible for carrying out the law are not. Specifically, a 1988 amendment to the FCPA excluded facilitation payments from its definition of bribery. Facilitation payments take many forms. For example, payment to a customs official to clear legitimate merchandise is legal whereas a payment to a government minister to influence the customs official is illegal. The FCPA allows the former payment because governmental officials in many countries delay compliance of laws indefinitely until they do receive payments, even though such payments may be illegal in those countries. 121. Why are there controversies concerning the Foreign Corrupt Practices Act (FCPA) of the United States? Answer: The United States has acted against domestic firms' foreign investments when there has been concern about possible harm to U.S. consumers. At various times, the U.S. government has: a. Delayed U.S. companies from acquiring facilities in foreign countries—for example, Gillette's purchase of Braun in Germany was held up because Braun made electric shavers, and the acquisition would reduce the number of competitors in the shaving market. b. Prevented U.S. companies from acquiring facilities in the United States that were owned by a company they were taking over abroad—for example, Gillette's purchase of a division of Sweden's Stora Kopparbergs Bergslags could not include that division's subsidiary, U.S. Wilkinson Sword because it would increase Gillette's share of the razor blade market. c. Forced U.S. companies to sell their interests in foreign operations—for example, Alcoa's spin-off of Alcan because Alcan could then compete against Alcoa. d. Restricted entry of goods produced by foreign countries in which U.S. companies participated—for example, Swiss watches and parts. e. Pressured foreign companies to allow U.S. firms to make foreign sales using technology acquired from them—for example, the British company Pilkington licenses float-glass technology to U.S. companies with the stipulation that the output could be sold only in the United States. 122. Discuss the ethical dimensions and pressures related to labor issues that MNEs face. Answer: The many labor issues that companies must deal with include fair wages, child labor, working conditions, working hours, and freedom of association. These issues are especially critical in retail, clothing, footwear, and agriculture where MNEs outsource production to independent companies abroad, usually in developing countries. Child labor is a highly publicized issue. The challenge for MNEs is that they work in an environment with different cultural, legal, and political rules than what they are used to in their home countries. Two arguments used for hiring children as laborers are (1) children are better suited than adults to perform certain tasks and (2) if the children were not employed, they would be worse off. MNEs often face pressure to leave countries that do not have the same labor policies as their home country; however, this is short-sighted because MNEs may be able to improve the working conditions for the laborers in their own firms. Some companies avoid operating in countries that support child labor, while others try to establish responsible policies in those countries. Either way, MNEs cannot solve all the problems of child labor. 123. What motivations do companies have to act responsibly? Answer: a. Unethical and irresponsible behavior could result in legal sanctions, especially in the areas of bribery and product safety. b. Unethical and irresponsible behavior could also result in consumer boycotts, although there is little evidence of the effectiveness of consumer boycotts in effecting change. c. Unethical behavior can affect employee morale. Good behavior can positively influence both the workers in the developing countries as well as those in corporate headquarters back home who are proud of their company's behavior. d. Companies never know when bad publicity is going to cost them sales. 124. What are the four dimensions of a successful code of conduct? Answer: a. Set a global policy that must be complied with wherever the company operates. b. Communicate the code to employees, suppliers, and subcontractors. c. Ensure that policies are carried out. d. Report results to external stakeholders. 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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