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Chapter 1Globalizing 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.
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-. The terms international business /!)0 and global business are synonymous.
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2. The term international business al3ays refers to business activities conducted abroad.
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&. 4lobal business includes both international /cross-border0 activities as 3ell as domestic business
activities.
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'. %merging mar1ets contribute about -'5 of global 4P 3hen ad6usted for purchasing po3er parity,
PPP.
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7. The term 8base of the pyramid8 represents economies in 3hich individuals ma1e less than 9-,::: a
year.
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;. The greatest number of opportunities for global businesses is opened at the 8top of the pyramid,8
3here individuals have the greatest purchasing po3er.
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<. #ost top managers of large firms lac1 significant global competence.
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=. %>patriate managers ma1e ideal candidates for top management positions.
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1:. %>patriate managers are usually paid salaries coinciding 3ith the salaries paid to foreign local
managers of similar ran1.
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11. !nternational premium is a significant pay raise a3arded to e>patriate employees 3or1ing abroad.
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1-. %>patriate employees face fe3er and lo3er-ran1ed employment opportunities upon return to the ?S.
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12. Appro>imately <: million people 3orld3ide are employed by foreign-o3ned firms.
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1&. The institution- and resource-based vie3s are t3o core perspectives ans3ering the fundamental
@uestion: 8Ahat determines the success and failure of firms around the globeB8
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1'. "ormal rules refer to government regulations regarding foreign and domestic firms. !n most modern
emerging environments, formal rules ensure e@ual playing field for all companies, regardless of origin.
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17. ue to informal rules such as culture and ethics, some developed economies have a hard time fostering
entrepreneurship.
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1;. Possessing intimate 1no3ledge about the formal and informal rules governing competition in various
countries is sufficient to succeed globally.
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1<. "irms that are able to succeed in difficult, harsh, even hostile foreign environments, established by
unfavorable formal and informal rules, possess uni@ue firm-specific resources and capabilities not
shared by competitors.
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1=. Ciability of foreignness is the inherent disadvantage e>perienced by foreign firms in host counties
because of their non-native status.
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-:. #ost opponents of globaliDation vie3 globaliDation as a long-run historical evolution since the da3n
of human history.
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-1. 4lobaliDation is a relatively ne3 phenomenon triggered by the information revolution of the late
1=<:s.
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--. According to the pendulum vie3, globaliDation has been perceived both positively and negatively
throughout history.
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-2. The 3orld economy at the beginning of the -1
st
century is an appro>imately 9'' trillion economy
/4P calculated at official, nominal e>change rates0.
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-&. %>ecutives, policyma1ers, and scholars have carefully evaluated the social, political, and
environmental costs associated 3ith globaliDation.
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-'. #any proponents of globaliDation are nongovernmental organiDations /N4(s0.
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MULT!LE C"#CE
1. The firm that engages in foreign direct investment is a:
a. 4lobal firm
b. #ultinational enterprise
c. !nternational enterprise
d. "oreign direct investor
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-. Ahich of the follo3ing definitions of the internationalEglobal business represents the authorFs vie3B
a. A business that engages in international economic activities
b. The action of doing business abroad
c. )usiness around the globe including international and domestic business activities
d. All of these ans3ers
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2. Ahich of the follo3ing terms best describes foreign direct investmentB
a. irectly investing in, controlling, and managing value-added activities in other countries.
b. irectly investing in, controlling, and managing value-added activities in other mar1ets.
c. irectly investing in shares of multinational enterprise.
d. All of these ans3ers
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&. !n the 1==:s, the term 8emerging economyEmar1et8 replaced the commonly used term:
a. "ast gro3ing economyEmar1et
b. eveloping economyEmar1et
c. ?ndeveloped economyEmar1et
d. Third 3orld economyEmar1et
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'. GGGG isEare measured as the sum of value added by resident firms, households, and government
operating in an economy.
a. 4ross national product c. 4ross domestic product
b. 4ross national income d. National reserves
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7. !n order to better compareEcontrast costs of living in the various environments 4NPE4P may be
ad6usted to:
a. PPP /purchasing po3er parity0
b. "oreign e>change rate
c. +ountryFs inflation rate
d. "ive-year national bond appreciationEdepreciation
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;. The global economy can be vie3ed as a pyramid. The Triad represents:
a. ?S, 4ermany, %ngland
b. ?S, Aestern %urope, +hina
c. )raDil, !ndia, +hina
d. North America, Aestern %urope, *apan
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<. According to the te>t, most #N%s are GGGG the base of the pyramid.
a. "ocusing on
b. !gnoring
c. A3are of countless opportunities of
d. +onsidering "! in the economies at
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=. Ahich of the follo3ing is N(T a reason 3hy global business should be studiedB
a. )ecause many ambitious students aspire to 6oin the top ran1s of large firms.
b. To ac@uire hands-on global e>perience in global business.
c. )ecause many top ran1 managers are selected from the pool of e>patriate managers
d. !n order for oneFs earning potential to be ma>imiDed.
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1:. Ahich of the follo3ing definitions best defines an e>patriate managerB
a. A manager 3ho 3or1s outside his or her native country
b. A manager of great e>pertise
c. An e>-manager rehired for advisory purposes
d. None of these ans3ers
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11. !n addition to their regular compensation, managers 3or1ing abroad are a3arded 3ith
a. 4lobal fringe benefits
b. "oreign pension plan
c. !nternational premium
d. Health insurance
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1-. Ahen an e>pat employee returns to her or his current employer but the employer does not provide
attractive opportunities, sheEhe often may be hired by a competitor firm. AhyB
a. +ompetitor firms are also interested in globaliDing their business.
b. "ormer e>pats bring instant e>pertise and e>perience.
c. +ompeting firms 3ill pay a higher premium for e>pertise.
d. All of these ans3ers
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12. Ahy study global businessB
a. !n order to increase oneFs employability
b. !n order not to get )angalored or Shanghaied
c. !n order to better understand ho3 to become a sought-after, globe-trotting manager
d. All of these ans3ers
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1&. Ho3 many individuals are employed by foreign-o3ned firms throughout the 3orldB
a. About <: million c. About 1< million
b. About &: million d. About 1 million
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1'. !n order to ans3er the @uestion: 8Ahat determines the success and failures of firms around the
globeB,8 the author introduces 3hich t3o core perspectivesB
a. +apability- and asset-based vie3s
b. "ormal- and informal-rule-based vie3s
c. !nstitution- and resource-based vie3s
d. Ability- and mobility-based vie3s
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17. Ahat defines the field of global business more than anything elseB
a. The focus on firm performance around the globe
b. The focus on $(! of the global venture
c. The focus on ma>imiDing profits 3hile minimiDing e>penses
d. The focus on global e>pansion
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1;. The GGGG-based vie3 suggests that the formal and informal rules of the game, 1no3n as institutions,
shed a great deal of light on 3hat is behind firm performance around the globe.
a. $esource c. +apability
b. Asset d. !nstitution
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1<. The GGGG-based vie3 suggests that in order to achieve remar1able success, a firm must possess some
very rare and po3erful firm-specific resources and capabilities that are the envy of their rivals around
the globe.
a. $esource c. +apability
b. Asset d. !nstitution
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1=. Ahich of the follo3ing is N(T a vie3 on globaliDation stressed by the authorB
a. A ne3 force s3eeping through the 3orld in recent times
b. A long-run historical evolution since the da3n of human history
c. A pendulum that s3ings from one e>treme to another from time to time
d. A force empo3ered by recent political decisions
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-:. #ore than half of the 3orld 4P gro3th in recent years comes from GGGG.
a. The "our Tigers /Hong-Iong, Singapore, South Iorea, and Tai3an0
b. Catin America
c. +entral and %astern %urope
d. %merging economies, such as )$!+ /)raDil, $ussia, !ndia, and +hina0
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-1. The pendulum vie3 of globaliDation is embraced by:
a. 4lobaliDationFs opponents and s1eptics
b. 4lobaliDationFs proponents and enthusiasts
c. 4lobaliDationFs realists a3are of historical cycles that globaliDation has gone through
d. #ost #N%s and their lobbyists
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--. Ahich e>pression does the author use to describe contemporary globaliDationB
a. 4lobal localiDation c. SemiglobaliDation
b. Total globaliDation d. 4lobal standardiDation
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-2. The 3orld economy at the beginning of the -1
st
century is an appro>imately:
a. 91: trillion economy
b. 9-2 trillion economy
c. 97: trillion economy
d. 9;- trillion economy
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ESSA$
1. %>plain in your o3n 3ords ho3, according to the author, this boo1 3ill focus on international
business.
ANS:
(ther international business te>tboo1s focus on the international /foreign entrant0 to the e>tent that the
business part /3hich includes the domestic business0 3ould almost disappear. !) is more about the
business before the international part. (ther courses you ta1e in business school have a name
specialiDation such as mar1eting, management, and operations. This integrated course 3ill provide an
overall business perspective versus a functional perspective. !n this course, you 3ill learn the
international and ho3 business affects the international component.
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-. The global economy may be vie3ed as a pyramid. The gro3ing number of opportunities at the base of
the pyramid highlights the role this bottom tier 3ill play in the years to come. Ho3 3ould you ta1e
advantage of this often-ignored level if you 3ere occupying a top management position at a prominent
#N%B
ANS:
The global economy can be vie3ed as a pyramid. The top of the pyramid consists of one billion people
3ith per capita income of 9-:,::: or higher. The second tier consists of another billion people ma1ing
9-,::: to 9-:,::: a year. The vast ma6ority of the 3orldFs populations, representing appro>imately '
billion people, live at the base of this pyramid, ma1ing less than 9-,::: a year.
#ar1eters have focused on the top t3o levels and end up ignoring the bottom tier. An increasing
number of countries located in this bottom tier are demonstrating economic and mar1eting
opportunities as they move from lo3- to middle-income levels. !t is much easier to mar1et to
consumers 3ith higher incomes. !n the emerging 3orld, mar1eting is different. There is no guarantee
that media choices 3ill be available or that your product 3ill be a success.
The challenges in the bottom of the pyramid re@uire innovation, such as identifying special price
points, as 3ell as long-term commitment. #any consumers at the base of the pyramid may be illiterate,
but they are brand conscious. +ompanies need to thin1 outside the bo> and identify 3in-3in strategies
for this emerging consumer mar1et.
Although individuals living in developing economies have less purchasing po3er than their
counterparts living in the developed countries, they still have needs and 3ants. 4lobal firms capable of
fulfilling these needs 3ill ma1e a profit and emerge as global mar1eters.
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2. %>plain the benefits of gaining international business e>perience and 3or1ing as an e>pat.
ANS:
Answers will vary.
People s1ills and greater understanding of the comple>ity of the global business environment are
valuable assets for current and future top #N% e>ecutives. %>patriates have a uni@ue opportunity to be
hands-on managers e>posed to the corporationFs global organiDational dynamics.
Top-level 6obs, especially those held by e>pats, are both financially re3arding and secure. %>pats often
command a significant premium in compensation, 3hich usually includes a premium pay raise 3hen
accepting overseas assignments. Another benefit is more favorable 6ob security in times of do3nsiDing.
#anagers 3ho have positioned themselves strategically 3ith international business e>perience have a
better chance at continued employment.
Ahen the e>pat returns from a global assignment, if the current company does not provide attractive
career return opportunities, the e>pat has the s1ills and e>pertise to consider other global firms. !n
most cases, the e>pat 3ill not have a difficult time identifying other employment opportunities and
commanding a higher premium. %>pats gain a competitive advantage by accepting global business
assignments as it increases their opportunities for up3ard mobility.
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&. %>plain the correlation bet3een the success and failure of global firms and the institution- and
resource-based vie3s.
ANS:
4lobal firms can gain success in todayFs competitive global mar1et by focusing on the institution- and
resource-based perspectives. The first factor from an institutional perspective focuses on ho3
companies can earn greater success by understanding the e>ternal business environments in
international business. #N%s @uic1 to ac@uaint themselves 3ith an understanding of the e>ternal
environment, such as host country mar1et rules, cultural norms, and policies, 3ill increase their
international success.
The resource-based vie3 focuses on an #N%sF internal resources, 3hich are firm-specific resources
and capabilities. +ompetitors in the same environment do not share these internal capabilitiesJ
therefore, a company possessing uni@ue firm-specific capabilities develops a competitive advantage in
mar1eting their products or in the value creation process. 4lobal companies that best utiliDe their
internal strengths 3ill increase their opportunities for business success.
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'. %>plain ho3 the pendulum vie3 attempts to describe globaliDation as a cyclical phenomenon 3ith
many difficulties.
ANS:
The pendulum vie3 presents the events in the present timeframe as a long-term model to help us gain
greater understanding of and perspective on globaliDationFs challenges.
The current era of globaliDation originated after Aorld Aar !! 3ith the ma6or Aestern nations
committing to globaliDation. "rom the 1=':s through the 1=;:s, political unrest in the communist
countries formed a different vie3 of globaliDation. Noncommunist countries, such as Argentina and
)raDil, focused on protecting their domestic industries. !n contrast, the "our TigersKspecifically, the
developing economies of Hong Iong, Singapore, South Iorea, and Tai3anKparticipated in the global
economy.
)oth emerging and developed mar1ets benefit greatly from globaliDation. Ho3ever, seen in a historical
conte>t, globaliDation never continues in one up3ard or positive direction, hence the vie3 of it as a
pendulum. !n the 1==:s, globaliDation 3as on the fast trac1. Ho3ever, globaliDation proponents
3itnessed significant bac1lashes and setbac1s. This rapid gro3th in globaliDation led to an inaccurate
vie3 that globaliDation 3as ne3, 3hich created many negative perceptions. This ne3 vie3 of
globaliDation created fear, and competition posed a direct threat to countriesF culture and values.
#ore recently, globaliDation has once again come to be considered a positive, offering contributions to
3orld3ide economic gro3th. 4lobaliDation changes over time, 3ith both a rosy and dar1 side. !n some
areas, it has resulted in 6ob creation 3ith tremendous outcomes, 3hile in other areas it has resulted in
6ob losses and hardship. Ho3 globaliDation has affected you or your family 3ill influence your
perceptions and vie3points.
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7. %>plain ho3 a countryLs gross domestic product /4P0 is changed after ad6usting for purchasing
po3er parity /PPP0.
ANS:
Purchasing po3er parity /PPP0 calculation is a conversion that determines the e@uivalent amount of
goods and services different currencies can purchase. "or e>ample, one dollar spent in #e>ico can buy
a lot more than one dollar spent in the ?nited States.
4ross domestic product /4P0 is the sum of value added by resident firms, households, and
government operating in an economy. To compare t3o countriesF 4P, a conversion based on PPP is
necessary.
The PPP bet3een t3o countries is the rate at 3hich the currency of one country needs to be
converted into that of a second country to ensure that a given amount of the first countryFs currency
3ill purchase the same volume of goods and services in the second country. Aithout ad6usting for PPP,
emerging economies contribute about -75 of the global 4P. )ut after ad6usting for PPP, emerging
economies contribute about ':5 of the global 4P.
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