Chapter 01

Chapter 01 - Globalization
1-1
Chapter 01
Globalization

True / False Questions

1. (p. 7) Globalization refers to the shift toward a more integrated and interdependent world
economy.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 1-1
Topic: What Is Globalization?

2. (p. 7) Tastes and preferences of consumers in different nations are beginning to converge on
some global norm.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

3. (p. 7) A company has to be a major multinational corporation to facilitate, and benefit from,
the globalization of markets.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

1-2
4. (p. 7) In Germany, 98 percent of small and midsize companies have exposure to international
markets.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

5. (p. 8) Currently, the most global of markets are for industrial goods and materials that serve a
universal need the world over.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

6. (p. 8) As firms follow each other around the world, greater diversity replaces uniformity.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

7. (p. 10) Substantial impediments such as barriers to foreign direct investment make it difficult
for firms to achieve the optimal dispersion of their productive activities to locations around
the globe.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-3
8. (p. 10) GATT stands for the General Agreement on Tariffs and Trade.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Topic: The Emergence of Global Institutions

9. (p. 10) As of 2008, 149 nations, which collectively accounted for 90 percent of world trade,
were WTO members.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

10. (p. 11) The United Nations and the World Bank were both created in 1944 by 44 nations that
met at Breton Woods, New Hampshire.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

11. (p. 11) The IMF is often seen as the lender of last resort to nation-states whose economies
are in turmoil.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-4
12. (p. 12) After World War I, the advanced nations of the West committed themselves to
removing barriers to the free flow of goods, services, and capital between nations.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Topic: Drivers of Globalization

13. (p. 12) In addition to reducing trade barriers, many countries have also been progressively
removing restrictions to foreign direct investment.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

14. (p. 13) Since the mid-1980s, the value of international trade in services has been decreasing
compared to trade in production.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

15. (p. 13) The volume of world output has grown faster than the volume of world merchandise
trade since the 1950s, according to data from the World Trade Organization.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

1-5
16. (p. 14-15) Moore's Law predicts that the power of microprocessor technology doubles and its
cost of production declines in half every 18 months.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

17. (p. 15) By 2007, the Internet had more than 3 billion users, or about 25% of the world's
population.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

18. (p. 16) As transportation costs associated with the globalization of production decline,
dispersal of production to geographically separate locations becomes more economical.
TRUE

AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium

19. (p. 16) Favorable politics has been a major force in facilitating international trade in
services.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-6
20. (p. 17) In any society, the media are primary conveyors of culture.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

21. (p. 17) The dominance of mini-multinational U.S. firms on the international business scene
is one of the changing trends of globalization.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Topic: The Changing Demographics of the Global Economy

22. (p. 17) In 1963, the United States accounted for 50.2 percent of world output.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

23. (p. 18) Most forecasts now predict a rapid rise in world output accounted for by developing
nations such as China, India, and South Korea, and a rapid decline in the share enjoyed by
rich industrialized countries such as Britain and the United States.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-7
24. (p. 20) In the 1970s, European and Japanese firms began to shift labor-intensive
manufacturing operations from their home markets to developing nations where labor costs
were lower.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

25. (p. 20) The stock of foreign direct investment refers to the total cumulative value of foreign
investments in a country.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

26. (p. 21) A slump in foreign direct investment into developed nations from 1998 to 2000 was
followed by a surge in 2001 to 2003.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

27. (p. 21) In the 1960s, global business activity was dominated by large Japanese multinational
corporations.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-8
28. (p. 22) By 2005, the largest 50 multinationals from developing economies had foreign sales
of $323 billion out of a total of $738 billion and employed 1.1 million people outside of their
home countries.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

29. (p. 24) Many of the former Communist nations of Europe and Asia seem to share a
commitment to democratic policies and free market economies.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

30. (p. 24) Changes in China are creating both opportunities and threats for established
international businesses.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

31. (p. 26) Economists argue that despite the many benefits to globalization, an increase in
international trade and cross-border investments will result in higher prices for goods and
services.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Topic: The Globalization Debate

1-9
32. (p. 27) One concern of globalization opponents is that falling barriers to international trade
may destroy manufacturing jobs in wealthy advanced economies such as the United States.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

33. (p. 31) Free trade agreements such as NAFTA increase pollution and result in firms from
advanced nations exploiting the labor of less developed nations.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

34. (p. 32) One concern of globalization opponents is that it undermines the sovereignty of
international organizations and promotes the sovereignty of individual nation-states.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

35. (p. 33) Due to benefits associated with free trade and investment, gap between the rich and
poor nations of the world has reduced.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-10
36. (p. 34) Free trade alone is a sufficient prerequisite to help HIPC countries bootstrap
themselves out of poverty.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

37. (p. 35) The World Trade Organization has estimated that if developed nations eradicated
subsidies to their agricultural producers, it would raise global economic welfare by $128
billion.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

38. (p. 35) To conduct international business, a multinational enterprise has to invest directly in
operations of other countries.
FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Topic: Managing in the Global Marketplace

39. (p. 35) Despite all the talk about the emerging global village, differences between countries
such as cultures and political systems are profound and enduring.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-11
40. (p. 36) The range of problems confronted by a manager in an international business is wider
and the problems themselves more complex than those confronted by a manager in a domestic
business.
TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

Multiple Choice Questions

41. (p. 7) The trend from distinct national economic units and toward one huge global market is
commonly referred to as:
A. market standardization.
B. cross-border integration.
C. globalization.
D. internationalization.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

42. (p. 7) The merging of historically distinct and separate national markets into one huge
global marketplace is referred to as the:
A. globalization of production.
B. integration of markets.
C. transformation of commerce.
D. globalization of markets.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-12
43. (p. 7) What percentage of exporting firms, in the United States in 2001, were small
businesses that employed less than 100 people?
A. 22
B. 47
C. 73
D. 90

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

44. (p. 7) Automobile companies promote different car models depending on a range of factors
such as local fuel costs, income levels, traffic congestion, and cultural values. This
demonstrates that:
A. national markets are not giving way to the global market.
B. cultural diversity is replaced by global uniformity.
C. the global market is less complex than national markets.
D. everyone's tastes are the same, regardless of nationality.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

45. (p. 8) The most global of markets are in which area?
A. Services
B. Consumer goods
C. Industrial goods
D. Intellectual capital

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-13
46. (p. 8) Globalization results in a greater degree of _____ across markets than would be
present otherwise.
A. diversification
B. diversity
C. homogeneity
D. heterogeneity

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

47. (p. 8) The globalization of _____ refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality of factors of
production.
A. information technology
B. process design
C. markets
D. production

BT: Knowledge
Difficulty: Easy

48. (p. 8) In producing its electronics products, Sony Corporation sources goods and services
from different locations around the globe in an attempt to take advantage of national
differences in the cost and quality of factors of production. This practice is made possible by
the globalization of:
A. finance.
B. production.
C. markets.
D. process design.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-14
49. (p. 8) Although Boeing is incorporated in the United States, a supplier in Singapore makes
the doors for the nose landing gear, and suppliers in Italy manufacture wing flaps. Boeing is
taking part in:
A. exporting.
B. licensing.
C. outsourcing.
D. franchising.

BT: Comprehension
Difficulty: Medium

50. (p. 8) A software company that uses Indian engineers to perform maintenance functions on
software designed in the United States is benefiting from:
A. outsourcing.
B. exporting.
C. licensing.
D. importing.

BT: Knowledge
Difficulty: Medium

51. (p. 8-9) Although outsourcing has been primarily confined to _____, increasingly companies
are taking advantage of outsourcing for:
A. construction; manufacturing.
B. manufacturing; services.
C. mining; manufacturing.
D. manufacturing; agriculture.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-15
52. (p. 9-10) Why do many U.S. companies use Indian software engineers to perform
maintenance functions?
A. It compresses the time and lowers the costs required to develop new software programs.
B. It is in accordance with the treaty signed between the governments of the U.S. and India.
C. As a borrower of IMF loans, India needs to offer these services to turn its economy to
secure stability and growth.
D. It creates more low-skilled jobs for the U.S., resulting in better economic growth.

BT: Comprehension
Difficulty: Medium

53. (p. 10) An international treaty that committed signatories to lowering barriers to the free
flow of goods across national borders is called:
A. the International Agreement on Trade.
B. the Global Expansion Agreement.
C. the Warsaw Pact.
D. the General Agreement on Tariffs and Trade.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

54. (p. 10) How has the WTO helped globalization of markets and production?
A. It has made low-interest loans available to cash-strapped governments in poor nations.
B. It required the borrowing nation-states to adopt specific economic policies aimed at
economic growth.
C. It sought to create a more open global business system unencumbered by barriers to trade
and investment between countries.
D. It committed to cooperate in solving international problems and in promoting respect for
human rights.

BT: Comprehension
Difficulty: Medium

1-16
55. (p. 10) As of 2008, which global institute has 151 nations as its members?
A. The International Monetary Fund
B. The World Bank
C. The World Trade Organization
D. The United Nations

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

56. (p. 11) Why was the World Bank created?
A. To maintain order in the international monetary system.
B. To promote economic development.
C. To regulate what economic policies nations adopt.
D. To maintain peace and security.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

57. (p. 11) What is the purpose of the IMF?
A. To maintain order in the international monetary system.
B. To usurp sovereignty of borrowing nations.
C. To promote respect for human rights.
D. To regulate policies of poor nations and create infrastructure development.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

Survey Questions

1-17
58. (p. 11) Why is the IMF seen as the lender of last resort to nation-states whose economies are
in turmoil?

1. It lowers barriers to the free flow of goods across national borders.
2. It creates a more open global business system unencumbered by barriers to trade and
investment between countries.
3. By telling national governments what economic policies they must adopt, it usurps the
sovereignty of nation-states.
4. It makes low-interest loans to cash-strapped governments in poor nations that wish to
undertake significant infrastructure investments.

BT: Comprehension
Difficulty: Medium

Multiple Choice Questions

59. (p. 11) As the IMF is seen as the lender of the last resort to nation-states whose economies
are in turmoil, all of the following countries received monetary assistance from the IMF in the
last decade EXCEPT:
A. Australia.
B. Argentina.
C. Indonesia.
D. Russia.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-18
60. (p. 11) Which organization was established to preserve peace through international
cooperation and collective security?
A. The World Monetary Fund
B. The World Bank
C. The International Bank
D. The United Nations

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

61. (p. 11) When was the United Nations established?
A. 1940
B. 1945
C. 1950
D. 1955

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

62. (p. 11) Which of the following IS NOT a purpose of the UN?
A. Maintain international peace and security
B. Develop friendly relations among nations
C. Promote human rights
D. Provide developing countries with financial support

BT: Comprehension
Difficulty: Medium

1-19
63. (p. 11) Which are the two macro factors that seem to underlie the trend toward greater
globalization?
A. The increase in global economic stability, and the slowdown in technological change.
B. Reduced export of goods, and global economic stability.
C. Increased tariffs on import of manufactured goods, and protection of domestic industries
from foreign competition.
D. The decline in barriers to the free flow of goods, services, and capital that has occurred,
and increased technological change.

BT: Comprehension
Difficulty: Medium

64. (p. 11) Which of the following technological developments did NOT dramatically enhance
globalization?
A. Developments in communication
B. Developments in agriculture technologies
C. Developments in information processing
D. Developments in transportation technologies

BT: Comprehension
Difficulty: Medium

65. (p. 12) Which of the following refers to the exporting of goods or services to consumers in
another country?
A. Situational commerce
B. World exchange
C. International trade
D. Cross-national barter

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-20
66. (p. 12) Cisco Systems exports a number of products to consumers in other countries. This
practice is referred to as:
A. world exchange.
B. international trade.
C. cross-national barter.
D. situational commerce.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

67. (p. 12) Although Gillette is an American company, it has invested substantial business
resources in activities outside the United States. This practice is referred to as:
A. transnational commerce.
B. foreign direct investment.
C. international trade.
D. organizational diversification.

BT: Comprehension
Difficulty: Medium

68. (p. 12) The investing of resources in business activities outside a firm's home country is
referred to as:
A. international trade.
B. diversified investment.
C. gross domestic product.
D. foreign direct investment.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-21
69. (p. 12) Which of the following is a treaty designed to remove barriers to the free flow of
goods, services, and capital between nations?
A. Global Agreement on Tariffs and Commerce
B. United Nations Treaty on Trade
C. General Agreement on Tariffs and Trade
D. Multi-National Agreement on Tariffs and Commerce

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

70. (p. 12) Barriers to international trade are said to have contributed to:
A. the Cold War.
B. World War II.
C. the Great Depression.
D. the dot.com buzz of the 1990s.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

71. (p. 12) Which of the following was NOT an outcome of the Uruguay Round of the GATT?
A. Enforced high tariffs on imports of manufactured goods.
B. Extended GATT to cover services as well as manufactured goods.
C. Established the World Trade Organization.
D. Provided enhanced protection for patents, trademarks, and copyrights.

BT: Comprehension
Difficulty: Medium

1-22
72. (p. 12) Which of the following agencies was established at the 1993 Uruguay Round?
A. Global Trade Enforcement Administration
B. World Tariff and Trade Bureau
C. International Trade Enforcement Agency
D. World Trade Organization

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

73. (p. 12) In 2001, the WTO launched a new round of talks aimed at further liberalizing the
global trade and investment framework. It was held at:
A. Uruguay.
B. Qatar.
C. Brazil.
D. Egypt.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

74. (p. 12) What is the agenda of the Doha round of talks?
A. Limit the use of antidumping laws.
B. Protect domestic industries from foreign competition.
C. Increase subsidies to make domestic products cheaper.
D. Regulate foreign direct investment.

BT: Comprehension
Difficulty: Medium

1-23
75. (p. 12) Which of the following would be the biggest gain for poor countries from the
ongoing Doha talks?
A. Protection from international competition.
B. Reduction of tariff on agricultural products.
C. Better antidumping laws.
D. Regulating economic policies of HIPCs.

BT: Comprehension
Difficulty: Medium

76. (p. 12-13) Approximately 90 percent of the changes that countries have made pertaining to
foreign direct investment regulations have:
A. made firms relook at their own country as their main market.
B. made it easier for foreign companies to enter their markets.
C. shielded nations from the impact of economies of other countries.
D. made it more difficult for foreign producers of finished products to enter their markets.

BT: Comprehension
Difficulty: Medium

77. (p. 13) Between 1980 and 2006, the number of bilateral investment treaties has:
A. decreased.
B. doubled.
C. increased 12-fold.
D. increased by 10 percent.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-24
78. (p. 13) As of 2006, _____ bilateral treaties involved more than 160 countries to facilitate
FDI.
A. 1,587
B. 2,024
C. 2,573
D. 2,871

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

79. (p. 13) How does the lowering of barriers to international trade help firms?
A. It protects them from international competition.
B. It allows them to view the world as their market.
C. It drives up costs because they assemble their products in different countries.
D. It puts a break on globalization of both markets and production.

BT: Comprehension
Difficulty: Medium

80. (p. 13) Which of the following statements is consistent with data from the World Trade
Organization?
A. The volume of world trade has grown faster than the volume of world output since the
1950s.
B. Since the mid-1980s, the value of international trade in services has reduced considerably.
C. More and more firms are assembling their products in one single nation to save costs and
time.
D. Firms are finding their home markets protected from foreign competitors.

BT: Comprehension
Difficulty: Medium

1-25
81. (p. 13) Which of the following is NOT true regarding the volume of world trade today?
A. More firms are outsourcing.
B. Economies of the world's nation-states are becoming more intertwined.
C. The world has become significantly wealthier since 1950.
D. The value of international trade in services is dropping.

BT: Comprehension
Difficulty: Medium

82. (p. 13) From 1970 to 2005, the volume of world merchandise trade expanded:
A. 5-fold.
B. 14-fold.
C. 21-fold.
D. 28-fold.

AACSB: Analytic
BT: Comprehension
Difficulty: Easy

83. (p. 13) World merchandise trade includes all of the following EXCEPT:
A. manufactured goods.
B. services.
C. agricultural goods.
D. mining products.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-26
84. (p. 14) At least _____ parent companies had 780,000 affiliates in foreign markets that
collectively employed more than _____ people abroad and generated value accounting for
about one-tenth of global GDP.
A. 40,000; 30 million
B. 50,000; 40 million
C. 78,000; 70 million
D. 90,000; 60 million

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

85. (p. 14) According to the authors, all of the following U.S. companies are expanding their
presence in Japan EXCEPT:
A. Kodak.
B. Ford.
C. Proctor & Gamble.
D. Merrill Lynch.

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

86. (p. 14) Evidence suggests that FDI is:
A. increasing unemployment in the poor nations.
B. increasing conflict in world economy.
C. lower than the growth in world trade.
D. a contributor in increased global sales.

BT: Comprehension
Difficulty: Medium

1-27
87. (p. 14) What has made the globalization of markets and production a reality?
A. Technological change
B. Increased labor mobility
C. Elastic demand
D. Corporate greed

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

88. (p. 14) According to the text, the single most important innovation in technology has been
the development of the:
A. telegraph.
B. microprocessor.
C. airplane.
D. telephone.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

89. (p. 14) Why is the development of the microprocessor considered the single most important
innovation in technology?
A. It has increased the costs of coordinating and controlling a global organization
significantly.
B. It has enabled the explosive growth of high-cost computing.
C. It has increased the cost of telecommunication.
D. It has revolutionized the amount and speed of information processing.

BT: Comprehension
Difficulty: Medium

1-28
90. (p. 14) _____ predicts that the power of microprocessor technology doubles and the cost of
production falls every 18 months.
A. Bell's law
B. Bailey's law
C. Moore's law
D. Ivan's law

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

91. (p. 15) What is the contribution of the World Wide Web to global economy?
A. It allows businesses to expand their global presence at much higher costs.
B. It relies on microprocessors to encode, transmit, and decode vast amounts of information.
C. It makes it much easier for buyers and sellers to find each other, wherever they may be
located.
D. $250 billion of goods and services were sold online to retail customers in 1997.

BT: Comprehension
Difficulty: Medium

92. (p. 15) Between 1930 and 1990, the cost of a three-minute phone call between New York
and London fell from _____ to:
A. $204.87; $2.65.
B. $244.65; $3.32.
C. $268.23; $3.79.
D. $294.12; $30.98.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-29
93. (p. 16) Due to containerization:
A. shipping goods around the globe has become a lengthy process.
B. moving goods from one mode of transport to another has become labor-intensive.
C. the costs of shipping goods over long distances have significantly decreased.
D. the globalization of markets and production has slowed down.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

94. (p. 16) How has containerization revolutionized the transportation business?
A. The process of moving goods from one mode of transport to another has become very
labor-intensive, lengthy, and costly.
B. The whole process of moving goods can now be executed by a handful of longshoremen in
a couple of days.
C. The average ocean freight and port charges per ton of U.S. export and import cargo
increased to $95 in 1990.
D. Since 1980, the world's containership fleet has halved, reflecting in part the volume of
international trade.

BT: Comprehension
Difficulty: Medium

95. (p. 16) How has technological innovation affected the globalization of production?
A. The real costs of information processing and communication have increased in the past two
decades.
B. The effective and efficient execution of a digitized work process remains limited to
developed countries.
C. It makes it possible for a firm to create and then manage a globally dispersed production
system.
D. It increases unemployment all over the globe as technology replaces manpower.

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

1-30
96. (p. 17) Although the characteristics of the global economy have changed dramatically over
the past 30 years, as late as the 1960s all of the following demographic characteristics were
true EXCEPT:
A. the U.S. dominated the world economy.
B. small U.S. entrepreneurial firms dominated the international business scene.
C. the U.S. dominated the world foreign direct investment picture.
D. roughly half the world was governed by centrally planned economies of the Communist
world.

BT: Comprehension
Difficulty: Medium

97. (p. 17) Which country was the world's most dominant industry power in the early 1960s?
A. Japan
B. The United Kingdom
C. Germany
D. The United States

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

98. (p. 18) In recent years, all of the following countries have seen their share of world output
fall EXCEPT:
A. the United States.
B. France.
C. Germany.
D. China.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-31
99. (p. 18) In recent years, all of the following countries have seen their share of world output
increase EXCEPT:
A. Malaysia.
B. Germany.
C. China.
D. South Korea.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

100. (p. 18) Which of the following had the greatest share of the world's export in 2006 from
highest to lowest?
A. United States, France, Canada
B. Japan, Canada, Italy
C. United States, Germany, China
D. Germany, France, Italy

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

101. (p. 18-19) If the current trends in the changing demographics of world GDP and trade
continue, the _____ economy could ultimately be larger than that of the United States on a
purchasing power parity basis.
A. Russian
B. Chinese
C. Japanese
D. British

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-32
102. (p. 20) What is the total cumulative value of foreign investments referred to as?
A. Accumulation of foreign direct investments
B. Portfolio of foreign direct investments
C. Stock of foreign direct investments
D. Set of foreign direct investments

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

103. (p. 20) For which of the following countries did the country's share of the total stock
decline between 1980 and 2006?
A. Japan
B. The United States
C. France
D. China

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

104. (p. 21) General Electric has productive activities in a number of countries. As a result, it
would be appropriate to refer to General Electric as a _____ corporation.
A. regional
B. diverse-national
C. cross-national
D. multinational

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-33
105. (p. 21) Since the 1960s, there have been two notable trends in the demographics of the
multinational enterprise. These two trends have been:
A. the rise of non-U.S. multinationals and the disappearance of local businesses.
B. the decline of non-U.S. multinationals and the rise of unionized organizations.
C. the decline of non-U.S. multinationals and the growth of nationalized institutions.
D. the rise of non-U.S. multinationals and the growth of mini-multinationals.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

106. (p. 23) What are mini-multinationals?
A. Multinational firms from relatively small countries.
B. Multinational firms that span the globe.
C. Multinational firms that operate in three or less foreign countries.
D. Medium-sized and small multinationals.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

107. (p. 24) Which of the following is NOT true regarding potential business opportunities in
the former Communist nations of Europe and Asia?
A. The economies of most of the former Communist states are very strong.
B. Many of the former Communist nations of Europe and Asia share a commitment to free
market economies.
C. As a result of disturbing signs of growing unrest and totalitarian tendencies, the risks
involved in doing business in these countries is very high.
D. For about half a century, these countries were essentially closed to Western international
business.

BT: Comprehension
Difficulty: Medium

1-34
108. (p. 24) Disturbing signs of growing unrest and totalitarian tendencies continue to be seen in
many _____ states.
A. North American
B. South African
C. Southeast Asian
D. Eastern European

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

109. (p. 24) Which of the following statements is NOT TRUE regarding the majority of Latin
American countries?
A. Governments are selling state-owned enterprises to private investors.
B. Foreign investment is welcome.
C. Debt and inflation are down.
D. Neither democracy nor free market reforms have seemed to take hold.

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

110. (p. 26) The 1997 and 1998 financial crises in Thailand demonstrated that:
A. globalization is only risky for developing countries.
B. risks associated with global financial contagion are also greater.
C. globalization is a result of culturally impoverished interests of the United States.
D. globalization degrades the environment.

BT: Comprehension
Difficulty: Medium

1-35
111. (p. 26) _____ is not a benefit of globalization.
A. Lowering prices for goods
B. Raising the incomes of consumers
C. Slowdown in economic growth
D. Helping to create jobs in all countries that choose to participate

AACSB: Analytic
BT: Knowledge
Difficulty: Medium

112. (p. 31) Which of the following arguments do critics use to suggest that globalization is a
contributing factor to an increase in pollution?
A. Globalization results in an increase in the amount of activity that takes place in companies
that do not have adequate pollution controls.
B. Globalization results in increased commerce between countries, which results in an
increase in the amount of transportation activity.
C. Firms from advanced nations move their manufacturing facilities to countries that have
less stringent or no pollution controls to avoid the cost of regulation.
D. Globalization results in increased production, which has the undesirable side-effect of
increased pollution.

BT: Comprehension
Difficulty: Hard

113. (p. 31) The NAFTA was formed between:
A. Canada, Mexico, and the United States.
B. Venezuela, Brazil, and Argentina.
C. Canada, Argentina, and Chile.
D. Peru, Venezuela, and Chile.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-36
114. (p. 32) Pollution levels for which of the following rise steadily with higher income levels?
A. Sulfur dioxide
B. Lead
C. Carbon dioxide
D. Mercury

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

115. (p. 32) One concern of globalization critics is that a global economy shifts economic power
away from _____ and toward:
A. developed countries; developing countries.
B. national governments; supranational organizations.
C. democratic governments; totalitarian governments.
D. unelected bureaucrats; multinational companies.

BT: Comprehension
Difficulty: Medium

116. (p. 32-33) In what way can the World Trade Organization penalize member countries that
are found to be engaged in unfair trade practices?
A. The WTO can impose sanctions on the transgressor.
B. The WTO can bring the employees of offending companies to court.
C. The WTO can restrict the membership of the offending country in other world
organizations such as the United Nations.
D. The WTO panel can issue a ruling instructing a member state to change trade policies that
violate GATT regulations, and if the policies are not changed, allow other states to impose
sanctions.

BT: Comprehension
Difficulty: Medium

1-37
117. (p. 33) Which of the following is NOT a reason why some of the world's poorest countries
have suffered from economic stagnation?
A. Democratic governments
B. Economic policies that destroy rather than facilitate the creation of wealth
C. Weak protection for property rights
D. War

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

118. (p. 34) Why is free trade alone not a sufficient prerequisite for economic development in
HIPCs?
A. Reducing cross-border trade barriers will attract high foreign direct investment in HIPCs.
B. HIPC governments will be forced to honor debts that were incurred and mismanaged long
ago by their corrupt and dictatorial predecessors.
C. Free trade will allow HIPC governments to restructure their economies.
D. HIPCs are required to service heavy loans which leave them with little to invest in
important public infrastructure projects.

BT: Comprehension
Difficulty: Medium

119. (p. 35) The minimum that a firm has to do to engage in international business is to:
A. export or import products from other countries.
B. invest directly in operations in another country.
C. establish joint ventures or strategic alliances with companies in other countries.
D. license products to companies in other countries.

AACSB: Analytic
BT: Knowledge
Difficulty: Easy

1-38
120. (p. 36) Managing an international business is different from managing a purely domestic
business for all of the following reasons EXCEPT:
A. countries are different.
B. international transactions involve converting money into different currencies.
C. the range of problems confronted by a manager in an international business are narrower
than those confronted by a manager in a domestic business.
D. an international business must find ways to work within the limits imposed by government
intervention in the international trade and investment system.

BT: Comprehension
Difficulty: Medium

Essay Questions

121. (p. 7) What is globalization? Describe the concept of globalization of markets.
Globalization refers to the shift toward a more integrated and interdependent world economy.
The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace. Falling barriers to cross- border trade have
made it easier to sell internationally. It has been argued for some time that the tastes and
preferences of consumers in different nations are beginning to converge on some global norm,
thereby helping to create a global market.

BT: Comprehension
Difficulty: Medium

1-39
122. (p. 7, 10) How has globalization of the market and production helped create the shift toward
a more integrated world economy?
Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation
video games, McDonald's hamburgers, Starbucks coffee, and IKEA furniture are frequently
held up as prototypical examples of this trend. Firms such as those just cited are more than
just benefactors of this, trend; they are also facilitators of it. By offering the same basic
product worldwide, they help to create a global market. In many cases, it is becoming
irrelevant to talk about American products, Japanese products, German products, or Korean
products. Increasingly, according to Robert Reich, who served as secretary of labor in the Bill
Clinton administration, the outsourcing of productive activities to different suppliers results in
the creation of products that are global in nature, that is, "global products."

BT: Comprehension
Difficulty: Medium

123. (p. 10) Describe the World Trade Organization and its role in international business.
The World Trade Organization (WTO) succeeded the General Agreement on Tariffs and
Trade (GATT) as a result of successful completion of the Uruguay Round of GATT
negotiations. It is primarily responsible for policing the world trading system and making sure
nation-states adhere to the rules laid down in trade treaties signed by WTO member states.
The WTO is also responsible for facilitating the establishment of additional multinational
agreements between member states. The WTO historically has promoted the lowering of
barriers to cross-border trade and investment.

BT: Comprehension
Difficulty: Medium

1-40
124. (p. 12) Define the term "foreign direct investment." How does the term "foreign direct
investment" differ from the term "international trade"?
Foreign direct investment occurs when a firm invests resources in business activities outside
its home country. International trade occurs when a firm exports goods or services to
consumers in another country. The difference between the terms is that the term "international
trade" does not necessarily mean that a firm is investing resources in business activities
outside its home country. The firm could be simply exporting domestically produced products
to a foreign country.

BT: Comprehension
Difficulty: Medium

125. (p. 17-18) What is share of world output, and how has it changed in the last 40 years? What
is the overall trend regarding the changing pattern of world output and trade?
In 1963, the United States led the share of world output at 40 percent, followed by Germany
at 10 percent, and France at six percent. Japan was at 5.5 percent, and China, at this time, was
not even a factor. In 2007, the U.S. still leads, but its share of world output has diminished to
20.7 percent. China is second with 11.5 percent, Japan is third with 6.5 percent, and Germany
is fourth with 4.2 percent. Most forecasts now predict a rapid rise in the share of world output
accounted for by developing nations such as China, India, Indonesia, Thailand, South Korea,
Mexico, and Brazil, and a commensurate decline in the share enjoyed by rich industrialized
countries such as Great Britain, Germany, Japan, and the United States.

BT: Comprehension
Difficulty: Hard

1-41
126. (p. 21) What is a multinational enterprise? What have been the two most notable trends in
multinational enterprises since the 1960s?
A multinational enterprise is any business that has productive activities in two or more
countries. The two most notable trends in multinational enterprises since the 1960s have been
(1) the rise of non-U.S. multinationals and (2) the growth of mini-multinationals.

BT: Comprehension
Difficulty: Easy

127. (p. 26-27) Discuss the primary advantages and disadvantages of globalization.
Many influential economists, politicians, and business leaders seem to think that globalization
is a good thing. They argue that falling barriers to international trade and investment are the
twin engines driving the global economy toward greater prosperity. They say increased
international trade and cross-border investment will result in lower prices for goods and
services. They believe that globalization stimulates economic growth, raises the incomes of
consumers, and helps to create jobs in all countries that participate in the global trading
system. Conversely, critics argue that globalization destroys manufacturing jobs in wealthy
countries. The critics argue that falling trade barriers allow firms in industrialized countries to
move their manufacturing activities offshore to countries where wage rates are much lower.
The critics of globalization argues that disadvantages of globalization are many, including job
losses in industries under attack from foreign competitors, downward pressure on the wage
rates of unskilled workers, environmental degradation, and the cultural imperialism of global
media and multinational enterprises.

BT: Comprehension
Difficulty: Medium

1-42
128. (p. 27-29) What are the arguments for and against globalization regarding jobs and income?
Globalization opponents argue that falling barriers to international trade destroy
manufacturing jobs in wealthy advanced economies such as the United States. Falling barriers
allow firms to move manufacturing activities to countries where wage rates are much lower.
Because of this, wage rates of poorer Americans have fallen significantly over the past quarter
of a century.
Supporters of globalization argue that free trade will result in countries specializing in the
production of those goods and services that they can produce most efficiently, while
importing goods and services that they cannot produce as efficiently.

BT: Comprehension
Difficulty: Medium

129. (p. 33) What are some of the reasons for economic stagnation in third world countries?
Many of the world's poorest countries have suffered from totalitarian governments, economic
policies that destroyed wealth rather than facilitated its creation, endemic corruption, scant
protection for property rights, and war. Such factors help explain why countries such as
Afghanistan, Cambodia, Cuba, Haiti, Iraq, Libya, Nigeria, Sudan, Vietnam, and Zaire have
failed to improve the economic lot of their citizens during recent decades. A complicating
factor is the rapidly expanding populations in many of these countries. Without a major
change in government, population growth may exacerbate their problems.

BT: Comprehension
Difficulty: Medium

1-43
130. (p. 36) How is managing an international business different from managing a purely
domestic business?
Managing an international business is different from managing a purely domestic business for
at least four reasons: (1) countries are different, (2) the range of problems confronted by a
manager in an international business is wider and the problems themselves more complex
than those confronted by a manager in a domestic business, (3) an international business must
find ways to work within the limits imposed by government intervention in the international
trade and investment system, and (4) international transactions involve converting money into
different currencies.

BT: Comprehension
Difficulty: Medium

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Chapter 01 - Globalization

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