53) Which two countries make up the Indian subcontinent?
A) India and Egypt
B) India and Pakistan
C) Afghanistan and India
D) India and Iran
54) Which of the following is not a similarity between India and Great Britain?
A) parliamentary system
B) dependent judiciary
C) an amateur bureaucracy
D) state-owned industry
55) Alfred Communications, a U.S. firm, is considering opening a facility in India. However, executives at the firm are not certain that India is the best location for investment. What is the most likely reason for management's concerns?
A) weak judiciary system
B) rampant corruption
C) state capitalism
D) religious strife
56) Thailand, Malaysia, and Indonesia were all recipients of significant FDI during the 1980s and 1990s because they offer ________.
A) strong domestic currencies
B) large domestic markets
C) few trade barriers
D) low labor costs
57) Because of its past colonial relationship, France has a competitive advantage in which of the countries listed below?
D) the Republic of South Africa
Learning Outcome: Explain how differences in culture affect the international business environment
58) Because of its past colonial relationship, the United Kingdom has a competitive advantage in which of the countries listed below?
D) the Republic of South Africa
Learning Outcome: Explain how differences in culture affect the international business environment
59) What region is sometimes called the cradle of civilization?
A) the European Union
B) the Middle East
C) the Far East
60) Which of the following religions was not born in the Middle East?
Learning Outcome: Explain how differences in culture affect the international business environment
61) A policy that attempts to stimulate development of local industry by discouraging imports through tariffs and nontariff barriers is called ________.
A) export substitution
B) import substitution
C) development stimulation
62) A policy that encourages economic growth through export expansion is called ________.
A) export expansion
B) export substitution
C) export promotion
D) development stimulation
63) Export promotion has been successfully applied by which of the countries listed below?
64) Which of the following best explains why Japan's economic growth has slowed?
A) state industries
B) import restrictions
C) poor quality control
D) fast-growing population
65) ITX Enterprises, an electronics firm, plans to open a new manufacturing facility. Managers are considering building the new plant in Canada. Which of the following is a risk associated with a Canadian expansion?
A) unstable federal and state governments
B) inadequate secondary education systems
C) political instability related to language conflicts
D) shrinking supply of natural resources for exporting
66) Parker Manufacturing is considering relocating its headquarters from its current location in Vancouver, British Columbia. Executives at Parker want the firm to be located with the majority of other MNCs in the world. Which location would be most appropriate?
67) Brampton Industries has a facility in a country that has been designated by the World Bank as middle-income. Which of the following is the most likely location of Brampton's plant?
A) Costa Rica
68) The world's most populous Spanish-speaking nation is ________.
69) Hawthorne Enterprises, an Australian firm, has plans to open a manufacturing facility in France next year. Some executives at the firm are unhappy with this decision, most likely because France ________.
A) opposes human rights legislation
B) promotes economic nationalism
C) refuses to switch to the euro
D) advocates free trade
70) A small to medium, family-owned enterprise, often located in a small German town is city is known as ________.
71) Executives at Oswego Enterprises, a U.S. textile company, are discussing the idea of expanding into the Asian market by opening a facility in Hong Kong. Which of the following is a characteristic of Hong Kong?
D) low labor rates for a poorly educated workforce
72) Executives at Cornwall Industries, a U.S. firm, are considering expanding into Niger. As a manager at the firm you have been given the task of analyzing the advantages and disadvantages of Niger. Which of the following is the most likely problem associated with expanding into Niger?
A) influence of British government
B) insufficient natural resources
C) dominance of French firms
D) risk of civil unrest
73) China possesses the world's largest economy.
74) Money sent out of a politically or economically unstable country to one perceived as a safe haven is known as protected capital.
75) The currency in which the sale of goods and services is denominated is the invoicing currency.
76) International trade accounts for a major part of the U.S. economy.
77) Over 30 OECD's members are all classified as high-income countries .
78) All European Union member countries share a common currency–the euro.
79) The Czech Republic, Hungary, and Poland are classified as high-income countries by the World Bank.
80) Asia is a source of both skilled and unskilled labor.
81) Japan's economic success has been facilitated by its keiretsu.
82) Over the last two decades, Mexico has been relatively closed to foreign goods and investors.
83) Like France, the United Kingdom is a strong supporter of protectionist policies.
84) The single largest bilateral trading relationship in the world is between the United States and Canada.
85) By evaluating the income level of a nation, a firm can assess the purchasing power of citizens and the status of the public infrastructure.
86) Switzerland is a long-standing member of the European Union.
87) Japan's remarkable growth rate has continued into the twenty-first century.
88) Soviet leader Boris Yeltsin's 1986 political reform initiatives of glasnost and perestroika led to significant changes in the region's political, economic, and social environment of Russia.
89) Twelve of the 15 Newly Independent States established a forum called the Commonwealth of Independent States.
90) All of the countries that were aligned with the former Soviet Union are classified as lower-income countries.
91) A sogo shosha is typically a member of a keiretsu.
92) The Ministry of International Trade and Industry helped spur Japan's rapid growth by guiding the investment strategies of Japanese firms.
93) All four countries that are part of the Four Tigers have a Chinese heritage.
94) Japan has been criticized for unfairly promoting its exports and at the same time protecting its markets from imports.
95) Singapore's economy relies on reexporting.
96) Hinduism is the dominant religion in India.
97) Since World War II, India's economic development plan has focused on state ownership of key industries such as power and transportation.
98) Coca-Cola turned over its secret soft drink formula to the Indian government in order to remain in the country.
99) The Middle East is known for its oil-rich countries.
100) In Saudi Arabia, oil makes up 90 percent of its total export earnings.
101) South American producers rely on mass production and economies of scale for their success in international markets.
102) Brazil's poverty reduction program offers cash to families who keep their children in school and participate in public health programs.
103) Where is the majority of the world's current economic activity conducted?
Answer: About 57% of the world's current economic activity is conducted in North America, the EU and Japan.
104) Which country possesses the world's largest economy? Why do you think international trade is such a small component of the U.S. economy?
Answer: The United States has the world's largest economy, accounting for almost 21 percent of the world's GDP. Although international trade has become increasingly more important during the past decade, it is a relatively small component of the U.S. economy. U.S. exports of goods and services in 2012 totaled $2.9 trillion but were only 14 percent of its GDP. However, this figure is somewhat misleading. Because of the country's large size, trade that might be counted as international in smaller countries is considered domestic in the United States. For example, the
money spent for a hotel room in neighboring Belgium by a Dutch motorist trapped in a thunderstorm 50 miles from home late at night is counted in the international trade statistics of both Belgium and the Netherlands. A similar expenditure by a Connecticut motorist stuck in New Jersey after watching a football game at the Meadowlands is a purely domestic transaction.
105) How important is international trade to the U.S. economy? Which country is the largest trading partner to the U.S.?
Answer: International trade is a relatively small component of the U.S. economy and accounts for less than 12 percent of the country's GDP. Canada is the U.S.'s largest trading partner.
106) Define the term invoicing currency.
Answer: Invoicing currency is the currency in which the sale of goods and services is denominated.
107) What is flight capital? Why does the U.S. attract flight capital?
Answer: Flight capital is money sent out of a politically or economically unstable country to one perceived as a safe haven. The U.S. attracts flight capital because of its political stability and military strength.
108) What is the Organization for Economic Cooperation and Development?
Answer: The Organization for Economic Cooperation and Development, or OECD, is a group of 34 market-oriented democracies formed to promote economic growth.
109) What is the Commonwealth of Independent States? What is its purpose?
Answer: Gorbachev's economic and political reforms led to the Soviet Union's collapse in 1991 and subsequent declarations of independence by the 15 Soviet republics, which are now often referred to as the Newly Independent States. In 1992, 12 of the NIS (all but the Baltic countries of Estonia, Latvia, and Lithuania, which are now part of the European Union) formed the Commonwealth of Independent States (CIS) as a forum to discuss issues of mutual concern.
110) What do perestroika and glasnost mean? How do these concepts relate to the Russian economy?
Answer: Soviet leader Mikhail Gorbachev's 1986 reform initiatives of glasnost (openness) and perestroika (economic restructuring) triggered the region's political, economic, and social revolutions.
111) What is the meaning of the terms keiretsu and sogo shosha?
Answer: A keiretsu is a large family of interrelated companies. Sogo shosha is an export trading company used by keiretsu members to export their products.
112) What are the main characteristics of the Australian marketplace? How do these characteristics affect Australia's exporting?
Answer: Australia is rich in natural resources but has a relatively small workforce. As a result, its merchandise exports, which in 2011 accounted for 20 percent of its $1,379 billion GDP, are concentrated in natural resource industries (such as gold, iron ore, and coal) and in land-intensive agricultural goods (such as wool, beef, and wheat).
113) What are the countries collectively known as the Four Tigers? Why are these countries known as the Four Tigers?
Answer: South Korea, Hong Kong, Singapore, and Taiwan are the Four Tigers. These countries have made rapid economic strides since 1945, so they are collectively known as the "Four Tigers," a reference to the Chinese heritage that three of the four countries share.
114) What does chaebol mean? What has been the history of chaebol?
Answer: A chaebol is a family of interrelated firms in South Korea. To promote economic development after the Korean War, South Korea relied on tight cooperation between the government and 30 or so large, privately owned, and family-centered conglomerates that dominate the Korean economy. The most important of these conglomerates, or chaebol, were Samsung, Hyundai, Daewoo Group, and LG (formerly Lucky-Goldstar). Unfortunately, Korea's growth came to a screeching halt as a result of the 1997-1998 Asian currency crisis, and many of the chaebol were plunged into financial difficulties. Many observers argued that their problems were due to overexpansion and the poor lending practices of Korean banks. Many of the chaebol seemed to be more interested in size than profitability and borrowed money to enter industries already burdened by overcapacity, such as automobiles, computer chips, and steel manufacturing. Some of the chaebol learned their lesson and emerged from the crisis as stronger and leaner competitors.
115) In 2011, Singapore's exports totalled 171% of its GDP. Briefly explain how this is possible.
Answer: Singapore is a major reexporter because of its shipping ports and facilities.
116) Historical connections exist between many European powers and markets such as Hong Kong, India, and Africa. Briefly discuss these historic relationships. How do past relationships impact international business in these markets today?
Answer: As a consequence of the "opium war," Hong Kong was ceded to the British. In 1860, the British obtained possession of Kowloon and later they were granted a 99-year lease on the area. The lease expired on July 1, 1997. On that date China again assumed political control of Hong Kong and designated it a special administrative region (SAR). As an SAR, Hong Kong enjoys a fair degree of autonomy. It has its own legislature, economic freedom, free-port status, and a separate taxation system. Hong Kong will enjoy these privileges until 2047. However, China has made it clear that it will impose its own political will on Hong Kong. India was part of the British Empire until 1947, when the Indian subcontinent was partitioned along religious lines into India, where Hindus were in the majority, and Pakistan, where Muslims were dominant. India adopted many aspects of British government, including the parliamentary system, a strong independent judiciary, and a professional bureaucracy. Most of Africa was colonized in the late nineteenth century by the major European powers for strategic military purposes or to meet domestic political demands. The tide of colonialism began to reverse in the mid-1950s, as one by one the European powers surrendered control of their colonies. Vestiges of colonialism remain in today's Africa, however, affecting opportunities available to international businesses. For example, Chad, Niger, and the Côte d'Ivoire (Ivory Coast) retain close economic and cultural ties to France. They link their currencies to that of France and follow French legal, educational, and governmental procedures. Because of these ties, French manufacturers, financial institutions, and service-sector firms often dominate international commerce with these countries. Similarly, the public institutions of Kenya, Zimbabwe, and the Republic of South Africa are modeled along British lines, giving British firms a competitive advantage in these countries.
117) What led to the separation of Taiwan from China?
Answer: In the aftermath of the civil war in China between the nationalist forces and the communist forces, General Chiang Kai-shek fled to Taiwan. He declared the island the Republic of China and himself the rightful governor.
118) How have reforms in India and Mexico altered the economies of both countries?
Answer: In 1991, India's Prime Minister implemented market-opening reforms which reduced trade barriers, opened the door to increased FDI, and modernized the country's financial sector. Since then, India has attracted considerable FDI from MNCs from developed countries, and seen its GDP grow. For over half a century the Mexican government implemented a program of economic nationalism under which Mexico discouraged foreign investment and erected high tariff walls to protect its domestic industries. During the past three decades, however, Mexico has abandoned these policies and opened its markets to foreign goods and investors. Mexico also reduced the government's role in its economy by selling off many publicly owned firms. In 1994, Canada, Mexico, and the United States initiated the North American Free Trade Agreement (NAFTA), which reduced barriers to trade among the three countries over a 15-year period. Thousands of foreign companies have established new factories in Mexico to take advantage of NAFTA, generating hundreds of thousands of new jobs in the process.
119) Why would a global firm most likely consider the Middle East a risky marketplace?As a global manager, how would you determine if the benefits in the Middle East outweighed the risks?
Answer: The Middle East has a long history of conflict and political unrest. In the last half century it has experienced several Arab-Israeli wars, the Iran-Iraq war, and two Persian Gulf wars, all of which raised the risk of doing business in the region. In 2011, political unrest swept the area. Protests against the lack of democracy, poor employment opportunities, and high levels of income inequality led to the resignation of the long-time rulers of Egypt and Tunisia and to a civil war in Libya. A global manager can determine if the benefits are worth the risks by gathering information. Ignorance of basic geography, market characteristics, culture, and politics may lead to lost profits or, in the extreme, doom a venture to failure. Linguistic and cultural ties, past political associations, and military alliances play significant roles in the world pattern of trade and investment and in shaping the opportunities available to businesses today.
120) As a global manager, why should you consider South Africa as a potential source for your firm's future development?
Answer: Many experts predict that South Africa will be the dominant economic power and growth engine in Africa in the twenty-first century. South Africa, which has fertile farmland as well as rich deposits of gold, diamonds, chromium, and platinum, was used as a base by many MNCs for their African operations until the trade sanctions imposed by the United Nations in the 1970s. The UN was protesting the government's apartheid policies.Today, voting rights have been extended to all citizens regardless of race and color.
Learning Outcome: Discuss trends in and the debate over globalization
121) What are import and export substitution policies? How have these policies affected Asian and South American markets?
Answer: Countries using import substitution policies attempt to stimulate the development of local industry by discouraging imports via high tariffs and nontariff barriers. The opposite of import substitution is export promotion, whereby a country pursues economic growth by expanding its exports. This is the developmental approach successfully adopted by Taiwan, Hong Kong, and Singapore. However, many major South American countries adopted these well-intentioned but destructive import substitution policies. For most South American industries, however, the domestic market is too small to enable domestic producers to gain economies of scale through mass-production techniques or to permit much competition among local producers. Thus, prices of domestically produced goods tend to rise above prices in other markets. The result is inflation and destruction of middle class savings.
122) What are sovereign wealth funds? Why are they controversial?
Answer: Sovereign wealth funds are a new and controversial source of capital. They are government controlled pools of capital that invest in a variety of industries, mostly in a passive way. Most of the SWFs are owned by oil-rich governments. The Abu Dhabi Investment Authority is currently the largest, with $627 billion in assets, followed by the Government Pension Fund of Norway with $557 billion. Other SWFs are owned by governments of countries enjoying large balance of payments surpluses, such as China and Singapore. The funds are controversial because they should be solely for commercial purposes but could be a backdoor means of promoting the political goals of the governmental owner of the SWF.
123) As a manager, why do you need to understand global marketplaces and business centers? Why should you also have an understanding of international income data?
Answer: Businesses trying to internationalize their operations frequently make mistakes because they fail to obtain information vital to their success. Managers that are ignorant of basic geography, market characteristics, culture, and politics may cause a company to lose profits or even cause a venture to fail entirely. Managers need to understand linguistic and cultural ties, past political associations, and military alliances, and how they shape world trade and investment patterns, and the opportunities available to companies. Often the single most important piece of information needed by international businesspeople about a country is its income level. Income levels provide clues to the purchasing power of residents, the technological sophistication of local production processes, and the status of the public infrastructure.
124) China has designated Hong Kong as a special administrative region. How did this occur? What does this mean for Hong Kong? Be sure to address how this designation relates to international business concerns.
Answer: Hong Kong was ceded to the British following the Opium War in 1842. In 1860, the British also obtained possession of Kowloon on the Chinese mainland, and in 1898 they were granted a 99-year lease. The lease expired on July 1, 1997 and China resumed political control of Hong Kong and designated it a special administrative region. As a SAR, Hong Kong has its own legislature, economic freedom, free-port status, and a separate taxation system. This status will last until 2047. From an international business perspective, China's designation of Hong Kong as a SAR went far in terms of reassuring MNCs with operations in Hong Kong.
125) China has gone through three stages since communist forces took power in 1949. Name these stages and explain how each has affected China's economic power.
Answer: The three stages include the Great Leap Forward, the Cultural Revolution, and free-market policy. The Great Leap Forward sought to force industrialization through the growth of small, labor-intensive factories. Its failure led to the Cultural Revolution, which attempted to reinforce the communist doctrine. After Mao Tse-tung's death, the government adopted limited free-market policies. China continues to develop in this stage. It continues to adopt market-oriented economic policies while maintaining political control.
126) What economic reforms have occurred in India? What has been the impact of these reforms on India's economy?
Answer: In 1991, Indian Prime Minister Rao implemented various reforms including reduced trade barriers, designed to open India's economy to foreigners, and modernizing its financial sector. Today, the effect of the reforms is evident in the country's growing GDP and the FDI from MNCs based in developed countries; however, government policy is still unclear causing confusion for some investors.
127) What is the impact of income gaps in countries such as Brazil? How is the Brazilian government addressing these inequalities? Why are income gaps relevant to international businesses?
Answer: For most of its history, Latin America has been characterized by huge income inequalities. The rich have done very well; the prospects for children borne into poverty have been grim. One innovative and successful program is Brazil's Bolsa Família. The poverty reduction program involves conditional cash transfers (CCTs). CCT programs provide cash subsidies to poor families, but the cash comes with strings attached. Families receive payments from Bolsa Família only if their children attend school on a regular basis and participate in public health programs, such as keeping their vaccinations up to date. Countries with low per capita incomes and significant income gaps are less attractive to international businesses because they offer less consumer demand and lack the public infrastructure necessary for reliable production and distribution of goods and services.. Such countries may also experience social unrest, political instability, and lost productivity, which impacts IB.