Chapter 1 Hill - International Business 8e

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Chapter 01
Globalization

True / False Questions

1. The notion that national economies are relatively self-contained entities is on the rise.
True False

2. The shift toard a more inte!rated and interdependent orld economy is referred to as
!lobali"ation.
True False

#. The mer!in! of historically distinct and separate markets into one hu!e !lobal marketplace
is knon as the !lobali"ation of markets.
True False

$. The ma%ority of &.'. firms that export are lar!e multinationals that employ ()) or more
people.
True False

(. The most !lobal markets currently are markets for industrial !oods and materials that serve
a universal need the orld over.
True False

*. +utsourcin! is a process that is limited to manufacturin! enterprises.
True False

,. -ecause of their nature. service activities cannot be outsourced to other companies.
True False

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/. +ne of the &0 central mandates is the promotion of hi!her standards of livin!. full
employment. and conditions of economic and social pro!ress and development.
True False

1. &nderlyin! the trend toards !reater !lobali"ation is technolo!ical chan!e and a decline in
barriers to the free flo of !oods. services. and capital.
True False

1). 2ccordin! to the &nited 0ations most chan!es beteen 1112 and 2))( to las !overnin!
F34 have resulted in a less favorable environment for F34.
True False

11. 2ccordin! to 5T+ data. the volume of orld merchandise trade has !ron faster than the
orld economy since 11().
True False

12. The expansion of orld trade implies that nations are becomin! less dependent on each
other for important !oods and services.
True False

1#. 4n the period 11()-111). the orld 637 shoed a consistent decline as opposed to the
volume of exports.
True False

1$. 3urin! the period 111) - 2))). the volume of total exports as more than tice the orld
637.
True False

1(. 3eclinin! barriers to cross-border trade and investment cannot be taken for !ranted.
True False

1*. The !lobali"ation of markets and production and the resultin! !roth of orld trade.
forei!n direct investment. and imports all imply that firms are findin! their home markets
protected from forei!n competitors.
True False

1,. 8oore9s :a predicts that the poer of microprocessor technolo!y doubles and its cost of
production falls by half every 1/ months.
True False

1/. ;fficiency !ains associated ith containeri"ation have caused transportation costs to fall
dramatically.
True False

11. Today !lobal communication netorks and !lobal media are creatin! a orldide
culture.
True False

2). 4n the early 11*)s. the &nited 'tates as by far the orld9s dominant industrial poer.
<oever by 2))*. it lost its dominant position and no. is no lon!er the orld9s lar!est
industrial poer.
True False

21. -y 2))/. the &.'. had seen its share of exports fall to almost half its share in the 11*)s.
True False

22. 2ccordin! to forecasts. a further relative decline in the share of orld output and orld
exports accounted for by the &nited 'tates and other lon!-established developed nations is
unlikely.
True False

2#. 2 current trend in international business is the !roth of medium-si"ed and small
multinationals. knon as mini-multinationals.
True False

2$. Today. the risks involved in doin! business in countries such as =ussia are lo. but so are
the returns.
True False

2(. 4f the free market reforms in >hina continue for to more decades. >hina may move from
Third 5orld status to industrial superpoer status even more rapidly than ?apan did.
True False

2*. >urrent trends indicate that the orld is movin! rapidly toards an economic system that
is more favorable for international business.
True False

2,. 8any economists. politicians. and business leaders believe that the shift toard a more
inte!rated and interdependent !lobal economy is a positive trend.
True False

2/. The anti!lobali"ation effort is created and supported only by a small !roup of hard-core
anarchists.
True False

21. 'tudies have shon that a!e rates for unskilled orkers in many advanced economies
have fallen in recent years.
True False

#). 'ome critics ar!ue that outsourcin! has caused a!e rates of poorer 2mericans to fall
si!nificantly over the past @uarter of a century.
True False

#1. =ecent evidence indicates that the solution to the problem of sta!nant incomes amon! the
unskilled is to be found in increasin! society9s investment in education to reduce the supply of
unskilled orkers.
True False

#2. 2 source of concern of critics of free trade is that it usually encoura!es firms from
advanced countries to move manufacturin! facilities to less developed countries that lack
ade@uate re!ulations to protect labor and the environment from abuse.
True False

##. 2ccordin! to supporters of free trade. as countries !et richer they enact tou!her
environmental and labor re!ulations.
True False

#$. 2ccordin! to critics of !lobali"ation. today9s interdependent !lobal economy limits a
nation9s national soverei!nty.
True False

#(. >ritics of !lobali"ation su!!est that over the last century. the !ap beteen the rich and
poor nations of the orld has shrunken.
True False

#*. 3ebt continues to be a ma%or burden for poorer nations as they strive to !et ahead.
True False

#,. 'upporters of debt relief ar!ue that ne democratic !overnments in poor nations should
not be forced to honor debts that their corrupt and dictatorial predecessors incurred and
mismana!ed lon! a!o.
True False

#/. 2n international business is any firm that en!a!es in international trade or investment.
True False

#1. The mana!ers of an international business must decide hether it is ethical to adhere to
the loer labor and environmental standards found in many less developed nations.
True False

$). 4n !eneral. mana!in! an international business is a more complex task than mana!in! a
business that serves only the local market.
True False

Multiple Choice Questions

$1. 5hich of the folloin! is not characteristic of !lobali"ationA
2. 0ational economies are turnin! into independent economic systems.
-. 8aterial culture is startin! to look similar the orld over.
>. 7erceived distance is shrinkin! due to advances in transportation and telecommunications.
3. -arriers to cross-border trade and investment are declinin!.

$2. 6lobali"ation has BBBBB the opportunities for a firm to expand its revenues by sellin!
around the orld and BBBBB its costs by producin! in nations here key inputs are cheap.
2. reduced. reduced
-. increased. increased
>. increased. reduced
3. reduced. increased

$#. 'ince the collapse of communism at the end of the 11/)s. the ersthile communist nations
have transformed their economies by encoura!in! all of the folloin! except:
2. privati"in! state-oned enterprises.
-. re!ulatin! markets.
>. increasin! competition.
3. elcomin! investment by forei!n businesses.

$$. 4dentify the incorrect statement concernin! !lobali"ation.
2. 4t has been blamed for unemployment in developed nations. environmental de!radation
and the 2mericani"ation of popular culture.
-. 4t has created ne threats for businesses accustomed to dominatin! their domestic markets.
>. 4t is transformin! industries and is hi!hly elcomed by those ho believed their %obs ere
protected from forei!n competition.
3. 2ccordin! to most economists it is a very beneficial process here !ains outei!h the
losses by a ide mar!in.

$(. 4n the &.'.. BBBBB percent of firms that export are small companies employin! feer than
1)) people.
2. 1)
-. ,(
>. ()
3. #)

$*. The most !lobal markets currently are markets for:
2. services.
-. consumer !oods.
>. consumer durables.
3. industrial !oods.

$,. 5hich of the folloin! is not an impediment that makes it difficult for firms to achieve
the optimal dispersion of their productive activities to locations around the !lobeA
2. =educed transportation costs.
-. 6overnment re!ulations.
>. 4ssues associated ith economic and political risk.
3. -arriers to forei!n direct investment.

$/. The BBBBBB is primarily responsible for policin! the orld tradin! system and makin!
sure nation-states adhere to the rules laid don in trade treaties si!ned by member states.
2. 4nternational 3evelopment 2ssociation
-. 5orld -ank
>. 4nternational >ourt of %ustice
3. 5orld Trade +r!ani"ation

$1. The BBBBB as created in 11$$ by $$ nations that met in -reton 5oods. 0e <ampshire
to promote economic development.
2. 5orld -ank
-. 4nternational Trade >enter
>. 5orld Trade +r!ani"ation
3. &nited 0ations

(). The institution. created in 11$$ at -retton 5oods. responsible for maintainin! order in the
international monetary system is the
2. 48F.
-. 5T+.
>. &0.
3. &0;'>+.

(1. BBBBB occurCsD hen a firm exports !oods or services to consumers in another country.
2. 4nternational trade
-. Forei!n direct investment
>. 4nard investment
3. 8er!er and ac@uisitions

(2. The BBBBB as established to remove barriers to the free flo of !oods. services. and
capital beteen nations.
2. &0
-. 48F
>. 62TT
3. 432

(#. 2t the 3oha =ound of the 5T+ in late 2))1.
2. the 5T+ as established.
-. 62TT as extended to include services.
>. orld trade volume increased.
3. an a!enda as established to phase out subsidies to a!ricultural producers.

($. The reduction in the avera!e tariff rates on manufactured products since 11() implies all
of the folloin! except that
2. firms are dispersin! parts of their production process to !lobal locations to drive don
production costs and increase product @uality.
-. the economies of the orld9s nation states are becomin! more intertined.
>. nations are becomin! increasin!ly independent of each other for important !oods and
services.
3. the orld has become si!nificantly ealthier since 11().

((. The !roin! inte!ration of the orld economy is:
2. increasin! the intensity of competition in a ide ran!e of manufacturin! and service
industries.
-. decreasin! the intensity of competition in manufacturin! industries. and increasin! the
intensity of competition in services.
>. increasin! the intensity of competition in manufacturin! industries. and decreasin! the
3. narroin! the scope of competition in a ide ran!e of service. commodity. and
manufacturin! industries.

(*. 5hich of the folloin! statements re!ardin! cross-border trade and investment is not
trueA
2. E7rotectionE from forei!n competitors has been. at times. demanded by the &nited 'tates.
-. Forecasts indicate a return to the restrictive trade policies of the 112)s and #)s.
>. 4f trade barriers decline no further they ill put a brake upon the !lobali"ation of both
markets and production.
3. 4t is not clear hether the political ma%ority in the industriali"ed orld favors further
reductions in trade barriers.

(,. 4dentify the incorrect statement pertainin! to the 5orld 5ide 5eb.
2. 4t makes it much easier for buyers and sellers to find each other.
-. Fieed !lobally. it is emer!in! as an e@uali"er.
>. 4t rolls back all of the constraints of location. scale. and time "ones.
3. 4t allos businesses to expand their !lobal presence at a loer cost than ever before.

(/. 'ince 11/). the orld9s containership fleet has more than BBBBB. reflectin! in part the
!roin! volume of international trade.
2. doubled
-. tripled
>. @uadrupled
3. @uintupled

(1. Technolo!ical innovations have facilitated all of the folloin! except:
2. !lobali"ation of production.
-. !lobali"ation of markets.
>. creation of electronic !lobal marketplaces.
3. creation of absolutely homo!eneous consumer markets.

*). 2lthou!h the characteristics of the !lobal economy have chan!ed dramatically over the
past #) years. as late as the 11*)s all of the folloin! demo!raphic characteristics ere true.
except:
2. the &.'. dominated the orld economy.
-. small. &.'. entrepreneurial firms dominated the international business scene.
>. the &.'. dominated the orld forei!n direct investment picture.
3. rou!hly half the orld as !overned by centrally planned economies of the >ommunist
orld.

*1. 5hich of the folloin! nation9s orld output has declined the least over the last $) yearsA
2. France
-. &nited 'tates
>. &nited Gin!dom
3. >anada

*2. 5hich of the folloin! countries has had the maximum relative decline in its share of
orld output since 11*#A
2. >anada
-. &nited 'tates
>. ?apan
3. 6ermany

*#. 5hich of the folloin! statements pertainin! to the chan!in! demo!raphics of orld
637 and trade from 11*# to 2))* is not trueA
2. 2s emer!in! economies continue to !ro. a relative decline in the share of orld output
and orld exports accounted for by the &.'. seems unlikely.
-. Forecasts predict a rapid rise in the share of orld output accounted for by some
developin! nations.
>. 2 decline in the share en%oyed by rich industriali"ed countries such as 6reat -ritain.
6ermany. ?apan. and the &.'. is likely.
3. 4f current trends continue. the >hinese economy could be lar!er than that of the &.'. on a
purchasin! poer parity basis.

*$. 2ccordin! to 5orld -ank numbers.
2. developin! nations currently account for more than *) percent of orld economic activity.
-. rich nations currently account for more than ,) percent of orld economic activity.
>. today9s rich nations may account for (( percent of orld economic activity by 2)2).
3. today9s developin! nations may account for more than *) percent of orld economic
activity by 2)2).

*(. 4n the 11,)s. many ?apanese firms invested in 0orth 2merica and ;urope
2. to avoid a hi!hly competitive domestic market.
-. to exploit hi!h domestic tariff barriers.
>. as a hed!e a!ainst unfavorable currency movements.
3. to take advanta!e of lo labor costs.

**. 5hat is the total cumulative value of forei!n investments best referred to asA
2. 2ccumulation of forei!n shares
-. 7ortfolio investments
>. 'tock of forei!n direct investments
3. 'tock market investments

*,. The share of the total F34 stock accounted for by hich of the folloin! countries
increased markedly from 11/) to 2))(A
2. &nited 'tates
-. France
>. &nited Gin!dom
3. 0etherlands

*/. Firms based in BBBBB accounted for 1$., percent of the stock of forei!n direct investment
in 2)),. up from only 1.1 percent in 11/).
2. 2sia
-. developin! countries
>. &nited Gin!dom
3. 02FT2 re!ion

*1. 5hich of these statements pertainin! to cross-border F34 flos is trueA
2. The !roth of F34 resumed in 2))$ and continued throu!h 2))*.
-. 2 sur!e in F34 from 111( to 111, as folloed by a slump from 111/ to 2))).
>. 2mon! developin! nations. the lar!est recipient of F34 has been =ussia.
3. The dramatic increase in F34 reflects the decreasin! internationali"ation of business
corporations.

,). 5hich of the folloin! countries has been the lar!est recipient of forei!n direct
investment and received about H,) billion a year in inflos in 2))( and 2))*A
2. -ra"il
-. =ussia
>. 4ndia
3. >hina

,1. -y 2))* some 2$ of the orld9s 1)) lar!est non-financial multinationals ere:
2. >hinese enterprises.
-. -ritish enterprises.
>. &.'. enterprises.
3. ?apanese enterprises.

,2. 4dentify the incorrect statement re!ardin! the former >ommunist nations of ;urope and
2sia.
2. The economies of most of the former >ommunist states are very stron! and developed.
-. 8any of the former >ommunist nations of ;urope and 2sia share a commitment to free
market economies.
>. 2s a result of disturbin! si!ns of !roin! unrest and totalitarian tendencies. the risks
involved in doin! business in these countries is very hi!h.
3. For about half a century these countries ere essentially closed to 5estern international
business.

,#. 5hich of the folloin! observations concernin! :atin 2merican countries is trueA
2. >omplete restrictions on direct investment by forei!n firms.
-. >haracteri"ed by lo !roth. hi!h debt. and hyperinflation.
>. 3ebt and inflation are up compared to previous decades.
3. 'ubstantial opportunities exist. but are accompanied by substantial risks.

,$. 5hich of the folloin! statement pertainin! to chan!es in the !lobal economy of the 21
st

century is not trueA
2. -arriers to the free flo of !oods. services. and capital have been comin! don.
-. Folume of cross-border trade and investment has been !roin! more rapidly than !lobal
output.
>. 0ational economies are becomin! more independent and movin! aay from the !lobal
economic system.
3. 2s economies advance. more nations are %oinin! the ranks of the developed orld.

,(. 5hich of the folloin! does not help create an economic system that is favorable to
international businessA
2. 3ecreased privati"ation
-. 5idespread dere!ulation
>. +pen markets
3. Fallin! trade and investment barriers

,*. 5hen a company Eexports %obsE overseas. the company is:
2. helpin! domestic orkers by pushin! up a!e rates.
-. increasin! the demand of @ualified domestic orkers.
>. takin! advanta!e of loer a!es in forei!n markets.
3. deceivin! the supporters of !lobali"ation.

,,. 4f the critics of !lobali"ation are correct. all of the folloin! thin!s must be shon
except:
2. the share of national income received by labor. as opposed to the share received by the
oners of capital should have declined in advanced nations.
-. even thou!h labor9s share of the economic pie may have declined. livin! standards need not
deteriorate if the si"e of the total pie has increased sufficiently to offset the decline in labor9s
share.
>. the decline in labor9s share of national income must be due to movin! production to lo-
a!e countries. as opposed to improvin! production technolo!y and productivity.
3. economic !roth in developed nations has offset the fall in unskilled orkers9 share of
national income. raisin! their livin! standards.

,/. 2 study by the +;>3. hose members include the 2) richest economies in the orld.
noted all of the folloin! except:
2. the !ap beteen the poorest and richest se!ments of society in some +;>3 countries
idened.
-. in almost all countries real income levels rose over the 2)-year period studied.
>. fallin! unemployment rates brou!ht !ains to lo-a!e orkers and fairly broad-based
a!e !roth.
3. the !ap beteen rich and poor had narroed in all +;>3 countries.

,1. >ritics of !lobali"ation maintain that the apparent decline in real a!e rates of unskilled
orkers
2. oes far more to a technolo!y-induced shift ithin advanced economies toard %obs that
re@uire si!nificant education and skills.
-. is due to the mi!ration of lo-a!e manufacturin! %obs offshore and a correspondin!
reduction in demand for unskilled orkers.
>. has been impacted most by technolo!ical chan!e.
3. can be checked by increasin! society9s investment in education to reduce the supply of
unskilled orkers.

/). -efore 02FT2 as passed
2. 8exico a!reed to establish a hi!her minimum a!e.
-. the &.'. a!reed to limit the number of %obs that could be exported to 8exico.
>. 8exico committed to tou!her enforcement of environmental protection re!ulations.
3. >anada committed to establish ne limits of F34.

Essay Questions

/1. 5ith the help of an example discuss the characteristics of !lobali"ation.

/2. 3efine !lobali"ation and discuss it has chan!ed the business environmentA

/#. ;xplain hat is meant by the !lobali"ation of markets. 7rovide an example. 5hat are the
most !lobal marketsA

/$. 3iscuss the concept of the !lobali"ation of production.

/(. 5hat is the 5orld Trade +r!ani"ationA 5hat is its role in the orld economyA

/*. 5hat is the 4nternational 8onetary FundA 5hat is the 5orld -ankA 5hat is their
relationship. if any. ith each otherA

/,. ;xplain ho a company competes usin! outsourcin!. 7rovide an example.

//. ;xplain the trends in orld trade and forei!n direct investment over the last half century.

/1. <o has technolo!ical chan!e affected !lobal marketsA 5hat key innovations have
chan!ed the nature of ho Ee do businessAE

1). ;xplain the notion of the 5eb emer!in! as an e@uali"er.

11. 4nnovations in transportation have had a ma%or impact on !lobal trade. >onsider one of
these innovations: containeri"ation. 5hy is this innovation so si!nificantA

12. 3iscuss the demo!raphics of orld trade since the 11*)s. <o has the role of the &.'.
chan!edA <o is orld trade expected to chan!e in the futureA

1#. <o has the forei!n direct investment picture chan!ed since the 11*)sA

1$. 5hat is a multinational enterprise C80;DA <o does a mini-multinational differ from an
80;A

1(. 8any companies are keepin! their eyes on >hina. 5hy is >hina so important to

1*. >onsider the !lobal economy of the 21
st
century. 5hat important chan!es are takin!
placeA 5hat do these chan!es mean for international companiesA

1,. >onsider hether the shift toard a more inte!rated and interdependent !lobal economy
is a !ood thin!. 3iscuss the shift from the eyes of the consumer. the orker. the company. and
the environmentalist.

1/. 3iscuss hat occurred in 'eattle in 1111 at the meetin! of the 5T+ and hy the events
ere important to the future of !lobal trade.

11. Fallin! barriers to international trade destroy manufacturin! %obs in ealthy advanced
economies. 3iscuss this statement. 3o you a!reeA 5hy or hy notA

1)). 3iscuss the effect of !lobali"ation on national soverei!nty.

>hapter )1 6lobali"ation 2nser Gey

True / False Questions

1. (p. 4) The notion that national economies are relatively self-contained entities is on the rise.
FALSE
5e are movin! aay from a orld in hich national economies ere relatively self-
contained entities.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
ea!ning "#$ecti%e: &'('

2. (p. )) The shift toard a more inte!rated and interdependent orld economy is referred to as
!lobali"ation.
TRE

AACSB: Analytic
Bloom's: Comp!e*ension
Difficulty: +asy

#. (p. )) The mer!in! of historically distinct and separate markets into one hu!e !lobal
marketplace is knon as the !lobali"ation of markets.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

$. (p. )) The ma%ority of &.'. firms that export are lar!e multinationals that employ ()) or more
people.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

(. (p. '') The most !lobal markets currently are markets for industrial !oods and materials that
serve a universal need the orld over.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*. (p. ,) +utsourcin! is a process that is limited to manufacturin! enterprises.
FALSE

AACSB: -eflecti%e .*in/ing
Difficulty: Medium

,. (p. ,) -ecause of their nature. service activities cannot be outsourced to other companies.
FALSE

Difficulty: Medium

/. (p. '') +ne of the &0 central mandates is the promotion of hi!her standards of livin!. full
employment. and conditions of economic and social pro!ress and development.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1. (p. '') &nderlyin! the trend toards !reater !lobali"ation is technolo!ical chan!e and a
decline in barriers to the free flo of !oods. services. and capital.
TRE

Difficulty: Medium
ea!ning "#$ecti%e: &'(0

1). (p. '0) 2ccordin! to the &nited 0ations most chan!es beteen 1112 and 2))( to las
!overnin! F34 have resulted in a less favorable environment for F34.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

11. (p. '0) 2ccordin! to 5T+ data. the volume of orld merchandise trade has !ron faster
than the orld economy since 11().
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

12. (p. '0) The expansion of orld trade implies that nations are becomin! less dependent on
each other for important !oods and services.
FALSE

Difficulty: Medium

1#. (p. '1) 4n the period 11()-111). the orld 637 shoed a consistent decline as opposed to
the volume of exports.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1$. (p. '0) 3urin! the period 111) - 2))). the volume of total exports as more than tice the
orld 637.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1(. (p. '4) 3eclinin! barriers to cross-border trade and investment cannot be taken for !ranted.
TRE

Difficulty: Medium

1*. (p. '1) The !lobali"ation of markets and production and the resultin! !roth of orld trade.
forei!n direct investment. and imports all imply that firms are findin! their home markets
protected from forei!n competitors.
FALSE

AACSB: Analytic
Difficulty: +asy

1,. (p. '4) 8oore9s :a predicts that the poer of microprocessor technolo!y doubles and its
cost of production falls by half every 1/ months.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1/. (p. '2) ;fficiency !ains associated ith containeri"ation have caused transportation costs to
fall dramatically.
TRE

Difficulty: Medium

11. (p. ')) Today !lobal communication netorks and !lobal media are creatin! a orldide
culture.
TRE

AACSB: .ec*nology
Bloom's: Knowledge
Difficulty: Medium

2). (p. ')) 4n the early 11*)s. the &nited 'tates as by far the orld9s dominant industrial
poer. <oever by 2))*. it lost its dominant position and no. is no lon!er the orld9s
lar!est industrial poer.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

21. (p. '3) -y 2))/. the &.'. had seen its share of exports fall to almost half its share in the
11*)s.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

22. (p. '3) 2ccordin! to forecasts. a further relative decline in the share of orld output and
orld exports accounted for by the &nited 'tates and other lon!-established developed
nations is unlikely.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

2#. (p. 0') 2 current trend in international business is the !roth of medium-si"ed and small
multinationals. knon as mini-multinationals.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

2$. (p. 01) Today. the risks involved in doin! business in countries such as =ussia are lo. but
so are the returns.
FALSE

AACSB: Analytic
Bloom's: Application
Difficulty: Medium

2(. (p. 01) 4f the free market reforms in >hina continue for to more decades. >hina may move
from Third 5orld status to industrial superpoer status even more rapidly than ?apan did.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

2*. (p. 04) >urrent trends indicate that the orld is movin! rapidly toards an economic system
that is more favorable for international business.
TRE

Bloom's: Knowledge
Difficulty: Medium

2,. (p. 04) 8any economists. politicians. and business leaders believe that the shift toard a
more inte!rated and interdependent !lobal economy is a positive trend.
TRE

AACSB: Analytic
Difficulty: +asy

2/. (p. 0)) The anti!lobali"ation effort is created and supported only by a small !roup of hard-
core anarchists.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

21. (p. 0,) 'tudies have shon that a!e rates for unskilled orkers in many advanced
economies have fallen in recent years.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

#). (p. 0)) 'ome critics ar!ue that outsourcin! has caused a!e rates of poorer 2mericans to fall
si!nificantly over the past @uarter of a century.
TRE

AACSB: Analytic
Difficulty: +asy

#1. (p. 05) =ecent evidence indicates that the solution to the problem of sta!nant incomes
amon! the unskilled is to be found in increasin! society9s investment in education to reduce
the supply of unskilled orkers.
TRE

AACSB: Analytic
Difficulty: Medium

#2. (p. 05) 2 source of concern of critics of free trade is that it usually encoura!es firms from
advanced countries to move manufacturin! facilities to less developed countries that lack
ade@uate re!ulations to protect labor and the environment from abuse.
TRE

AACSB: Analytic
Difficulty: Medium

##. (p. 05) 2ccordin! to supporters of free trade. as countries !et richer they enact tou!her
environmental and labor re!ulations.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

#$. (p. 1') 2ccordin! to critics of !lobali"ation. today9s interdependent !lobal economy limits a
nation9s national soverei!nty.
TRE

AACSB: Analytic
Difficulty: 4a!d

#(. (p. 1') >ritics of !lobali"ation su!!est that over the last century. the !ap beteen the rich
and poor nations of the orld has shrunken.
FALSE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

#*. (p. 10) 3ebt continues to be a ma%or burden for poorer nations as they strive to !et ahead.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

#,. (p. 10) 'upporters of debt relief ar!ue that ne democratic !overnments in poor nations
should not be forced to honor debts that their corrupt and dictatorial predecessors incurred and
mismana!ed lon! a!o.
TRE

AACSB: Analytic
Difficulty: 4a!d

#/. (p. 11) 2n international business is any firm that en!a!es in international trade or
investment.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

#1. (p. 11) The mana!ers of an international business must decide hether it is ethical to adhere
to the loer labor and environmental standards found in many less developed nations.
TRE

Difficulty: +asy

$). (p. 11) 4n !eneral. mana!in! an international business is a more complex task than mana!in!
a business that serves only the local market.
TRE

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

Multiple Choice Questions

$1. (p. 4) 5hich of the folloin! is not characteristic of !lobali"ationA
A! 0ational economies are turnin! into independent economic systems.
-. 8aterial culture is startin! to look similar the orld over.
>. 7erceived distance is shrinkin! due to advances in transportation and telecommunications.
3. -arriers to cross-border trade and investment are declinin!.
5e have been movin! aay from a orld in hich national economies ere relatively self-
contained entities. 2nd e are movin! toard a orld in hich barriers to cross-border trade
and investment are declinin!.

AACSB: Analytic
Difficulty: Medium

$2. (p. 4) 6lobali"ation has BBBBB the opportunities for a firm to expand its revenues by sellin!
around the orld and BBBBB its costs by producin! in nations here key inputs are cheap.
2. reduced. reduced
-. increased. increased
C! increased. reduced
3. reduced. increased
The !lobal expansion of enterprises has been facilitated by favorable political and economic
trends.

AACSB: Analytic
Difficulty: Medium

$#. (p. 2) 'ince the collapse of communism at the end of the 11/)s. the ersthile communist
nations have transformed their economies by encoura!in! all of the folloin! except:
2. privati"in! state-oned enterprises.
"! re!ulatin! markets.
>. increasin! competition.
3. elcomin! investment by forei!n businesses.
'ince the collapse of communism at the end of the 11/)s. the pendulum of public policy in
nation after nation has sun! toard the free market end of the economic spectrum. This has
alloed businesses both lar!e and small. from both advanced nations and developin! nations.
to expand internationally.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

$$. (p. 2) 4dentify the incorrect statement concernin! !lobali"ation.
2. 4t has been blamed for unemployment in developed nations. environmental de!radation
and the 2mericani"ation of popular culture.
-. 4t has created ne threats for businesses accustomed to dominatin! their domestic markets.
C! 4t is transformin! industries and is hi!hly elcomed by those ho believed their %obs ere
protected from forei!n competition.
3. 2ccordin! to most economists it is a very beneficial process here !ains outei!h the
losses by a ide mar!in.
2s !lobali"ation unfolds. it is transformin! industries and creatin! anxiety amon! those ho
believed their %obs ere protected from forei!n competition.

AACSB: Analytic
Difficulty: Medium

$(. (p. )) 4n the &.'.. BBBBB percent of firms that export are small companies employin! feer
than 1)) people.
A! 1)
-. ,(
>. ()
3. #)
0early 1) percent of firms that export are small businesses employin! less than 1)) people.
and their share of total &.'. exports has !ron steadily over the last decade to no exceed 2)
percent.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

$*. (p. )) The most !lobal markets currently are markets for:
2. services.
-. consumer !oods.
>. consumer durables.
#! industrial !oods.
The most !lobal markets currently are not markets for consumer productsIhere national
differences in tastes and preferences are still often important enou!h to act as a brake on
!lobali"ationIbut markets for industrial !oods and materials that serve a universal need the
orld over.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

$,. (p. 5) 5hich of the folloin! is not an impediment that makes it difficult for firms to
achieve the optimal dispersion of their productive activities to locations around the !lobeA
A! =educed transportation costs.
-. 6overnment re!ulations.
>. 4ssues associated ith economic and political risk.
3. -arriers to forei!n direct investment.
'ubstantial impediments still make it difficult for firms to achieve the optimal dispersion of
their productive activities to locations around the !lobe. These impediments include formal
and informal barriers to trade beteen countries. barriers to forei!n direct investment.
transportation costs. and issues associated ith economic and political risk.

AACSB: Analytic
Difficulty: +asy

$/. (p. 5) The BBBBBB is primarily responsible for policin! the orld tradin! system and makin!
sure nation-states adhere to the rules laid don in trade treaties si!ned by member states.
2. 4nternational 3evelopment 2ssociation
-. 5orld -ank
>. 4nternational >ourt of %ustice
#! 5orld Trade +r!ani"ation
2s of 2))1. 1(# nations that collectively accounted for 1, percent of orld trade ere 5T+
members. thereby !ivin! the or!ani"ation enormous scope and influence. The 5T+ is also
responsible for facilitatin! the establishment of additional multinational a!reements beteen
5T+ member states.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

$1. (p. '&) The BBBBB as created in 11$$ by $$ nations that met in -reton 5oods. 0e
<ampshire to promote economic development.
A! 5orld -ank
-. 4nternational Trade >enter
>. 5orld Trade +r!ani"ation
3. &nited 0ations
The 5orld -ank has focused on makin! lo-interest loans to cash-strapped !overnments in
poor nations that ish to undertake si!nificant infrastructure investments.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

(). (p. '&) The institution. created in 11$$ at -retton 5oods. responsible for maintainin! order
in the international monetary system is the
A! 48F.
-. 5T+.
>. &0.
3. &0;'>+.
The 48F is often seen as the lender of last resort to nation-states hose economies are in
turmoil and currencies are losin! value a!ainst those of other nations.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

(1. (p. '') BBBBB occurCsD hen a firm exports !oods or services to consumers in another
country.
A! 4nternational trade
-. Forei!n direct investment
>. 4nard investment
3. 8er!er and ac@uisitions
Forei!n direct investment CF34D occurs hen a firm invests resources in business activities
outside its home country.

AACSB: Analytic
Difficulty: +asy

(2. (p. '') The BBBBB as established to remove barriers to the free flo of !oods. services. and
capital beteen nations.
2. &0
-. 48F
C! 62TT
3. 432
&nder the umbrella of 62TT. ei!ht rounds of ne!otiations amon! member states Cno
numberin! 1(#D have orked to loer barriers to the free flo of !oods and services. The
most recent round of ne!otiations to be completed. knon as the &ru!uay =ound. ere
finali"ed in 3ecember 111#.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

(#. (p. '0) 2t the 3oha =ound of the 5T+ in late 2))1.
2. the 5T+ as established.
-. 62TT as extended to include services.
>. orld trade volume increased.
#! an a!enda as established to phase out subsidies to a!ricultural producers.
The 3oha a!enda includes cuttin! tariffs on industrial !oods. services. and a!ricultural
productsJ phasin! out subsidies to a!ricultural producersJ reducin! barriers to cross-border
investmentJ and limitin! the use of antidumpin! las.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

($. (p. '1) The reduction in the avera!e tariff rates on manufactured products since 11() implies
all of the folloin! except that
2. firms are dispersin! parts of their production process to !lobal locations to drive don
production costs and increase product @uality.
-. the economies of the orld9s nation states are becomin! more intertined.
C! nations are becomin! increasin!ly independent of each other for important !oods and
services.
3. the orld has become si!nificantly ealthier since 11().
2s trade expands. nations are becomin! increasin!ly dependent on each other for important
!oods and services.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

((. (p. '1) The !roin! inte!ration of the orld economy is:
A! increasin! the intensity of competition in a ide ran!e of manufacturin! and service
industries.
-. decreasin! the intensity of competition in manufacturin! industries. and increasin! the
>. increasin! the intensity of competition in manufacturin! industries. and decreasin! the
3. narroin! the scope of competition in a ide ran!e of service. commodity. and
manufacturin! industries.
The !roin! inte!ration of the orld economy into a sin!le. hu!e marketplace is increasin!
the intensity of competition in a ran!e of manufacturin! and service industries.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

(*. (p. '4) 5hich of the folloin! statements re!ardin! cross-border trade and investment is not
trueA
2. E7rotectionE from forei!n competitors has been. at times. demanded by the &nited 'tates.
"! Forecasts indicate a return to the restrictive trade policies of the 112)s and #)s.
>. 4f trade barriers decline no further they ill put a brake upon the !lobali"ation of both
markets and production.
3. 4t is not clear hether the political ma%ority in the industriali"ed orld favors further
reductions in trade barriers.
2lthou!h a return to the restrictive trade policies of the 112)s and #)s is unlikely. it is not
clear hether the political ma%ority in the industriali"ed orld favors further reductions in
trade barriers.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

(,. (p. '4) 4dentify the incorrect statement pertainin! to the 5orld 5ide 5eb.
2. 4t makes it much easier for buyers and sellers to find each other.
-. Fieed !lobally. it is emer!in! as an e@uali"er.
C! 4t rolls back all of the constraints of location. scale. and time "ones.
3. 4t allos businesses to expand their !lobal presence at a loer cost than ever before.
4t rolls back some of the constraints of location. scale. and time "ones. The 5eb makes it
much easier for buyers and sellers to find each other. herever they may be located and
hatever their si"e. 4t allos businesses. both small and lar!e. to expand their !lobal presence
at a loer cost than ever before.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

(/. (p. '2) 'ince 11/). the orld9s containership fleet has more than BBBBB. reflectin! in part the
!roin! volume of international trade.
2. doubled
-. tripled
C! @uadrupled
3. @uintupled
2s a result of the efficiency !ains associated ith containeri"ation. transportation costs have
plummeted. makin! it much more economical to ship !oods around the !lobe. thereby helpin!
to drive the !lobali"ation of markets and production.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

(1. (p. ')) Technolo!ical innovations have facilitated all of the folloin! except:
2. !lobali"ation of production.
-. !lobali"ation of markets.
>. creation of electronic !lobal marketplaces.
#! creation of absolutely homo!eneous consumer markets.
5hile modern communication and transportation technolo!ies are usherin! in the E!lobal
villa!e.E si!nificant national differences remain in culture. consumer preferences. and
business practices.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

*). (p. ')) 2lthou!h the characteristics of the !lobal economy have chan!ed dramatically over
the past #) years. as late as the 11*)s all of the folloin! demo!raphic characteristics ere
true. except:
2. the &.'. dominated the orld economy.
"! small. &.'. entrepreneurial firms dominated the international business scene.
>. the &.'. dominated the orld forei!n direct investment picture.
3. rou!hly half the orld as !overned by centrally planned economies of the >ommunist
orld.
4n 11*# the &nited 'tates accounted for $).# percent of orld economic activity. measured by
6ross 3omestic 7roduct C637D. -y 2))/. the &nited 'tates accounted for 2)., percent of
orld 637. still the orld9s lar!est industrial poer but don si!nificantly in relative si"e
since the 11*)s.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*1. (p. '3) 5hich of the folloin! nation9s orld output has declined the least over the last $)
yearsA
2. France
-. &nited 'tates
>. &nited Gin!dom
#! >anada
Table 1.2: The >han!in! 3emo!raphics of 5orld 637 and Trade

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

*2. (p. '3) 5hich of the folloin! countries has had the maximum relative decline in its share
of orld output since 11*#A
2. >anada
"! &nited 'tates
>. ?apan
3. 6ermany
Table 1.2: The >han!in! 3emo!raphics of 5orld 637 and Trade

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*#. (p. '3) 5hich of the folloin! statements pertainin! to the chan!in! demo!raphics of orld
637 and trade from 11*# to 2))* is not trueA
A! 2s emer!in! economies continue to !ro. a relative decline in the share of orld output
and orld exports accounted for by the &.'. seems unlikely.
-. Forecasts predict a rapid rise in the share of orld output accounted for by some
developin! nations.
>. 2 decline in the share en%oyed by rich industriali"ed countries such as 6reat -ritain.
6ermany. ?apan. and the &.'. is likely.
3. 4f current trends continue. the >hinese economy could be lar!er than that of the &.'. on a
purchasin! poer parity basis.
2s emer!in! economies such as >hina. 4ndia. and -ra"il continue to !ro. a further relative
decline in the share of orld output and orld exports accounted for by the &nited 'tates and
other lon!-established developed nations seems likely.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

*$. (p. '3) 2ccordin! to 5orld -ank numbers.
2. developin! nations currently account for more than *) percent of orld economic activity.
-. rich nations currently account for more than ,) percent of orld economic activity.
>. today9s rich nations may account for (( percent of orld economic activity by 2)2).
#! today9s developin! nations may account for more than *) percent of orld economic
activity by 2)2).
The 5orld -ank has estimated that today9s developin! nations may account for more than *)
percent of orld economic activity by 2)2). hile today9s rich nations. hich currently
account for more than (( percent of orld economic activity. may account for only about #/
percent.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*(. (p. '5) 4n the 11,)s. many ?apanese firms invested in 0orth 2merica and ;urope
2. to avoid a hi!hly competitive domestic market.
-. to exploit hi!h domestic tariff barriers.
C! as a hed!e a!ainst unfavorable currency movements.
3. to take advanta!e of lo labor costs.
-e!innin! in the 11,)s. ;uropean and ?apanese firms be!an to shift labor-intensive
manufacturin! operations from their home markets to developin! nations here labor costs
ere loer. 4n addition. many ?apanese firms invested in 0orth 2merica and ;uropeIoften
as a hed!e a!ainst unfavorable currency movements and the possible imposition of trade
barriers.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

**. (p. '5) 5hat is the total cumulative value of forei!n investments best referred to asA
2. 2ccumulation of forei!n shares
-. 7ortfolio investments
C! 'tock of forei!n direct investments
3. 'tock market investments
The stock of forei!n direct investment refers to the total cumulative value of forei!n
investments.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

*,. (p. '5) The share of the total F34 stock accounted for by hich of the folloin! countries
increased markedly from 11/) to 2))(A
2. &nited 'tates
"! France
>. &nited Gin!dom
3. 0etherlands
The share of the total stock accounted for by &.'. firms declined from about #/ percent in
11/) to 1,.1 percent in 2)),. 8eanhile. the shares accounted for by France and the orld9s
developin! nations increased markedly.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*/. (p. '5) Firms based in BBBBB accounted for 1$., percent of the stock of forei!n direct
investment in 2)),. up from only 1.1 percent in 11/).
2. 2sia
"! developin! countries
>. &nited Gin!dom
3. 02FT2 re!ion
Firms based in <on! Gon!. 'outh Gorea. 'in!apore. Taian. 4ndia and mainland >hina
accounted for much of this investment.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

*1. (p. 0&) 5hich of these statements pertainin! to cross-border F34 flos is trueA
A! The !roth of F34 resumed in 2))$ and continued throu!h 2))*.
-. 2 sur!e in F34 from 111( to 111, as folloed by a slump from 111/ to 2))).
>. 2mon! developin! nations. the lar!est recipient of F34 has been =ussia.
3. The dramatic increase in F34 reflects the decreasin! internationali"ation of business
corporations.
2 sur!e in forei!n direct investment from 111/ to 2))) as folloed by a slump from 2))1
to 2))#. 2mon! developin! nations. the lar!est recipient of forei!n direct investment has
been >hina. Throu!hout the 111)s. the amount of investment directed at both developed and
developin! nations increased dramatically. a trend that reflects the increasin!
internationali"ation of business corporations.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

,). (p. 0&) 5hich of the folloin! countries has been the lar!est recipient of forei!n direct
investment and received about H,) billion a year in inflos in 2))( and 2))*A
2. -ra"il
-. =ussia
>. 4ndia
#! >hina
2mon! developin! nations. the lar!est recipient of forei!n direct investment has been >hina.
hich in 2))$-2))/ received H*)-H1) billion a year in inflos.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,1. (p. 0') -y 2))* some 2$ of the orld9s 1)) lar!est non-financial multinationals ere:
2. >hinese enterprises.
-. -ritish enterprises.
C! &.'. enterprises.
3. ?apanese enterprises.
-y 2))* thin!s had shifted si!nificantly. 'ome 2$ of the orld9s 1)) lar!est non-financial
multinationals ere &.'. enterprisesJ 1# ere FrenchJ 12. 6ermanJ 12. -ritishJ and 1.
?apanese. The !lobali"ation of the orld economy has resulted in a relative decline in the
dominance of &.'. firms in the !lobal marketplace.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,2. (p. 01) 4dentify the incorrect statement re!ardin! the former >ommunist nations of ;urope
and 2sia.
A! The economies of most of the former >ommunist states are very stron! and developed.
-. 8any of the former >ommunist nations of ;urope and 2sia share a commitment to free
market economies.
>. 2s a result of disturbin! si!ns of !roin! unrest and totalitarian tendencies. the risks
involved in doin! business in these countries is very hi!h.
3. For about half a century these countries ere essentially closed to 5estern international
business.
The economies of many of the former >ommunist states are still relatively undeveloped. and
their continued commitment to democracy and free market economics cannot be taken for
!ranted.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,#. (p. 01) 5hich of the folloin! observations concernin! :atin 2merican countries is trueA
2. >omplete restrictions on direct investment by forei!n firms.
-. >haracteri"ed by lo !roth. hi!h debt. and hyperinflation.
>. 3ebt and inflation are up compared to previous decades.
#! 'ubstantial opportunities exist. but are accompanied by substantial risks.
Throu!hout most of :atin 2merica. debt and inflation are don. !overnments have sold state-
oned enterprises to private investors. forei!n investment is elcomed. and the re!ion9s
economies have expanded. These chan!es have increased the attractiveness of :atin 2merica.
both as a market for exports and as a site for forei!n direct investment.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,$. (p. 04) 5hich of the folloin! statement pertainin! to chan!es in the !lobal economy of the
21
st
century is not trueA
2. -arriers to the free flo of !oods. services. and capital have been comin! don.
-. Folume of cross-border trade and investment has been !roin! more rapidly than !lobal
output.
C! 0ational economies are becomin! more independent and movin! aay from the !lobal
economic system.
3. 2s economies advance. more nations are %oinin! the ranks of the developed orld.
The volume of cross-border trade and investment has been !roin! more rapidly than !lobal
output. indicatin! that national economies are becomin! more closely inte!rated into a sin!le.
interdependent. !lobal economic system.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

,(. (p. 04) 5hich of the folloin! does not help create an economic system that is favorable to
A! 3ecreased privati"ation
-. 5idespread dere!ulation
>. +pen markets
3. Fallin! trade and investment barriers
4n keepin! ith the normative prescriptions of liberal economic ideolo!y. in country after
country e have seen state-oned businesses privati"ed. idespread dere!ulation adopted.
markets opened to more competition. and commitment increased to removin! barriers to
cross-border trade and investment.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,*. (p. 0)) 5hen a company Eexports %obsE overseas. the company is:
2. helpin! domestic orkers by pushin! up a!e rates.
-. increasin! the demand of @ualified domestic orkers.
C! takin! advanta!e of loer a!es in forei!n markets.
3. deceivin! the supporters of !lobali"ation.
>00 nes anchor :ou 3obbs has been runnin! TF shos that are hi!hly critical of the trend
by 2merican companies to take advanta!e of !lobali"ation and Eexport %obsE overseas. 2s the
orld slipped into a recession in 2))/. 3obbs stepped up his anti !lobali"ation rhetoric.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

,,. (p. 0,) 4f the critics of !lobali"ation are correct. all of the folloin! thin!s must be shon
except:
2. the share of national income received by labor. as opposed to the share received by the
oners of capital should have declined in advanced nations.
-. even thou!h labor9s share of the economic pie may have declined. livin! standards need not
deteriorate if the si"e of the total pie has increased sufficiently to offset the decline in labor9s
share.
>. the decline in labor9s share of national income must be due to movin! production to lo-
a!e countries. as opposed to improvin! production technolo!y and productivity.
#! economic !roth in developed nations has offset the fall in unskilled orkers9 share of
national income. raisin! their livin! standards.
This is the position ar!ued by supporters of !lobali"ation.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

,/. (p. 0,) 2 study by the +;>3. hose members include the 2) richest economies in the
orld. noted all of the folloin! except:
2. the !ap beteen the poorest and richest se!ments of society in some +;>3 countries
idened.
-. in almost all countries real income levels rose over the 2)-year period studied.
>. fallin! unemployment rates brou!ht !ains to lo-a!e orkers and fairly broad-based
a!e !roth.
#! the !ap beteen rich and poor had narroed in all +;>3 countries.
2 study by the +r!ani"ation for ;conomic >ooperation and 3evelopment. hose members
include the 2) richest economies in the orld. noted that hile the !ap beteen the poorest
and richest se!ments of society in some +;>3 countries had idened. this trend as by no
means universal.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

,1. (p. 05) >ritics of !lobali"ation maintain that the apparent decline in real a!e rates of
unskilled orkers
2. oes far more to a technolo!y-induced shift ithin advanced economies toard %obs that
re@uire si!nificant education and skills.
"! is due to the mi!ration of lo-a!e manufacturin! %obs offshore and a correspondin!
reduction in demand for unskilled orkers.
>. has been impacted most by technolo!ical chan!e.
3. can be checked by increasin! society9s investment in education to reduce the supply of
unskilled orkers.
'upporters of !lobali"ation maintain that the apparent decline in real a!e rates of unskilled
orkers oes far more to a technolo!y-induced shift ithin advanced economies aay from
%obs here the only @ualification as a illin!ness to turn up for ork every day and toard
%obs that re@uire si!nificant education and skills.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

/). (p. 05) -efore 02FT2 as passed
2. 8exico a!reed to establish a hi!her minimum a!e.
-. the &.'. a!reed to limit the number of %obs that could be exported to 8exico.
C! 8exico committed to tou!her enforcement of environmental protection re!ulations.
3. >anada committed to establish ne limits of F34.
'upporters of free trade point out that it is possible to tie free trade a!reements to the
implementation of tou!her environmental and labor las in less developed countries.
02FT2. for example. as passed only after side a!reements had been ne!otiated that
committed 8exico to tou!her enforcement of environmental protection re!ulations.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

Essay Questions

/1. (p. 4) 5ith the help of an example discuss the characteristics of !lobali"ation.
6lobali"ation refers to a fundamental shift in the orld economy in hich national economies
are no lon!er relatively self-contained entities. 4nstead. nations are movin! toard an
interdependent !lobal economic system. 5ithin this ne !lobal economy. an 2merican mi!ht
drive to ork in a car desi!ned in 6ermany that as assembled in 8exico by
3aimler>hrysler from components made in the &.'. and ?apan that ere fabricated from
Gorean steel and 8alaysian rubber. 2 company does not have to be the si"e of these
multinational !iants to facilitate. and benefit from. the !lobali"ation of markets.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/2. (p. 4(2) 3efine !lobali"ation and discuss it has chan!ed the business environmentA
6lobali"ation has created many opportunities for businesses to expand their revenues by
sellin! around the orld hile at the same time reducin! their costs by producin! in nations
here labor and other inputs are cheap. <oever. !lobali"ation has also produced ne threats
for companies in the form of increased competition.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/#. (p. )(3) ;xplain hat is meant by the !lobali"ation of markets. 7rovide an example. 5hat
are the most !lobal marketsA
The !lobali"ation of markets refers to the idea that historically distinct and separate national
markets are mer!in! into a sin!le. hu!e !lobal marketplace. For example. >oca->ola.
'tarbucks. and 8c3onald9s offer the same basic product orldide. and are in fact. not only a
part of the trend. but facilitators of the trend as ell. The most !lobal markets are not actually
for consumer !oods. but instead are for industrial !oods and materials that serve the same
needs across the orld.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/$. (p. 3(5) 3iscuss the concept of the !lobali"ation of production.
The !lobali"ation of production refers to the sourcin! of !oods and services from locations
around the orld to take advanta!e of national differences in the cost and @uality of factors of
production. >ompanies that capitali"e on this trend are able to outsource production to the
best suppliers in the orld. and should therefore end up ith a better final product.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/(. (p. 5('&) 5hat is the 5orld Trade +r!ani"ationA 5hat is its role in the orld economyA
The 5orld Trade +r!ani"ation C5T+D is primarily responsible for policin! the orld tradin!
system and makin! sure nation-states adhere to the rules laid don in trade treaties si!ned by
5T+ members. The 5T+ currently has 1$/ members that collectively account for 1, percent
of orld trade. The 5T+ has been instrumental in loerin! barriers to cross-border trade and
investment. 4n addition to these responsibilities. the 5T+ also facilitates the establishment of
additional a!reements beteen member states.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/*. (p. '&) 5hat is the 4nternational 8onetary FundA 5hat is the 5orld -ankA 5hat is their
relationship. if any. ith each otherA
The 4nternational 8onetary Fund C48FD as created to maintain order in the international
monetary system. The 5orld -ank as established to promote economic development. -oth
or!ani"ations ere launched as part of the 11$$ -retton 5oods 2!reement. and have
emer!ed as si!nificant players in the !lobal economy. The 48F is often seen as the lender of
last resort to nation-states hose economies are in turmoil and currencies are losin! value
a!ainst those of other nations.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

/,. (p. '0) ;xplain ho a company competes usin! outsourcin!. 7rovide an example.
>ompanies compete by outsourcin! manufacturin! activities to the optimal location herever
in the orld that may beJ !iven production and transportation costs. Thus. a firm mi!ht desi!n
a product in one country. produce component parts in to other countries. assemble the
product in yet another country. and then export the finished product around the orld. 4-8
for example. desi!ned a laptop computer in the &.'.. outsourced production of the case.
keyboard. and hard drive to Thailand. produced the display screen and memory in 'outh
Gorea. the ireless card in 8alaysia. and the microprocessor in the &.'. The final product
as assembled in 8exico. and as then exported to the &.'. for sale.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

//. (p. '1('4) ;xplain the trends in orld trade and forei!n direct investment over the last half
century.
'ince 11(). the volume of orld merchandise trade has !ron faster than the orld economy.
4n particular. there has been acceleration in orld trade since 11/). This trade and investment
pattern implies that firms are dispersin! parts of their production to different locations around
the orld to drive don production costs and increase product @uality. that the economies of
the orld9s nation states are becomin! more intertined. that forei!n direct investment is
playin! an increasin! role in the !lobal economy as firms increase their cross-border
investments. and that the orld has become si!nificantly ealthier over the last () years.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

/1. (p. '4) <o has technolo!ical chan!e affected !lobal marketsA 5hat key innovations have
chan!ed the nature of ho Ee do businessAE
8a%or advances in communication. information processin!. and transportation technolo!y
have facilitated the !lobali"ation of markets and production. The microprocessor and the
4nternet have been central to the technolo!y explosion. The development of the
microprocessor vastly increased the amount of information that can be processed by
individuals and firms. and the !roth of the 4nternet has alloed companies to expand their
!lobal presence at a fraction of the cost of more traditional methods of business.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1). (p. '4) ;xplain the notion of the 5eb emer!in! as an e@uali"er.
4n 111). feer than one million users ere connected to the 4nternet. -y 8ay 2))1 the
4nternet had 1.* billion users. For companies. the 5eb is emer!in! as an e@uali"er as it
minimi"es the constraints of location. scale. and time "ones. &sin! the 4nternet. buyers and
sellers can find each other re!ardless of location. alloin! businesses. both lar!e and small.
the opportunity to expand their !lobal presence at a loer cost than ever before.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

11. (p. '4('2) 4nnovations in transportation have had a ma%or impact on !lobal trade. >onsider
one of these innovations: containeri"ation. 5hy is this innovation so si!nificantA
>ontaineri"ation has revolutioni"ed the transportation business. si!nificantly loerin! the
costs of shippin! !oods over lon! distances. ;mer!in! in the 11,)s and 11/)s.
containeri"ation spelled an end to the costly and len!thy business of loadin! and unloadin!
ships. trucks. and trains. >ost savin!s associated ith containeri"ation are si!nificant.
-eteen 112) and 111). avera!e ocean frei!ht and port char!es per ton fell from H1( to H21.
2ir transportation sa a similar decline. as did truckin!.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

12. (p. ')(',) 3iscuss the demo!raphics of orld trade since the 11*)s. <o has the role of the
&.'. chan!edA <o is orld trade expected to chan!e in the futureA
4n the early11*)s. the &.'. as the orld9s dominant industrial poer accountin! for over $)
percent of orld output. -y 2))/. the &nited 'tates accounted for 2)., percent of orld 637.
still the orld9s lar!est industrial poer but don si!nificantly in relative si"e since the
11*)s. +ther industriali"ed countries also sa their relative standin! slip. Takin! their place
as active exporters are the nely industriali"in! countries of 'outh Gorea and >hina. 8ost
forecasts predict that the share of orld output accounted for by developin! countries such as
>hina. 4ndia. and 8exico ill rise over the next 2) years. hile at the same time rich
industriali"ed countries ill continue to see their share of orld output decline.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

1#. (p. ',(0&) <o has the forei!n direct investment picture chan!ed since the 11*)sA
The &.'. accounted for about to-thirds of orldide forei!n direct investment flos in the
11*)s. folloed by -ritish firms ith about 1) percent of F34 flos. and ?apanese firms ith
2 percent. 2s barriers to trade fell. non-&.'. firms increased their investments around the
orld in search of optimal production locations and a direct presence in ma%or markets.
3urin! the 111)s. F34 to both developed and developin! nations increased dramatically.
>hina also emer!ed as an important destination for F34.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

1$. (p. 0&(0') 5hat is a multinational enterprise C80;DA <o does a mini-multinational differ
from an 80;A
2 multinational enterprise is any business that has productive activities in to or more
countries. 4n the11*)s nearly half of the orld9s 2*) lar!est 80;s ere 2merican. -y 2))*.
some 2$ of the orld9s 1)) lar!est non-financial multinationals ere no &.'. enterprises.
Firms from developin! countries are expected to emer!e as important competitors in the
orld economy. The number of mini-multinationals is also on the rise. 8ini-multinationals
are medium-si"ed and small 80;s.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: +asy

1(. (p. 01) 8any companies are keepin! their eyes on >hina. 5hy is >hina so important to
4nternational companies are excited about >hina because ith its 1.# billion people it
represents a hu!e. and lar!ely untapped market for !oods and services. >ompanies are so
interested in its potential that F34 to >hina sur!ed beteen 11/# and 2))$. !oin! from less
than H2 billion in 11/# to H,) billion in 2))*. <oever. hile >hina remains a very attractive
market. companies must beare of the competition that is be!innin! to emer!e from the
country.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

1*. (p. 04) >onsider the !lobal economy of the 21
st
century. 5hat important chan!es are takin!
placeA 5hat do these chan!es mean for international companiesA
The last 2( years have been a time of !reat chan!e in the !lobal economy. -arriers to the free
flo of !oods. services. and capital have been fallin!. national economies are becomin! more
inte!rated. and more countries are %oinin! the ranks of the developed orld. 2ll of these
chan!es point toard an economic system that is more favorable for international business.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

1,. (p. 04(1') >onsider hether the shift toard a more inte!rated and interdependent !lobal
economy is a !ood thin!. 3iscuss the shift from the eyes of the consumer. the orker. the
company. and the environmentalist.
There are many advanta!es of !lobali"ation. From a broad perspective. !lobali"ation creates
economic activity Chich stimulates economic !rothD. creates %obs. raises income levels. and
provides consumers ith more choices in re!ard to the products and services that are
available to them. From the perspective of an individual firm. !lobali"ation has the potential
to increase revenues Cthrou!h expanded market potentialD. drive don costs Cthrou!h
additional economies of scaleD. and boost profits.
<oever. critics ar!ue that !lobali"ation destroys manufacturin! %obs in ealthy countries
and contributes to pollution. >ritics ar!ue that fallin! trade barriers allo firms in
industriali"ed countries to move their manufacturin! activities offshore to countries here
a!e rates are much loer. >ritics also ar!ue that !lobali"ation encoura!es firms from
advanced nations to move manufacturin! facilities offshore to less developed countries to
avoid the more strin!ent pollution controls in place in their home countries.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: 4a!d

1/. (p. 02(0)) 3iscuss hat occurred in 'eattle in 1111 at the meetin! of the 5T+ and hy the
events ere important to the future of !lobal trade.
4n 3ecember 1111. more than $).))) protesters blocked the streets of 'eattle in an effort to
shut don a 5T+ meetin! bein! held in the city. The issue as %ob losses in industries under
attack from forei!n competitors. fallin! a!e rates of unskilled orkers. environmental
de!radations. and cultural imperialism of !lobal media and 80;s. 7rotesters believed that all
of these issues ere the result of !lobali"ation. and felt that the 5T+. as a promoter of
!lobali"ation. as a le!itimate tar!et for blame. The protest as a violent one and
emboldened by the experience its experience. anti!lobali"ation protesters no turn up at
almost every ma%or meetin! of a !lobal institution.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

11. (p. 0)(05) Fallin! barriers to international trade destroy manufacturin! %obs in ealthy
advanced economies. 3iscuss this statement. 3o you a!reeA 5hy or hy notA
>ritics ar!ue that fallin! trade barriers allo firms to move manufacturin! activities to
countries here a!e rates are much loer. -ecause of such moves they ar!ue that. the a!e
rates of poorer 2mericans have fallen si!nificantly over the past @uarter of a century.
'upporters of !lobali"ation reply that critics of these trends miss the essential point about free
tradeIthe benefits outei!h the costs. They ar!ue that free trade ill result in countries
speciali"in! in the production of those !oods and services that they can produce most
efficiently. hile importin! !oods and services that they cannot produce as efficiently.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium

1)). (p. 1') 3iscuss the effect of !lobali"ation on national soverei!nty.
>ritics of !lobali"ation ar!ue that today9s increasin!ly interdependent !lobal economy shifts
economic poer aay from national !overnments and toard supranational or!ani"ations.
They feel that unelected bureaucrats no impose policies on the democratically elected
!overnments of nation-states. thereby underminin! the soverei!nty of those states and
limitin! the nation9s ability to control its on destiny.
4n contrast many economists and politicians maintain that the poer of supranational
or!ani"ations is limited to hat nation-states collectively a!ree to !rant. They ar!ue that these
bodies exist to serve the collective interests of member states. not to subvert those interests.
'upporters of supranational or!ani"ations point out that the poer of these bodies rests
lar!ely on their ability to persuade member states to follo a certain action. 4n this vie. real
poer still resides ith individual nation-states. not supranational or!ani"ations.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium


Chapter 1 Hill - International Business 8e

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