International business the new realities 2nd edition cavusgil test bank

International Business: The New Realities, 2e (Cavusgil/Knight/Riesenberger)
Chapter 2 Globalization of Markets and the Internationalization of the Firm
1) The initial phase of globalization was triggered in part by the introduction of the railroad.
Answer: TRUE
Diff: 1 Page Ref: 31
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
2) The Great Depression marked the beginning of the second phase of globalization.
Answer: FALSE
Diff: 2 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: 1 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 do firms that internationalize for reactive reasons.
Answer: TRUE
Diff: 2 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: 2 Page Ref: 35
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy

1
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


6) Converging lifestyles and preferences worldwide help to promote traditional values in
individual countries.
Answer: FALSE
Diff: 2 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: 1 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: 1 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: 2 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: 1 Page Ref: 37
Skill: Concept
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: 2 Page Ref: 40
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology

2
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


12) China's consumer market is generally resistant to purchasing technologically advanced
products.
Answer: FALSE
Diff: 2 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: 3 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: 2 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
D) the rise of SMEs
Answer: B
Diff: 1 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: 2 Page Ref: 32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy

3
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


17) Multinational firms first emerged in which phase of globalization?
A) first
B) second
C) third
D) fourth
Answer: B
Diff: 2 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: 2 Page Ref: 32
Skill: Concept
Objective: 2-1

AACSB: Dynamics of the global economy
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: 2 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: 1 Page Ref: 33
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy

4
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 1 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
C) actively pursuing partnerships with foreign firms
D) focusing intensively on building organizational capacities
Answer: B
Diff: 3 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: 2 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: 2 Page Ref: 36
Skill: Application
Objective: 2-3
AACSB: Dynamics of the global economy

5
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 2 Page Ref: 35
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: 1 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: 2 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: 2 Page Ref: 37
Skill: Application
Objective: 2-4
AACSB: Dynamics of the global economy

6
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

29) Reduction in trade barriers is associated with the emergence of which of the following?
A) Japan's transition to a command economy
B) regional economic integration blocs
C) member defection from the WTO
D) violation of GATT provisions
Answer: B
Diff: 2 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: 2 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: 1 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
Diff: 1 Page Ref: 38-39
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy

7
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 1 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: 2 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: 2 Page Ref: 40
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
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: 1 Page Ref: 41
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology

8
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 2 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: 1 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
Answer: C
Diff: 1 Page Ref: 42
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
40) The ability of a nation to govern its own affairs is known as ________.
A) sovereignty
B) liberalization
C) interdependence
D) homogenization
Answer: A
Diff: 1 Page Ref: 45
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy

9
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


41) Which of the following terms refers to the relocation of manufacturing and other value-chain
activities to cost-effective locations abroad?
A) protectionism
B) cultural imperialism
C) labor migration
D) offshoring
Answer: D
Diff: 2 Page Ref: 46
Skill: Concept

Objective: 2-6
AACSB: Dynamics of the global economy
42) Each of the following represents a firm-level consequence of market globalization except
________.
A) firms must proactively internationalize to reduce potential threats
B) firms must deal with new business risks
C) an international focus is viable only in certain industries
D) firms must manage intense rivalry from foreign competitors
Answer: C
Diff: 2 Page Ref: 52
Skill: Application
Objective: 2-7
AACSB: Dynamics of the global economy
43) Highly advanced internationalizing firms seek a simultaneous presence in which of the
following trading regions?
A) North America, Europe, and Asia
B) North America, Africa, and Central America
C) Eastern Europe, Australia, and North America
D) Asia, Europe, and South America
Answer: A
Diff: 1 Page Ref: 52
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
44) The most direct firm-level consequence of market globalization affects which of the
following?
A) the firm's global sourcing contracts
B) the offshoring potential of particular activities
C) research and development costs faced by the firm
D) the firm's entire value chain

Answer: D
Diff: 3 Page Ref: 52
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
10
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


45) Which stage comes before procurement in a firm's value chain?
A) research & development
B) marketing
C) manufacturing
D) distribution
Answer: A
Diff: 1 Page Ref: 53
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
46) Which of the following represents the final stage in a firm's value chain?
A) marketing
B) procurement (sourcing)
C) research & development
D) distribution & after-sales service
Answer: D
Diff: 1 Page Ref: 53
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
Internationalization Conference (Scenario)

At a conference on business internationalization strategies, representatives of three different
businesses meet to discuss a joint venture between their companies. Business A is located in a
country that internationalized during the second phase of globalization. Business B is based in a
country that internationalized during the third phase of globalization. Business C is located in an
emerging market country.
47) The representative from Business A is most likely from which of the following countries?
A) China
B) United Kingdom
C) Mexico
D) Brazil
Answer: B
Diff: 2 Page Ref: 32
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy

11
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


48) The representative from Business B is most likely from which of the following countries?
A) Panama
B) Hungary
C) Singapore
D) Japan
Answer: D
Diff: 2 Page Ref: 32
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy

49) The representative from Business C is most likely from which of the following countries?
A) Italy
B) Brazil
C) United States
D) France
Answer: B
Diff: 2 Page Ref: 33
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
Global Operations Report (Scenario)
As Vice President of Global Expansion for Pax Telecom, Deva Mikiri is tasked with preparing a
comprehensive report on the company's global operations over the past twenty years. Deva
assigns three strategists to collaborate on the History portion of the report, which details the
rationale behind Pax's decisions to expand operations in particular areas. Rashid Ahl focuses on
early expansion to China, which occurred after China began to make its market more accessible
to foreign companies. Markus Teller focuses on Pax's expansion to Eastern Europe, which was
motivated by increased industry privatization in key countries. Lavonne Jackson focuses on
expansion to Japan, which happened when the company's commercial bank expanded its service
network to Asia.
50) Which of the following drivers of market globalization does Markus most likely cite as
responsible for the company's expansion to Eastern Europe?
A) advances in technology
B) integration of world financial markets
C) market liberalization
D) industrialization
Answer: C
Diff: 2 Page Ref: 34
Skill: Application
Objective: 2-2

AACSB: Analytic skills

12
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


51) In describing the main driver behind Pax's expansion to China, Rashid most likely
emphasizes ________.
A) economic development
B) advances in technology
C) reduction of barriers to trade
D) integration of world financial markets
Answer: C
Diff: 2 Page Ref: 37
Skill: Application
Objective: 2-4
AACSB: Analytic skills
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: 2 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: 3 Page Ref: 46
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills

13
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


54) Which of the following most likely supports Rina's argument over Juan's concerning wages
and working conditions in developing countries?
A) Most African countries today still suffer from low or negative GDP growth.
B) Vietnam has experienced a five-fold increase in wages as a result of the growth of the
footwear industry there.
C) The move of Electrolux to Mexico cost Michigan 2,700 jobs.
D) Minimum wages should be established at set levels, regardless of the impact on the number of

jobs.
Answer: B
Diff: 3 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: 3 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: 3 Page Ref: 51
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills

14
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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 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: 2 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: 3 Page Ref: 52
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills

15
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 3 Page Ref: 52
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills

16
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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: 2 Page Ref: 32-34
Skill: Concept
Objective: 2-1

AACSB: Dynamics of the global economy

17
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


61) Describe the role of GATT and the WTO in reducing barriers to trade and investment
worldwide, and explain how this reduction has led to the integration and interdependence of
national economies.
Answer: In 1947 several nations enacted the General Agreement on Tariffs and Trade (GATT)
and a series of negotiations that, over time, reduced barriers to international trade and
investment. Participating governments recognized that liberalized trade would stimulate
industrialization, modernization, and better living standards. The GATT eventually transformed
into the World Trade Organization, a multilateral governing body that grew to include 149
member nations. The WTO aims to regulate and ensure fairness and efficiency in global trade
and investment. Global cooperation in the post-war era gave birth to other international
organizations such as the International Monetary Fund and the World Bank.
Internationally active firms devise multicountry operations through trade, investment, geographic
dispersal of company resources, and integration and coordination of value-chain activities.
Governments have facilitated this integration by lowering barriers to international trade and
investment, harmonizing their monetary and fiscal policies within regional economic integration
blocs (also known as trade blocs), and developing supranational institutions —the World Bank,
International Monetary Fund, World Trade Organization, and others —that seek further
reductions in trade and investment barriers.
Diff: 3 Page Ref: 33, 35
Skill: Synthesis
Objective: 2-1, 2-3
AACSB: Dynamics of the global economy
62) How do governments help promote international economic interdependence? In a short
essay, describe three ways that government activities increase economic integration and provide

an example that illustrates one approach.
Answer: Governments contribute to economic interdependence by three means. First, they
gradually lower barriers to international trade and investment (for example, by negotiating trade
agreements). Second, they increasingly harmonize their monetary and fiscal policies within trade
blocs, such as the European Union. Third, they devise and supervise supranational
institutions such as the World Bank, International Monetary Fund, and the World Trade
Organization that seek further reductions in trade and investment barriers.
Diff: 2 Page Ref: 35
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy

18
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


63) In a short essay, explain how market globalization both responds to and promotes the
convergence of consumer lifestyles around the world. Provide examples to illustrate your
answer.
Answer: Around the world, many consumers are increasingly similar in how they spend their
money and time. Lifestyles and preferences are converging. Market globalization responds to
this phenomenon by providing consumers with standardized products that meet their converging
demands. For example, consumers in Tokyo, New York, and Paris demand similar household
goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPods,
Nokia cell phones, and Levi jeans. Convergence of preferences is also occurring in industrial
markets, where professional buyers source raw materials, parts and components that are
increasingly standardized, that is, very similar in design and structure. The companies that
produce these desired products are responding to converging demands by ensuring that markets
are developed throughout the world.
Market globalization itself also promotes the convergence of lifestyles and preferences.

International travel, movies, global media, and the Internet all expose people to products,
services, and living patterns from around the world. The fact that desired commodities are
available internationally helps to encourage and reinforce consumers' demands for them.
Diff: 3 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: 1 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy

19
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

65) How has the adoption of free markets worldwide served as a driver of market globalization?
Provide three examples to support your answer.
Answer: The adoption of free markets worldwide has helped to drive market globalization by
helping to integrate former command economies into the global economy. Examples include
market liberalization in the Soviet Union, China, Eastern Europe, India, and many countries of
East Asia.
The collapse of the Soviet Union's economy in 1989, the tearing down of the Berlin Wall that
same year, and China's free-market reforms, all signaled the end of the 50-year Cold War
between autocratic communist regimes and democracy and smoothed the integration of former
command economies into the global economy. Numerous East Asian economies, stretching from
South Korea to Malaysia and Indonesia, had already embarked on ambitious market-based
reforms. India joined the trend in 1991. These events opened roughly one-third of the world to
freer international trade and investment.
China, India, and Eastern Europe have become some of the most cost-effective locations for
producing goods and services worldwide. Privatization of previously state-owned industries in
these countries has encouraged economic efficiency and attracted massive foreign capital into
their national economies.
Diff: 2 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: 2 Page Ref: 41-43
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy

20
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


67) How does the integration of world financial markets help to increasing market globalization?
In your answer, provide an example of this driver at work.
Answer: The integration of world financial markets drives market globalization by enabling
internationally active firms to raise capital, borrow funds, and engage in foreign currency
transactions. Financial services firms now follow their customers to foreign markets. 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: 1 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.
Diff: 2 Page Ref: 43
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology

21
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


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 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: 2 Page Ref: 42-44
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology

22
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


70) In a short essay, describe three societal consequences of market globalization. Provide an
example to illustrate each consequence.
Answer:
a. Loss of National Sovereignty Globalization can threaten national sovereignty in various
ways. MNE activities can interfere with the sovereign ability of governments to control their
own economies, social structures, and political systems. Some corporations are bigger than the
economies of many nations. For instance, Walmart's internal economy its total revenues is
larger than the GDP of most of the world's nations, including Israel, Greece, and Poland. Large
multinationals can exert considerable influence on governments through lobbying or campaign
contributions.
b. Off-shoring and the Flight of Jobs Globalization has created countless new jobs and
opportunities around the world, but it has also cost many people their jobs. For example, Ford,
General Motors, and Volkswagen all have transferred thousands of jobs from their factories in
Germany to countries in Eastern Europe. This occurred partially because mandated shorter
working hours (often just 35 hours per week) and generous benefits made Germany less
competitive, while Eastern Europe offers abundant low-wage workers. GM and Ford have also
laid off thousands of workers in the United States, partly the result of competitive pressures
posed by carmakers from Europe, Japan, and South Korea.
c. Multinational firms are often criticized for paying low wages, exploiting workers, and
employing child labor. For instance, Nike has been criticized for paying low wages to shoe
factory workers in Asia, some of whom work in sweatshop conditions. Critics complain that

while founder Phil Knight is a billionaire and Nike sells shoes for $100 or more, Nike's suppliers
pay their workers only a few dollars per day. Labor exploitation and sweatshop conditions are
genuine concerns in many developing economies.
d. Effect on the Natural Environment Globalization can harm the environment by
promoting increased manufacturing and economic activity that result in pollution, habitat
destruction, and deterioration of the ozone layer. For instance, economic development in China is
attracting much inward FDI and stimulating the growth of numerous industries. The construction
of factories, infrastructure, and modern housing can spoil previously pristine environments. As
an example, growing industrial demand for electricity led to construction of the Three Gorges
Dam, which flooded agricultural lands and permanently altered the natural landscape in Eastern
China.
e. Effect on National Culture Globalization exerts strong pressures on national culture.
Market liberalization leaves the door open to foreign companies, global brands, unfamiliar
products, and new values. Consumers increasingly wear similar clothing, drive similar cars, and
listen to the same recording stars. Appetites grow for "Western" products and services, which are
seen to signal higher living standards. For example, despite low per-capita income, many
Chinese buy consumer electronics such as cell phones and TV sets. Global media have a
pervasive effect on local culture, gradually shifting it toward a universal norm.
Diff: 2 Page Ref: 43-52
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy

23
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall


71) Describe the fourth phase of globalization, and explain why "contagion" raised questions
about the merits of globalization.
Answer: The fourth phase of globalization began in the early 1980s, which saw enormous

growth in cross-border trade and investment. The phase was triggered by the development of
personal computers, the Internet, and Web browsers; the collapse of the Soviet Union and
ensuing market liberalization in central and Eastern Europe; and industrialization and
modernization in East Asian economies, including China. Growing international prosperity
began to reach emerging markets such as Brazil, India, and Mexico. The 1980s witnessed huge
increases in FDI, especially in capital- and technology-intensive sectors. Technological advances
in information, communications, and transportation made it feasible for the rise of internationally
active small and medium-sized enterprises (SMEs) and for managers to organize far-flung
operations around the world, geographically distant yet electronically interconnected. These
technologies also facilitated the globalization of the service sector in such areas as banking,
entertainment, tourism, insurance, and retailing. The merger of major firms once viewed as
strongholds of national corporate power exemplified the growing integration of the world
economy.
Today, countless firms configure and coordinate trade and investment activities in a giant global
marketplace. In their own way, globalization and technological advances have triggered the
“death of distance”— shrinkage of the geographic and cultural distances that long separated
nations. Globalization is gradually shrinking the world into a manageable marketplace.
A serious financial crisis began in 2008 in the United States and, like a contagious disease,
spread around the world. In international economics, contagion refers to the tendency for a
financial or monetary crisis in one country to spread rapidly to other countries, due to the
ongoing integration of national economies. The financial crisis raised questions about the merits
of globalization. Modern technology facilitated the integration of national economies and
banking systems. As a result, although the crisis began in the United States, it quickly spread to
other countries.
Diff: 3 Page Ref: 33, 44
Skill: Synthesis
Objective: 2-1, 2-6
AACSB: Dynamics of the global economy

24

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


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: 3 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 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: 2 Page Ref: 50-52
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy

25
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall