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: T PTS: 1 DIF: Moderate REF: pp. 4-5

OBJ: 1.1 NAT: AACSB: Tier 1 Analytic | Tier 2 Creation of Value

2. The terms international business (IB) and global business are synonymous.

ANS: F PTS: 1 DIF: Easy REF: p. 5

OBJ: 1.1 NAT: AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy

3. The term international business always refers to business activities conducted abroad.

ANS: F PTS: 1 DIF: Difficult REF: p. 5

OBJ: 1.1 NAT: AACSB: Tier 1 Communication | Tier 2 Environmental Influences

4. Global business includes both international (cross-border) activities as well as domestic business activities.

ANS: T PTS: 1 DIF: Moderate REF: p. 5

OBJ: 1.1 NAT: 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: F PTS: 1 DIF: Moderate REF: pp. 5-6

OBJ: 1.1 NAT: 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: T PTS: 1 DIF: Easy REF: p. 6

OBJ: 1.1 NAT: 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: F PTS: 1 DIF: Moderate REF: p. 6

OBJ: 1.1 NAT: AACSB: Tier 1 Analytic | Tier 2 Creation of Value

8. Most top managers of large firms lack significant global competence.

ANS: F PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: AACSB: Tier 1 Reflective Thinking | Tier 2 Strategy

9. Expatriate managers make ideal candidates for top management positions.

ANS: T PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: 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: F PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: AACSB: Tier 1 Analytic | Tier 2 Creation of Value

11. International premium is a significant pay raise awarded to expatriate employees working abroad.

ANS: T PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: 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: F PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: AACSB: Tier 1 Reflective Thinking | Tier 2 Environmental Influences

13. Approximately 80 million people worldwide are employed by foreign-owned firms.

ANS: T PTS: 1 DIF: Difficult REF: p. 7

OBJ: 1.2 NAT: 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: T PTS: 1 DIF: Moderate REF: pp. 8-9

OBJ: 1.3 NAT: 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: T PTS: 1 DIF: Moderate REF: p. 9

OBJ: 1.3 NAT: 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: T PTS: 1 DIF: Difficult REF: p. 9

OBJ: 1.3 NAT: 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: F PTS: 1 DIF: Moderate REF: p. 10

OBJ: 1.3 NAT: 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: T PTS: 1 DIF: Moderate REF: p. 10

OBJ: 1.3 NAT: 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: T PTS: 1 DIF: Easy REF: p. 10

OBJ: 1.3 NAT: 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: F PTS: 1 DIF: Easy REF: p. 10

OBJ: 1.4 NAT: 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: F PTS: 1 DIF: Moderate REF: pp. 10-11

OBJ: 1.4 NAT: 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: T PTS: 1 DIF: Difficult REF: p. 11

OBJ: 1.4 NAT: 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: T PTS: 1 DIF: Moderate REF: p. 13

OBJ: 1.5 NAT: 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: F PTS: 1 DIF: Difficult REF: p. 15

OBJ: 1.5 NAT: AACSB: Tier 1 Communication | Tier 2 Environmental Influences

25. Many proponents of globalization are nongovernmental organizations (NGOs).

ANS: F PTS: 1 DIF: Difficult REF: p. 15

OBJ: 1.5 NAT: AACSB: Tier 1 Communication | Tier 2 Strategy

MULTIPLE CHOICE

1. The firm that engages in foreign direct investment is a:

a. / Global firm
b. / Multinational enterprise
c. / International enterprise
d. / Foreign direct investor

ANS: B PTS: 1 DIF: Moderate REF: p. 4

OBJ: 1.1 NAT: 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 activities
b. / The action of doing business abroad
c. / Business around the globe including international and domestic business activities
d. / All of these answers

ANS: C PTS: 1 DIF: Moderate REF: p. 5

OBJ: 1.1 NAT: 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: A PTS: 1 DIF: Moderate REF: pp. 4-5

OBJ: 1.1 NAT: 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/market
b. / Developing economy/market
c. / Undeveloped economy/market
d. / Third world economy/market

ANS: B PTS: 1 DIF: Easy REF: p. 6

OBJ: 1.1 NAT: 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 product
b. / Gross national income / d. / National reserves

ANS: C PTS: 1 DIF: Moderate REF: p. 5

OBJ: 1.1 NAT: 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: A PTS: 1 DIF: Moderate REF: p. 6

OBJ: 1.1 NAT: AACSB: Tier 1 Analytic | Tier 2 Environmental Influences

7. The global economy can be viewed as a pyramid. The Triad represents:

a. / US, Germany, England
b. / US, Western Europe, China
c. / Brazil, India, China
d. / North America, Western Europe, Japan

ANS: D PTS: 1 DIF: Moderate REF: p. 6

OBJ: 1.1 NAT: AACSB: Tier 1 Analytic | Tier 2 Environmental Influences

8. According to the text, most MNEs are ____ the base of the pyramid.

a. / Focusing on
b. / Ignoring
c. / Aware of countless opportunities of
d. / Considering FDI in the economies at

ANS: B PTS: 1 DIF: Easy REF: p. 6

OBJ: 1.1 NAT: 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: B PTS: 1 DIF: Difficult REF: p. 7

OBJ: 1.2 NAT: 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 country
b. / A manager of great expertise
c. / An ex-manager rehired for advisory purposes
d. / None of these answers

ANS: A PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: AACSB: Tier 1 Communication | Tier 2 HRM

11. In addition to their regular compensation, managers working abroad are awarded with

a. / Global fringe benefits
b. / Foreign pension plan
c. / International premium
d. / Health insurance

ANS: C PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: 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: D PTS: 1 DIF: Easy REF: p. 7

OBJ: 1.2 NAT: AACSB: Tier 1 Reflective Thinking | Tier 2 HRM

13. Why study global business?

a. / In order to increase one's employability
b. / 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: D PTS: 1 DIF: Easy REF: pp. 7-8

OBJ: 1.2 NAT: 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 million
b. / About 40 million / d. / About 1 million

ANS: A PTS: 1 DIF: Moderate REF: p. 7

OBJ: 1.2 NAT: 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 views
b. / Formal- and informal-rule-based views
c. / Institution- and resource-based views
d. / Ability- and mobility-based views

ANS: C PTS: 1 DIF: Moderate REF: p. 8

OBJ: 1.3 NAT: 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 globe
b. / The focus on ROI of the global venture
c. / The focus on maximizing profits while minimizing expenses
d. / The focus on global expansion

ANS: A PTS: 1 DIF: Difficult REF: p. 8

OBJ: 1.3 NAT: 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. / Capability
b. / Asset / d. / Institution

ANS: D PTS: 1 DIF: Moderate REF: p. 9

OBJ: 1.3 NAT: 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. / Capability
b. / Asset / d. / Institution

ANS: A PTS: 1 DIF: Moderate REF: p. 10

OBJ: 1.3 NAT: 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 times
b. / 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: D PTS: 1 DIF: Moderate REF: p. 10

OBJ: 1.4 NAT: 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: D PTS: 1 DIF: Difficult REF: p. 11