Chapter 1—Globalizing Business
TRUE/FALSE
1.A multinational enterprise is a firm that engages in foreign direct investment by directly investing in, controlling, and managing value-added activities in other countries.
ANS:TPTS:1DIF:ModerateREF:pp. 4-5
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Creation of Value
2.The terms international business (IB) and global business are synonymous.
ANS:FPTS:1DIF:EasyREF:p. 5
OBJ:1.1NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
3.The term international business always refers to business activities conducted abroad.
ANS:FPTS:1DIF:DifficultREF:p. 5
OBJ:1.1NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
4.Global business includes both international (cross-border) activities as well as domestic business activities.
ANS:TPTS:1DIF:ModerateREF:p. 5
OBJ:1.1NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
5.Emerging markets contribute about 25% of global GDP when adjusted for purchasing power parity, PPP.
ANS:FPTS:1DIF:ModerateREF:pp. 5-6
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
6.The term "base of the pyramid" represents economies in which individuals make less than $2,000 a year.
ANS:TPTS:1DIF:EasyREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
7.The greatest number of opportunities for global businesses is opened at the "top of the pyramid," where individuals have the greatest purchasing power.
ANS:FPTS:1DIF:ModerateREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Creation of Value
8.Most top managers of large firms lack significant global competence.
ANS:FPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
9.Expatriate managers make ideal candidates for top management positions.
ANS:TPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Motivation Concepts
10.Expatriate managers are usually paid salaries coinciding with the salaries paid to foreign local managers of similar rank.
ANS:FPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Analytic | Tier 2 Creation of Value
11.International premium is a significant pay raise awarded to expatriate employees working abroad.
ANS:TPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Analytic | Tier 2 Creation of Value
12.Expatriate employees face fewer and lower-ranked employment opportunities upon return to the US.
ANS:FPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
13.Approximately 80 million people worldwide are employed by foreign-owned firms.
ANS:TPTS:1DIF:DifficultREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
14.The institution- and resource-based views are two core perspectives answering the fundamental question: "What determines the success and failure of firms around the globe?"
ANS:TPTS:1DIF:ModerateREF:pp. 8-9
OBJ:1.3NAT:AACSB: Tier 1 Communication | Tier 2 Strategy
15.Formal rules refer to government regulations regarding foreign and domestic firms. In most modern emerging environments, formal rules ensure equal playing field for all companies, regardless of origin.
ANS:TPTS:1DIF:ModerateREF:p. 9
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
16.Due to informal rules such as culture and ethics, some developed economies have a hard time fostering entrepreneurship.
ANS:TPTS:1DIF:DifficultREF:p. 9
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
17.Possessing intimate knowledge about the formal and informal rules governing competition in various countries is sufficient to succeed globally.
ANS:FPTS:1DIF:ModerateREF:p. 10
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
18.Firms that are able to succeed in difficult, harsh, even hostile foreign environments, established by unfavorable formal and informal rules, possess unique firm-specific resources and capabilities not shared by competitors.
ANS:TPTS:1DIF:ModerateREF:p. 10
OBJ:1.3NAT:AACSB: Tier 1 Communication | Tier 2 Strategy
19.Liability of foreignness is the inherent disadvantage experienced by foreign firms in host counties because of their non-native status.
ANS:TPTS:1DIF:EasyREF:p. 10
OBJ:1.3NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
20.Most opponents of globalization view globalization as a long-run historical evolution since the dawn of human history.
ANS:FPTS:1DIF:EasyREF:p. 10
OBJ:1.4NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
21.Globalization is a relatively new phenomenon triggered by the information revolution of the late 1980s.
ANS:FPTS:1DIF:ModerateREF:pp. 10-11
OBJ:1.4NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Information Technology
22.According to the pendulum view, globalization has been perceived both positively and negatively throughout history.
ANS:TPTS:1DIF:DifficultREF:p. 11
OBJ:1.4NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
23.The world economy at the beginning of the 21st century is an approximately $55 trillion economy (GDP calculated at official, nominal exchange rates).
ANS:TPTS:1DIF:ModerateREF:p. 13
OBJ:1.5NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
24.Executives, policymakers, and scholars have carefully evaluated the social, political, and environmental costs associated with globalization.
ANS:FPTS:1DIF:DifficultREF:p. 15
OBJ:1.5NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
25.Many proponents of globalization are nongovernmental organizations (NGOs).
ANS:FPTS:1DIF:DifficultREF:p. 15
OBJ:1.5NAT:AACSB: Tier 1 Communication | Tier 2 Strategy
MULTIPLE CHOICE
1.The firm that engages in foreign direct investment is a:
a. / Global firmb. / Multinational enterprise
c. / International enterprise
d. / Foreign direct investor
ANS:BPTS:1DIF:ModerateREF:p. 4
OBJ:1.1NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
2.Which of the following definitions of the international/global business represents the author's view?
a. / A business that engages in international economic activitiesb. / The action of doing business abroad
c. / Business around the globe including international and domestic business activities
d. / All of these answers
ANS:CPTS:1DIF:ModerateREF:p. 5
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
3.Which of the following terms best describes foreign direct investment?
a. / Directly investing in, controlling, and managing value-added activities in other countries.b. / Directly investing in, controlling, and managing value-added activities in other markets.
c. / Directly investing in shares of multinational enterprise.
d. / All of these answers
ANS:APTS:1DIF:ModerateREF:pp. 4-5
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Strategy
4.In the 1990s, the term "emerging economy/market" replaced the commonly used term:
a. / Fast growing economy/marketb. / Developing economy/market
c. / Undeveloped economy/market
d. / Third world economy/market
ANS:BPTS:1DIF:EasyREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
5.____ is/are measured as the sum of value added by resident firms, households, and government operating in an economy.
a. / Gross national product / c. / Gross domestic productb. / Gross national income / d. / National reserves
ANS:CPTS:1DIF:ModerateREF:p. 5
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
6.In order to better compare/contrast costs of living in the various environments GNP/GDP may be adjusted to:
a. / PPP (purchasing power parity)b. / Foreign exchange rate
c. / Country's inflation rate
d. / Five-year national bond appreciation/depreciation
ANS:APTS:1DIF:ModerateREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
7.The global economy can be viewed as a pyramid. The Triad represents:
a. / US, Germany, Englandb. / US, Western Europe, China
c. / Brazil, India, China
d. / North America, Western Europe, Japan
ANS:DPTS:1DIF:ModerateREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
8.According to the text, most MNEs are ____ the base of the pyramid.
a. / Focusing onb. / Ignoring
c. / Aware of countless opportunities of
d. / Considering FDI in the economies at
ANS:BPTS:1DIF:EasyREF:p. 6
OBJ:1.1NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
9.Which of the following is NOT a reason why global business should be studied?
a. / Because many ambitious students aspire to join the top ranks of large firms.b. / To acquire hands-on global experience in global business.
c. / Because many top rank managers are selected from the pool of expatriate managers
d. / In order for one's earning potential to be maximized.
ANS:BPTS:1DIF:DifficultREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 HRM
10.Which of the following definitions best defines an expatriate manager?
a. / A manager who works outside his or her native countryb. / A manager of great expertise
c. / An ex-manager rehired for advisory purposes
d. / None of these answers
ANS:APTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Communication | Tier 2 HRM
11.In addition to their regular compensation, managers working abroad are awarded with
a. / Global fringe benefitsb. / Foreign pension plan
c. / International premium
d. / Health insurance
ANS:CPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 HRM
12.When an expat employee returns to her or his current employer but the employer does not provide attractive opportunities, she/he often may be hired by a competitor firm. Why?
a. / Competitor firms are also interested in globalizing their business.b. / Former expats bring instant expertise and experience.
c. / Competing firms will pay a higher premium for expertise.
d. / All of these answers
ANS:DPTS:1DIF:EasyREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 HRM
13.Why study global business?
a. / In order to increase one's employabilityb. / In order not to get Bangalored or Shanghaied
c. / In order to better understand how to become a sought-after, globe-trotting manager
d. / All of these answers
ANS:DPTS:1DIF:EasyREF:pp. 7-8
OBJ:1.2NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
14.How many individuals are employed by foreign-owned firms throughout the world?
a. / About 80 million / c. / About 18 millionb. / About 40 million / d. / About 1 million
ANS:APTS:1DIF:ModerateREF:p. 7
OBJ:1.2NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
15.In order to answer the question: "What determines the success and failures of firms around the globe?," the author introduces which two core perspectives?
a. / Capability- and asset-based viewsb. / Formal- and informal-rule-based views
c. / Institution- and resource-based views
d. / Ability- and mobility-based views
ANS:CPTS:1DIF:ModerateREF:p. 8
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Creation of Value
16.What defines the field of global business more than anything else?
a. / The focus on firm performance around the globeb. / The focus on ROI of the global venture
c. / The focus on maximizing profits while minimizing expenses
d. / The focus on global expansion
ANS:APTS:1DIF:DifficultREF:p. 8
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Creation of Value
17.The ____-based view suggests that the formal and informal rules of the game, known as institutions, shed a great deal of light on what is behind firm performance around the globe.
a. / Resource / c. / Capabilityb. / Asset / d. / Institution
ANS:DPTS:1DIF:ModerateREF:p. 9
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Creation of Value
18.The ____-based view suggests that in order to achieve remarkable success, a firm must possess some very rare and powerful firm-specific resources and capabilities that are the envy of their rivals around the globe.
a. / Resource / c. / Capabilityb. / Asset / d. / Institution
ANS:APTS:1DIF:ModerateREF:p. 10
OBJ:1.3NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Creation of Value
19.Which of the following is NOT a view on globalization stressed by the author?
a. / A new force sweeping through the world in recent timesb. / A long-run historical evolution since the dawn of human history
c. / A pendulum that swings from one extreme to another from time to time
d. / A force empowered by recent political decisions
ANS:DPTS:1DIF:ModerateREF:p. 10
OBJ:1.4NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
20.More than half of the world GDP growth in recent years comes from ____.
a. / The Four Tigers (Hong-Kong, Singapore, South Korea, and Taiwan)b. / Latin America
c. / Central and Eastern Europe
d. / Emerging economies, such as BRIC (Brazil, Russia, India, and China)
ANS:DPTS:1DIF:DifficultREF:p. 11
OBJ:1.4NAT:AACSB: Tier 1 Analytic | Tier 2 Environmental Influences
21.The pendulum view of globalization is embraced by:
a. / Globalization's opponents and skepticsb. / Globalization's proponents and enthusiasts
c. / Globalization's realists aware of historical cycles that globalization has gone through
d. / Most MNEs and their lobbyists
ANS:CPTS:1DIF:ModerateREF:pp. 12-13
OBJ:1.4NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
22.Which expression does the author use to describe contemporary globalization?
a. / Global localization / c. / Semiglobalizationb. / Total globalization / d. / Global standardization
ANS:CPTS:1DIF:ModerateREF:p. 13
OBJ:1.4NAT:AACSB: Tier 1 Communication | Tier 2 Environmental Influences
23.The world economy at the beginning of the 21st century is an approximately:
a. / $10 trillion economyb. / $23 trillion economy
c. / $60 trillion economy
d. / $72 trillion economy
ANS:CPTS:1DIF:ModerateREF:p. 14
OBJ:1.5NAT:AACSB: Tier 1 Analytic | Tier 2 Creation of Value
ESSAY
1.Explain in your own words how, according to the author, this book will focus on international business.
ANS:
Other international business textbooks focus on the international (foreign entrant) to the extent that the business part (which includes the domestic business) would almost disappear. IB is more about the business before the international part. Other courses you take in business school have a name specialization such as marketing, management, and operations. This integrated course will provide an overall business perspective versus a functional perspective. In this course, you will learn the international and how business affects the international component.
PTS:1DIF:EasyREF:p. 5OBJ:1.1
NAT:AACSB: Tier 1 Communication | Tier 2 Strategy
2.The global economy may be viewed as a pyramid. The growing number of opportunities at the base of the pyramid highlights the role this bottom tier will play in the years to come. How would you take advantage of this often-ignored level if you were occupying a top management position at a prominent MNE?
ANS:
The global economy can be viewed as a pyramid. The top of the pyramid consists of one billion people with per capita income of $20,000 or higher. The second tier consists of another billion people making $2,000 to $20,000 a year. The vast majority of the world's populations, representing approximately 5 billion people, live at the base of this pyramid, making less than $2,000 a year.
Marketers have focused on the top two levels and end up ignoring the bottom tier. An increasing number of countries located in this bottom tier are demonstrating economic and marketing opportunities as they move from low- to middle-income levels. It is much easier to market to consumers with higher incomes. In the emerging world, marketing is different. There is no guarantee that media choices will be available or that your product will be a success.
The challenges in the bottom of the pyramid require innovation, such as identifying special price points, as well as long-term commitment. Many consumers at the base of the pyramid may be illiterate, but they are brand conscious. Companies need to think outside the box and identify win-win strategies for this emerging consumer market.
Although individuals living in developing economies have less purchasing power than their counterparts living in the developed countries, they still have needs and wants. Global firms capable of fulfilling these needs will make a profit and emerge as global marketers.
PTS:1DIF:ModerateREF:p. 6OBJ:1.1
NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences
3.Explain the benefits of gaining international business experience and working as an expat.
ANS:
Answers will vary.
People skills and greater understanding of the complexity of the global business environment are valuable assets for current and future top MNE executives. Expatriates have a unique opportunity to be hands-on managers exposed to the corporation's global organizational dynamics.
Top-level jobs, especially those held by expats, are both financially rewarding and secure. Expats often command a significant premium in compensation, which usually includes a premium pay raise when accepting overseas assignments. Another benefit is more favorable job security in times of downsizing. Managers who have positioned themselves strategically with international business experience have a better chance at continued employment.
When the expat returns from a global assignment, if the current company does not provide attractive career return opportunities, the expat has the skills and expertise to consider other global firms. In most cases, the expat will not have a difficult time identifying other employment opportunities and commanding a higher premium. Expats gain a competitive advantage by accepting global business assignments as it increases their opportunities for upward mobility.
PTS:1DIF:DifficultREF:p. 7OBJ:1.2
NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy
4.Explain the correlation between the success and failure of global firms and the institution- and resource-based views.
ANS:
Global firms can gain success in today's competitive global market by focusing on the institution- and resource-based perspectives. The first factor from an institutional perspective focuses on how companies can earn greater success by understanding the external business environments in international business. MNEs quick to acquaint themselves with an understanding of the external environment, such as host country market rules, cultural norms, and policies, will increase their international success.
The resource-based view focuses on an MNEs' internal resources, which are firm-specific resources and capabilities. Competitors in the same environment do not share these internal capabilities; therefore, a company possessing unique firm-specific capabilities develops a competitive advantage in marketing their products or in the value creation process. Global companies that best utilize their internal strengths will increase their opportunities for business success.
PTS:1DIF:ModerateREF:pp. 8-10OBJ:1.3
NAT:AACSB: Tier 1 Reflective Thinking | Tier 2 Creation of Value
5.Explain how the pendulum view attempts to describe globalization as a cyclical phenomenon with many difficulties.
ANS:
The pendulum view presents the events in the present timeframe as a long-term model to help us gain greater understanding of and perspective on globalization's challenges.
The current era of globalization originated after World War II with the major Western nations committing to globalization. From the 1950s through the 1970s, political unrest in the communist countries formed a different view of globalization. Noncommunist countries, such as Argentina and Brazil, focused on protecting their domestic industries. In contrast, the Four Tigers—specifically, the developing economies of Hong Kong, Singapore, South Korea, and Taiwan—participated in the global economy.
Both emerging and developed markets benefit greatly from globalization. However, seen in a historical context, globalization never continues in one upward or positive direction, hence the view of it as a pendulum. In the 1990s, globalization was on the fast track. However, globalization proponents witnessed significant backlashes and setbacks. This rapid growth in globalization led to an inaccurate view that globalization was new, which created many negative perceptions. This new view of globalization created fear, and competition posed a direct threat to countries' culture and values.