Chapter 2 50 Questions with Answers PDF

International Business: The New Realities, 4e, GE (Cavusgil) Chapter 2 Globalization of Markets and the Internationalization of the Firm 1) Which of the following is characteristic of globalization of markets? A) lack of skilled labor B) conservatism C) declining trade barriers D) diminishing gap b...

International Business: The New Realities, 4e, GE (Cavusgil) Chapter 2 Globalization of Markets and the Internationalization of the Firm 1) Which of the following is characteristic of globalization of markets? A) lack of skilled labor B) conservatism C) declining trade barriers D) diminishing gap between the rich and the poor Answer: C Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 2) The first phase of globalization was characterized by the ________. A) rise of steel production B) rise of SMEs C) dominance of MNEs in the agricultural industry D) growth of railroads Answer: D Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 3) The ________ phase of globalization began around 1900 and was associated with the rise of electricity and steel production. A) first B) second C) third D) fourth Answer: B Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 4) The third phase of globalization was triggered by ________. A) the end of World War II B) the invention of electricity C) the end of World War I D) the Great Depression Answer: A Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 1 Copyright © 2017 Pearson Education, Ltd. 5) Which of the following reflects the major contribution of GATT to globalization? A) It instituted strict controls on international currencies. B) It simplified patent and copyright laws. C) It reduced barriers to international trade and investment. D) It eliminated the divide between the rich and the poor. Answer: C Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 6) The fourth phase of globalization is characterized by ________. A) the rise of railroads and ocean transport B) the reduction of barriers to trade by Western industrialized countries C) the initiation of the Marshall Plan to reconstruct Europe D) the enormous growth of cross-border trade and investment Answer: D Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 7) Over time, the GATT evolved into the ________. A) World Bank B) International Monetary Fund C) World Trade Organization D) World Intellectual Property Organization Answer: C Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 8) Early multinationals from the third phase of globalization originated in ________. A) Japan B) China C) India D) Brazil Answer: A Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 2 Copyright © 2017 Pearson Education, Ltd. 9) The fourth phase of globalization ________. A) is characterized by the rise of electricity and steel production B) is characterized by the rise of MNEs from Japan C) witnessed the Bretton Woods Conference of twenty-three nations in 1947 that led to the General Agreement on Tariffs and Trade D) facilitated the globalization of the service sector in such areas as banking and retailing Answer: D Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 10) As market globalization intensifies, ________. A) the gap between the rich and the poor shrinks rapidly B) the distance between consumers worldwide expands C) individual firms respond to the challenges and new advantages that it brings D) firms internationalize solely as a reaction to it Answer: C Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 11) Which of the following is a driver of globalization? A) greater emphasis on proactive internationalization B) internationalization of firm's value chain C) integration of world financial markets D) globalization of services Answer: C Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 12) Which of the following is a societal consequence of market globalization? A) greater emphasis on proactive internationalization B) internationalization of firm's value chain C) new risks and instant rivalry from foreign competitors D) offshoring and the flight of jobs Answer: D Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 3 Copyright © 2017 Pearson Education, Ltd. 13) Firms that are more successful at global competition display each of the following qualities EXCEPT ________. A) identifying foreign market opportunities aggressively B) approaching internationalization from a reactive standpoint C) actively pursuing partnerships with foreign firms D) focusing intensively on building organizational capacities Answer: B Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 4 Copyright © 2017 Pearson Education, Ltd. 14) The initial phase of globalization was triggered by the introduction of the railroads and ocean transport. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 15) Firms often internationalize proactively, in order to pursue new markets, find lower-cost inputs, or obtain other advantages. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 16) Offshoring and the flight of jobs are prime drivers of market globalization. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 5 Copyright © 2017 Pearson Education, Ltd. 17) Globalization of production activities and services is a dimension of market globalization. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-1: Understand market globalization as an organizing framework AACSB: Analytical Thinking 18) Describe the role of GATT and the WTO in reducing barriers to trade and investment worldwide, and explain how this reduction has led to the integration and interdependence of national economies. Answer: The Bretton Woods Conference of twenty-three nations in 1947 led to the General Agreement on Tariffs and Trade (GATT) and a series of negotiations that, over time, reduced barriers to international trade and investment. Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards. The GATT eventually transformed into the World Trade Organization, a multilateral governing body that grew to include 149 member nations. The WTO aims to regulate and ensure fairness and efficiency in global trade and investment. Global cooperation in the post-war era gave birth to other international organizations such as the International Monetary Fund and the World Bank. Internationally active firms devise multicountry operations through trade, investment, geographic dispersal of company resources, and integration and coordination of value-chain activities. Governments have facilitated this integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), and developing supranational institutions-the World Bank, International Monetary Fund, World Trade Organization, and others-that seek further reductions in trade and investment barriers. Diff: 2: Moderate Skill: Synthesis Objective: 2-1, 2-4: Understand market globalization as an organizing framework, Comprehend the dimensions of globalization AACSB: Analytical Thinking 6 Copyright © 2017 Pearson Education, Ltd. 19) Describe the fourth phase of globalization. What is contagion? Answer: The fourth phase of globalization began in the early 1980s. This phase featured enormous growth in cross-border trade and investment. It was triggered by the development of personal computers, the Internet, and Web browsers. It was also characterized by the collapse of the Soviet Union and the market liberalization of Central and Eastern Europe. Impressive industrialization and modernization in East Asian economies followed. International prosperity began to develop in the emerging markets including Brazil, India, and Mexico. Contagion refers to the tendency of a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies. Starting in 2008, the world economy experienced a severe financial crisis and global recession, the worst in decades. The crisis began in the United States and, like a contagious disease, spread around the world. Diff: 2: Moderate Skill: Synthesis Objective: 2-1, 2-6: Understand market globalization as an organizing framework, Understand the societal consequences of globalization AACSB: Analytical Thinking 20) ________ marked the end of the 50-year Cold War and smoothed the integration of former command economies into the global economy. A) The end of World War II B) The Bolshevik Revolution in Russia C) Free-market reforms in China and the former Soviet Union D) China's move to join the WTO Answer: C Diff: 1: Easy Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 21) Financial market integration makes it easier for internationally active firms to ________. A) nationalize manufacturing industries B) minimize offshoring C) increase tariffs on the import of automobiles and industrial machinery D) engage in foreign currency transactions Answer: D Diff: 1: Easy Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 22) The globalization of finance ________. A) enables companies to minimize offshoring B) contributes to firms' abilities to develop and operate world-scale production and marketing C) discourages innovation 7 Copyright © 2017 Pearson Education, Ltd. D) discourages free international exchange of goods and services Answer: B Diff: 1: Easy Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 8 Copyright © 2017 Pearson Education, Ltd. 23) Firms are sometimes motivated to enter new markets because of unfavorable conditions in the home market, such as regulation or declining local industry sales. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 24) Falling trade barriers are facilitated by the WTO. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 25) How has the adoption of free markets worldwide served as a driver of market globalization? Provide three examples to support your answer. Answer: In the last three decades, free-market reforms in China and the former Soviet Union smoothed the integration of former command economies into the global economy. Numerous Asian economies-for example India, Indonesia, Malaysia, and South Korea-embraced free market norms. These events opened roughly one-third of the world to freer international trade and investment. China, India, and Eastern Europe have become some of the most cost-effective locations for producing goods and services worldwide. Privatization of previously state-owned industries in these countries has encouraged economic efficiency and attracted massive foreign capital into their national economies. Diff: 2: Moderate Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking 9 Copyright © 2017 Pearson Education, Ltd. 26) What is implied by industrialization? How does it bring about economic development? Answer: Many emerging markets-rapidly developing economies in Asia, Latin America, and Eastern Europe-have now moved from being low value-adding commodity producers to sophisticated, competitive producers and exporters of premium products. These include such products as electronics, computers, and aircraft. For example, Brazil is now a leading manufacturer of Embraer commercial aircraft. The Czech Republic excels in producing automobiles. India is a leading supplier of software. Economic development results in increased incomes and living standards. Perhaps the most important measure of economic development is gross national income (GNI) per head. Diff: 2: Moderate Skill: Concept Objective: 2-2: Know the drivers of globalization AACSB: Analytical Thinking; Information Technology 27) What is meant by the internationalization of a firm's value chain? Answer: The most direct consequence of market globalization is on the firm's value chain. Globalization compels firms to organize their sourcing, manufacturing, marketing, and other value-adding activities on a global scale to achieve cost advantages and time efficiencies. In a typical value chain, the firm conducts research and product development (R&D), purchases production inputs, and assembles or manufactures a product or service. Next, the firm performs marketing activities such as pricing, promotion, and selling, followed by distribution of the product in targeted markets and after-sales service. The value-chain concept is useful in international business because it helps clarify what activities are performed where in the world. For example, exporting firms perform most "upstream" value- chain activities (R&D and production) in the home market and most "downstream" activities (marketing and after-sales service) abroad. Each value-adding activity in the firm's value chain is subject to internationalization. That is, it can be performed in locations outside the home country. The most typical reasons for locating value-chain activities in particular countries are to reduce the costs of R&D and production or to gain closer access to customers. Through offshoring, the firm relocates a major value-chain activity by establishing a factory or other subsidiary abroad. A related trend is global outsourcing, in which the firm delegates performance of a value-adding activity to an external supplier or contractor located abroad. Diff: 1: Easy Skill: Synthesis Objective: 2-3, 2-5: Understand technological advances and globalization, Appreciate firm-level consequences of market globalization AACSB: Analytical Thinking 10 Copyright © 2017 Pearson Education, Ltd. 28) Which of the following statements is true of technological advances? A) It provides a means for globalization to happen. B) It discourages internationalization. C) It inhibits the growth of new products and services. D) It helps consolidate traditional values among consumers worldwide. Answer: A Diff: 1: Easy Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 29) Technological advances have helped make internationalization affordable for all sizes of firms. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 11 Copyright © 2017 Pearson Education, Ltd. 30) The Internet has increased the cost of transmitting voices, data, and images. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 31) The 2011 "Arab Spring" in the Middle East was facilitated in large part by social media. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 32) While the number of containers transported internationally has decreased, the cost of transportation has increased dramatically. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 12 Copyright © 2017 Pearson Education, Ltd. 33) In a short essay, identify the four areas in which technological advances had their greatest impact on business. Describe the impact of each area on business today. Answer: Perhaps the most important driver of market globalization has been technological advances in information, communications, manufacturing, and transportation. While globalization makes internationalization imperative, technological advances provide the means for it to happen. a. Information technology: Information technology (IT) is the science and process of creating and using information resources. Its effect on business has been revolutionary. The cost of computer processing fell by 30 percent per year during the past two decades and continues to fall. IT creates competitive advantages by giving companies new ways to outperform rivals. IT benefits smaller firms too, allowing them to design and produce customized products they can target to narrow, cross-national market niches. b. Communications: The Internet, and Internet-dependent systems such as intranets, extranets, social media, and e-mail connect billions of people and companies. Marketers use the internet to promote the widest range of products and services to customers worldwide. Transmitting voice, data, and images is essentially costless, making Seoul, Stockholm, and San Jose next-door neighbors. South Korea has nearly 100 percent Internet access and is among the fastest broadband networks worldwide. Koreans use their phones to pay bills, do banking, and watch news programs. c. Manufacturing: Computer-aided design (CAD) of products, robotics, and production lines has transformed manufacturing, mainly by reducing production costs. Revolutionary developments facilitate low-scale and low-cost manufacturing. Firms can make products cost-effectively even in short production runs. Such developments benefit international business by allowing firms to more efficiently adapt products to individual foreign markets, profitably target small national markets, and compete more effectively with foreign competitors that enjoy cost advantages. d. Transportation: The development of fuel-efficient jumbo jets, giant ocean-going freighters, and new transportation technology have greatly reduced shipping times and costs. Diff: 2: Moderate Skill: Concept Objective: 2-3: Understand technological advances and globalization AACSB: Analytical Thinking; Information Technology 34) In terms of international business, market globalization can be viewed as a ________. A) consequence of a strong emphasis on traditional values worldwide B) consequence of the loss of national sovereignty C) driver and consequence of firm-level internationalization D) prime cause of rising diseconomies of scale in emerging economies Answer: C Diff: 3: Hard Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 13 Copyright © 2017 Pearson Education, Ltd. 35) A value chain is ________. A) the sequence of administrative policies implemented to promote economic integration by a government B) the process of relocating manufacturing and production to valuable and cost-effective locations abroad C) the process of integrating national economies during a financial crisis D) the sequence of value-adding activities performed by a firm in the course of developing, producing, marketing, and servicing a product Answer: D Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 364) Regional economic integration blocs ________. A) reduce trade and investment barriers B) reduce private investments C) adopt a hostile stance toward the private sector D) hinder the cross-border flow of factors of production Answer: A Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 37) Which of the following is an example of a supranational institution? A) the World Intellectual Property Organization B) the UNICEF C) the Red Cross D) the World Trade Organization Answer: D Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 38) Governments have facilitated economic integration by ________. A) increasing barriers to international trade and investment B) creating supranational institutions to further reduce trade barriers C) adopting different monetary and fiscal policies within the same regional economic integration blocs D) standardizing consumer lifestyles and preferences Answer: B Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 14 Copyright © 2017 Pearson Education, Ltd. 39) Reduction in trade barriers is associated with the emergence of ________. A) fragmentary monetary and fiscal policies across the borders B) regional economic integration blocs C) widespread violation of intellectual property rights law D) violation of GATT provisions Answer: B Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 40) Governments have facilitated economic integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 41) In a "common market," barriers to the cross-border flow of factors of production are removed. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 15 Copyright © 2017 Pearson Education, Ltd. 42) Companies strive to decrease their costs and reduce their selling prices through economies of scale and standardization of finished products, among other possibilities. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-4: Comprehend the dimensions of globalization AACSB: Analytical Thinking 43) The most direct implication of market globalization is on the firm's ________. A) value chain B) founders C) internal stakeholders D) top management Answer: A Diff: 1: Easy Skill: Concept Objective: 2-5: Appreciate firm-level consequences of market globalization AACSB: Analytical Thinking 44) Which of the following statements is true about the firm-level consequences of market globalization? A) The globalization of markets has narrowed down new business opportunities for internationalizing firms. B) Globalization drives firms to relocate key value-adding activities to the most advantageous locations around the world. C) A firm's value chain is not subject to internationalization. D) Through offshoring, a firm relocates a major value-chain activity by establishing a factory or subsidiary in the home market. Answer: B Diff: 2: Moderate Skill: Concept Objective: 2-5: Appreciate firm-level consequences of market globalization AACSB: Analytical Thinking 45) Globalization results in more demanding buyers who shop for the best deals worldwide. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-5: Appreciate firm-level consequences of market globalization AACSB: Analytical Thinking 16 Copyright © 2017 Pearson Education, Ltd. 46) The relocation of manufacturing and other value-chain activities to cost-effective locations abroad is known as ________. A) insourcing B) cultural imperialism C) contagion D) offshoring Answer: D Diff: 1: Easy Skill: Concept Objective: 2-6: Understand the societal consequences of globalization 17 Copyright © 2017 Pearson Education, Ltd. 47) While a degree of cultural imperialism may be at work, it is offset by the countertrend of ________. A) offshoring B) McDonaldization C) privatization D) local nationalism Answer: D Diff: 1: Easy Skill: Concept Objective: 2-6: Understand the societal consequences of globalization AACSB: Analytical Thinking 48) Environmental destruction diminishes as economies develop, at least in the long run. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 2-6: Understand the societal consequences of globalization AACSB: Analytical Thinking 18 Copyright © 2017 Pearson Education, Ltd. 49) In a short essay, explain the concept of sovereignty. How does globalization affect sovereignty? Answer: Sovereignty is defined as the ability of a nation to govern its own affairs. One country's laws cannot be applied or enforced in another country. Globalization can threaten national sovereignty in various ways. MNE activities can interfere with a government's ability to control its own economy, social structure, and political system. Some corporations are bigger than the economies of small nations. Walmart's internal economy-its total revenues-is larger than the GDP of many of the world's nations, including Israel, Greece, and Poland. Large multinational firms can apply a lot of pressure on governments through lobbying or campaign contributions. MNEs frequently influence the legislative process. Corporate dominance of individual markets is rare. In reality, market forces generally dominate companies. For example, Ford, Chrysler, and General Motors once dominated the U.S. auto market. Today many more automotive firms compete in the United States. These include Toyota, Honda, Hyundai, Nissan, and BMW. Toyota now leads the global market in annual sales. Home-country market shares of domestic U.S. automakers have tumbled. To minimize globalization's harm and reap its benefits, governments should ensure the freedom to enter and compete in markets, protect private property, enforce the law, and support voluntary exchange through markets rather than through political processes. Banks and financial institutions should be regulated appropriately. Transparency in the affairs of business and regulatory agencies is critical. Diff: 2: Moderate Skill: Concept Objective: 2-6: Understand the societal consequences of globalization AACSB: Analytical Thinking 50) Discuss the effect of globalization on national culture. Answer: Globalization exerts strong pressures on national culture. Market liberalization exposes local consumers to global brands, unfamiliar products, and different values. People worldwide are exposed to movies, television, the Internet, and other information sources that promote lifestyles of people in the United States and other advanced economies. Appetites grow for Western products and services, which are seen to signal higher living standards. For example, despite low per-capita income, many Chinese buy consumer electronics such as cell phones and TV sets. Advertising disseminates societal values modeled on Western countries. Hollywood dominates the global entertainment industry. Cultural imperialism is offset by the countertrend of local nationalism. Although many products and services have become largely universal, people's behaviors and attitudes remain relatively stable over time. Religious differences are as strong as ever. Language differences are steadfast across national borders. As globalization standardizes superficial aspects of life across national cultures, people resist these forces by insisting on their national identity and taking steps to protect it. For example, laws exist to protect national language and culture in Belgium, Canada, and France. Diff: 3: Hard Skill: Concept Objective: 2-6: Understand the societal consequences of globalization AACSB: Analytical Thinking 19 Copyright © 2017 Pearson Education, Ltd.  20 Copyright © 2017 Pearson Education, Ltd.