International Marketing 17th Edition By Philip R – John L -Test Bank

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International Marketing 17th Edition By Philip R – John L -Test Bank

Chapter 06

The Political Environment: A Critical Concern

 

True / False Questions

1. Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

True    False

 

2. Foreign investment can be perceived as a threat to sovereignty.

True    False

 

3. Adherence to the World Trade Organization (WTO) inevitably means the loss of some degree of national sovereignty.

True    False

 

4. As a result of the General Agreement on Tariffs and Trade, foreign businesses no longer need to be concerned about the stability or instability of prevailing government policies.

True    False

 

5. Pressure from nationalist and self-interest groups affect the stability of a government.

True    False

 

6. Saudi Arabia permits women to vote if they are at least 18 years old and married or 21 years old if single.

True    False

 

7. Nationalism can take an anti-foreign business bias.

True    False

 

8. Nationalistic feelings are directly proportional to the growth of domestic economy.

True    False

 

9. Economically prosperous countries do not display strong nationalistic feelings.

True    False

 

10. The most severe political risk is domestication.

True    False

 

11. The ultimate goal of domestication is to force foreign investors to share more of the ownership, management, and profits with nationals than was the case before domestication.

True    False

 

12. Expropriation and nationalization have often led to nationalized businesses that were efficient, technologically strong, and competitive in world markets.

True    False

 

13. Barring Latin America, the risks of confiscation and expropriation have lessened over the last two decades.

True    False

 

14. Many countries have domestication as a condition for investment.

True    False

 

15. Price controls are only targeted at nonessential products.

True    False

 

16. Political sanctions are the most effective means of achieving the goal of forcing a country to accept the demands of the boycotting country.

True    False

 

17. Political and social activists have no impact on the normal flow of trade.

True    False

 

18. Nongovernmental organizations can affect the policy decisions made by governments.

True    False

 

19. Risk of violence is not a consideration in assessing the political vulnerability of a multinational company’s activities.

True    False

 

20. International warfare is fast gaining popularity among nations.

True    False

 

21. Due to advancements in technology, it is easy to determine if a cyberattack has been launched by a rogue state, a terrorist, or a hacker as a prank.

True    False

 

22. As cultural and political scenarios vary so widely across nations, there is absolutely no way to generalize tendencies for products to be politically sensitive.

True    False

 

23. Products that have or are perceived to have an effect on the environment are more likely to be politically sensitive.

True    False

 

24. A single company can directly control or alter the political environment of the country within which it operates.

True    False

 

25. Relations between governments and MNCs are generally negative even if the investment made by the MNCs improves the balance of payments by increasing exports or reducing imports.

True    False

 

26. Licensing is least effective in situations where the technology is unique and the risk is high.

True    False

 

27. Planned domestication can be profitable and operationally expedient for the foreign investor.

True    False

 

28. It is illegal for U.S. citizens to pay a bribe unless it is a common practice in the host country.

True    False

 

29. The principal agency that supports U.S. business abroad is the Department of Commerce (DOC).

True    False

 

30. The Agency for International Development underwrites trade and investments for U.S. firms.

True    False

 

 

Multiple Choice Questions

31. In the context of international law, a _____ state is independent and free from all external control.

A. bounded

 

B. sovereign

 

C. legal

 

D. liberal

 

E. neutral

 

32. Which of the following is true of a sovereign state?

A. It is obligated to be a member of the World Trade Organization.

 

B. Its political and economic systems are determined by the United Nations Development Programme.

 

C. It enjoys full legal equality with other states.

 

D. Its territory is governed by the United Nations.

 

E. It is bounded by external control.

 

33. _____ refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

A. Sovereignty

 

B. Self-governance

 

C. Ethnocentrism

 

D. Autocracy

 

E. Non-interventionism

 

34. What goal did the G20 nations agree to in the April 2009 agreement that required them to cede some sovereignty?

A. Including all G20 nations in the Security Council

 

B. Raising oil prices

 

C. Increasing infrastructure funding

 

D. Rejecting protectionism

 

E. Increasing aid to South Africa

 

35. Adherence to the WTO inevitably means:

A. a definite increase in import tariffs worldwide.

 

B. the loss of national security to a large extent.

 

C. reduction in world trade by at least 70 percent.

 

D. the loss of some degree of national sovereignty.

 

E. complete stoppage of foreign direct investments.

 

36. The ideal political climate for a multinational firm is:

A. a country where international laws do not apply.

 

B. a country where favors can be purchased easily.

 

C. a country with a stable and friendly government.

 

D. a government with absolute power.

 

E. a government that radically shifts its philosophy.

 

37. Which of the following is the top political issue concerning foreign businesses?

A. Demographic profile of political leaders

 

B. Government policies on infrastructure

 

C. Economic awareness of political leaders

 

D. Stability of prevailing government policies

 

E. Membership of governments in trade treaties

 

38. Which of the following is one of the main political causes of instability in international markets?

A. Varied taxing conventions

 

B. Differences in economic philosophies

 

C. Global focus

 

D. Environmental awareness

 

E. Trade disputes

 

39. Monarchy, like _____, is a form of government ruled by one.

A. aristocracy

 

B. dictatorship

 

C. democracy

 

D. monopoly

 

E. oligarchy

 

40. The ancient Greeks conceived three fundamental forms of government. Which of the following refers to a government ruled by one?

A. Aristocracy

 

B. Monarchy

 

C. Democracy

 

D. Monopoly

 

E. Oligarchy

 

41. Which of the following government forms can be most aptly described as a rule by few?

A. Aristocracy

 

B. Dictatorship

 

C. Democracy

 

D. Monopoly

 

E. Monarchy

 

42. According to ancient Greeks, which of the following refers to a fundamental government form with the rule by many?

A. Aristocracy

 

B. Dictatorship

 

C. Democracy

 

D. Monopoly

 

E. Monarchy

 

43. Which of the following is a common term for a form of government in use today?

A. Protectionism

 

B. Duopoly

 

C. Oligopoly

 

D. Capitalism

 

E. Oligarchy

 

44. Which of the following countries is the only country to preclude women from voting and appears to be still completely in the dark ages with regards to suffrage?

A. Croatia

 

B. Iran

 

C. Bolivia

 

D. Saudi Arabia

 

E. Venezuela

 

45. In _____, police and military are not allowed to vote.

A. Croatia

 

B. Iran

 

C. Bolivia

 

D. Saudi Arabia

 

E. Peru

 

46. _____ is an intense feeling of state pride and unity, an awakening of a country’s people to pride in their country.

A. Nepotism

 

B. Absolutism

 

C. Fascism

 

D. Nationalism

 

E. Polarism

 

47. Which of the following instances is most likely a manifestation of nationalism?

A. Membership in bilateral trade treaties

 

B. Call to buy a global counterpart’s products

 

C. Restrictions on imports

 

D. Removal of tariffs and quotas

 

E. Focus on global security

 

48. With which of the following would the phrase “Buy American” be most closely associated?

A. Socialism

 

B. Communism

 

C. Nationalism

 

D. Abstractionism

 

E. Polarism

 

49. Which of the following is true of nationalism?

A. The more a country feels threatened by some outside force the less nationalistic the country becomes.

 

B. A call to “buy our country’s products only” is one form of manifestation of national feelings.

 

C. Nationalist feelings lead to loss of control over foreign investment.

 

D. The more a country’s domestic economy declines, the less nationalistic it becomes.

 

E. Nationalistic feelings are not prevalent in economically prosperous countries.

 

50. With respect to the political risk that can be faced by a company seeking to invest abroad, which of the following is most severe?

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Exchange controls

 

E. Local-content laws

 

51. The seizing of a company’s assets without payment is called:

A. confiscation.

 

B. expropriation.

 

C. domestication.

 

D. exchange controls.

 

E. local-content laws.

 

52. When a government seizes an investment of a foreign investor but some reimbursement for the assets is made, the government follows a process called:

A. confiscation.

 

B. expropriation.

 

C. domestication.

 

D. exchange controls.

 

E. local-content laws.

 

53. When does an expropriated investment become a government-run entity?

A. On democratization

 

B. On deportation

 

C. On nationalization

 

D. On prioritization

 

E. On socialization

 

54. _____ occurs when host countries gradually cause the transfer of foreign investment to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management.

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Democratization

 

E. Socialization

 

55. The government in Chile recently informed Clint Travis’ company that his retail grocery chain in Chile would have to be gradually turned over to the people of Chile by the year 2050 as it is a foreign company in Chile. Additionally, starting next year 50 percent of the board of directors of the Chilean operation of the company must be Chileans. Which of the following political risk actions is Mr. Travis’ company facing in Chile?

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Patronization

 

E. Socialization

 

56. Which of the following is true of domestication?

A. The ultimate goal of domestication is to force domestic investors to share more of the profits with the government.

 

B. The risk of domestication appears to have decreased over the last two decades.

 

C. Domestication has always led to more technologically advanced and competitive businesses.

 

D. Nowadays, countries often require companies to become domesticated as a condition for investment.

 

E. Domestication refers to the seizing of a company’s assets without payment.

 

57. _____ stem from shortages of foreign currency held by a country.

A. Exchange controls

 

B. Local-content laws

 

C. Price controls

 

D. Tax controls

 

E. Production costs

 

58. If there is a substantial amount of capital leaving a country, which of the following is the country most likely to implement to control the situation?

A. Exchange controls

 

B. Local-content laws

 

C. Import restrictions

 

D. Tax controls

 

E. Price controls

 

59. In Thailand, it is required that any milk product sold in the country by a foreign company must use the milk produced by Thai dairy farmers. Which of the following economic risks is faced by the international producers of milk products in this situation?

A. Exchange controls

 

B. Local-content laws

 

C. Export restrictions

 

D. Tax controls

 

E. Price controls

 

60. The United States requires that 50 percent of all parts used to construct an automobile in the United States be manufactured in the United States. As a result of this, when Toyota Motor Company built automobile manufacturing plants in Tennessee and Ohio, it faced economic risks associated with _____.

A. exchange controls

 

B. local-content laws

 

C. export restrictions

 

D. tax controls

 

E. price controls

 

61. Taxes must be classified as a(n) _____ risk when used as a means of controlling foreign investments.

A. political

 

B. social

 

C. ignorable

 

D. environmental

 

E. harmless

 

62. Since the government of Nigeria is strapped for cash, it has decided to tax all foreign investments (such as oil production equipment) by up to 40 percent of the appraised value. The Nigerian government has found that this is the handiest and quickest means of finding operating funds. The economic risk in discussion here is:

A. exchange controls.

 

B. local-content laws.

 

C. tax restrictions.

 

D. tax controls.

 

E. price controls.

 

63. Price controls are used during inflationary periods to:

A. control the cost of living.

 

B. restrict exports to foreign countries.

 

C. negotiate trade contracts favoring the host country.

 

D. encourage imports.

 

E. collect taxes on foreign investments.

 

64. In North Korea, foreign investors or producers are required to sell products at prices stated by the North Korean government rather than letting market value and demand determine the prices. This implies that there is severe application of _____.

A. exchange controls

 

B. local-content laws

 

C. import restrictions

 

D. tax controls

 

E. price controls

 

65. Which of the following is more likely to be subjected to price control?

A. Leather garments

 

B. Mobile phone accessories

 

C. Aspirin and antacids

 

D. Camcorders and lenses

 

E. Ceramic tiles

 

66. Stopping or refusing to trade with another nation for political reasons is called:

A. monopolizing.

 

B. boycotting.

 

C. confiscation.

 

D. democratization.

 

E. expropriation.

 

67. Which of the following statements is true of political sanctions?

A. Political sanctions normally control and rectify situations within a nation.

 

B. Political sanctions are generally unsuccessful.

 

C. Political sanctions are illegal.

 

D. The United Nations encourages boycotts as a means of settling disputes.

 

E. The use of political sanctions is the most effective way to increase world trade.

 

68. Which of the following represents a new and powerful tool of PSAs?

A. Political sanctions

 

B. Monetary barriers and trade embargoes

 

C. The Internet and cellphones

 

D. Local-content laws and questionnaires

 

E. Export controls

 

69. Which of the following is an NGO (nongovernmental organization)?

A. Central Intelligence Agency

 

B. Peace Corps

 

C. Millennium Challenge Corporation

 

D. Oxfam

 

E. FedEx

 

70. Why do terrorism experts predict multinational businesses will be targeted by terrorists more frequently?

A. They impose export controls on the underdeveloped nations.

 

B. They are the major cause for political sanctions against Arab nations.

 

C. They are less well defended than government targets.

 

D. They destroy and pollute the environment.

 

E. They are subterfuge for espionage agents.

 

71. Which of the following forms of terrorism is most likely to use the Internet to inflict damage?

A. Germterrorism

 

B. Bioterrorism

 

C. Cyberterrorism

 

D. Ecoterrorism

 

E. Narcoterrorism

 

72. “Slammer,” “Melissa,” and “Goner worm” are all examples of:

A. viruses damaging the Internet.

 

B. politically sensitive products.

 

C. third-world diseases.

 

D. hackers intent on attacking multinational businesses.

 

E. new video games espousing Internet crime.

 

73. Brian is attempting to forecast political instability and help his company’s management identify and evaluate political events and their potential influence on current and future international business decisions. Brian is engaged in:

A. political risk assessment.

 

B. political confiscation.

 

C. democratization.

 

D. arbitration.

 

E. risk expropriation.

 

74. In terms of political risk, which of the following poses the greatest threat to international marketers?

A. Newer environmental regulations approved by global trade bodies

 

B. Change of economic policies

 

C. Exchange rate fluctuations affecting margins

 

D. The possibility of the government actually failing

 

E. Membership or withdrawal of membership of the government in trade blocs

 

75. Relations between governments and MNCs are generally positive if the investment:

A. increases the volume of imports.

 

B. uses globally produced resources.

 

C. transfers capital, technology, and/or skills.

 

D. brings in more number of foreign nationals.

 

E. decreases the volume of exports.

 

76. Meteora Inc. is planning to enter the Kenyan market by establishing a mobile phone manufacturing operation in Kenya. Meteora is most likely to have a positive relationship with Kenyan government through its investment if it:

A. uses locally produced resources.

 

B. imports phone components from China.

 

C. establishes an R&D center in California and has all its technology patented there.

 

D. ensures that its middle and upper management are made of expatriates.

 

E. bargains for a tax holiday for the next five financial years.

 

77. Juliet is concerned with the potential for political harassment when her company enters a new international market. To reduce the risk of political harassment, she is most likely to consider using _____ to enter the market.

A. externally produced products

 

B. a smaller investment base

 

C. foreign technology

 

D. joint ventures

 

E. the threat of sanctions

 

78. Which of the following is a strategy that multinational corporations use to minimize political vulnerability and risk?

A. Expropriation

 

B. Sanctions

 

C. Buyouts

 

D. Confiscation

 

E. Licensing

 

79. Which of the following strategies can be effective in forestalling or minimizing the effect of a total takeover of a multinational corporation’s holdings by a foreign government?

A. Confiscation

 

B. Sole proprietorship

 

C. Expanding the investment base

 

D. Advertising

 

E. Leasing

 

80. Which of the following strategies to minimize political vulnerability and risk has the advantage of engaging the power of several investors and banks in the host country whenever any kind of government takeover or harassment is threatened?

A. Joint ventures

 

B. Licensing

 

C. Expanding the investment base

 

D. Sole proprietorship

 

E. Political bargaining

 

81. Which of the following strategies is most effective in minimizing political risks for a multinational corporation in situations in which the technology is unique and the risk is high?

A. Trade embargo

 

B. Licensing

 

C. Expanding the investment base

 

D. Planned confiscation

 

E. Expropriation

 

82. The most effective long-range solution to a situation where a foreign government is demanding local participation in a multinational corporation’s business activities in the host country is:

A. joint ventures.

 

B. licensing.

 

C. expanding the investment base.

 

D. planned domestication.

 

E. political payoffs.

 

83. While expanding the investment base of a company, which of the following can be used as a powerful ally in dealing with threats of government takeovers or harassment?

A. Banks that have lent money to the host government

 

B. The World Trade Organization

 

C. The International Labor Organization

 

D. Regional trade blocs

 

E. Opposing political parties

 

84. An attempt to lessen political risks by paying those in power to intervene on behalf of the multinational company is referred to as a _____.

A. subornation

 

B. protectionism

 

C. political payoff

 

D. buyout

 

E. rake-off

 

85. Which of the following best describes the U.S. government’s policy toward multinational corporations that are confronted with situations where bribery is an issue?

A. A bribe may be paid as long as it is not a domestic situation.

 

B. Bribery is justified if it is a documented traditional practice in a country.

 

C. A bribe can be paid in a foreign country if it is tied to national security.

 

D. It is illegal for a U.S. citizen to pay a bribe.

 

E. The issue revolves around the customs of the country and each issue is decided separately.

 

86. Which of the following is the principle U.S. agency that supports U.S. business abroad?

A. State Department of Entrepreneurship

 

B. Better Business Bureau

 

C. Department of Commerce

 

D. Department of Foreign Relations

 

E. Department of Defense

 

87. Within the same country, some foreign businesses may fall prey to politically induced harassment, while others may be placed under a government umbrella of protection and preferential treatment. Which of the following is the factor that explains this difference?

A. The level of domestication achieved

 

B. The differences in level of technology between the two countries

 

C. The cultural differences between the host nation and the business’s home country

 

D. The import tariffs set by the host country

 

E. The evaluation of a company’s contribution to the nation’s interest

 

88. Which of the following is the most important reason to encourage foreign investment?

A. To improve the global image of a country

 

B. To accelerate the development of an economy

 

C. To evade political tensions between countries

 

D. To minimize negative political fallouts within the domestic economy

 

E. To improves ties between the investing country and the host country

 

89. Which of the following agencies underwrites trade and investments for U.S. firms?

A. Export-Import Bank

 

B. The Federal Trade Commission

 

C. The Agency for International Development

 

D. Social Security Advisory Board

 

E. The Overseas Private Investment Corporation

 

90. Which of the following agencies is dedicated to helping U.S. business compete in a global marketplace?

A. Commodity Futures Trading Commission (CFTC)

 

B. The Federal Trade Commission (FTC)

 

C. The Small Business Administration (SBA)

 

D. The United States International Trade Commission (USITC)

 

E. The International Trade Administration (ITA)

 

 

Essay Questions

91. Describe the characteristics of a sovereign state.

 

 

 

 

92. Discuss stability of governments and list the main political causes of instability in international markets.

 

 

 

 

93. Describe the concept of nationalism and list some of the ways it manifests.

 

 

 

 

94. Discuss the terms confiscation, expropriation, and domestication.

 

 

 

 

95. List and briefly discuss the various economic risks that international companies must face when they seek to market abroad.

 

 

 

 

96. Briefly discuss the role of PSAs and NGOs.

 

 

 

 

97. Discuss the threats posed by cyberterrorism or cyberattacks with an example.

 

 

 

 

98. What are the conditions under which relations between governments and MNCs are generally positive?

 

 

 

 

99. Ranzan Inc. has invested in a country showing signs that it will use domestication in the near future to force foreign investors to share more of the profits with the government. Cite and describe a strategy to deal with this potential of domestication that Ranzan could follow to ensure that its business remains profitable.

 

 

 

 

100. List the government agencies that are involved in promoting foreign investment and international business.

 

 

 

 

Chapter 06 The Political Environment: A Critical Concern Answer Key

True / False Questions

1. Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

TRUE

Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members. A state sets requirements for citizenship, defines geographical boundaries, and controls trade and the movement of people and goods across its borders.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

2. Foreign investment can be perceived as a threat to sovereignty.

TRUE

Foreign investment can be perceived as a threat to sovereignty and thus become a rallying cry by opposing factions.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

3. Adherence to the World Trade Organization (WTO) inevitably means the loss of some degree of national sovereignty.

TRUE

Adherence to the WTO inevitably means the loss of some degree of national sovereignty, because the member nations have pledged to abide by international covenants and arbitration procedures that can override national laws and have far-reaching ramifications for citizens.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

4. As a result of the General Agreement on Tariffs and Trade, foreign businesses no longer need to be concerned about the stability or instability of prevailing government policies.

FALSE

At the top of the list of political issues concerning foreign businesses is the stability or instability of prevailing government policies.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

5. Pressure from nationalist and self-interest groups affect the stability of a government.

TRUE

Radical shifts in government philosophy when an opposing political party ascends to power, pressure from nationalist and self-interest groups, weakened economic conditions, bias against foreign investment, or conflicts among governments are all issues that can affect the stability of a government.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

6. Saudi Arabia permits women to vote if they are at least 18 years old and married or 21 years old if single.

FALSE

Saudi Arabia precludes women from voting and appears to be the only state still completely in the dark ages with regard to suffrage.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

7. Nationalism can take an anti-foreign business bias.

TRUE

Nationalism can best be described as an intense feeling of national pride and unity, an awakening of a nation’s people to pride in their country. This pride can take an anti-foreign business bias, where minor harassment and controls of foreign investment are supported, if not applauded.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

8. Nationalistic feelings are directly proportional to the growth of domestic economy.

FALSE

Generally, the more a country feels threatened by some outside force or the domestic economy declines, the more nationalistic it becomes in protecting itself against intrusions.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

9. Economically prosperous countries do not display strong nationalistic feelings.

FALSE

Although militant economic nationalism has subsided, nationalistic feelings can be found even in the most economically prosperous countries.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

10. The most severe political risk is domestication.

FALSE

The most severe political risk is confiscation, that is, the seizing of a company’s assets without payment.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

11. The ultimate goal of domestication is to force foreign investors to share more of the ownership, management, and profits with nationals than was the case before domestication.

TRUE

The ultimate goal of domestication is to force foreign investors to share more of the ownership, management, and profits with nationals than was the case before domestication.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

12. Expropriation and nationalization have often led to nationalized businesses that were efficient, technologically strong, and competitive in world markets.

FALSE

Expropriation and nationalization have often led to nationalized businesses that were inefficient, technologically weak, and noncompetitive in world markets.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

13. Barring Latin America, the risks of confiscation and expropriation have lessened over the last two decades.

TRUE

Risks of confiscation and expropriation appear to have lessened over the last two decades (with exceptions in Latin America, particularly Venezuela) because experience has shown that few of the desired benefits materialize after government takeover.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

14. Many countries have domestication as a condition for investment.

TRUE

Today, countries often require prospective investors to agree to share ownership, use local content, enter into labor and management agreements, and share participation in export sales as a condition of entry; in effect, the company has to become domesticated as a condition for investment.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

15. Price controls are only targeted at nonessential products.

FALSE

Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often subjected to price controls. Such controls applied during inflationary periods can be used to control the cost of living.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

16. Political sanctions are the most effective means of achieving the goal of forcing a country to accept the demands of the boycotting country.

FALSE

History indicates that sanctions are almost always unsuccessful in reaching desired goals, particularly when other major nations’ traders ignore them.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

17. Political and social activists have no impact on the normal flow of trade.

FALSE

Although not usually officially sanctioned by the government, the impact of political and social activists (PSAs) can also interrupt the normal flow of trade. PSAs can range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change. When well organized, the actions of PSAs can succeed.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

18. Nongovernmental organizations can affect the policy decisions made by governments.

TRUE

Often associated with political activism, nongovernmental organizations (NGOs) are increasingly affecting policy decisions made by governments.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

19. Risk of violence is not a consideration in assessing the political vulnerability of a multinational company’s activities.

FALSE

Although not usually government initiated, violence is another related risk for multinational companies to consider in assessing the political vulnerability of their activities.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

20. International warfare is fast gaining popularity among nations.

FALSE

International warfare is fast becoming obsolete.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

21. Due to advancements in technology, it is easy to determine if a cyberattack has been launched by a rogue state, a terrorist, or a hacker as a prank.

FALSE

One problem in tracing cyberterrorists and criminals is that it is hard to determine if a cyberattack has been launched by a rogue state, a terrorist, or a hacker as a prank.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

22. As cultural and political scenarios vary so widely across nations, there is absolutely no way to generalize tendencies for products to be politically sensitive.

FALSE

Although there are no specific formulas to determine a product’s vulnerability at any point, there are some generalizations that help identify the tendency for products to be politically sensitive.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Assessing Political Vulnerability

 

23. Products that have or are perceived to have an effect on the environment are more likely to be politically sensitive.

TRUE

Products that have or are perceived to have an effect on the environment, exchange rates, national and economic security, and the welfare of people or that are publicly visible, subject to public debate, or associated with their country of origin are more likely to be politically sensitive.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Assessing Political Vulnerability

 

24. A single company can directly control or alter the political environment of the country within which it operates.

FALSE

Although a company cannot directly control or alter the political environment of the country within which it operates, a specific business venture can take measures to lessen its degree of susceptibility to politically induced risks.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

25. Relations between governments and MNCs are generally negative even if the investment made by the MNCs improves the balance of payments by increasing exports or reducing imports.

FALSE

Relations between governments and MNCs are generally positive if the investment made by the MNCs (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, and/or skills; (4) creates jobs; and/or (5) makes tax contributions.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

26. Licensing is least effective in situations where the technology is unique and the risk is high.

FALSE

Licensing can be effective in situations in which the technology is unique and the risk is high. Of course, there is some risk assumed, because the licensee can refuse to pay the required fees while continuing to use the technology.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

27. Planned domestication can be profitable and operationally expedient for the foreign investor.

TRUE

As a reasonable response to the potential of domestication, planned domestication can be profitable and operationally expedient for the foreign investor.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

28. It is illegal for U.S. citizens to pay a bribe unless it is a common practice in the host country.

FALSE

Bribery poses problems for the marketer at home and abroad, because it is illegal for U.S. citizens to pay a bribe even if it is a common practice in the host country.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

29. The principal agency that supports U.S. business abroad is the Department of Commerce (DOC).

TRUE

The Department of Commerce (DOC) is the principal agency that supports U.S. business abroad.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

30. The Agency for International Development underwrites trade and investments for U.S. firms.

FALSE

The Export-Import Bank (Ex-Im Bank) underwrites trade and investments for U.S. firms.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

Multiple Choice Questions

31. In the context of international law, a _____ state is independent and free from all external control.

A. bounded

 

B. sovereign

 

C. legal

 

D. liberal

 

E. neutral

In the context of international law, a sovereign state is independent and free from all external control; enjoys full legal equality with other states; governs its own territory; selects its own political, economic, and social systems; and has the power to enter into agreements with other nations.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

32. Which of the following is true of a sovereign state?

A. It is obligated to be a member of the World Trade Organization.

 

B. Its political and economic systems are determined by the United Nations Development Programme.

 

C. It enjoys full legal equality with other states.

 

D. Its territory is governed by the United Nations.

 

E. It is bounded by external control.

In the context of international law, a sovereign state is independent and free from all external control; enjoys full legal equality with other states; governs its own territory; selects its own political, economic, and social systems; and has the power to enter into agreements with other nations.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

33. _____ refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

A. Sovereignty

 

B. Self-governance

 

C. Ethnocentrism

 

D. Autocracy

 

E. Non-interventionism

Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

34. What goal did the G20 nations agree to in the April 2009 agreement that required them to cede some sovereignty?

A. Including all G20 nations in the Security Council

 

B. Raising oil prices

 

C. Increasing infrastructure funding

 

D. Rejecting protectionism

 

E. Increasing aid to South Africa

The leaders of the G20 nations ceded some sovereignty in their hugely important April 2009 agreement to “reject protectionism” at the nadir of the 2009 crash, when world trade had declined more than 12 percent.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

35. Adherence to the WTO inevitably means:

A. a definite increase in import tariffs worldwide.

 

B. the loss of national security to a large extent.

 

C. reduction in world trade by at least 70 percent.

 

D. the loss of some degree of national sovereignty.

 

E. complete stoppage of foreign direct investments.

Adherence to the WTO inevitably means the loss of some degree of national sovereignty, because the member nations have pledged to abide by international covenants and arbitration procedures that can override national laws and have far-reaching ramifications for citizens.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

36. The ideal political climate for a multinational firm is:

A. a country where international laws do not apply.

 

B. a country where favors can be purchased easily.

 

C. a country with a stable and friendly government.

 

D. a government with absolute power.

 

E. a government that radically shifts its philosophy.

The ideal political climate for a multinational firm is a stable, friendly government. Because foreign businesses are judged by standards as variable as there are nations, the stability and friendliness of the government in each country must be assessed as an ongoing business practice.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

37. Which of the following is the top political issue concerning foreign businesses?

A. Demographic profile of political leaders

 

B. Government policies on infrastructure

 

C. Economic awareness of political leaders

 

D. Stability of prevailing government policies

 

E. Membership of governments in trade treaties

At the top of the list of political issues concerning foreign businesses is the stability or instability of prevailing government policies.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

38. Which of the following is one of the main political causes of instability in international markets?

A. Varied taxing conventions

 

B. Differences in economic philosophies

 

C. Global focus

 

D. Environmental awareness

 

E. Trade disputes

There are five main political causes of instability in international markets: (1) some forms of government seem to be inherently unstable, (2) changes in political parties during elections can have major effects on trade conditions, (3) nationalism, (4) animosity targeted toward specific countries, and (5) trade disputes themselves.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

39. Monarchy, like _____, is a form of government ruled by one.

A. aristocracy

 

B. dictatorship

 

C. democracy

 

D. monopoly

 

E. oligarchy

Circa 500 BC, the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by few, and rule by many. The common terms for these forms in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

40. The ancient Greeks conceived three fundamental forms of government. Which of the following refers to a government ruled by one?

A. Aristocracy

 

B. Monarchy

 

C. Democracy

 

D. Monopoly

 

E. Oligarchy

Circa 500 BC, the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by few, and rule by many. The common terms for these forms in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

41. Which of the following government forms can be most aptly described as a rule by few?

A. Aristocracy

 

B. Dictatorship

 

C. Democracy

 

D. Monopoly

 

E. Monarchy

Circa 500 BC, the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by few, and rule by many. The common terms for these forms in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

42. According to ancient Greeks, which of the following refers to a fundamental government form with the rule by many?

A. Aristocracy

 

B. Dictatorship

 

C. Democracy

 

D. Monopoly

 

E. Monarchy

Circa 500 BC, the ancient Greeks conceived of and criticized three fundamental forms of government: rule by one, rule by few, and rule by many. The common terms for these forms in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

43. Which of the following is a common term for a form of government in use today?

A. Protectionism

 

B. Duopoly

 

C. Oligopoly

 

D. Capitalism

 

E. Oligarchy

The common terms for the various forms of government in use today are monarchy (or dictatorship), aristocracy (or oligarchy), and democracy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

44. Which of the following countries is the only country to preclude women from voting and appears to be still completely in the dark ages with regards to suffrage?

A. Croatia

 

B. Iran

 

C. Bolivia

 

D. Saudi Arabia

 

E. Venezuela

Saudi Arabia precludes women from voting. It appears to be the only state still completely in the dark ages with regards to suffrage.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

45. In _____, police and military are not allowed to vote.

A. Croatia

 

B. Iran

 

C. Bolivia

 

D. Saudi Arabia

 

E. Peru

In Peru, police and military are not allowed to vote.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

46. _____ is an intense feeling of state pride and unity, an awakening of a country’s people to pride in their country.

A. Nepotism

 

B. Absolutism

 

C. Fascism

 

D. Nationalism

 

E. Polarism

Nationalism can best be described as an intense feeling of national pride and unity, an awakening of a nation’s people to pride in their country. This pride can take an anti-foreign business bias, where minor harassment and controls of foreign investment are supported, if not applauded.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

47. Which of the following instances is most likely a manifestation of nationalism?

A. Membership in bilateral trade treaties

 

B. Call to buy a global counterpart’s products

 

C. Restrictions on imports

 

D. Removal of tariffs and quotas

 

E. Focus on global security

Feelings of nationalism are manifested in a variety of ways, including a call to “buy our country’s products only” (e.g., “Buy American”), restrictions on imports, restrictive tariffs, and other barriers to trade.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

48. With which of the following would the phrase “Buy American” be most closely associated?

A. Socialism

 

B. Communism

 

C. Nationalism

 

D. Abstractionism

 

E. Polarism

Feelings of nationalism are manifested in a variety of ways, including a call to “buy our country’s products only” (e.g., “Buy American”), restrictions on imports, restrictive tariffs, and other barriers to trade.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

49. Which of the following is true of nationalism?

A. The more a country feels threatened by some outside force the less nationalistic the country becomes.

 

B. A call to “buy our country’s products only” is one form of manifestation of national feelings.

 

C. Nationalist feelings lead to loss of control over foreign investment.

 

D. The more a country’s domestic economy declines, the less nationalistic it becomes.

 

E. Nationalistic feelings are not prevalent in economically prosperous countries.

Feelings of nationalism are manifested in a variety of ways, including a call to “buy our country’s products only” (e.g., “Buy American”).

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

50. With respect to the political risk that can be faced by a company seeking to invest abroad, which of the following is most severe?

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Exchange controls

 

E. Local-content laws

The most severe political risk is confiscation, that is, the seizing of a company’s assets without payment. Confiscation was most prevalent in the 1950s and 1960s when many underdeveloped countries saw confiscation, albeit ineffective, as a means of economic growth.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

51. The seizing of a company’s assets without payment is called:

A. confiscation.

 

B. expropriation.

 

C. domestication.

 

D. exchange controls.

 

E. local-content laws.

Confiscation is the seizing of a company’s assets without payment.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

52. When a government seizes an investment of a foreign investor but some reimbursement for the assets is made, the government follows a process called:

A. confiscation.

 

B. expropriation.

 

C. domestication.

 

D. exchange controls.

 

E. local-content laws.

Expropriation is when the government seizes an investment but makes some reimbursement for the assets.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

53. When does an expropriated investment become a government-run entity?

A. On democratization

 

B. On deportation

 

C. On nationalization

 

D. On prioritization

 

E. On socialization

When the expropriated investment is nationalized, it becomes a government-run entity.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

54. _____ occurs when host countries gradually cause the transfer of foreign investment to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management.

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Democratization

 

E. Socialization

Domestication occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a company’s management.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

55. The government in Chile recently informed Clint Travis’ company that his retail grocery chain in Chile would have to be gradually turned over to the people of Chile by the year 2050 as it is a foreign company in Chile. Additionally, starting next year 50 percent of the board of directors of the Chilean operation of the company must be Chileans. Which of the following political risk actions is Mr. Travis’ company facing in Chile?

A. Confiscation

 

B. Expropriation

 

C. Domestication

 

D. Patronization

 

E. Socialization

Domestication occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a company’s management. As Clint’s company is gradually transferred to the control of the Chilean government, his company is facing domestication.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 3 Hard
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

56. Which of the following is true of domestication?

A. The ultimate goal of domestication is to force domestic investors to share more of the profits with the government.

 

B. The risk of domestication appears to have decreased over the last two decades.

 

C. Domestication has always led to more technologically advanced and competitive businesses.

 

D. Nowadays, countries often require companies to become domesticated as a condition for investment.

 

E. Domestication refers to the seizing of a company’s assets without payment.

Today, countries often require prospective investors to agree to share ownership, use local content, enter into labor and management agreements, and share participation in export sales as a condition of entry; in effect, the company has to become domesticated as a condition for investment.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

57. _____ stem from shortages of foreign currency held by a country.

A. Exchange controls

 

B. Local-content laws

 

C. Price controls

 

D. Tax controls

 

E. Production costs

Exchange controls stem from shortages of foreign exchange held by a country.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

58. If there is a substantial amount of capital leaving a country, which of the following is the country most likely to implement to control the situation?

A. Exchange controls

 

B. Local-content laws

 

C. Import restrictions

 

D. Tax controls

 

E. Price controls

Exchange controls stem from shortages of foreign exchange held by a country. When a nation faces shortages of foreign exchange and/or a substantial amount of capital is leaving the country, controls may be levied over all movements of capital or selectively against the most politically vulnerable companies to conserve the supply of foreign exchange for the most essential uses.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

59. In Thailand, it is required that any milk product sold in the country by a foreign company must use the milk produced by Thai dairy farmers. Which of the following economic risks is faced by the international producers of milk products in this situation?

A. Exchange controls

 

B. Local-content laws

 

C. Export restrictions

 

D. Tax controls

 

E. Price controls

In addition to restricting imports of essential supplies to force local purchase, countries often require a portion of any product sold within the country to have local content, that is, to contain locally made parts. As Thailand has required that all milk products sold in its country must use the milk produced from Thai dairy farms, it has used a local-content law to force local purchase. This causes an economic risk for foreign investors.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

60. The United States requires that 50 percent of all parts used to construct an automobile in the United States be manufactured in the United States. As a result of this, when Toyota Motor Company built automobile manufacturing plants in Tennessee and Ohio, it faced economic risks associated with _____.

A. exchange controls

 

B. local-content laws

 

C. export restrictions

 

D. tax controls

 

E. price controls

In addition to restricting imports of essential supplies to force local purchase, countries often require a portion of any product sold within the country to have local content, that is, to contain locally made parts. Therefore, the United States used local-content laws to force Toyota Motor Company to purchase locally made parts.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

61. Taxes must be classified as a(n) _____ risk when used as a means of controlling foreign investments.

A. political

 

B. social

 

C. ignorable

 

D. environmental

 

E. harmless

Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation of formal agreements.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

62. Since the government of Nigeria is strapped for cash, it has decided to tax all foreign investments (such as oil production equipment) by up to 40 percent of the appraised value. The Nigerian government has found that this is the handiest and quickest means of finding operating funds. The economic risk in discussion here is:

A. exchange controls.

 

B. local-content laws.

 

C. tax restrictions.

 

D. tax controls.

 

E. price controls.

Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation of formal agreements. As the Nigerian government has used taxing as a means of controlling foreign investments, the economic risk in discussion here is tax controls.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

63. Price controls are used during inflationary periods to:

A. control the cost of living.

 

B. restrict exports to foreign countries.

 

C. negotiate trade contracts favoring the host country.

 

D. encourage imports.

 

E. collect taxes on foreign investments.

Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often subjected to price controls. Such controls applied during inflationary periods can be used to control the cost of living.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

64. In North Korea, foreign investors or producers are required to sell products at prices stated by the North Korean government rather than letting market value and demand determine the prices. This implies that there is severe application of _____.

A. exchange controls

 

B. local-content laws

 

C. import restrictions

 

D. tax controls

 

E. price controls

Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often subjected to price controls. Such controls applied during inflationary periods can be used to control the cost of living. They also may be used to force foreign companies to sell equity to local interests.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

65. Which of the following is more likely to be subjected to price control?

A. Leather garments

 

B. Mobile phone accessories

 

C. Aspirin and antacids

 

D. Camcorders and lenses

 

E. Ceramic tiles

Essential products that command considerable public interest, such as pharmaceuticals, food, gasoline, and cars, are often subjected to price controls. Such controls applied during inflationary periods can be used to control the cost of living.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

66. Stopping or refusing to trade with another nation for political reasons is called:

A. monopolizing.

 

B. boycotting.

 

C. confiscation.

 

D. democratization.

 

E. expropriation.

In addition to economic risks, one or a group of nations may boycott another nation, thereby stopping all trade between the countries, or may issue sanctions against the trade of specific products.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

67. Which of the following statements is true of political sanctions?

A. Political sanctions normally control and rectify situations within a nation.

 

B. Political sanctions are generally unsuccessful.

 

C. Political sanctions are illegal.

 

D. The United Nations encourages boycotts as a means of settling disputes.

 

E. The use of political sanctions is the most effective way to increase world trade.

History indicates that sanctions are almost always unsuccessful in reaching desired goals, particularly when other major nations’ traders ignore them.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

68. Which of the following represents a new and powerful tool of PSAs?

A. Political sanctions

 

B. Monetary barriers and trade embargoes

 

C. The Internet and cellphones

 

D. Local-content laws and questionnaires

 

E. Export controls

The Internet and cell phones have together become effective tools of PSAs to spread the word about whatever cause they sponsor.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

69. Which of the following is an NGO (nongovernmental organization)?

A. Central Intelligence Agency

 

B. Peace Corps

 

C. Millennium Challenge Corporation

 

D. Oxfam

 

E. FedEx

Some NGOs have received global recognition—the Red Cross and Red Crescent, Amnesty International, Oxfam, UNICEF, Care, and Habitat for Humanity are examples—for their good works, political influence, and even their brand power.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

70. Why do terrorism experts predict multinational businesses will be targeted by terrorists more frequently?

A. They impose export controls on the underdeveloped nations.

 

B. They are the major cause for political sanctions against Arab nations.

 

C. They are less well defended than government targets.

 

D. They destroy and pollute the environment.

 

E. They are subterfuge for espionage agents.

There are reasons to expect that businesses will become increasingly attractive to terrorists, both because they are less well defended than government targets and because of what they symbolize.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

71. Which of the following forms of terrorism is most likely to use the Internet to inflict damage?

A. Germterrorism

 

B. Bioterrorism

 

C. Cyberterrorism

 

D. Ecoterrorism

 

E. Narcoterrorism

Always on the horizon is the growing potential for cyberterrorism and cybercrime. Although still in its infancy, the Internet provides a vehicle for terrorist and criminal attacks by foreign and domestic antagonists wishing to inflict damage on a company with little chance of being caught.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

72. “Slammer,” “Melissa,” and “Goner worm” are all examples of:

A. viruses damaging the Internet.

 

B. politically sensitive products.

 

C. third-world diseases.

 

D. hackers intent on attacking multinational businesses.

 

E. new video games espousing Internet crime.

The Melissa virus and the denial of service (DoS) attacks that overloaded the websites of CNN, ZDNet, Yahoo!, and Amazon.com with a flood of electronic messages, crippling them for hours, were considered purposeful attacks on specific targets. The “Slammer” brought Internet service to a crawl. It doubled its numbers every 8.5 seconds during the first minute of its attack and infected more than 75,000 hosts within 10 minutes. After infecting hundreds of thousands of computers in Europe and North America, the “Goner worm” traveled to Australia overnight and brought down government agencies, financial and manufacturing sites, and at least 25 MNCs.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

73. Brian is attempting to forecast political instability and help his company’s management identify and evaluate political events and their potential influence on current and future international business decisions. Brian is engaged in:

A. political risk assessment.

 

B. political confiscation.

 

C. democratization.

 

D. arbitration.

 

E. risk expropriation.

Political risk assessment is an attempt to forecast political instability to help management identify and evaluate political events and their potential influence on current and future international business decisions.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Assessing Political Vulnerability

 

74. In terms of political risk, which of the following poses the greatest threat to international marketers?

A. Newer environmental regulations approved by global trade bodies

 

B. Change of economic policies

 

C. Exchange rate fluctuations affecting margins

 

D. The possibility of the government actually failing

 

E. Membership or withdrawal of membership of the government in trade blocs

Perhaps the greatest risk to international marketers is the threat of the government actually failing, causing chaos in the streets and markets.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Assessing Political Vulnerability

 

75. Relations between governments and MNCs are generally positive if the investment:

A. increases the volume of imports.

 

B. uses globally produced resources.

 

C. transfers capital, technology, and/or skills.

 

D. brings in more number of foreign nationals.

 

E. decreases the volume of exports.

Relations between governments and MNCs are generally positive if the investment (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, and/or skills; (4) creates jobs; and/or (5) makes tax contributions.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

76. Meteora Inc. is planning to enter the Kenyan market by establishing a mobile phone manufacturing operation in Kenya. Meteora is most likely to have a positive relationship with Kenyan government through its investment if it:

A. uses locally produced resources.

 

B. imports phone components from China.

 

C. establishes an R&D center in California and has all its technology patented there.

 

D. ensures that its middle and upper management are made of expatriates.

 

E. bargains for a tax holiday for the next five financial years.

Relations between governments and MNCs are generally positive if the investment (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, and/or skills; (4) creates jobs; and/or (5) makes tax contributions. Therefore, if Meteora uses locally produced resources it is most likely to maintain positive relations with the Kenyan government.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

77. Juliet is concerned with the potential for political harassment when her company enters a new international market. To reduce the risk of political harassment, she is most likely to consider using _____ to enter the market.

A. externally produced products

 

B. a smaller investment base

 

C. foreign technology

 

D. joint ventures

 

E. the threat of sanctions

Typically less susceptible to political harassment, joint ventures can be with locals or other third-country multinational companies; in both cases, a company’s financial exposure is limited. So, Juliet is most likely to use joint ventures to enter the market to minimize political harassment.

 

 

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

78. Which of the following is a strategy that multinational corporations use to minimize political vulnerability and risk?

A. Expropriation

 

B. Sanctions

 

C. Buyouts

 

D. Confiscation

 

E. Licensing

The strategies used by MNCs to minimize political vulnerability and risk are joint ventures, expanding the investment base, licensing, planned domestication, political bargaining, and political payoffs.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

79. Which of the following strategies can be effective in forestalling or minimizing the effect of a total takeover of a multinational corporation’s holdings by a foreign government?

A. Confiscation

 

B. Sole proprietorship

 

C. Expanding the investment base

 

D. Advertising

 

E. Leasing

The strategies used by MNCs to minimize political vulnerability and risk are joint ventures, expanding the investment base, licensing, planned domestication, political bargaining, and political payoffs.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

80. Which of the following strategies to minimize political vulnerability and risk has the advantage of engaging the power of several investors and banks in the host country whenever any kind of government takeover or harassment is threatened?

A. Joint ventures

 

B. Licensing

 

C. Expanding the investment base

 

D. Sole proprietorship

 

E. Political bargaining

Including several investors and banks in financing an investment in the host country is a strategy that minimizes political vulnerability and risk. This approach has the advantage of engaging the power of the banks whenever any kind of government takeover or harassment is threatened.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

81. Which of the following strategies is most effective in minimizing political risks for a multinational corporation in situations in which the technology is unique and the risk is high?

A. Trade embargo

 

B. Licensing

 

C. Expanding the investment base

 

D. Planned confiscation

 

E. Expropriation

A strategy that some firms find eliminates almost all risks is to license technology for a fee. Licensing can be effective in situations in which the technology is unique and the risk is high. Of course, there is some risk assumed, because the licensee can refuse to pay the required fees while continuing to use the technology.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

82. The most effective long-range solution to a situation where a foreign government is demanding local participation in a multinational corporation’s business activities in the host country is:

A. joint ventures.

 

B. licensing.

 

C. expanding the investment base.

 

D. planned domestication.

 

E. political payoffs.

In those cases in which a host country is demanding local participation, the most effective long-range solution is planned phasing out, that is, planned domestication.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

83. While expanding the investment base of a company, which of the following can be used as a powerful ally in dealing with threats of government takeovers or harassment?

A. Banks that have lent money to the host government

 

B. The World Trade Organization

 

C. The International Labor Organization

 

D. Regional trade blocs

 

E. Opposing political parties

Including several investors and banks in financing an investment in the host country is an effective strategy to lessen the political vulnerability of a company. This approach has the advantage of engaging the power of the banks whenever any kind of government takeover or harassment is threatened. This strategy becomes especially powerful if the banks have made loans to the host country; if the government threatens expropriation or other types of takeover, the financing bank has substantial power with the government.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

84. An attempt to lessen political risks by paying those in power to intervene on behalf of the multinational company is referred to as a _____.

A. subornation

 

B. protectionism

 

C. political payoff

 

D. buyout

 

E. rake-off

One approach to dealing with political vulnerability is the political payoff—an attempt to lessen political risks by paying those in power to intervene on behalf of the multinational company. Bribery poses problems for the marketer at home and abroad, because it is illegal for U.S. citizens to pay a bribe even if it is a common practice in the host country.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

85. Which of the following best describes the U.S. government’s policy toward multinational corporations that are confronted with situations where bribery is an issue?

A. A bribe may be paid as long as it is not a domestic situation.

 

B. Bribery is justified if it is a documented traditional practice in a country.

 

C. A bribe can be paid in a foreign country if it is tied to national security.

 

D. It is illegal for a U.S. citizen to pay a bribe.

 

E. The issue revolves around the customs of the country and each issue is decided separately.

Bribery poses problems for the marketer at home and abroad, because it is illegal for U.S. citizens to pay a bribe even if it is a common practice in the host country.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

86. Which of the following is the principle U.S. agency that supports U.S. business abroad?

A. State Department of Entrepreneurship

 

B. Better Business Bureau

 

C. Department of Commerce

 

D. Department of Foreign Relations

 

E. Department of Defense

The Department of Commerce (DOC) is the principal agency that supports U.S. business abroad.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

87. Within the same country, some foreign businesses may fall prey to politically induced harassment, while others may be placed under a government umbrella of protection and preferential treatment. Which of the following is the factor that explains this difference?

A. The level of domestication achieved

 

B. The differences in level of technology between the two countries

 

C. The cultural differences between the host nation and the business’s home country

 

D. The import tariffs set by the host country

 

E. The evaluation of a company’s contribution to the nation’s interest

Within the same country, some foreign businesses may fall prey to politically induced harassment, while others may be placed under a government umbrella of protection and preferential treatment. The difference lies in the evaluation of a company’s contribution to the nation’s interest.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

88. Which of the following is the most important reason to encourage foreign investment?

A. To improve the global image of a country

 

B. To accelerate the development of an economy

 

C. To evade political tensions between countries

 

D. To minimize negative political fallouts within the domestic economy

 

E. To improves ties between the investing country and the host country

The most important reason to encourage foreign investment is to accelerate the development of an economy.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

89. Which of the following agencies underwrites trade and investments for U.S. firms?

A. Export-Import Bank

 

B. The Federal Trade Commission

 

C. The Agency for International Development

 

D. Social Security Advisory Board

 

E. The Overseas Private Investment Corporation

Export-Import Bank (Ex-Im Bank) underwrites trade and investments for U.S. firms.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

90. Which of the following agencies is dedicated to helping U.S. business compete in a global marketplace?

A. Commodity Futures Trading Commission (CFTC)

 

B. The Federal Trade Commission (FTC)

 

C. The Small Business Administration (SBA)

 

D. The United States International Trade Commission (USITC)

 

E. The International Trade Administration (ITA)

The International Trade Administration (ITA), a bureau of the DOC, is dedicated to helping U.S. business compete in the global marketplace.

 

 

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement

 

Essay Questions

91. Describe the characteristics of a sovereign state.

A sovereign state is independent and free from all external control; enjoys full legal equality with other states; governs its own territory; selects its own political, economic, and social systems; and has the power to enter into agreements with other nations. Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: The Sovereignty of Nations

 

92. Discuss stability of governments and list the main political causes of instability in international markets.

The ideal political climate for a multinational firm is a stable, friendly government. Radical shifts in government philosophy when an opposing political party ascends to power, pressure from nationalist and self-interest groups, weakened economic conditions, bias against foreign investment, or conflicts among governments are all issues that can affect the stability of a government. At the top of the list of political issues concerning foreign businesses is the stability or instability of prevailing government policies.
There are five main political causes of instability in international markets: (1) some forms of government seem to be inherently unstable, (2) changes in political parties during elections can have major effects on trade conditions, (3) nationalism, (4) animosity targeted toward specific countries, and (5) trade disputes themselves.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-01 What the sovereignty of nations means and how it can affect the stability of government policies
Topic: Stability of Government Policies

 

93. Describe the concept of nationalism and list some of the ways it manifests.

Nationalism can best be described as an intense feeling of national pride and unity, an awakening of a nation’s people to pride in their country. This pride can take an anti-foreign business bias, where minor harassment and controls of foreign investment are supported, if not applauded. Economic nationalism has as one of its central aims the preservation of national economic autonomy, in that residents identify their interests with the preservation of the sovereignty of the state in which they reside. In other words, national interest and security are more important than international relations. Feelings of nationalism are manifested in a variety of ways, including a call to “buy our country’s products only” (e.g., “Buy American”), restrictions on imports, restrictive tariffs, and other barriers to trade. They may also lead to control over foreign investment. Generally speaking, the more a country feels threatened by some outside force or the domestic economy declines, the more nationalistic it becomes in protecting itself against intrusions.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-02 How different governmental types; political parties; nationalism; targeted fear/animosity; and trade disputes can affect the environment for marketing in foreign countries
Topic: Stability of Government Policies

 

94. Discuss the terms confiscation, expropriation, and domestication.

Confiscation is the seizing of a company’s assets without payment. Expropriation occurs when the government seizes an investment but some reimbursement for the assets is made. Domestication occurs when the host country gradually causes the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management. The ultimate goal of domestication is to force foreign investors to share more of the ownership, management, and profits with nationals than was the case before domestication.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

95. List and briefly discuss the various economic risks that international companies must face when they seek to market abroad.

The text lists six economic risks. Exchange controls: When a nation faces shortages of foreign exchange and/or a substantial amount of capital is leaving the country, controls may be levied over all movements of capital or selectively against the most politically vulnerable companies to conserve the supply of foreign exchange for the most essential uses. Local-content laws: Countries often require a portion of any product sold within the country to have local content, that is, to contain locally made parts. Import restrictions: Selective restrictions on the import of raw materials, machines, and spare parts are fairly common strategies to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry. Tax controls: Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation of formal agreements. Price controls: Controls applied for essential products during inflationary periods can be used to control the cost of living. They also may be used to force foreign companies to sell equity to local interests. Labor problems: In many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business. Layoffs may be forbidden, profits may have to be shared, and an extraordinary number of services may have to be provided.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-04 The importance of the political system to international marketing and its effect on foreign investments
Topic: Political Risks of Global Business

 

96. Briefly discuss the role of PSAs and NGOs.

The impact of political and social activists (PSAs) can also interrupt the normal flow of trade. PSAs can range from those who seek to bring about peaceful change to those who resort to violence and terrorism to effect change. Often associated with political activism, nongovernmental organizations (NGOs) are increasingly affecting policy decisions made by governments. Many are involved in peaceful protests, lobbying, and even collaborations with governmental organizations. Many also are involved in mitigating much of the human misery plaguing parts of the planet. Some NGOs have received global recognition for their good works, political influence, and even their brand power.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

97. Discuss the threats posed by cyberterrorism or cyberattacks with an example.

Cyberterrorism and cybercrime are growing threats for businesses. Although still in its infancy, the Internet provides a vehicle for terrorist and criminal attacks by foreign and domestic antagonists wishing to inflict damage on a company with little chance of being caught. One problem in tracing cyberterrorists and criminals is that it is hard to determine if a cyberattack has been launched by a rogue state, a terrorist, or a hacker as a prank. Moreover, each wave of viruses gets more damaging and spreads so rapidly that considerable harm is done before it can be stopped. The “Slammer,” for example, brought Internet service to a crawl. It doubled its numbers every 8.5 seconds during the first minute of its attack and infected more than 75,000 hosts within 10 minutes. Whether perpetrated by pranksters or hackers out to do harm, these incidents show that tools for cyberterrorism can be developed to do considerable damage to a company, an entire industry, or a country’s infrastructure.

 

AACSB: Analytical Thinking
Blooms: Understand
Difficulty Level: 2 Medium
Learning Objective: 06-05 The impact of political and social activists; violence; and terrorism on international business
Topic: Political Risks of Global Business

 

98. What are the conditions under which relations between governments and MNCs are generally positive?

Relations between governments and MNCs are generally positive if the investment: (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, or skills; (4) creates jobs; or (5) makes tax contributions.

 

AACSB: Analytical Thinking
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

99. Ranzan Inc. has invested in a country showing signs that it will use domestication in the near future to force foreign investors to share more of the profits with the government. Cite and describe a strategy to deal with this potential of domestication that Ranzan could follow to ensure that its business remains profitable.

Ranzan Inc. could choose to implement planned domestication. Domestication occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management. As a reasonable response to the potential of domestication, planned domestication can be profitable and operationally expedient for the foreign investor. Planned domestication is, in essence, a gradual process of participating with nationals in all phases of company operations.

 

AACSB: Reflective Thinking
Blooms: Apply
Difficulty Level: 2 Medium
Learning Objective: 06-06 How to assess and reduce the effect of political vulnerability
Topic: Lessening Political Vulnerability

 

100. List the government agencies that are involved in promoting foreign investment and international business.

The Department of Commerce (DOC) is the principal agency that supports U.S. business abroad. The International Trade Administration (ITA), a bureau of the DOC, is dedicated to helping U.S. businesses compete in the global marketplace. Other agencies also provide assistance to U.S. companies. Export-Import Bank (Ex-Im Bank) underwrites trade and investments for U.S. firms. Foreign Credit Insurance Association (FCIA), an agency of the Ex-Im Bank, provides credit insurance that minimizes nonpayment risk caused by financial, economic, or political uncertainties. The Agency for International Development (AID) provides aid to underdeveloped countries and has limited protection in support of “essential” projects in approved countries and for approved products. The Overseas Private Investment Corporation (OPIC) provides risk insurance for companies investing in less-developed countries.

 

AACSB: Analytical Thinking
Blooms: Remember
Difficulty Level: 1 Easy
Learning Objective: 06-07 How and why governments encourage foreign investment
Topic: Government Encouragement