Hill International Business 8e

8/10/2019 Hill International Business 8e

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Chapter 01 - Globalization

Chapter 01Globalization

True / False Questions

1. The notion that national economies are relatively self-contained entities is on the rise.True False

2. The shift toward a more inte rated and interdependent world economy is referred to aslobalization.True False

!. The mer in of historically distinct and separate mar"ets into one hu e lobal mar"etplaceis "nown as the lobalization of mar"ets.True False

#. The ma$ority of %.&. firms that e'port are lar e multinationals that employ (00 or more people.True False

(. The most lobal mar"ets currently are mar"ets for industrial oods and materials that servea universal need the world over.True False

). *utsourcin is a process that is limited to manufacturin enterprises.True False

+. ,ecause of their nature service activities cannot be outsourced to other companies.True False

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1(. eclinin barriers to cross-border trade and investment cannot be ta"en for ranted.True False

1). The lobalization of mar"ets and production and the resultin rowth of world tradeforei n direct investment and imports all imply that firms are findin their home mar"ets

protected from forei n competitors.True False

1+. 6oore7s 8aw predicts that the power of microprocessor technolo y doubles and its cost of production falls by half every 1 months.True False

1 . 9fficiency ains associated with containerization have caused transportation costs to falldramatically.True False

1 . Today lobal communication networ"s and lobal media are creatin a worldwideculture.

True False

20. 3n the early 1 )0s the %nited &tates was by far the world7s dominant industrial power.:owever by 200) it lost its dominant position and now is no lon er the world7s lar estindustrial power.True False

21. ,y 200 the %.&. had seen its share of e'ports fall to almost half its share in the 1 )0s.True False

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22. ccordin to forecasts a further relative decline in the share of world output and worlde'ports accounted for by the %nited &tates and other lon -established developed nations isunli"ely.True False

2!. current trend in international business is the rowth of medium-sized and smallmultinationals "nown as mini-multinationals.True False

2#. Today the ris"s involved in doin business in countries such as ;ussia are low but so arethe returns.

True False

2(. 3f the free mar"et reforms in China continue for two more decades China may move fromThird 4orld status to industrial superpower status even more rapidly than


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!). ebt continues to be a ma$or burden for poorer nations as they strive to et ahead.True False

!+. &upporters of debt relief ar ue that new democratic overnments in poor nations shouldnot be forced to honor debts that their corrupt and dictatorial predecessors incurred andmismana ed lon a o.True False

! . n international business is any firm that en a es in international trade or investment.True False

! . The mana ers of an international business must decide whether it is ethical to adhere tothe lower labor and environmental standards found in many less developed nations.True False

#0. 3n eneral mana in an international business is a more comple' tas" than mana in a business that serves only the local mar"et.True False

Multiple Choice Questions

#1. 4hich of the followin is not characteristic of lobalization>. /ational economies are turnin into independent economic systems.,. 6aterial culture is startin to loo" similar the world over.C. 5erceived distance is shrin"in due to advances in transportation and telecommunications.. ,arriers to cross-border trade and investment are declinin .

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#2. Globalization has ????? the opportunities for a firm to e'pand its revenues by sellinaround the world and ????? its costs by producin in nations where "ey inputs are cheap.. reduced reduced,. increased increased

C. increased reduced. reduced increased

#!. &ince the collapse of communism at the end of the 1 0s the erstwhile communist nationshave transformed their economies by encoura in all of the followin e'cept@. privatizin state-owned enterprises.,. re ulatin mar"ets.C. increasin competition.. welcomin investment by forei n businesses.

##. 3dentify the incorrect statement concernin lobalization.. 3t has been blamed for unemployment in developed nations environmental de radationand the mericanization of popular culture.,. 3t has created new threats for businesses accustomed to dominatin their domestic mar"ets.C. 3t is transformin industries and is hi hly welcomed by those who believed their $obs were

protected from forei n competition.. ccordin to most economists it is a very beneficial process where ains outwei h thelosses by a wide mar in.

#(. 3n the %.&. ????? percent of firms that e'port are small companies employin fewer than100 people.. 0,. +(C. (0. !0

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#). The most lobal mar"ets currently are mar"ets for@. services.,. consumer oods.C. consumer durables.

. industrial oods.

#+. 4hich of the followin is not an impediment that ma"es it difficult for firms to achievethe optimal dispersion of their productive activities to locations around the lobe>. ;educed transportation costs.,. Government re ulations.C. 3ssues associated with economic and political ris".. ,arriers to forei n direct investment.

# . The ?????? is primarily responsible for policin the world tradin system and ma"insure nation-states adhere to the rules laid down in trade treaties si ned by member states.. 3nternational evelopment ssociation,. 4orld ,an" C. 3nternational Court of $ustice. 4orld Trade *r anization

# . The ????? was created in 1 ## by ## nations that met in ,reton 4oods /ew :ampshireto promote economic development.. 4orld ,an" ,. 3nternational Trade Center C. 4orld Trade *r anization. %nited /ations

(0. The institution created in 1 ## at ,retton 4oods responsible for maintainin order in theinternational monetary system is the

. 36F.,. 4T*.C. %/.. %/9&C*.

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(1. ????? occurAsB when a firm e'ports oods or services to consumers in another country.. 3nternational trade,. Forei n direct investmentC. 3nward investment

. 6er er and ac=uisitions

(2. The ????? was established to remove barriers to the free flow of oods services andcapital between nations.. %/,. 36FC. G TT. 3

(!. t the oha ;ound of the 4T* in late 2001. the 4T* was established.,. G TT was e'tended to include services.C. world trade volume increased.. an a enda was established to phase out subsidies to a ricultural producers.

(#. The reduction in the avera e tariff rates on manufactured products since 1 (0 implies all

of the followin e'cept that. firms are dispersin parts of their production process to lobal locations to drive down

production costs and increase product =uality.,. the economies of the world7s nation states are becomin more intertwined.C. nations are becomin increasin ly independent of each other for important oods andservices.. the world has become si nificantly wealthier since 1 (0.

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((. The rowin inte ration of the world economy is@. increasin the intensity of competition in a wide ran e of manufacturin and serviceindustries.,. decreasin the intensity of competition in manufacturin industries and increasin the

intensity of competition in services.C. increasin the intensity of competition in manufacturin industries and decreasin theintensity of competition in services.. narrowin the scope of competition in a wide ran e of service commodity andmanufacturin industries.

(). 4hich of the followin statements re ardin cross-border trade and investment is nottrue>. 5rotection from forei n competitors has been at times demanded by the %nited &tates.

,. Forecasts indicate a return to the restrictive trade policies of the 1 20s and !0s.C. 3f trade barriers decline no further they will put a bra"e upon the lobalization of bothmar"ets and production.. 3t is not clear whether the political ma$ority in the industrialized world favors furtherreductions in trade barriers.

(+. 3dentify the incorrect statement pertainin to the 4orld 4ide 4eb.. 3t ma"es it much easier for buyers and sellers to find each other.,. Diewed lobally it is emer in as an e=ualizer.

C. 3t rolls bac" all of the constraints of location scale and time zones.. 3t allows businesses to e'pand their lobal presence at a lower cost than ever before.

( . &ince 1 0 the world7s containership fleet has more than ????? reflectin in part therowin volume of international trade.. doubled,. tripledC. =uadrupled. =uintupled

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( . Technolo ical innovations have facilitated all of the followin e'cept@. lobalization of production.,. lobalization of mar"ets.C. creation of electronic lobal mar"etplaces.

. creation of absolutely homo eneous consumer mar"ets.

)0. lthou h the characteristics of the lobal economy have chan ed dramatically over the past !0 years as late as the 1 )0s all of the followin demo raphic characteristics were truee'cept@. the %.&. dominated the world economy.,. small %.&. entrepreneurial firms dominated the international business scene.C. the %.&. dominated the world forei n direct investment picture.. rou hly half the world was overned by centrally planned economies of the Communist

world.

)1. 4hich of the followin nation7s world output has declined the least over the last #0 years>. France,. %nited &tatesC. %nited Ein dom. Canada

)2. 4hich of the followin countries has had the ma'imum relative decline in its share ofworld output since 1 )!>. Canada,. %nited &tatesC.


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)!. 4hich of the followin statements pertainin to the chan in demo raphics of worldG 5 and trade from 1 )! to 200) is not true>. s emer in economies continue to row a relative decline in the share of world outputand world e'ports accounted for by the %.&. seems unli"ely.

,. Forecasts predict a rapid rise in the share of world output accounted for by somedevelopin nations.C. decline in the share en$oyed by rich industrialized countries such as Great ,ritainGermany . ccumulation of forei n shares,. 5ortfolio investmentsC. &toc" of forei n direct investments. &toc" mar"et investments

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)+. The share of the total F 3 stoc" accounted for by which of the followin countriesincreased mar"edly from 1 0 to 200(>. %nited &tates,. France

C. %nited Ein dom. /etherlands

) . Firms based in ????? accounted for 1#.+ percent of the stoc" of forei n direct investmentin 200+ up from only 1.1 percent in 1 0.. sia,. developin countriesC. %nited Ein dom. / FT re ion

) . 4hich of these statements pertainin to cross-border F 3 flows is true>. The rowth of F 3 resumed in 200# and continued throu h 200).,. sur e in F 3 from 1 ( to 1 + was followed by a slump from 1 to 2000.C. mon developin nations the lar est recipient of F 3 has been ;ussia.. The dramatic increase in F 3 reflects the decreasin internationalization of businesscorporations.

+0. 4hich of the followin countries has been the lar est recipient of forei n directinvestment and received about +0 billion a year in inflows in 200( and 200)>. ,razil,. ;ussiaC. 3ndia. China

+1. ,y 200) some 2# of the world7s 100 lar est non-financial multinationals were@

. Chinese enterprises.,. ,ritish enterprises.C. %.&. enterprises..


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+). 4hen a company e'ports $obs overseas the company is@. helpin domestic wor"ers by pushin up wa e rates.,. increasin the demand of =ualified domestic wor"ers.C. ta"in advanta e of lower wa es in forei n mar"ets.

. deceivin the supporters of lobalization.

++. 3f the critics of lobalization are correct all of the followin thin s must be showne'cept@. the share of national income received by labor as opposed to the share received by theowners of capital should have declined in advanced nations.,. even thou h labor7s share of the economic pie may have declined livin standards need notdeteriorate if the size of the total pie has increased sufficiently to offset the decline in labor7sshare.

C. the decline in labor7s share of national income must be due to movin production to low-wa e countries as opposed to improvin production technolo y and productivity.. economic rowth in developed nations has offset the fall in uns"illed wor"ers7 share ofnational income raisin their livin standards.

+ . study by the *9C whose members include the 20 richest economies in the worldnoted all of the followin e'cept@. the ap between the poorest and richest se ments of society in some *9C countrieswidened.

,. in almost all countries real income levels rose over the 20-year period studied.C. fallin unemployment rates brou ht ains to low-wa e wor"ers and fairly broad-basedwa e rowth.. the ap between rich and poor had narrowed in all *9C countries.

+ . Critics of lobalization maintain that the apparent decline in real wa e rates of uns"illedwor"ers. owes far more to a technolo y-induced shift within advanced economies toward $obs thatre=uire si nificant education and s"ills.

,. is due to the mi ration of low-wa e manufacturin $obs offshore and a correspondinreduction in demand for uns"illed wor"ers.C. has been impacted most by technolo ical chan e.. can be chec"ed by increasin society7s investment in education to reduce the supply ofuns"illed wor"ers.

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0. ,efore / FT was passed. 6e'ico a reed to establish a hi her minimum wa e.,. the %.&. a reed to limit the number of $obs that could be e'ported to 6e'ico.C. 6e'ico committed to tou her enforcement of environmental protection re ulations.

. Canada committed to establish new limits of F 3.

Essay Questions

1. 4ith the help of an e'ample discuss the characteristics of lobalization.

2. efine lobalization and discuss it has chan ed the business environment>

!. 9'plain what is meant by the lobalization of mar"ets. 5rovide an e'ample. 4hat are themost lobal mar"ets>

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2. iscuss the demo raphics of world trade since the 1 )0s. :ow has the role of the %.&.chan ed> :ow is world trade e'pected to chan e in the future>

!. :ow has the forei n direct investment picture chan ed since the 1 )0s>

#. 4hat is a multinational enterprise A6/9B> :ow does a mini-multinational differ from an6/9>

(. 6any companies are "eepin their eyes on China. 4hy is China so important tointernational business>

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). Consider the lobal economy of the 21 st century. 4hat important chan es are ta"in place> 4hat do these chan es mean for international companies>

+. Consider whether the shift toward a more inte rated and interdependent lobal economyis a ood thin . iscuss the shift from the eyes of the consumer the wor"er the company andthe environmentalist.

. iscuss what occurred in &eattle in 1 at the meetin of the 4T* and why the eventswere important to the future of lobal trade.

. Fallin barriers to international trade destroy manufacturin $obs in wealthy advancedeconomies. iscuss this statement. o you a ree> 4hy or why not>

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100. iscuss the effect of lobalization on national soverei nty.

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!. (p. ) The mer in of historically distinct and separate mar"ets into one hu e lobalmar"etplace is "nown as the lobalization of mar"ets.TR E

AACSB: Analytic Bloom's: Knowledge Difficulty: +asy ea!ning "#$ecti%e: &

#. (p. ) The ma$ority of %.&. firms that e'port are lar e multinationals that employ (00 or more people.FALSE


(. (p. ) The most lobal mar"ets currently are mar"ets for industrial oods and materials thatserve a universal need the world over.TR E

AACSB: Analytic Bloom's: Knowledge Difficulty: Medium ea!ning "#$ecti%e: &

). (p. ,) *utsourcin is a process that is limited to manufacturin enterprises.FALSE

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: &

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+. (p. ,) ,ecause of their nature service activities cannot be outsourced to other companies.FALSE

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: &

. (p. ) *ne of the %/ central mandates is the promotion of hi her standards of livin fullemployment and conditions of economic and social pro ress and development.TR E


. (p. ) %nderlyin the trend towards reater lobalization is technolo ical chan e and adecline in barriers to the free flow of oods services and capital.TR E

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension

Difficulty: Medium ea!ning "#$ecti%e: & 0

10. (p. 0) ccordin to the %nited /ations most chan es between 1 2 and 200( to lawsovernin F 3 have resulted in a less favorable environment for F 3.FALSE

AACSB: Analytic Bloom's: Knowledge Difficulty: Medium ea!ning "#$ecti%e: & 0

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11. (p. 0) ccordin to 4T* data the volume of world merchandise trade has rown fasterthan the world economy since 1 (0.TR E


12. (p. 0) The e'pansion of world trade implies that nations are becomin less dependent oneach other for important oods and services.FALSE

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: & 0

1!. (p. 1) 3n the period 1 (0-1 0 the world G 5 showed a consistent decline as opposed tothe volume of e'ports.TR E


1#. (p. 0) urin the period 1 0 - 2000 the volume of total e'ports was more than twice theworld G 5.TR E

AACSB: Analytic Bloom's: Knowledge


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1(. (p. 4) eclinin barriers to cross-border trade and investment cannot be ta"en for ranted.TR E

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: & 0

1). (p. 1) The lobalization of mar"ets and production and the resultin rowth of world tradeforei n direct investment and imports all imply that firms are findin their home mar"ets

protected from forei n competitors.FALSE

AACSB: Analytic Bloom's: Comp!e*ension Difficulty: +asy ea!ning "#$ecti%e: & 0

1+. (p. 4) 6oore7s 8aw predicts that the power of microprocessor technolo y doubles and itscost of production falls by half every 1 months.TR E


1 . (p. 2) 9fficiency ains associated with containerization have caused transportation costs tofall dramatically.TR E

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension


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1 . (p. ) Today lobal communication networ"s and lobal media are creatin a worldwideculture.TR E

AACSB: ec*nology Bloom's: Knowledge Difficulty: Medium ea!ning "#$ecti%e: &

20. (p. ) 3n the early 1 )0s the %nited &tates was by far the world7s dominant industrial power. :owever by 200) it lost its dominant position and now is no lon er the world7slar est industrial power.FALSE


21. (p. 3) ,y 200 the %.&. had seen its share of e'ports fall to almost half its share in the1 )0s.TR E

AACSB: Analytic Bloom's: Knowledge Difficulty: a!d ea!ning "#$ecti%e: & 1

22. (p. 3) ccordin to forecasts a further relative decline in the share of world output andworld e'ports accounted for by the %nited &tates and other lon -established developednations is unli"ely.FALSE


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2!. (p. 0 ) current trend in international business is the rowth of medium-sized and smallmultinationals "nown as mini-multinationals.TR E


2#. (p. 01) Today the ris"s involved in doin business in countries such as ;ussia are low but soare the returns.FALSE

AACSB: Analytic Bloom's: Application Difficulty: Medium ea!ning "#$ecti%e: & 1

2(. (p. 01) 3f the free mar"et reforms in China continue for two more decades China may movefrom Third 4orld status to industrial superpower status even more rapidly than


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2+. (p. 04) 6any economists politicians and business leaders believe that the shift toward amore inte rated and interdependent lobal economy is a positive trend.TR E


2 . (p. 0 ) The anti lobalization effort is created and supported only by a small roup of hard-core anarchists.FALSE


2 . (p. 0,) &tudies have shown that wa e rates for uns"illed wor"ers in many advancedeconomies have fallen in recent years.TR E


!0. (p. 0 ) &ome critics ar ue that outsourcin has caused wa e rates of poorer mericans to fallsi nificantly over the past =uarter of a century.TR E

AACSB: Analytic Bloom's: Comp!e*ension

Difficulty: +asy ea!ning "#$ecti%e: & 4

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! . (p. 11) The mana ers of an international business must decide whether it is ethical to adhereto the lower labor and environmental standards found in many less developed nations.TR E

AACSB: -eflecti%e *in/ing Bloom's: Comp!e*ension Difficulty: +asy ea!ning "#$ecti%e: & 2

#0. (p. 11) 3n eneral mana in an international business is a more comple' tas" than mana ina business that serves only the local mar"et.TR E

AACSB: Analytic Bloom's: Knowledge Difficulty: +asy ea!ning "#$ecti%e: & 2

Multiple Choice Questions

#1. (p. 4) 4hich of the followin is not characteristic of lobalization>A! /ational economies are turnin into independent economic systems.,. 6aterial culture is startin to loo" similar the world over.

C. 5erceived distance is shrin"in due to advances in transportation and telecommunications.. ,arriers to cross-border trade and investment are declinin .

4e have been movin away from a world in which national economies were relatively self-contained entities. nd we are movin toward a world in which barriers to cross-border tradeand investment are declinin .

AACSB: Analytic Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: &

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#2. (p. 4) Globalization has ????? the opportunities for a firm to e'pand its revenues by sellinaround the world and ????? its costs by producin in nations where "ey inputs are cheap.. reduced reduced,. increased increased

C! increased reduced. reduced increased

The lobal e'pansion of enterprises has been facilitated by favorable political and economictrends.

AACSB: Analytic Bloom's: Comp!e*ension Difficulty: Medium ea!ning "#$ecti%e: &

#!. (p. 2) &ince the collapse of communism at the end of the 1 0s the erstwhile communistnations have transformed their economies by encoura in all of the followin e'cept@. privatizin state-owned enterprises."! re ulatin mar"ets.C. increasin competition.. welcomin investment by forei n businesses.

&ince the collapse of communism at the end of the 1 0s the pendulum of public policy innation after nation has swun toward the free mar"et end of the economic spectrum. This hasallowed businesses both lar e and small from both advanced nations and developin nationsto e'pand internationally.


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##. (p. 2) 3dentify the incorrect statement concernin lobalization.. 3t has been blamed for unemployment in developed nations environmental de radationand the mericanization of popular culture.,. 3t has created new threats for businesses accustomed to dominatin their domestic mar"ets.

C! 3t is transformin industries and is hi hly welcomed by those who believed their $obs were protected from forei n competition.. ccordin to most economists it is a very beneficial process where ains outwei h thelosses by a wide mar in.

s lobalization unfolds it is transformin industries and creatin an'iety amon those who believed their $obs were protected from forei n competition.

AACSB: Analytic Bloom's: Comp!e*ension

Difficulty: Medium ea!ning "#$ecti%e: &

#(. (p. ) 3n the %.&. ????? percent of firms that e'port are small companies employin fewerthan 100 people.A! 0,. +(C. (0. !0

/early 0 percent of firms that e'port are small businesses employin less than 100 peopleand their share of total %.&. e'ports has rown steadily over the last decade to now e'ceed 20

percent.


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# . (p. 5) The ?????? is primarily responsible for policin the world tradin system and ma"insure nation-states adhere to the rules laid down in trade treaties si ned by member states.. 3nternational evelopment ssociation,. 4orld ,an"

C. 3nternational Court of $ustice#! 4orld Trade *r anization

s of 200 1(! nations that collectively accounted for + percent of world trade were 4T*members thereby ivin the or anization enormous scope and influence. The 4T* is alsoresponsible for facilitatin the establishment of additional multinational a reements between4T* member states.


Difficulty: +asy ea!ning "#$ecti%e: &

# . (p. &) The ????? was created in 1 ## by ## nations that met in ,reton 4oods /ew:ampshire to promote economic development.A! 4orld ,an" ,. 3nternational Trade Center C. 4orld Trade *r anization. %nited /ations

The 4orld ,an" has focused on ma"in low-interest loans to cash-strapped overnments in poor nations that wish to underta"e si nificant infrastructure investments.


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(0. (p. &) The institution created in 1 ## at ,retton 4oods responsible for maintainin orderin the international monetary system is theA! 36F.,. 4T*.

C. %/.. %/9&C*.

The 36F is often seen as the lender of last resort to nation-states whose economies are inturmoil and currencies are losin value a ainst those of other nations.


(1. (p. ) ????? occurAsB when a firm e'ports oods or services to consumers in anothercountry.A! 3nternational trade,. Forei n direct investmentC. 3nward investment. 6er er and ac=uisitions

Forei n direct investment AF 3B occurs when a firm invests resources in business activitiesoutside its home country.


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(2. (p. ) The ????? was established to remove barriers to the free flow of oods services andcapital between nations.. %/,. 36F

C! G TT. 3

%nder the umbrella of G TT ei ht rounds of ne otiations amon member states Anownumberin 1(!B have wor"ed to lower barriers to the free flow of oods and services. Themost recent round of ne otiations to be completed "nown as the %ru uay ;ound werefinalized in ecember 1 !.


Difficulty: +asy ea!ning "#$ecti%e: & 0

(!. (p. 0) t the oha ;ound of the 4T* in late 2001. the 4T* was established.,. G TT was e'tended to include services.C. world trade volume increased.#! an a enda was established to phase out subsidies to a ricultural producers.

The oha a enda includes cuttin tariffs on industrial oods services and a ricultural productsH phasin out subsidies to a ricultural producersH reducin barriers to cross-borderinvestmentH and limitin the use of antidumpin laws.


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(#. (p. 1) The reduction in the avera e tariff rates on manufactured products since 1 (0 impliesall of the followin e'cept that. firms are dispersin parts of their production process to lobal locations to drive down

production costs and increase product =uality.

,. the economies of the world7s nation states are becomin more intertwined.C! nations are becomin increasin ly independent of each other for important oods andservices.. the world has become si nificantly wealthier since 1 (0.

s trade e'pands nations are becomin increasin ly dependent on each other for importantoods and services.



((. (p. 1) The rowin inte ration of the world economy is@A! increasin the intensity of competition in a wide ran e of manufacturin and serviceindustries.,. decreasin the intensity of competition in manufacturin industries and increasin theintensity of competition in services.C. increasin the intensity of competition in manufacturin industries and decreasin theintensity of competition in services.. narrowin the scope of competition in a wide ran e of service commodity and

manufacturin industries.

The rowin inte ration of the world economy into a sin le hu e mar"etplace is increasinthe intensity of competition in a ran e of manufacturin and service industries.


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(). (p. 4) 4hich of the followin statements re ardin cross-border trade and investment is nottrue>. 5rotection from forei n competitors has been at times demanded by the %nited &tates."! Forecasts indicate a return to the restrictive trade policies of the 1 20s and !0s.

C. 3f trade barriers decline no further they will put a bra"e upon the lobalization of bothmar"ets and production.. 3t is not clear whether the political ma$ority in the industrialized world favors furtherreductions in trade barriers.

lthou h a return to the restrictive trade policies of the 1 20s and !0s is unli"ely it is notclear whether the political ma$ority in the industrialized world favors further reductions intrade barriers.


(+. (p. 4) 3dentify the incorrect statement pertainin to the 4orld 4ide 4eb.. 3t ma"es it much easier for buyers and sellers to find each other.,. Diewed lobally it is emer in as an e=ualizer.C! 3t rolls bac" all of the constraints of location scale and time zones.. 3t allows businesses to e'pand their lobal presence at a lower cost than ever before.

3t rolls bac" some of the constraints of location scale and time zones. The 4eb ma"es itmuch easier for buyers and sellers to find each other wherever they may be located andwhatever their size. 3t allows businesses both small and lar e to e'pand their lobal presenceat a lower cost than ever before.


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( . (p. 2) &ince 1 0 the world7s containership fleet has more than ????? reflectin in part therowin volume of international trade.. doubled,. tripled

C! =uadrupled. =uintupled

s a result of the efficiency ains associated with containerization transportation costs have plummeted ma"in it much more economical to ship oods around the lobe thereby helpinto drive the lobalization of mar"ets and production.


( . (p. ) Technolo ical innovations have facilitated all of the followin e'cept@. lobalization of production.,. lobalization of mar"ets.C. creation of electronic lobal mar"etplaces.#! creation of absolutely homo eneous consumer mar"ets.

4hile modern communication and transportation technolo ies are usherin in the lobalvilla e si nificant national differences remain in culture consumer preferences and

business practices.


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)0. (p. ) lthou h the characteristics of the lobal economy have chan ed dramatically overthe past !0 years as late as the 1 )0s all of the followin demo raphic characteristics weretrue e'cept@. the %.&. dominated the world economy.

"! small %.&. entrepreneurial firms dominated the international business scene.C. the %.&. dominated the world forei n direct investment picture.. rou hly half the world was overned by centrally planned economies of the Communistworld.

3n 1 )! the %nited &tates accounted for #0.! percent of world economic activity measured byGross omestic 5roduct AG 5B. ,y 200 the %nited &tates accounted for 20.+ percent ofworld G 5 still the world7s lar est industrial power but down si nificantly in relative sizesince the 1 )0s.


)1. (p. 3) 4hich of the followin nation7s world output has declined the least over the last #0years>. France,. %nited &tatesC. %nited Ein dom#! Canada

Table 1.2@ The Chan in emo raphics of 4orld G 5 and Trade


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)2. (p. 3) 4hich of the followin countries has had the ma'imum relative decline in its shareof world output since 1 )!>. Canada"! %nited &tates

C.


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)#. (p. 3) ccordin to 4orld ,an" numbers. developin nations currently account for more than )0 percent of world economic activity.,. rich nations currently account for more than +0 percent of world economic activity.C. today7s rich nations may account for (( percent of world economic activity by 2020.

#! today7s developin nations may account for more than )0 percent of world economicactivity by 2020.

The 4orld ,an" has estimated that today7s developin nations may account for more than )0 percent of world economic activity by 2020 while today7s rich nations which currentlyaccount for more than (( percent of world economic activity may account for only about !

percent.



)(. (p. 5) 3n the 1 +0s many


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)). (p. 5) 4hat is the total cumulative value of forei n investments best referred to as>. ccumulation of forei n shares,. 5ortfolio investmentsC! &toc" of forei n direct investments

. &toc" mar"et investments

The stoc" of forei n direct investment refers to the total cumulative value of forei ninvestments.


)+. (p. 5) The share of the total F 3 stoc" accounted for by which of the followin countriesincreased mar"edly from 1 0 to 200(>. %nited &tates"! FranceC. %nited Ein dom. /etherlands

The share of the total stoc" accounted for by %.&. firms declined from about ! percent in1 0 to 1+. percent in 200+. 6eanwhile the shares accounted for by France and the world7sdevelopin nations increased mar"edly.


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+0. (p. 0&) 4hich of the followin countries has been the lar est recipient of forei n directinvestment and received about +0 billion a year in inflows in 200( and 200)>. ,razil,. ;ussia

C. 3ndia#! China

mon developin nations the lar est recipient of forei n direct investment has been Chinawhich in 200#-200 received )0- 0 billion a year in inflows.


+1. (p. 0 ) ,y 200) some 2# of the world7s 100 lar est non-financial multinationals were@. Chinese enterprises.,. ,ritish enterprises.C! %.&. enterprises..


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+2. (p. 01) 3dentify the incorrect statement re ardin the former Communist nations of 9uropeand sia.A! The economies of most of the former Communist states are very stron and developed.,. 6any of the former Communist nations of 9urope and sia share a commitment to free

mar"et economies.C. s a result of disturbin si ns of rowin unrest and totalitarian tendencies the ris"sinvolved in doin business in these countries is very hi h.. For about half a century these countries were essentially closed to 4estern international

business.

The economies of many of the former Communist states are still relatively undeveloped andtheir continued commitment to democracy and free mar"et economics cannot be ta"en forranted.


+!. (p. 01) 4hich of the followin observations concernin 8atin merican countries is true>. Complete restrictions on direct investment by forei n firms.,. Characterized by low rowth hi h debt and hyperinflation.C. ebt and inflation are up compared to previous decades.#! &ubstantial opportunities e'ist but are accompanied by substantial ris"s.

Throu hout most of 8atin merica debt and inflation are down overnments have sold state-owned enterprises to private investors forei n investment is welcomed and the re ion7seconomies have e'panded. These chan es have increased the attractiveness of 8atin merica

both as a mar"et for e'ports and as a site for forei n direct investment.


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+#. (p. 04) 4hich of the followin statement pertainin to chan es in the lobal economy of the21st century is not true>. ,arriers to the free flow of oods services and capital have been comin down.,. Dolume of cross-border trade and investment has been rowin more rapidly than lobal

output.C! /ational economies are becomin more independent and movin away from the lobaleconomic system.. s economies advance more nations are $oinin the ran"s of the developed world.

The volume of cross-border trade and investment has been rowin more rapidly than lobaloutput indicatin that national economies are becomin more closely inte rated into a sin leinterdependent lobal economic system.


+(. (p. 04) 4hich of the followin does not help create an economic system that is favorable tointernational business>A! ecreased privatization,. 4idespread dere ulationC. *pen mar"ets. Fallin trade and investment barriers

3n "eepin with the normative prescriptions of liberal economic ideolo y in country aftercountry we have seen state-owned businesses privatized widespread dere ulation adoptedmar"ets opened to more competition and commitment increased to removin barriers tocross-border trade and investment.


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+). (p. 0 ) 4hen a company e'ports $obs overseas the company is@. helpin domestic wor"ers by pushin up wa e rates.,. increasin the demand of =ualified domestic wor"ers.C! ta"in advanta e of lower wa es in forei n mar"ets.

. deceivin the supporters of lobalization.

C// news anchor 8ou obbs has been runnin TD shows that are hi hly critical of the trend by merican companies to ta"e advanta e of lobalization and e'port $obs overseas. s theworld slipped into a recession in 200 obbs stepped up his anti lobalization rhetoric.


++. (p. 0,) 3f the critics of lobalization are correct all of the followin thin s must be showne'cept@. the share of national income received by labor as opposed to the share received by theowners of capital should have declined in advanced nations.,. even thou h labor7s share of the economic pie may have declined livin standards need notdeteriorate if the size of the total pie has increased sufficiently to offset the decline in labor7sshare.C. the decline in labor7s share of national income must be due to movin production to low-wa e countries as opposed to improvin production technolo y and productivity.#! economic rowth in developed nations has offset the fall in uns"illed wor"ers7 share of

national income raisin their livin standards.

This is the position ar ued by supporters of lobalization.


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+ . (p. 0,) study by the *9C whose members include the 20 richest economies in theworld noted all of the followin e'cept@. the ap between the poorest and richest se ments of society in some *9C countrieswidened.

,. in almost all countries real income levels rose over the 20-year period studied.C. fallin unemployment rates brou ht ains to low-wa e wor"ers and fairly broad-basedwa e rowth.#! the ap between rich and poor had narrowed in all *9C countries.

study by the *r anization for 9conomic Cooperation and evelopment whose membersinclude the 20 richest economies in the world noted that while the ap between the poorestand richest se ments of society in some *9C countries had widened this trend was by nomeans universal.


+ . (p. 05) Critics of lobalization maintain that the apparent decline in real wa e rates ofuns"illed wor"ers. owes far more to a technolo y-induced shift within advanced economies toward $obs thatre=uire si nificant education and s"ills."! is due to the mi ration of low-wa e manufacturin $obs offshore and a correspondinreduction in demand for uns"illed wor"ers.

C. has been impacted most by technolo ical chan e.. can be chec"ed by increasin society7s investment in education to reduce the supply ofuns"illed wor"ers.

&upporters of lobalization maintain that the apparent decline in real wa e rates of uns"illedwor"ers owes far more to a technolo y-induced shift within advanced economies away from

$obs where the only =ualification was a willin ness to turn up for wor" every day and toward $obs that re=uire si nificant education and s"ills.


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0. (p. 05) ,efore / FT was passed. 6e'ico a reed to establish a hi her minimum wa e.,. the %.&. a reed to limit the number of $obs that could be e'ported to 6e'ico.C! 6e'ico committed to tou her enforcement of environmental protection re ulations.

. Canada committed to establish new limits of F 3.

&upporters of free trade point out that it is possible to tie free trade a reements to theimplementation of tou her environmental and labor laws in less developed countries.

/ FT for e'ample was passed only after side a reements had been ne otiated thatcommitted 6e'ico to tou her enforcement of environmental protection re ulations.


Essay Questions

1. (p. 4) 4ith the help of an e'ample discuss the characteristics of lobalization.

Globalization refers to a fundamental shift in the world economy in which national economiesare no lon er relatively self-contained entities. 3nstead nations are movin toward aninterdependent lobal economic system. 4ithin this new lobal economy an merican mi htdrive to wor" in a car desi ned in Germany that was assembled in 6e'ico byaimlerChrysler from components made in the %.&. and


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2. (p. 4 2) efine lobalization and discuss it has chan ed the business environment>

Globalization has created many opportunities for businesses to e'pand their revenues bysellin around the world while at the same time reducin their costs by producin in nations

where labor and other inputs are cheap. :owever lobalization has also produced new threatsfor companies in the form of increased competition.


!. (p. 3) 9'plain what is meant by the lobalization of mar"ets. 5rovide an e'ample. 4hatare the most lobal mar"ets>

The lobalization of mar"ets refers to the idea that historically distinct and separate nationalmar"ets are mer in into a sin le hu e lobal mar"etplace. For e'ample Coca-Cola&tarbuc"s and 6c onald7s offer the same basic product worldwide and are in fact not only a

part of the trend but facilitators of the trend as well. The most lobal mar"ets are not actuallyfor consumer oods but instead are for industrial oods and materials that serve the sameneeds across the world.


Difficulty: Medium ea!ning "#$ecti%e: &

#. (p. 3 5) iscuss the concept of the lobalization of production.

The lobalization of production refers to the sourcin of oods and services from locationsaround the world to ta"e advanta e of national differences in the cost and =uality of factors of

production. Companies that capitalize on this trend are able to outsource production to the best suppliers in the world and should therefore end up with a better final product.


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(. (p. 5 &) 4hat is the 4orld Trade *r anization> 4hat is its role in the world economy>

The 4orld Trade *r anization A4T*B is primarily responsible for policin the world tradinsystem and ma"in sure nation-states adhere to the rules laid down in trade treaties si ned by

4T* members. The 4T* currently has 1# members that collectively account for + percentof world trade. The 4T* has been instrumental in lowerin barriers to cross-border trade andinvestment. 3n addition to these responsibilities the 4T* also facilitates the establishment ofadditional a reements between member states.


). (p. &) 4hat is the 3nternational 6onetary Fund> 4hat is the 4orld ,an"> 4hat is theirrelationship if any with each other>

The 3nternational 6onetary Fund A36FB was created to maintain order in the internationalmonetary system. The 4orld ,an" was established to promote economic development. ,othor anizations were launched as part of the 1 ## ,retton 4oods reement and have emer edas si nificant players in the lobal economy. The 36F is often seen as the lender of last resortto nation-states whose economies are in turmoil and currencies are losin value a ainst thoseof other nations.


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1. (p. 4 2) 3nnovations in transportation have had a ma$or impact on lobal trade. Considerone of these innovations@ containerization. 4hy is this innovation so si nificant>

Containerization has revolutionized the transportation business si nificantly lowerin the

costs of shippin oods over lon distances. 9mer in in the 1 +0s and 1 0scontainerization spelled an end to the costly and len thy business of loadin and unloadinships truc"s and trains. Cost savin s associated with containerization are si nificant.,etween 1 20 and 1 0 avera e ocean frei ht and port char es per ton fell from ( to 2 .ir transportation saw a similar decline as did truc"in .


2. (p. ,) iscuss the demo raphics of world trade since the 1 )0s. :ow has the role of the%.&. chan ed> :ow is world trade e'pected to chan e in the future>

3n the early1 )0s the %.&. was the world7s dominant industrial power accountin for over #0 percent of world output. ,y 200 the %nited &tates accounted for 20.+ percent of world G 5still the world7s lar est industrial power but down si nificantly in relative size since the 1 )0s.*ther industrialized countries also saw their relative standin slip. Ta"in their place as activee'porters are the newly industrializin countries of &outh Eorea and China. 6ost forecasts

predict that the share of world output accounted for by developin countries such as China3ndia and 6e'ico will rise over the ne't 20 years while at the same time rich industrializedcountries will continue to see their share of world output decline.


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!. (p. , 0&) :ow has the forei n direct investment picture chan ed since the 1 )0s>

The %.&. accounted for about two-thirds of worldwide forei n direct investment flows in the1 )0s followed by ,ritish firms with about 10 percent of F 3 flows and :ow does a mini-multinational differfrom an 6/9>

multinational enterprise is any business that has productive activities in two or morecountries. 3n the1 )0s nearly half of the world7s 2)0 lar est 6/9s were merican. ,y 200)some 2# of the world7s 100 lar est non-financial multinationals were now %.&. enterprises.Firms from developin countries are e'pected to emer e as important competitors in theworld economy. The number of mini-multinationals is also on the rise. 6ini-multinationalsare medium-sized and small 6/9s.


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(. (p. 01) 6any companies are "eepin their eyes on China. 4hy is China so important tointernational business>

3nternational companies are e'cited about China because with its 1.! billion people it

represents a hu e and lar ely untapped mar"et for oods and services. Companies are sointerested in its potential that F 3 to China sur ed between 1 ! and 200# oin from lessthan 2 billion in 1 ! to +0 billion in 200). :owever while China remains a very attractivemar"et companies must beware of the competition that is be innin to emer e from thecountry.


). (p. 04) Consider the lobal economy of the 21 st century. 4hat important chan es are ta"in place> 4hat do these chan es mean for international companies>

The last 2( years have been a time of reat chan e in the lobal economy. ,arriers to the freeflow of oods services and capital have been fallin national economies are becomin moreinte rated and more countries are $oinin the ran"s of the developed world. ll of thesechan es point toward an economic system that is more favorable for international business.


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+. (p. 04 1 ) Consider whether the shift toward a more inte rated and interdependent lobaleconomy is a ood thin . iscuss the shift from the eyes of the consumer the wor"er thecompany and the environmentalist.

There are many advanta es of lobalization. From a broad perspective lobalization createseconomic activity Awhich stimulates economic rowthB creates $obs raises income levels and

provides consumers with more choices in re ard to the products and services that areavailable to them. From the perspective of an individual firm lobalization has the potentialto increase revenues Athrou h e'panded mar"et potentialB drive down costs Athrou hadditional economies of scaleB and boost profits.:owever critics ar ue that lobalization destroys manufacturin $obs in wealthy countriesand contributes to pollution. Critics ar ue that fallin trade barriers allow firms inindustrialized countries to move their manufacturin activities offshore to countries wherewa e rates are much lower. Critics also ar ue that lobalization encoura es firms fromadvanced nations to move manufacturin facilities offshore to less developed countries to

avoid the more strin ent pollution controls in place in their home countries.


. (p. 02 0 ) iscuss what occurred in &eattle in 1 at the meetin of the 4T* and why theevents were important to the future of lobal trade.

3n ecember 1 more than #0 000 protesters bloc"ed the streets of &eattle in an effort toshut down a 4T* meetin bein held in the city. The issue was $ob losses in industries underattac" from forei n competitors fallin wa e rates of uns"illed wor"ers environmentalde radations and cultural imperialism of lobal media and 6/9s. 5rotesters believed that allof these issues were the result of lobalization and felt that the 4T* as a promoter oflobalization was a le itimate tar et for blame. The protest was a violent one andemboldened by the e'perience its e'perience anti lobalization protesters now turn up atalmost every ma$or meetin of a lobal institution.


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. (p. 0 05) Fallin barriers to international trade destroy manufacturin $obs in wealthyadvanced economies. iscuss this statement. o you a ree> 4hy or why not>

Critics ar ue that fallin trade barriers allow firms to move manufacturin activities to

countries where wa e rates are much lower. ,ecause of such moves they ar ue that the wa erates of poorer mericans have fallen si nificantly over the past =uarter of a century.&upporters of lobalization reply that critics of these trends miss the essential point about freetrade the benefits outwei h the costs. They ar ue that free trade will result in countriesspecializin in the production of those oods and services that they can produce mostefficiently while importin oods and services that they cannot produce as efficiently.


100. (p. 1 ) iscuss the effect of lobalization on national soverei nty.

Critics of lobalization ar ue that today7s increasin ly interdependent lobal economy shiftseconomic power away from national overnments and toward supranational or anizations.They feel that unelected bureaucrats now impose policies on the democratically electedovernments of nation-states thereby underminin the soverei nty of those states andlimitin the nation7s ability to control its own destiny.3n contrast many economists and politicians maintain that the power of supranationalor anizations is limited to what nation-states collectively a ree to rant. They ar ue that these

bodies e'ist to serve the collective interests of member states not to subvert those interests.&upporters of supranational or anizations point out that the power of these bodies restslar ely on their ability to persuade member states to follow a certain action. 3n this view real

power still resides with individual nation-states not supranational or anizations.


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Hill International Business 8e