Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Chapter 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: 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 Diff: Page Ref: 32 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 3) A firm's decision to internationalize is generally made as a reaction to the phenomenon of market globalization Answer: FALSE Diff: Page Ref: 34 Skill: Concept Objective: 2-2 AACSB: Dynamics of the global economy 4) Firms that pursue internationalization as a strategic move tend to approach global competition more aggressively than firms that internationalize for reactive reasons Answer: TRUE Diff: Page Ref: 34 Skill: Concept Objective: 2-2 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 35 Skill: Concept Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Objective: 2-3 AACSB: Dynamics of the global economy 6) Converging lifestyles and preferences worldwide help to promote traditional values in individual countries Answer: FALSE Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 7) One method used by global companies to drive down prices is product standardization Answer: TRUE Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 8) One contribution of the World Trade Organization is to help maintain reduced trade barriers throughout the world Answer: TRUE Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 9) The end of the Cold War in 1989 hindered the forces of market liberalization in Eastern Europe Answer: FALSE Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 10) Industrialization implies that emerging market countries are increasing their dependence on low-cost labor Answer: FALSE Diff: Page Ref: 37 Skill: Concept Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Objective: 2-4 AACSB: Dynamics of the global economy 11) Technological advances have helped make internationalization affordable for all sizes of firms Answer: TRUE Diff: Page Ref: 40 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 12) China's consumer market is generally resistant to purchasing technologically advanced products Answer: FALSE Diff: Page Ref: 41 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 13) The rate of speed at which nations integrate into the global economy is relatively consistent, regardless of income level Answer: FALSE Diff: Page Ref: 44 Skill: Concept Objective: 2-6 AACSB: Dynamics of the global economy 14) Globalization has led buyers to become more demanding and to shop for the best value worldwide Answer: TRUE Diff: Page Ref: 52 Skill: Concept Objective: 2-7 AACSB: Dynamics of the global economy 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 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger D) the rise of SMEs Answer: B Diff: Page Ref: 31-32 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 32 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 17) Multinational firms first emerged in which phase of globalization? A) first B) second C) third D) fourth Answer: B Diff: Page Ref: 32 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 32 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 33 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 33 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 33 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger C) actively pursuing partnerships with foreign firms D) focusing intensively on building organizational capacities Answer: B Diff: Page Ref: 34 Skill: Concept Objective: 2-2 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 35 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 36 Skill: Application Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 35 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Skill: Application Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 37 Skill: Application Objective: 2-4 AACSB: Dynamics of the global economy 29) Reduction in trade barriers is associated with the emergence of which of the following? Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Diff: Page Ref: 38-39 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 40 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 41 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 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 Diff: Page Ref: 41 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 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 Diff: Page Ref: 42 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 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 10 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 37 Skill: Application Objective: 2-4 AACSB: Analytic skills 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 Diff: Page Ref: 46 Skill: Critical Thinking Objective: 2-6 AACSB: Dynamics of the global economy; Reflective thinking skills 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 15 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 47 Skill: Critical Thinking Objective: 2-6 AACSB: Dynamics of the global economy; Reflective thinking skills 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 Diff: Page Ref: 50 Skill: Critical Thinking Objective: 2-6 AACSB: Dynamics of the global economy; Reflective thinking skills 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 Diff: Page Ref: 51 Skill: Critical Thinking Objective: 2-6 AACSB: Dynamics of the global economy; Reflective thinking skills 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 valuechain 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 16 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 53 Skill: Application Objective: 2-7 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 52 Skill: Critical Thinking Objective: 2-7 AACSB: Dynamics of the global economy; Reflective thinking skills 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 valuechain 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 Diff: Page Ref: 52 Skill: Critical Thinking 17 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Objective: 2-7 AACSB: Dynamics of the global economy; Reflective thinking skills 18 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 32-34 Skill: Concept Objective: 2-1 AACSB: Dynamics of the global economy 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 19 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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: Page Ref: 33, 35 Skill: Synthesis Objective: 2-1, 2-3 AACSB: Dynamics of the global economy 62) How 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 Diff: Page Ref: 35 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 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 20 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 36 Skill: Concept Objective: 2-3 AACSB: Dynamics of the global economy 65) How has the adoption of free markets worldwide served as a driver of market globalization? Provide three examples to support your answer 21 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 37 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 41-43 Skill: Concept Objective: 2-6 AACSB: Dynamics of the global economy 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 22 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Crossborder 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 Diff: Page Ref: 40 Skill: Concept Objective: 2-4 AACSB: Dynamics of the global economy 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 23 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Diff: Page Ref: 43 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 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 costeffectively 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 24 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 42-44 Skill: Concept Objective: 2-5 AACSB: Dynamics of the global economy; Use of information technology 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 25 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 43-52 Skill: Concept Objective: 2-6 AACSB: Dynamics of the global economy 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 26 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger banking systems As a result, although the crisis began in the United States, it quickly spread to other countries Diff: Page Ref: 33, 44 Skill: Synthesis Objective: 2-1, 2-6 AACSB: Dynamics of the global economy 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 Diff: Page Ref: 46 Skill: Concept Objective: 2-6 AACSB: Dynamics of the global economy 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 27 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger 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 Diff: Page Ref: 50-52 Skill: Concept Objective: 2-6 AACSB: Dynamics of the global economy 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: Page Ref: 36, 51-52 28 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall Test bank for International Business The New Realities 2nd Edition by S.Tamer Cavusgil, Gary Knight and John Riesenberger Skill: Synthesis Objective: 2-3, 2-6 AACSB: Dynamics of the global economy 75) What is meant by the internationalization of a firm's value chain? How 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” valuechain 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 valueadding 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 Diff: Page Ref: 40, 52 Skill: Synthesis Objective: 2-5, 2-7 AACSB: Dynamics of the global economy 29 Copyright © 2012 Pearson Education, Inc publishing as Prentice Hall