international business: the new realities, 2e ... - test bank...

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Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

International Business: The New Realities, 2e (Cavusgil/Knight/Riesenberger)

Chapter 2 Globalization of Markets and the Internationalization of the Firm

1) The initial phase of globalization was triggered in part by the introduction of the railroad.

Answer: TRUE

Diff: 1 Page Ref: 31

Skill: Concept

Objective: 2-1

AACSB: Dynamics of the global economy

2) The Great Depression marked the beginning of the second phase of globalization.

Answer: FALSE


Skill: Concept

Objective: 2-1


3) A firm's decision to internationalize is generally made as a reaction to the phenomenon of

market globalization.

Answer: FALSE


Skill: Concept

Objective: 2-2


4) Firms that pursue internationalization as a strategic move tend to approach global competition

more aggressively than do firms that internationalize for reactive reasons.

Answer: TRUE


Skill: Concept

Objective: 2-2


5) In advanced regional economic integration blocs such as the "common market," barriers are

removed to the cross-border flow of factors of production.

Answer: TRUE


Skill: Concept

Objective: 2-3


2


6) Converging lifestyles and preferences worldwide help to promote traditional values in

individual countries.

Answer: FALSE


Skill: Concept

Objective: 2-3


7) One method used by global companies to drive down prices is product standardization.

Answer: TRUE


Skill: Concept

Objective: 2-3


8) One contribution of the World Trade Organization is to help maintain reduced trade barriers

throughout the world.

Answer: TRUE


Skill: Concept

Objective: 2-4


9) The end of the Cold War in 1989 hindered the forces of market liberalization in Eastern

Europe.

Answer: FALSE


Skill: Concept

Objective: 2-4


10) Industrialization implies that emerging market countries are increasing their dependence on

low-cost labor.

Answer: FALSE


Skill: Concept

Objective: 2-4


11) Technological advances have helped make internationalization affordable for all sizes of

firms.

Answer: TRUE


Skill: Concept

Objective: 2-5

AACSB: Dynamics of the global economy; Use of information technology

3


12) China's consumer market is generally resistant to purchasing technologically advanced

products.

Answer: FALSE


Skill: Concept

Objective: 2-5


13) The rate of speed at which nations integrate into the global economy is relatively consistent,

regardless of income level.

Answer: FALSE


Skill: Concept

Objective: 2-6


14) Globalization has led buyers to become more demanding and to shop for the best value

worldwide.

Answer: TRUE


Skill: Concept

Objective: 2-7


15) The first phase of globalization was characterized by which of the following?

A) the rise of steel production

B) the growth of railroads

C) the spread of electricity

D) the rise of SMEs

Answer: B

Diff: 1 Page Ref: 31-32

Skill: Concept

Objective: 2-1


16) The third phase of globalization was triggered by ________.

A) the end of World War II

B) the invention of electricity

C) the end of World War I

D) economic growth in emerging markets

Answer: A


Skill: Concept

Objective: 2-1


4


17) Multinational firms first emerged in which phase of globalization?

A) first

B) second

C) third

D) fourth

Answer: B


Skill: Concept

Objective: 2-1


18) Which of the following reflects the major contribution of GATT to globalization?

A) strict controls on international currencies

B) worldwide economic downturn

C) reduction of barriers to international trade

D) advent of new communications technology

Answer: C


Skill: Concept

Objective: 2-1


19) The most recent phase of globalization is characterized by which of the following?

A) rise of multinational companies from Japan

B) reduction of barriers to trade by Western industrialized countries

C) trade of commodities by trading companies

D) enormous growth of cross-border trade and investment

Answer: D


Skill: Concept

Objective: 2-1


20) Over time, the GATT evolved into which of the following?

A) World Bank

B) International Monetary Fund

C) World Trade Organization

D) NAFTA

Answer: C


Skill: Concept

Objective: 2-1


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21) In the third phase of globalization, multinational firms originated from all of the following

except ________.

A) United States

B) Japan

C) Western Europe

D) Brazil

Answer: D


Skill: Concept

Objective: 2-1


22) Firms that are more successful at global competition display each of the following qualities

except ________.

A) identifying foreign market opportunities aggressively

B) approaching internationalization from a reactive standpoint

C) actively pursuing partnerships with foreign firms

D) focusing intensively on building organizational capacities

Answer: B


Skill: Concept

Objective: 2-2


23) Value-chain activities are defined as which of the following?

A) the methods through which governments promote economic integration

B) the aggregate activities of internationally active firms

C) the process of designing a product for a global market

D) the sequence of value-adding activities performed by a firm

Answer: D


Skill: Concept

Objective: 2-3


24) A regional economic integration bloc is characterized by all of the following except

________.

A) the reduction of investment flows among members

B) the implementation of common business regulations

C) jointly harmonized fiscal and monetary policies

D) the reduction of trade barriers among members

Answer: A


Skill: Application

Objective: 2-3


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25) All of the following represent examples of regional economic integration blocs except

________.

A) World Trade Organization

B) European Union

C) Mercosur

D) NAFTA

Answer: A


Skill: Application

Objective: 2-3


26) The free movement of capital around the world is known by which of the following terms?

A) bond-based debt financing

B) regional economic integration

C) the globalization of capital

D) common market arrangements

Answer: C


Skill: Concept

Objective: 2-3


27) Global firms shift their manufacturing and procurement to foreign locations in order to

________.

A) avoid the pressures of global competition

B) benefit from low labor costs

C) reduce the impact of regional recessions

D) avoid oversight by international agencies

Answer: B


Skill: Concept

Objective: 2-3


28) Which of the following is not a driver of market globalization?

A) market liberalization

B) technological advances

C) increased import tariffs

D) economic development

Answer: C


Skill: Application

Objective: 2-4


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29) Reduction in trade barriers is associated with the emergence of which of the following?

A) Japan's transition to a command economy

B) regional economic integration blocs

C) member defection from the WTO

D) violation of GATT provisions

Answer: B


Skill: Concept

Objective: 2-4


30) The end of the Cold War was signaled by each of the following except ________.

A) the collapse of the Soviet Union's economy

B) the tearing down of the Berlin Wall

C) free market reforms in China

D) China's move to join the WTO

Answer: D


Skill: Concept

Objective: 2-4


31) At the time of the Berlin Wall collapse, which of the following countries had not already

embarked on a program of market-based reforms?

A) India

B) Indonesia

C) South Korea

D) Malaysia

Answer: A


Skill: Concept

Objective: 2-4


32) Which of the following countries has the lowest gross national income (GNI) per person?

A) Norway

B) Germany

C) India

D) Canada

Answer: C


Skill: Concept

Objective: 2-4


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33) Which of the following drivers of market globalization enables firms to engage in foreign

currency transactions?

A) economic development

B) integration of world financial markets

C) market liberalization

D) reduction of barriers to investment

Answer: B


Skill: Concept

Objective: 2-4


34) ________ is a financial network through which individuals can transfer money to individual

recipients in other countries.

A) International Monetary Fund

B) GNI

C) SWIFT

D) Vodafone

Answer: C


Skill: Concept

Objective: 2-4


35) Technological leapfrogging is defined as which of the following?

A) combining analog and digital technologies in the same product

B) adopting new technology as soon as it is released

C) bypassing certain stages of technology when upgrading to new products

D) waiting to sell new technology until it has proven market success

Answer: C


Skill: Concept

Objective: 2-5


36) Which of the following countries are considered to be the beachheads of technological

advances?

A) Japan and China

B) Hungary and Poland

C) Brazil and Mexico

D) China and India

Answer: D


Skill: Concept

Objective: 2-5


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37) Technological advances have had their greatest impact in all of the following areas except

________.

A) manufacturing

B) financial services

C) transportation

D) communications

Answer: B


Skill: Concept

Objective: 2-5


38) Which of the following is the most transformative technology for developing economies?

A) cell phone

B) Internet

C) extranet

D) e-mail

Answer: A


Skill: Concept

Objective: 2-5


39) Which of the following has the fastest growth rate of cellular phone subscribers in the world?

A) Europe

B) North America

C) Africa

D) Asia

Answer: C


Skill: Concept

Objective: 2-5


40) The ability of a nation to govern its own affairs is known as ________.

A) sovereignty

B) liberalization

C) interdependence

D) homogenization

Answer: A


Skill: Concept

Objective: 2-6


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41) Which of the following terms refers to the relocation of manufacturing and other value-chain

activities to cost-effective locations abroad?

A) protectionism

B) cultural imperialism

C) labor migration

D) offshoring

Answer: D


Skill: Concept

Objective: 2-6


42) Each of the following represents a firm-level consequence of market globalization except

________.

A) firms must proactively internationalize to reduce potential threats

B) firms must deal with new business risks

C) an international focus is viable only in certain industries

D) firms must manage intense rivalry from foreign competitors

Answer: C


Skill: Application

Objective: 2-7


43) Highly advanced internationalizing firms seek a simultaneous presence in which of the

following trading regions?

A) North America, Europe, and Asia

B) North America, Africa, and Central America

C) Eastern Europe, Australia, and North America

D) Asia, Europe, and South America

Answer: A


Skill: Concept

Objective: 2-7


44) The most direct firm-level consequence of market globalization affects which of the

following?

A) the firm's global sourcing contracts

B) the offshoring potential of particular activities

C) research and development costs faced by the firm

D) the firm's entire value chain

Answer: D


Skill: Concept

Objective: 2-7


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45) Which stage comes before procurement in a firm's value chain?

A) research & development

B) marketing

C) manufacturing

D) distribution

Answer: A


Skill: Concept

Objective: 2-7


46) Which of the following represents the final stage in a firm's value chain?

A) marketing

B) procurement (sourcing)

C) research & development

D) distribution & after-sales service

Answer: D


Skill: Concept

Objective: 2-7


Internationalization Conference (Scenario)

At a conference on business internationalization strategies, representatives of three different

businesses meet to discuss a joint venture between their companies. Business A is located in a

country that internationalized during the second phase of globalization. Business B is based in a

country that internationalized during the third phase of globalization. Business C is located in an

emerging market country.

47) The representative from Business A is most likely from which of the following countries?

A) China

B) United Kingdom

C) Mexico

D) Brazil

Answer: B


Skill: Application

Objective: 2-1


12


48) The representative from Business B is most likely from which of the following countries?

A) Panama

B) Hungary

C) Singapore

D) Japan

Answer: D


Skill: Application

Objective: 2-1


49) The representative from Business C is most likely from which of the following countries?

A) Italy

B) Brazil

C) United States

D) France

Answer: B


Skill: Application

Objective: 2-1


Global Operations Report (Scenario)

As Vice President of Global Expansion for Pax Telecom, Deva Mikiri is tasked with preparing a

comprehensive report on the company's global operations over the past twenty years. Deva

assigns three strategists to collaborate on the History portion of the report, which details the

rationale behind Pax's decisions to expand operations in particular areas. Rashid Ahl focuses on

early expansion to China, which occurred after China began to make its market more accessible

to foreign companies. Markus Teller focuses on Pax's expansion to Eastern Europe, which was

motivated by increased industry privatization in key countries. Lavonne Jackson focuses on

expansion to Japan, which happened when the company's commercial bank expanded its service

network to Asia.

50) Which of the following drivers of market globalization does Markus most likely cite as

responsible for the company's expansion to Eastern Europe?

A) advances in technology

B) integration of world financial markets

C) market liberalization

D) industrialization

Answer: C


Skill: Application

Objective: 2-2

AACSB: Analytic skills

13


51) In describing the main driver behind Pax's expansion to China, Rashid most likely

emphasizes ________.

A) economic development

B) advances in technology

C) reduction of barriers to trade

D) integration of world financial markets

Answer: C


Skill: Application

Objective: 2-4


52) Lavonne's research most likely recognizes which of the following drivers of market

globalization as responsible for the company's expansion to Japan?

A) integration of world financial markets

B) modernization

C) adoption of free markets

D) reduction of barriers to investment

Answer: A


Skill: Application

Objective: 2-4


Globalization Debate (Scenario)

In his international business class, Professor Jang organizes a debate on the societal effects of

market globalization. Juan Prince takes a position that highlights the negative effects of market

globalization. He emphasizes how multinational enterprises can wield so much influence that

they threaten national sovereignty. He also notes the prevalence of low wages and sweatshop

conditions as firms utilize low-cost labor abroad. Juan then describes the detrimental effects of

corporate pollution on the environment, and he ends his argument by explaining how market

globalization helps homogenize national cultures. Rina Taylor is assigned to counter Juan's

position.

53) Which of the following does Rina most likely cite as a counter example to Juan's argument

regarding the influence of MNEs on national sovereignty?

A) passage of the Sarbanes-Oxley Act of 2002

B) technological advances in computer-aided design of products

C) the political influence of large firms such as Walmart

D) the actual GDPs of Israel, Greece, and Poland

Answer: A


Skill: Critical Thinking

Objective: 2-6

AACSB: Dynamics of the global economy; Reflective thinking skills

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54) Which of the following most likely supports Rina's argument over Juan's concerning wages

and working conditions in developing countries?

A) Most African countries today still suffer from low or negative GDP growth.

B) Vietnam has experienced a five-fold increase in wages as a result of the growth of the

footwear industry there.

C) The move of Electrolux to Mexico cost Michigan 2,700 jobs.

D) Minimum wages should be established at set levels, regardless of the impact on the number of

jobs.

Answer: B



Objective: 2-6


55) Rina most likely counters Juan's claim regarding environmental effects by pointing out

which of the following?

A) Land preservation is more important than pollution reduction for preserving the environment.

B) China's landscape was permanently altered by the construction of the Three Gorges Dam.

C) Environmental destruction tends to diminish in the long run, as economies develop.

D) Attempts at foreign cultural imperialism are often blocked by national governments.

Answer: C



Objective: 2-6


56) Which of the following most likely supports Rina's argument over Juan's concerning the

homogenization of national cultures?

A) The standardizing forces of globalization are often resisted through increasing nationalism.

B) Foreign values tend to shift not just superficial aspects of culture, but deeply held beliefs as

well.

C) Material goods such as cell phones and computers are found in most homes throughout the

world.

D) In most industries, domestic operation alone cannot sustain competitive business growth.

Answer: A



Objective: 2-6


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Acme Software (Scenario)

Acme Software is a U.S.-based maker of software products for the health care industry. Recently

Acme has been investigating whether it would be beneficial to internationalize some of its value-

chain activities. Acme hires a consulting group to help determine which, if any, value-chain

activities could be conducted abroad to promote business growth. The consulting group identifies

two health care software development companies in India that could provide programming

services at a lower cost than Acme's current expenditures for programming. In addition, the

consultants conduct international market research which shows that German health care

companies have a strong demand for the type of software that Acme offers.

57) Which of the following activities in Acme's value chain would be internationalized if Acme

decides to establish a development contract with one of the Indian software firms?

A) sales

B) distribution

C) marketing

D) procurement

Answer: D


Skill: Application

Objective: 2-7


58) Which of the following would be most important for the consulting group to consider when

deciding whether to recommend that Acme internationalize its sales efforts to Germany?

A) Will Acme save money by on advertising by targeting small rather than large companies?

B) How intense is the competition from German companies offering similar products?

C) What type of training is received by programmers in software firms abroad?

D) How successful have German companies been at marketing to U.S. customers?

Answer: B



Objective: 2-7


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59) Which of the following questions would be most important to for Acme to evaluate when

making the decision regarding whether to hire one of the Indian companies for software

development?

A) What benefits have Indian companies gained historically from internationalizing their value-

chain activities?

B) Do the Indian businesses have an established history of developing software products for

multiple industries?

C) Would the lower cost of outsourcing allow Acme to sustain a competitive advantage in its

business operations?

D) Is either of the Indian businesses interested in moving its operations to a foreign country?

Answer: C



Objective: 2-7


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60) In a short essay, describe the four phases of globalization. Explain the major triggers for each

phase.

Answer: The first phase of globalization began about 1830 and peaked around 1880.

International business became widespread in this period due to the growth of railroads, efficient

ocean transport, and the rise of large manufacturing and trading companies. Inventions of the

telegraph and telephone in the late 1800s facilitated information flows between and within

nations and greatly aided early efforts to manage companies' supply chains.

The second phase of globalization began around 1900 and was associated with the rise of

electricity and steel production. The phase reached its height just before the Great Depression, a

worldwide economic downturn that began in 1929. In 1900, Western Europe was the most

industrialized region. Europe's colonization of countries in Asia, Africa, the Middle East, and

beyond led to the establishment of some of the earliest subsidiaries of multinational firms.

The third phase of globalization began after the end of World War II. It was triggered by the

formation of GATT, the conclusion of the war, and the reconstruction of Europe through the

Marshall plan. In this phase, the U.S. became the world's dominant economy. Several

industrialized countries, including Australia, Britain, and the United States, systematically sought

to reduce barriers to international trade. Growing MNE activities and early efforts at trade

liberalization resulted in substantial increases in international trade and investment beginning in

the 1960s.

The fourth and current phase of globalization began in the early 1980s. This period witnessed

enormous growth in cross-border trade and investment. The current phase was triggered by key

trends, including the commercialization of the personal computer, the Internet and the web

browser; advances in communication and manufacturing technologies; the collapse of the Soviet

Union and ensuing market liberalization in central and Eastern Europe; and industrialization and

modernization efforts of East Asian economies, including China. During this phase, growing

international prosperity began to reach emerging markets such as Brazil, India and Mexico. The

1980s also witnessed huge increases in FDI, especially in capital- and technology-intensive

sectors.


Skill: Concept

Objective: 2-1


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61) Describe the role of GATT and the WTO in reducing barriers to trade and investment

worldwide, and explain how this reduction has led to the integration and interdependence of

national economies.

Answer: In 1947 several nations enacted the General Agreement on Tariffs and Trade (GATT)

and a series of negotiations that, over time, reduced barriers to international trade and

investment. Participating governments recognized that liberalized trade would stimulate

industrialization, modernization, and better living standards. The GATT eventually transformed

into the World Trade Organization, a multilateral governing body that grew to include 149

member nations. The WTO aims to regulate and ensure fairness and efficiency in global trade

and investment. Global cooperation in the post-war era gave birth to other international

organizations such as the International Monetary Fund and the World Bank.

Internationally active firms devise multicountry operations through trade, investment, geographic

dispersal of company resources, and integration and coordination of value-chain activities.

Governments have facilitated this integration by lowering barriers to international trade and

investment, harmonizing their monetary and fiscal policies within regional economic integration

blocs (also known as trade blocs), and developing supranational institutions —the World Bank,

International Monetary Fund, World Trade Organization, and others —that seek further

reductions in trade and investment barriers.

Diff: 3 Page Ref: 33, 35

Skill: Synthesis

Objective: 2-1, 2-3


62) How do governments help promote international economic interdependence? In a short

essay, describe three ways that government activities increase economic integration and provide

an example that illustrates one approach.

Answer: Governments contribute to economic interdependence by three means. First, they

gradually lower barriers to international trade and investment (for example, by negotiating trade

agreements). Second, they increasingly harmonize their monetary and fiscal policies within trade

blocs, such as the European Union. Third, they devise and supervise supranational

institutions such as the World Bank, International Monetary Fund, and the World Trade

Organization that seek further reductions in trade and investment barriers.


Skill: Concept

Objective: 2-3


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63) In a short essay, explain how market globalization both responds to and promotes the

convergence of consumer lifestyles around the world. Provide examples to illustrate your

answer.

Answer: Around the world, many consumers are increasingly similar in how they spend their

money and time. Lifestyles and preferences are converging. Market globalization responds to

this phenomenon by providing consumers with standardized products that meet their converging

demands. For example, consumers in Tokyo, New York, and Paris demand similar household

goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPods,

Nokia cell phones, and Levi jeans. Convergence of preferences is also occurring in industrial

markets, where professional buyers source raw materials, parts and components that are

increasingly standardized, that is, very similar in design and structure. The companies that

produce these desired products are responding to converging demands by ensuring that markets

are developed throughout the world.

Market globalization itself also promotes the convergence of lifestyles and preferences.

International travel, movies, global media, and the Internet all expose people to products,

services, and living patterns from around the world. The fact that desired commodities are

available internationally helps to encourage and reinforce consumers' demands for them.


Skill: Concept

Objective: 2-3


64) In a short essay, describe the methods through which prices are driven down by firms that

operate internationally. Provide examples to illustrate these methods in both the products and

services sectors.

Answer: Globalization of production. Intense global competition is forcing firms to reduce their

costs of production and marketing. Companies strive to drive down prices through economies of

scale, by standardizing what they sell, and by shifting manufacturing and procurement to foreign

locations with inexpensive labor. For example, companies in the auto and textile industries have

relocated their manufacturing to low labor-cost locations such as China, Mexico, and Eastern

Europe. The services sector is undergoing widespread internationalization. First, banking,

hospitality, retailing, and other service industries are rapidly expanding abroad. The real estate

firm REMAX has established more than 5,000 offices in over 50 countries. Firms increasingly

outsource business processes and other services-based value-chain activities to vendors located

abroad. Finally, in a relatively new trend, people are increasingly going abroad to take advantage

of low-cost services. For example, millions of U.S. consumers regularly travel to India, Latin

America, and other international destinations to undergo such medical procedures as

hysterectomies and cataract and knee surgeries.


Skill: Concept

Objective: 2-3


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65) How has the adoption of free markets worldwide served as a driver of market globalization?

Provide three examples to support your answer.

Answer: The adoption of free markets worldwide has helped to drive market globalization by

helping to integrate former command economies into the global economy. Examples include

market liberalization in the Soviet Union, China, Eastern Europe, India, and many countries of

East Asia.

The collapse of the Soviet Union's economy in 1989, the tearing down of the Berlin Wall that

same year, and China's free-market reforms, all signaled the end of the 50-year Cold War

between autocratic communist regimes and democracy and smoothed the integration of former

command economies into the global economy. Numerous East Asian economies, stretching from

South Korea to Malaysia and Indonesia, had already embarked on ambitious market-based

reforms. India joined the trend in 1991. These events opened roughly one-third of the world to

freer international trade and investment.

China, India, and Eastern Europe have become some of the most cost-effective locations for

producing goods and services worldwide. Privatization of previously state-owned industries in

these countries has encouraged economic efficiency and attracted massive foreign capital into

their national economies.


Skill: Concept

Objective: 2-4


66) In a short essay, explain how industrialization affects emerging market economies. Provide

three examples to support your explanation.

Answer: Industrialization implies that emerging markets rapidly developing economies in

Asia, Latin America, and Eastern Europe are moving from being low value-adding commodity

producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of

premium products such as electronics, computers, and aircraft. For example, Brazil has become a

leading producer of private aircraft, and the Czech Republic now excels in the production of

automobiles. India is now also a leading supplier of computer software.

The economic development that accompanies industrialization further helps to increase standards

of living and discretionary income in emerging markets.


Skill: Concept

Objective: 2-6


21


67) How does the integration of world financial markets help to increasing market globalization?

In your answer, provide an example of this driver at work.

Answer: The integration of world financial markets drives market globalization by enabling

internationally active firms to raise capital, borrow funds, and engage in foreign currency

transactions. Financial services firms now follow their customers to foreign markets. Cross-

border transactions are made easier partly as a result of the ease with which funds can be

transferred between buyers and sellers through a network of international commercial banks.

For example, as an individual you can transfer funds to a friend in another country using the

SWIFT (the Society for Worldwide Interbank Financial Telecommunication) network.

Connecting over 7,800 financial institutions in some 200 countries, SWIFT facilitates the

exchange of financial transactions.

The globalization of finance also contributes to firms' ability to develop and operate world-scale

production and marketing operations. It enables companies to pay suppliers and collect payments

from customers worldwide.


Skill: Concept

Objective: 2-4


68) In a short essay, explain three main benefits of e-business. Provide an example that illustrates

the benefits of e-business.

Answer: E-business provides at least three types of benefits. First, it increases productivity and

reduces costs in worldwide value-chain activities through online integration and coordination of

production, distribution, and after-sale services. Second, it creates value for existing customers

and uncovers new sales opportunities by increasing customer focus, enhancing marketing

capabilities, and launching entrepreneurial initiatives. A key benefit is the ability to implement

marketing strategy on an international scale and integrate customer-focused operations

worldwide. Virtual interconnectedness facilitates the sharing of new ideas and best practices for

serving new and existing international markets. Third, it improves the flow of information and

knowledge throughout the firm's worldwide operations. The Internet allows information to move

quickly throughout the firm's operations worldwide, and to interact more effectively with

customers, suppliers, and partners. Managers can make instantaneous changes to strategies and

tactics in the firm's value-chain activities. The firm can accommodate real-time changes in

market conditions almost as quickly as they occur.

For example, Cisco uses e-business solutions to minimize costs and maximize operational

effectiveness in its international supply chain. The firm uses the Internet to remain constantly

linked to suppliers and distributors. This helps Cisco manage inventory, product specifications,

and purchase orders, as well as product life cycles. E-procurement systems help Cisco save

money on transaction processing, reduce cycle times, and leverage supplier relations.


Skill: Concept

Objective: 2-5


22


69) In a short essay, identify the four areas in which technological advances had their greatest

impact on business. Describe the impact of each area on business today.

Answer: Technological advances have had their greatest impact in several key areas:

information technology, communications, manufacturing, and transportation.

a. Information Technology The effect of Information Technology (IT) on business has been

nothing short of revolutionary. IT reflects the science and processes of creating and using

information resources. IT alters industry structure and, in so doing, changes the rules of

competition. By giving companies new ways to outperform rivals, IT creates competitive

advantage. For example, geographically distant country subsidiaries of a multinational company

can be interconnected via intranets, facilitating the instant sharing of data, information, and

experience across the firm's operations worldwide.

b. Communications The most profound technological advances have occurred in

communications, especially telecommunications, satellites, optical fiber, wireless technology,

and the Internet. The Internet, and Internet-dependent communications systems such as intranets,

extranets, and e-mail, now connect millions of people across the globe. Widespread availability

of the Internet and e-mail makes company internationalization cost-effective. For instance,

Amdahl, a manufacturer of large-scale computers, uses the Internet to order circuit boards from

factories in Asia and to arrange international shipments of parts and components from firms like

DHL and Federal Express.

c. Manufacturing Computer-aided-design (CAD) of products, robotics, and production lines

managed and monitored by microprocessor-based controls are transforming manufacturing,

mainly by reducing the costs of production. Revolutionary developments now permit low-scale

and low-cost manufacturing. Firms can produce products in short production runs cost-

effectively. These developments benefit international business by allowing firms to more

efficiently adapt products to individual foreign markets, profitably target small national markets,

and compete more effectively with foreign competitors who already have cost advantages.

d. Transportation Beginning in the 1960s, technological advances led to the development of

fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping, often through

the use of high-tech composites and smaller components that are less bulky and lightweight. As a

result, the cost of transportation as a proportion of the value of products shipped internationally

has declined substantially. Lower freight costs have spurred rapid growth in cross-border trade.

Technological advances have also reduced the costs of international travel. Until 1960, it was

common to travel by ship. With the development of air travel, managers quickly travel the world.


Skill: Concept

Objective: 2-5


23


70) In a short essay, describe three societal consequences of market globalization. Provide an

example to illustrate each consequence.

Answer:

a. Loss of National Sovereignty Globalization can threaten national sovereignty in various

ways. MNE activities can interfere with the sovereign ability of governments to control their

own economies, social structures, and political systems. Some corporations are bigger than the

economies of many nations. For instance, Walmart's internal economy its total revenues is

larger than the GDP of most of the world's nations, including Israel, Greece, and Poland. Large

multinationals can exert considerable influence on governments through lobbying or campaign

contributions.

b. Off-shoring and the Flight of Jobs Globalization has created countless new jobs and

opportunities around the world, but it has also cost many people their jobs. For example, Ford,

General Motors, and Volkswagen all have transferred thousands of jobs from their factories in

Germany to countries in Eastern Europe. This occurred partially because mandated shorter

working hours (often just 35 hours per week) and generous benefits made Germany less

competitive, while Eastern Europe offers abundant low-wage workers. GM and Ford have also

laid off thousands of workers in the United States, partly the result of competitive pressures

posed by carmakers from Europe, Japan, and South Korea.

c. Multinational firms are often criticized for paying low wages, exploiting workers, and

employing child labor. For instance, Nike has been criticized for paying low wages to shoe

factory workers in Asia, some of whom work in sweatshop conditions. Critics complain that

while founder Phil Knight is a billionaire and Nike sells shoes for $100 or more, Nike's suppliers

pay their workers only a few dollars per day. Labor exploitation and sweatshop conditions are

genuine concerns in many developing economies.

d. Effect on the Natural Environment Globalization can harm the environment by

promoting increased manufacturing and economic activity that result in pollution, habitat

destruction, and deterioration of the ozone layer. For instance, economic development in China is

attracting much inward FDI and stimulating the growth of numerous industries. The construction

of factories, infrastructure, and modern housing can spoil previously pristine environments. As

an example, growing industrial demand for electricity led to construction of the Three Gorges

Dam, which flooded agricultural lands and permanently altered the natural landscape in Eastern

China.

e. Effect on National Culture Globalization exerts strong pressures on national culture.

Market liberalization leaves the door open to foreign companies, global brands, unfamiliar

products, and new values. Consumers increasingly wear similar clothing, drive similar cars, and

listen to the same recording stars. Appetites grow for "Western" products and services, which are

seen to signal higher living standards. For example, despite low per-capita income, many

Chinese buy consumer electronics such as cell phones and TV sets. Global media have a

pervasive effect on local culture, gradually shifting it toward a universal norm.


Skill: Concept

Objective: 2-6


24


71) Describe the fourth phase of globalization, and explain why "contagion" raised questions

about the merits of globalization.

Answer: The fourth phase of globalization began in the early 1980s, which saw enormous

growth in cross-border trade and investment. The phase was triggered by the development of

personal computers, the Internet, and Web browsers; the collapse of the Soviet Union and

ensuing market liberalization in central and Eastern Europe; and industrialization and

modernization in East Asian economies, including China. Growing international prosperity

began to reach emerging markets such as Brazil, India, and Mexico. The 1980s witnessed huge

increases in FDI, especially in capital- and technology-intensive sectors. Technological advances

in information, communications, and transportation made it feasible for the rise of internationally

active small and medium-sized enterprises (SMEs) and for managers to organize far-flung

operations around the world, geographically distant yet electronically interconnected. These

technologies also facilitated the globalization of the service sector in such areas as banking,

entertainment, tourism, insurance, and retailing. The merger of major firms once viewed as

strongholds of national corporate power exemplified the growing integration of the world

economy.

Today, countless firms configure and coordinate trade and investment activities in a giant global

marketplace. In their own way, globalization and technological advances have triggered the

“death of distance”— shrinkage of the geographic and cultural distances that long separated

nations. Globalization is gradually shrinking the world into a manageable marketplace.

A serious financial crisis began in 2008 in the United States and, like a contagious disease,

spread around the world. In international economics, contagion refers to the tendency for a

financial or monetary crisis in one country to spread rapidly to other countries, due to the

ongoing integration of national economies. The financial crisis raised questions about the merits

of globalization. Modern technology facilitated the integration of national economies and

banking systems. As a result, although the crisis began in the United States, it quickly spread to

other countries.


Skill: Synthesis

Objective: 2-1, 2-6


25


72) In a short essay, explain how a government's open and liberal economic policies can help to

minimize the threats that MNEs pose to the country's national sovereignty.

Answer: Open and liberal economic policies help reduce the threat posed by MNEs to national

sovereignty by increasing the constraining role of market forces. Liberal economic policies allow

firms to enter and compete freely in markets. In countries with many competing companies, one

company cannot force customers to buy its products or force suppliers to supply it with raw

materials and inputs. The resources that customers and suppliers control are the result of free

choices made in the marketplace. Company performance therefore depends on the firm's skill in

winning customers, working with suppliers, and dealing with competitors.

In liberalized economies, corporate dominance of individual markets is rare. In reality, market

forces dominate companies. Indeed, gradual integration of the global economy and increased

global competition combined with privatization of industries in various nations are making some

companies less powerful within their national markets. For instance Ford, Chrysler, and General

Motors once completely dominated the U.S. auto market. Today many more firms compete in

the United States, including Toyota, Honda, Hyundai, Kia, Nissan, and BMW. Indeed, in annual

sales, Toyota now rivals General Motors in GM's home market.

Therefore, to minimize globalization's harm and reap its benefits, governments should strive for

an open and liberalized economic regime. Such regimes will help to ensure that even the largest

firms are constrained by market forces.


Skill: Concept

Objective: 2-6


73) Is market globalization causing nations to become more culturally similar? In a short essay,

explain the arguments both for and against the idea that national cultures are becoming

"homogenized."

Answer:

a. For Globalization can be seen as exerting strong pressures on national culture. Consumers

increasingly wear similar clothing, drive similar cars, and listen to the same recording stars.

Advertising also leads to the emergence of societal values modeled on Western countries,

especially the United States. In this way, globalization can alter people's norms, values and

behaviors, which tend to homogenize over time.

b. Against Although some tangibles are becoming more universal, people's behaviors and

mindsets remain stable over time. Religious differences are as strong as ever. Language

differences are steadfast across national borders. While a degree of cultural imperialism may be

at work, it is offset by the countertrend of nationalism. As globalization standardizes superficial

aspects of life across national cultures, people resist these forces by insisting on their national

identity and taking steps to protect it. This is evident, for example, in Belgium, Canada, and

France, where laws were passed to protect national language and culture.


Skill: Concept

Objective: 2-6


26


74) Explain how one of the dimensions of market globalization — the convergence of consumer

lifestyles and preferences — has had an effect of national cultures around the world.

Answer: Around the world, consumers spend their money and time in increasingly similar ways.

Lifestyles and preferences are converging. Shoppers in Tokyo, New York, and Paris demand

similar household goods, clothing, automobiles, and electronics. Teenagers everywhere are

attracted to iPods, Levi's jeans, and BlackBerry cell phones. Major brands have gained a global

following, encouraged by greater international travel, movies, global media, and the Internet,

which expose people to products, services, and living patterns from around the world.

Convergence of preferences is also occurring in industrial markets, where professional buyers

source raw materials, parts, and components that are increasingly standardized—that is, very

similar in design and structure. Yet, even as converging tastes facilitate the marketing of highly

standardized products and services to buyers worldwide, they also promote the loss of traditional

lifestyles and values in individual countries.

Globalization exerts strong pressures on national culture. Market liberalization leaves the door

open to foreign companies, global brands, unfamiliar products, and new values. Consumers

increasingly wear similar clothing, drive similar cars, watch the same movies, and listen to the

same recording stars. Advertising leads to the emergence of societal values modeled on Western

countries, especially the United States. In this way, globalization can alter people's norms,

values, and behaviors, which may tend to homogenize over time. To combat such trends,

governments try to block cultural imperialism and prevent the erosion of local traditions. In

Canada, France, and Germany, the public sector attempts to prevent U.S. ideals from diluting

local traditions. Hollywood, McDonald's, and Disneyland are seen as Trojan horses that

permanently alter food preferences, lifestyles, and other aspects of traditional life. For better or

worse, however, such trends are probably inevitable in a globalizing world.

Diff: 3 Page Ref: 36, 51-52

Skill: Synthesis

Objective: 2-3, 2-6


27


75) What is meant by the internationalization of a firm's value chain? How do advances in

technology contribute to internationalization of firms' value chains?

Answer: The most direct implication of market globalization is on the firm's value chain. Market

globalization compels firms to organize their sourcing, manufacturing, marketing, and other

value-adding activities on a global scale. In a typical value chain, the firm conducts research and

product development (R&D), purchases production inputs, and assembles or manufactures a

product or service. Next, the firm performs marketing activities such as pricing, promotion, and

selling, followed by distribution of the product in targeted markets and after-sales service.

The value-chain concept is useful in international business because it helps clarify what activities

are performed where in the world. For instance, exporting firms perform most “upstream” value-

chain activities (R&D and production) in the home market and most “downstream” activities

(marketing and after-sales service) abroad. Each value-adding activity in the firm's value chain is

subject to internationalization; that is, it can be performed abroad instead of at home. Companies

have considerable latitude regarding where in the world they locate or configure key value-

adding activities. The most typical reasons for locating value-chain activities in particular

countries are to reduce the costs of R&D and production or to gain closer access to customers.

Through offshoring, the firm relocates a major value-chain activity by establishing a factory or

other subsidiary abroad. A related trend is global outsourcing, in which the firm delegates

performance of a value-adding activity to an external supplier or contractor located abroad.

Globalization allows firms to relocate key value-adding activities to the most advantageous

locations around the world.

While globalization makes internationalization imperative, technological advances provide the

means for it to happen. Firms interact more efficiently with foreign partners and value-chain

members than ever before. They transmit all kinds of data, information, and vital

communications that help ensure the smooth running of their operations worldwide. They use

information technology to improve the productivity of their operations, which provides

substantial competitive advantages. For example, information technology allows firms to more

efficiently adapt products for international markets or produce goods in smaller lots to target

international niche markets.


Skill: Synthesis

Objective: 2-5, 2-7


international business: the new realities, 2e ... - test bank...

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