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CHAPTER 4: MANAGING GLOBALLY

Test Correlation Table Question Types/Level of Difficulty

LEARNING OBJECTIVES Easy Moderate Difficult

1. State several characteristics of the global economy.

TF — 1, 2, 3, 4, 5, 6 —

MC 1 3, 7, 8 2, 4, 5, 6, 9

ES — 1 —

2. Describe how a country’s culture can affect an organization’s business practices.

TF — 7, 8, 10 9

MC 18 11, 12, 14, 15, 16, 19, 20, 21

10, 13, 17

ES — 2, 3 —

3. Explain the impact of political–legal forces on

TF — 11, 13, 14, 15 12

international business. MC 23, 25, 26, 32, 33, 35, 37, 39, 41, 42, 44, 45,

46, 48, 51

27, 28, 30, 34, 40, 43, 49, 50

22, 24, 29, 31, 36, 38, 47

ES — — 4

4. Discuss how three major trade agreements affect

TF 18, 19 16, 17 —

global competition. MC 59, 64 52, 53, 54, 55, 56, 57, 58, 60, 62, 63, 67, 68, 69, 70, 72, 74

61, 65, 66, 71, 73

ES — — 5

5. Describe six strategies used by organizations in international business.

TF 20, 21 22, 23, 24 25, 26

MC 77, 78, 82, 85, 86, 90, 97, 102

75, 76, 79, 80, 81, 83, 84, 88, 91, 92, 93, 94, 95, 98, 99, 100

87, 89, 96, 101, 103

ES — — 6, 7, 8

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True/False Questions

Learning Objective 1

1. In a recent poll, most of the people thought that expanded trade leads to an increase in U.S. jobs.

ANSWER: F, Knowledge, Moderate, p. 99

2. Increasingly, trade today is often between different parts of the same corporation or through alliances (joint ventures).

ANSWER: T, Knowledge, Moderate, p. 99

3. A driving force of global activity is the information revolution that permits instantaneous worldwide communication.


4. As domestic policies become more market-oriented, governments are responding by restricting access to multinational trade.


5. One of the most important factors that has fueled the growth of the global economy is the availability of labor and resources in different parts of the world.


6. Three-fourths of the world’s population has never used a telephone.



7. Many people in the United States and Canada think of time as an abundant commodity.


8. People of many non-Western cultures view change as part of the evolution of human being and the universe.


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9. Language serves to bind as well as to separate cultures.

ANSWER: T, Knowledge, Difficult, p. 102

10. Four aspects of a culture that have direct implications for international management are views of social change, time orientation, language, and value system.



11. When assessing political risk, factors are grouped into four categories: domestic instability, foreign conflict, legislative conflict, and economic climate.


12. Foreign conflict is the amount of subversion, revolution, assassinations, guerrilla warfare and government crisis in a country.

ANSWER: F, Knowledge, Difficult, p. 106

13. Protectionism, bribery, and extortion are significant types of international political mechanisms.


14. A bribe is a payment made to ensure that the recipient doesn’t harm the payer in some way.


15. Four widely used protectionism mechanisms are tariffs, quotas, subsidies, and cartels.



16. The World Trade Organization (WTO) has 136 member countries, which account for about 85% of world trade.


17. Three principles are fundamental to World Trade Organization (WTO) operations. Among these, the most favored nation principle means that when country A grants a tariff concession to country B, the same concession automatically applies to all other countries that are member of the WTO.


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18. NAFTA is an economic, social, and military alliance among the United States, Canada and Mexico.

ANSWER: F, Knowledge, Easy, p. 111

19. The European Union (EU) was formerly known as the European Community (EC).

ANSWER: T, Knowledge, Easy, p. 113


20. Organizations typically choose from among four strategies for conducting international business.

ANSWER: F, Knowledge, Easy, p. 114

21. An exporting strategy involves maintaining facilities within a home country and transferring goods and services abroad for sale in foreign markets.

ANSWER: T, Knowledge, Easy, p. 115

22. Under a licensing strategy, the licensor must be concerned about making major capital investments abroad or becoming involved in the daily production, technical, marketing, or management details of the international operation.

ANSWER: F, Application, Moderate, p. 116

23. A franchising strategy involves one organization (the franchisee) granting another organization (the franchiser) the right to use its trademarked name and to produce and sell its goods or services.


24. An alliance strategy involves agreeing with other companies to pool physical, financial, and human resources to achieve common goals.


25. A profit center is an organizational unit that is only accountable for the revenues generated by its activities.


26. A global strategy and a multidomestic strategy are the same.


Multiple Choice Questions

Preview

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1. Which of the following is not a problem Wal-Mart is facing in its overseas operations?a. highways are not as good as North Americab. low education and motivation of store employeesc. purchasing strategy is more of a problemd. ability to manage high-volume inventory

ANSWER: B, Knowledge, Easy, p. 98

2. By becoming a contractor, importer, and wholesaler, Wal-Mart expects to __________.a. cut off supplies to its competitorsb. sell its own brands cheaper than name brandsc. bring lower cost merchandise to Americad. speed up supply lines

ANSWER: D, Knowledge, Difficult, p. 98

3. The Wal-Mart preview case illustrated the effect of several global forces that an increasing number of companies face. Which of the following is not one of these forces?a. entrenched local competitorsb. pressures on pricesc. need for cost cuttingd. All of the above are global forces that Wal-Mart faces.

ANSWER: A, Knowledge, Moderate, p. 98


The Global Economy4. Trade is now so important to the U.S. economy that __________ jobs depends on it.

a. one in sixb. two in fivec. one in tend. three in ten

ANSWER: A, Knowledge, Difficult, p. 99

5. In a recent poll, most people identified _________ as the biggest threat to U. S. jobs.a. increased importsb. immigrationc. poor quality of domestic productsd. cheap foreign labor


6. Since 1995, U.S. exports of goods and services have soared ______ percent, accounting for much of the overall growth in the economy.a. 10 b. 20 c. 30d. 40

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7. ______________ has created a new group of rapid-growth countries in Central and Eastern Europe.a. The establishment of the European Unionb. The establishment of a common European currency, the Euro,c. The North American Free Trade Agreement (NAFTA)d. The collapse of Communism in 1989

ANSWER: D, Knowledge, Moderate, p. 100

8. The globalization of business has placed a premium on ____________.a. informationb. labor costsc. free traded. worker training


9. As domestic policies in many foreign countries are becoming more market-oriented, governments are opening their countries to multinational trade and joining regional trade associations. This has led to the emergence of __________.a. political forces that advocate a return to state-managed economiesb. new strategic partnerships of foreign and domestic organizationsc. high inflationd. the World Trade Organization

ANSWER: B, Knowledge, Difficult, p. 100


Cultural Forces10. Culture as it relates to __________ is typical of people from nations such as India and

Italy that are characterized by high uncertainty avoidance.a. time orientationb. value systemsc. social changed. economic systems

ANSWER: C, Knowledge, Difficult, p. 101

11. __________ refers to the deeply rooted system of unspoken principles that guide individuals in their everyday behaviors.a. Collectivismb. Social norms c. Cultural distanced. Values

ANSWER: B, Knowledge, Moderate, p. 104

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12. For Mexican workers, the combination of high uncertainty avoidance and power distance produces the desire for __________.a. a powerful manager who can be praised or blamedb. high government intervention in everyday lifec. guaranteed salaries rather than production bonusesd. minimal levels of direct supervision on the job


13. Which of the following statements is not true about Mexican society?a. Mexicans feel threatened by uncertain and ambiguous situations.b. Preserving harmony and saving face is important.c. Identifying yourself by title is considered rude.d. Consensus and social harmony is something to be sought.

ANSWER: C, Knowledge, Difficult, pp. 103–104

14. The people of many non-Western cultures, such as those of India, Saudi Arabia, and China, view change as __________.a. slowb. rapidc. turbulentd. stable


15. Maria Braun works for a company and is compensated on an hourly basis. Her manager has asked her to be more conscientious about her individual productivity and punctuality. Maria probably works for a __________ company.a. Mexicanb. U.S.c. Turkishd. Japanese

ANSWER: B, Application, Moderate, pp. 101–102

16. Herman Garcia has received many written and verbal warnings due to excessive tardiness. His philosophy is best characterized as mañana. Herman’s work ethic could probably be attributed to his __________ culture.a. Japanese b. American c. Britishd. Mexican

ANSWER: D, Application, Moderate, p. 102

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17. Although their attitude is changing, for many managers in Mexico, time commitments are considered ___________________.a. undesirable b. binding c. not bindingd. desirable but not binding


18. ______________ serves to bind as well as to separate cultures.a. The Eurob. Quotasc. Languaged. Status system

ANSWER: C, Knowledge, Easy, p. 102

19. Charlie Parker’s habit of putting his feet up on the desk during meetings will be perceived as an egregiously insulting nonverbal gesture by his __________ coworkers.a. Germanb. Mexicanc. Japanesed. Jordanian


20. Motorola’s managers in Malaysia found that cultural forces caused local employees to __________. a. not communicate honestly with Americansb. try to avoid making decisionsc. be disrespectful to the women workersd. not complain about unsafe work conditions

ANSWER: B, Application, Moderate, p. 105

21. Motorola’s team building initiative in their Malaysian operation emphasized treating people with respect, giving rewards to achievers, and sharing every success story. The outcome observed from this approach was __________.a. a complete failureb. copied by many other Malaysian companiesc. only effective with one teamd. highly successful

ANSWER: C, Knowledge, Moderate, p. 105

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Political–Legal Forces22. Domestic instability and corruption are components of _____________.

a. economic riskb. political riskc. foreign conflictd. political climate


23. In his job with IBM, Brad Sorensen monitors political events and decisions in Saudi Arabia to determine the likelihood that these events will adversely affect the profitability of IBM’s investments in that country. Sorensen works to assess IBM’s __________.a. economic riskb. political riskc. foreign conflictd. political climate

ANSWER: B, Application, Easy, p. 106

24. __________ is not considered a political risk.a. Corruptionb. Protectionism c. Foreign conflictd. Economic climate


25. The amount of subversion, revolution, assassinations, guerrilla warfare, and government crisis in a country is referred to as __________.a. domestic instabilityb. international stability c. foreign conflictd. political climate

ANSWER: A, Knowledge, Easy, p. 106

26. The degree of hostility one nation shows toward others is known as __________.a. domestic instabilityb. foreign conflict c. international stabilityd. political coalitions


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27. Before waging war with Iraq, President George W. Bush determined that the actions of the government of Iraq were an unusual and extraordinary threat to the national security and foreign policy of the United States. This is an example of __________.a. political risk b. international instability c. foreign conflictd. economic climate

ANSWER: C, Application, Moderate, p. 106

28. The likelihood that a government will swing to the far left or far right politically is known as __________.a. domestic coercion b. international control c. foreign propagandad. political climate


29. A number of variables should be assessed to determine the political climate. These variables include all of the following except __________.a. inequality of the governmental bureaucracyb. role of the military in the political processc. number of factions in the legislatured. extent of racial and nationality tensions


30. Infrastructure is one of the elements of ___________.a. domestic integration b. international negotiationc. foreign climated. economic climate


31. Stan Jepsen has developed an interest in assessing the variables involved in the economic climate. He found that all of the following are included except ____________.a. government regulatory and economic control pricesb. government inability to manage its own economic affairsc. government provision of support servicesd. government capabilities in general


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32. All of the following are considered to be a part of a country’s infrastructure, except ___________.a. wagesb. roads c. airportsd. electricity


33. ____________ relates to the degree to which institutions, including the government, are perceived to be untrustworthy, are open to bribes, and conduct fraudulent business practices.a. Corruptionb. Foreign conflictc. Political climated. Foreign instability


34. ______________ is not a country that ranks low on the corruption index.a. Argentinab. Japan c. United Statesd. New Zealand


35. _________ are not an example of protectionism.a. Tariffs b. Joint ventures c. Quotasd. Cartels


36. The primary purpose of a tariff is to __________.a. create a “level playing field” b. subsidize domestic industries c. raise the price of imported goodsd. create tax revenue

ANSWER: C, Knowledge, Difficult, p. 107

37. A restriction on the quantity of a country’s imports is known as a __________.a. tariff b. quotac. price controld. boycott


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38. Most experts agree that if protectionism is politically unavoidable, __________ are preferable to quotas.a. tariffsb. subsidiesc. free trade agreementsd. joint ventures


39. A direct or indirect payment by a government to its country’s firms to make selling or investing abroad cheaper for them is known as a(n) ____________.a. quotab. export control c. import controld. subsidy

ANSWER: D, Knowledge, Easy, p. 108

40. The U.S. government subsidizes commercial project investors in developing countries through the Overseas Private Investment Corporation (OPIC). Which of the following are not protections included in this program?a. political risk insurance b. credit riskc. seizure of assetsd. damage from war, revolution, or insurrection


41. An alliance of producers engaged in the same type of business, formed to limit or eliminate competition, is known as a __________.a. cartel b. subsidy c. joint ventured. global strategy


42. The Organization of Petroleum Exporting Countries (OPEC) is an example of an organization that attempts to operate as a __________.a. cartel b. strategic business unit c. joint ventured. multidomestic strategy


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43. By law, U.S. firms __________________________________.a. may form and participate in cartels.b. may not form or participate in cartels.c. may form but not participate in cartels.d. may participate in but not form cartels.


44. An improper payment made to induce the recipient to do something for the payer is known as a __________.a. coercion b. cartelc. tariffd. bribe


45. A payment made to ensure that the recipient does not harm the payer in some way is known as a(n) __________.a. extortion b. grease payment c. intrinsic rewardd. bribe


46. Bribery and extortion are practiced throughout the world. They occur frequently in all of the following countries except __________.a. Indonesiab. Hondurasc. Great Britaind. Yugoslavia


47. A company in violation of the U.S. Foreign Corrupt Practices Act of 1977 may be fined up to __________.a. $250,000b. $10,000,000c. $10,000d. $1,000,000


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48. Small payments used to get lower level government employees to speed up required paperwork are known as __________.a. grease payments b. bribes c. extortiond. subsidies


49. Japanese rice farmers have their local markets protected by a number of mechanisms similar to the paint industry. Foreigners who would like to enter the Japanese market are primarily exposed to obstacles arising from __________.a. economic riskb. cartelsc. foreign climated. political risk

ANSWER: D, Application, Moderate, pp. 109–110

50. Which of the following is not a technique used by Japanese paint producers to keep out foreign competitors?a. predatory pricingb. tariffs and quotasc. just-in-time deliveryd. complicated distribution systems


51. France has a protected market for paint used on __________ that foreign producers are unable to gain access to.a. airplanesb. government buildingsc. roadsd. road signs



Global Trade Agreements52. A series of negotiated understandings regarding trade and related issues among the

participating countries is known as __________.a. AACSB b. ECCc. IMFd. WTO


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53. The first GATT was signed by _____ countries in 1947.a. 123 b. 9 c. 66d. 23


54. The World Trade Organization (WTO) has 144 member countries, which account for about ______ percent of world trade.a. 65b. 75c. 85d. 95


55. Which of the following is not a key function of the World Trade Organization (WTO)?a. providing technical training in developing countriesb. monitoring foreign exchange marketsc. handling trade disputes between nationsd. providing a forum for trade negotiations


56. When country A grants a tariff concession to country B, the same concession automatically applies to all other countries that are members of the World Trade Organization (WTO). This is known as the __________ principle.a. reciprocityb. most favored nation c. transparencyd. collaborative


57. The __________ concept establishes that any tariffs be readily visible to all countries.a. reciprocityb. transparencyc. escaped. most favored nation


58. The __________ principle ensures each member country that it will not be forced to reduce tariffs unilaterally.a. reciprocity b. transparency c. matrix escaped. most favored nation


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59. The North American Free Trade Agreement (NAFTA) was created to increase free trade between (among) _____________________.a. the U.S. and Mexicob. North America and South Americac. Canada, the U.S., and Mexicod. the U.S. and South America


60. The North American Free Trade Agreement (NAFTA) went into effect in __________. a. 1991 b. 1992 c. 1993d. 1994


61. NAFTA was expected to ______________________.a. reduce and eliminate numerous tariffsb. reduce and eliminate most nontariff barriers c. make all trade between the U.S. and Mexico tariff freed. a and b only


62. According to the text, over _____ percent of the goods imported from Mexico may now enter the United States without tariffs.a. 40b. 50c. 60d. 70


63. __________ plants are foreign-owned industrial plants located in Mexico that border the U.S. states of Texas, New Mexico, Arizona, and California.a. Border-stateb. Southwesternc. Maquiladorad. Matamoras


64. Maquiladoras __________.a. pay below U.S. minimum wageb. account for roughly 40 percent of Mexico’s manufacturingc. employ more than 1 million peopled. all of the above


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65. For certain industries, most notably _____________, NAFTA imposes higher North American content rules.a. automobilesb. textilesc. appareld. all of the above


66. NAFTA doesn’t change requirements for the entry of _____________ into the United States and Canada.a. automobilesb. light trucksc. telecommunication companiesd. foreign banks


67. Luis Avalos, CEO of Mabe, seized an opportunity created by NAFTA to expand his business. Mabe exports _________________ throughout much of North and South America.a. refrigeratorsb. rangesc. heating elementsd. all of the above


68. The Planning and Administration Competency highlighted Mabe, an appliance company located in Mexico. Based on the text, which of the following is not true?a. 20% of Mabe’s employees working hours are spent in training.b. The average Mexican employee at Mabe works a 45-hour week.c. Mexico does not have labor unions whose goals are based on antimanagement

ideologies.d. In Mexico, it is easy to find workers with at least a high school education.


69. According to the text, the European Union (EU), called the European Community (EC) until 1994, has _____ members.a. 8b. 13c. 18d. 23


70. Which of the following is not one of the goals of the European Union?a. the creation of a single market among member countriesb. educational degree standardization for professionalsc. establishing the free movement of goods, people, services and investment capitald. All of the above are goals of the European Union.

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71. The ______________ is the European Union’s executive body and sole initiator of legislation.a. European Commissionb. European Communityc. Eurod. Economic Monetary Union


72. A major stage of the European Union program has been to complete formation of the common internal market. This involves eliminating all of the following except _________ barriers.a. physicalb. nationalistic c. technicald. financial


73. The European Union has increased market opportunities and fostered competition for companies outside of Europe. For example, ____________, which had no previous global experience, began operating in Europe.a. Fordb. NBCc. IBMd. UPS


74. ISO is __________.a. Idustriale Supervision Organisationb. Industrial Standards Ordinancec. International Organization for Standardizationd. International Standards of Operations

ANSWER: C, Knowledge, Moderate p. 114

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Strategies for International Business75. Strategies for international operations include all of the following except ____________.

a. exportingb. licensing c. franchisingd. manufacturing

ANSWER: D, Knowledge, Moderate, p. 115`jh

76. The strategies that are available to organizations for conducting international business range from low to high in _______________ and _______________.a. costs; revenuesb. simplicity; complexityc. exporting; importingd. complexity; resource commitment


77. _____________ refers to the structure of the organization and the amount of coordination required to deliver a product or service to customers.a. Integrationb. Complexityc. Differentiationd. Entanglement

ANSWER: B, Knowledge, Easy, pp. 114–115

78. ____________ refers to the amount of tangible financial assets and information support systems that the organization dedicates to its global strategy.a. Complexityb. Leveragec. Resource commitmentd. Return on assets


79. Maintaining facilities in a home country and transferring goods and services abroad for sale in foreign markets is known as a(n) _________ strategy.a. exporting b. multinational c. importingd. global


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80. When a domestic firm wants to move toward global operations, its first policy should be to __________.a. study the effects of currency exchangeb. build a global customer basec. find a partner in the desired countryd. acquire basic language skills


81. An arrangement in which the export sale of goods and services by a producer is linked to an import purchase of other goods and services is known as __________.a. franchisingb. exporting c. countertraded. an alliance


82. Countertrade is a particularly effective way of trading with countries that have _________.a. human rights sanctions against themb. difficulties trading in hard currency c. hyperinflationd. free trade agreements


83. A licensing strategy involves a contractual arrangement whereby a firm in one country gives other domestic or foreign firms the right to use all of the following except a __________.a. technologyb. patent c. trademarkd. royalty


84. A __________ strategy for entering foreign markets makes it possible to avoid large capital investments or getting involved with the details of daily production and management.a. licensingb. exportc. multinationald. multidomestic

ANSWER: A, Application, Moderate, p. 116

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85. Which of the following does a franchisee not receive from the franchiser?a. training and technology transfer b. complete assortment of materialsc. low interest loansd. trademarks and marketing program

ANSWER: C, Knowledge, Easy, p. 116–117

86. __________ is a special type of licensing agreement whereby an organization provides the product, technology, process and/or trademark, and most of the marketing program. a. Brand awarenessb. Exportingc. Franchisingd. Work-life linkages


87. ___________ permits companies to maintain marketing control while passing along many of the costs, risks, and responsibilities.a. Franchisingb. Exportingc. Outsourcingd. Private labeling

ANSWER: A, Application, Difficult, p. 117

88. A(n) __________ strategy is the pooling of companies' physical, financial, and human resources to achieve common goals.a. licensing b. alliance c. exportingd. franchising


89. The formation of alliances, especially joint ventures, has been stimulated by all of the following needs and desires except __________.a. the need to share and lower the costs of high-risk, technologically intensive

development projects, such as computer-based information systemsb. the desire to maximize costs by sharing the large fixed-cost investments for

manufacturing plants in some locations and in industries such as autos and steel.c. the desire to learn another firm’s technology and special processes or to gain access

to customers and distribution channelsd. the desire to participate in the evolution of competitive activity in growing global

industries


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90. Alliances provide entry into markets that are ______________ because of strict political requirements or great economic uncertainty.a. multinational b. international c. multidomesticd. risky


91. __________ requires foreign companies to form some sort of alliance with local participants rather than establish wholly owned subsidiaries in the country.a. Mexico b. Finlandc. Chinad. South Africa

ANSWER: C, Knowledge, Moderate, pp. 117–118

92. A(n) __________ strategy involves adjusting products, services, and practices to individual countries or regions.a. licensing b. exportingc. franchisingd. multidomestic


93. Sheila Dinkler has convinced the management of Joske Products to adjust their product line and their business practices to meet the needs of the countries that purchase their products. Sheila is asking her organization to adopt a(n) __________ strategy.a. multinational b. multidomestic c. exportingd. international

ANSWER: B, Application, Moderate, p. 118

94. Nick Larsen is an employee with Merrill Lynch. Top management believes that the benefits of local response will outweigh the extra costs of customizing. Merrill Lynch has developed a __________ strategy.a. multidomestic b. global c. franchisingd. international

ANSWER: A, Application, Moderate, p. 118

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95. A(n) ____________________ is an organizational unit that is accountable for both the revenues generated by its activities and the costs of those activities.a. business entityb. domestic center c. profit centerd. collaboration center


96. Disney’s theme parks outside America have incorporated unique features that meet the special needs and interests of local customers. Disney is responding with a __________ strategy. a. globalb. internationalc. diversity d. multidomestic

ANSWER: D, Application, Difficult, p. 118

97. A(n) __________ strategy stresses worldwide consistency, standardization, and low relative cost.a. exportingb. multidomestic c. globald. multinational


98. A Black & Decker subsidiary in one country manufactures parts of products, such as power drills, and exchanges components with subsidiaries in other countries to complete the products. This illustrates the __________ strategy.a. internationalb. importing c. multidomesticd. global

ANSWER: D, Application, Moderate, p. 118

99. For the ____________ strategy to succeed, the customers of global firms must have needs that are basically similar in many countries. Thus, primary marketing strategies are highly transferable across national boundaries. a. exportingb. multidomestic c. globald. multinational


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100. ICI has abandoned its traditional country-by-country organization in favor of worldwide business units. It wants employees to be less nationalistic and more concerned with what happens outside their country. ICI uses the ___________ strategy.a. exporting b. multidomestic c. globald. multinational

ANSWER: C, Knowledge, Moderate, pp. 118–119

101. ICI makes paint products for global markets at its Delaware headquarters because __________. a. huge local sales volume invites product developmentb. aggressive global marketing talent is availablec. American paint researchers have proven to be the bestd. special tax incentives are available to Delaware corporations

ANSWER: A, Application, Difficult, p. 119

102. ICI is a global company that is more commonly associated with its popular __________ brand.a. Hitachib. Gliddenc. Toys R Usd. Mountain Dew

ANSWER: B, Knowledge, Easy, pp. 118–119

103. Various needs must be addresses for a multinational’s global strategy to be successful. Which of the following is one of these needs?a. The firm needs to be a significant competitor in the world’s most important regional

markets—North America, Europe, and Asia.b. Most new goods and services need to be developed for the whole world.c. Profit targets should be based on product lines rather than regions or countries of

the world.d. All of the above.

ANSWER: D, Knowledge, Difficult, pp. 119–120

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Essay Questions


1. Wal-Mart is pursuing continued growth by going global. Although it depends on a proven business model that translates internationally, there are some serious issues that the company must address. What are these problems?

a. high-volume inventory and supply networks do not function well in some countriesb. some highway systems are not conducive to reliable truck deliveriesc. store sizes are typically smaller than North Americad. local managers need to be given more latitude to buy from vendors than their

American counterpartse. Wal-Mart is finding it necessary to become a contractor, importer, and wholesaler in

order to reduce inventories and speed up supply lines

Moderate, p. 98


2. Describe some of the ways that power distance influences cultural differences between American and Mexican workers.

a. Americans prefer small power distances, while Mexicans are more comfortable with large power distances.

b. Mexicans believe that an order of inequality is natural, while Americans try to minimize inequality.

c. Mexicans believe that managers are privileged and should be inaccessible. Americans want their managers to be accessible and generally feel that organizational hierarchies are a convenience rather than being essential to social structure.

d. Mexicans identify themselves by title, while Americans regard this as overly pretentious.

e. Mexicans prefer a highly directive management style and are uncomfortable if the manager delegates decisions. Americans are more likely to decentralize their decision making.

Moderate, pp. 102–104

3. What cultural factors affect international management?

a. View of social change (passive or active)b. Time orientation (scarce or unlimited)c. Language (verbal and nonverbal differences)d. Value systems (such as individualism versus collectivism)e. Cultural distance (differences in religion, race, social norms, and language)

Moderate, pp. 101–105

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4. Political risk factors may be grouped into four principal categories. Describe three of these risk factors.

a. Domestic instability is the amount of subversion, revolution, assassinations, guerrilla warfare, and government crisis in an country.

b. Foreign conflict is the degree of hostility that one nation expresses to others.c. Political climate is the likelihood that a government will move to the far left or far

right.d. The economic climate reflects the extent of government control of markets and

financial investments, as well as government support services and capabilities.

Difficult, pp. 106–107


5. What is the main purpose of the three significant international trade agreements discussed in the text?

a. The World Trade Organization (WTO) was established as an outgrowth of the General Agreement on Tariffs and Trade (GATT). This represented a series of negotiated understandings regarding trade and related issues among the participating countries. The WTO administers WTO trade agreements, provides a forum for trade negotiations, handles trade disputes between nations, monitors national trade policies, and provides technical assistance and training for people in developing countries.

b. The North American Free Trade Agreement (NAFTA) is intended to reduce and eliminate numerous tariffs and most nontariff barriers as a means of encouraging investment and stimulating trade among Canada, Mexico, and the United States.

c. The European Union (EU) is an organization of 18 member countries. Its primary goals are to create a single market through the removal of trade barriers, and establishing the free movement of goods, services, people, and investment capital among its member countries.



6. Why do organizations use alliances, especially joint ventures?

1. The need to lower the costs of high-risk new products or manufacturing, technologically intensive development projects, such as computer-based information systems.

2. The desire to lower costs by sharing the large fixed-cost investments for manufacturing plants in some locations and in industries such as autos and steel.

3. The desire to learn another firm’s technology and special processes or to gain access to customers and distribution channels.

4. The desire to participate in the evolution of competition in growing global industries.

Difficult, p. 117

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7. What are three of the ingredients needed for a multinational’s global strategy to be successful? Also, identify examples of each.

a. The firm needs to be a significant competitor in the world’s most important regional markets—North America, Europe, and Asia.

b. Most new goods and services need to be developed for the whole world—such as American Express Co.’s financial services and Kodak’s film and related products.

c. Profit targets should be based on product lines—such as an ICI line of paint—rather than countries or regions of the world.

d. Decisions about products, capital investments, research and development, and production should be based on global considerations—such as ICI’s choice of strategic locations for plants for producing chemicals and related products in various regions of the world.

e. Narrow-minded attitudes—such as “this isn’t how we operate here”—must be overcome, possibly by training employees to think globally, sending them to various countries for first-hand exposure, and giving them the latest information technology.

f. Foreign managers need to be promoted into senior ranks at corporate headquarters.

Difficult, p. 119–120

8. Explain four of the main strategies for international operations.

a. Exporting strategy—involves maintaining facilities within a home country and transferring goods and services abroad for sale in foreign markets.

b. Licensing strategy—involves a firm (the licensor) in one country giving other domestic or foreign firms (licensees) the right to use a patent, trademark, technology, production process, or product in return for the payment of a royalty or fee.

c. Franchising strategy—involves a parent organization (the franchiser) granting other companies or individuals (franchisees) the rights to use its trademarked name and to produce and sell its goods or services.

d. Alliance strategy—involves agreeing with other companies to pool physical and human resources to achieve common goals.

e. Multidomestic strategy—involves adjusting products, services, and practices to individual countries or regions.

f. Global strategy—stresses worldwide consistency, standardization, and low relative costs.


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