Chap 3

International Business: The Challenges of Globalization, 7e (Wild)
Chapter 3 Politics, Law, and Business Ethics
1) In a totalitarian system, rulers tightly control people's lives and do not tolerate opposing
viewpoints.
Answer: TRUE
AACSB: Dynamics of the global economy
Skill: Concept
Objective: 1
Difficulty: Easy
Course LO: Describe how differences in political economy influence economic development
2) Anarchism is the belief that every aspect of people's lives must be controlled in order for a
nation's political system to be effective.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
3) Pluralism is the belief that only individuals and private groups should control a nation's
political activities.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
4) Pluralistic political systems include authoritarian regimes such as communism and fascism.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
5) When a country's religious leaders are also its political leaders, its political system is called a
theocracy.
Answer: TRUE
Skill: Concept
Objective: 1
Difficulty: Easy
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6) Pluralism is a political system in which political leaders rely on military and bureaucratic
power.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
7) Secular totalitarianism is a political system in which government leaders are elected directly
by the wide participation of the people or their representatives.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
8) The most peaceful nations today are those that were once controlled and stabilized by colonial
powers.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
9) In a coalition government, the strongest political parties share power by dividing government
responsibilities among themselves.
Answer: TRUE
Skill: Concept
Objective: 1
Difficulty: Easy
10) The bureaucracy is the part of government that implements the rules and laws passed by
elected representatives.
Answer: TRUE
Skill: Concept
Objective: 1
Difficulty: Easy
2
11) Economic socialism won the battle over communist totalitarianism and capitalism.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
12) A solid grasp of local values, customs, and traditions can help reduce a company's exposure
to political risk.
Answer: TRUE
Skill: Concept
Objective: 2
Difficulty: Easy
13) Expropriation involves the forced transfer of assets from a company to the government
without compensation.
Answer: FALSE
Skill: Concept
Objective: 2
Difficulty: Easy
14) Among asset seizure approaches, expropriation is more common than confiscation and
nationalization.
Answer: FALSE
Skill: Concept
Objective: 2
Difficulty: Easy
15) Lobbying is the policy of hiring people to represent a company's views on political matters.
Answer: TRUE
Skill: Concept
Objective: 2
Difficulty: Easy
3
16) The Foreign Corrupt Practices Act forbids U.S. companies from bribing government officials
or political candidates in other nations.
Answer: TRUE
Skill: Concept
Objective: 2
Difficulty: Easy
17) Totalitarian governments tend to favor private ownership of economic resources.

Answer: FALSE
Skill: Concept
Objective: 3
Difficulty: Easy
18) Civil law can be more adversarial than common law because civil law relies more on the
need to interpret laws according to tradition, precedent, and usage.
Answer: FALSE
Skill: Concept
Objective: 3
Difficulty: Easy
19) Islamic law is the most widely practiced theocratic legal system today.
Answer: TRUE
AACSB: Multicultural and diversity understanding
Skill: Concept
Objective: 3
Difficulty: Easy
20) Trademark protection typically lasts indefinitely, provided the word or symbol continues to
be distinctive.
Answer: TRUE
Skill: Concept
Objective: 3
Difficulty: Easy
4
21) Product liability laws hold only manufacturers responsible for damage, injury, or death
caused by defective products.
Answer: FALSE
Skill: Concept
Objective: 3
Difficulty: Easy
22) Developing nations have the toughest product liability laws, while developed countries have
more relaxed laws.
Answer: FALSE
Skill: Concept
Objective: 3
Difficulty: Easy
23) A value-added tax is a tax levied on each party that adds value to a product throughout its
production and distribution.
Answer: TRUE
Skill: Concept
Objective: 3
Difficulty: Easy
24) The cultural relativist view says that a company's sole responsibility is to maximize profits
for its owners while operating within the law.
Answer: TRUE
AACSB: Dynamics of the global economy; Ethical understanding and reasoning abilities
Skill: Concept
Objective: 4
Difficulty: Easy
25) Corporate social responsibility is the practice of going beyond legal obligations to actively
balance commitments to investors, customers, other companies, and communities.
Answer: TRUE
Skill: Concept
Objective: 5
Difficulty: Easy
5
26) Which of the following political ideologies states that every aspect of people's lives must be
controlled for a nation's political system to be effective?
A) totalitarianism
B) capitalism
C) anarchism
D) pluralism
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
27) Under a(n) ________ political system, the state reigns supreme over institutions such as
family, religion, business, and labor.
A) pluralistic
B) totalitarian
C) democratic
D) anarchist
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
28) Totalitarian political systems include authoritarian regimes such as ________.

A) democracy and theocracy
B) anarchism and pluralism
C) communism and fascism
D) capitalism and secularism
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
6
29) ________ is the belief that only individuals and private groups should control a nation's
A) Pluralism
B) Anarchism
C) Theocracy
D) Totalitarianism
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
30) ________ is the belief that both private and public groups play important roles in a nation's
A) Totalitarianism
B) Capitalism
C) Anarchism
D) Pluralism
Answer: D
Skill: Concept
Objective: 1
Difficulty: Easy
31) ________ political systems include democracies, constitutional monarchies, and some
aristocracies.
A) Totalitarian
B) Anarchist
C) Fascist
D) Pluralistic
Answer: D
Skill: Concept
Objective: 1
Difficulty: Easy
7
32) Konesia is a country whose political leaders do not tolerate opposing viewpoints and often
suppress or punish dissidents. The lives of Konesians are tightly controlled by its rulers. Which
of the following political systems prevails in the country?
A) totalitarianism
B) democracy
C) anarchism
D) pluralism
Answer: A
AACSB: Dynamics of the global economy; Analytic skills
Skill: Application
Objective: 1
Difficulty: Moderate
33) Which of the following is a characteristic of totalitarian governments?

A) Political dissidents can oppose the government with no repercussions.
B) Citizens are guaranteed civil, property, and minority rights.
C) The means of production are owned by the people who use them.
D) Leaders rule without the explicit approval of the people.
Answer: D
Skill: Concept
Objective: 1
Difficulty: Easy
34) A ________ is a political system in which a country's religious leaders serve as its political
leaders.
A) democracy
B) theocracy
C) plutocracy
D) septocracy
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
8
35) Renzi belongs to a country in which religion governs all aspects of his life, whether personal
or public. He has to abide by a strict, rigid, code that dictates everything from the clothes he
wears to the food he eats. Breaking away from these traditions is not an option since religion
plays an important role in the functioning of the nation. What political system prevails in his
country?
A) communist totalitarianism
B) left-wing totalitarianism
C) right-wing totalitarianism
D) theocratic totalitarianism
Answer: D
AACSB: Analytic skills; Ethical understanding and reasoning abilities
Skill: Application
Objective: 1
36) ________ is a political system in which political leaders rely on military and bureaucratic
power to support their rule.
A) Secular totalitarianism
B) Secular anarchism
C) Theocratic totalitarianism
D) Theocratic pluralism
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
37) Which of the following terms refers to an economic system in which the government owns
and controls all types of economic activity?
A) socialism
B) sovereign nationalism
C) political bureaucracy
D) pluralism
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
9
38) Robert believes that social and economic equality can be obtained only by establishing an
economic system in which the government owns and controls all types of economic activity.
However, he does not think of himself as a communist, but as a socialist. Which of the following
statements about Robert is true?
A) Robert does not believe that a violent revolution is needed to seize control over resources.
B) Robert does not think that political dissidents should go unpunished.
C) Robert believes that the pricing of goods should be left to the discretion of laborers.
D) Robert believes that the means of production should be owned by the people who use them.
Answer: A
AACSB: Dynamics of the global economy; Reflective thinking skills
Skill: Critical Thinking
Objective: 1
Difficulty: Hard
39) Both Pat and Terry believe that social and economic equality can be obtained only by
establishing an economic system in which the government owns and controls all types of
economic activity. Which of the following statements proves that Pat is a communist and Terry is
a socialist?
A) Unlike Terry, Pat believes that the government should decide the prices at which goods are
sold.
B) Unlike Pat, Terry does not believe in the elimination of political opponents.
C) Unlike Terry, Pat believes that the means of production should be owned only by the public.
D) Unlike Pat, Terry believes that a violent revolution is necessary to seize control over
resources.
Answer: B
Objective: 1
Difficulty: Hard
40) What do communists and socialists have in common?

A) Both believe in the elimination of political opponents.
B) Both believe that the government should control all types of economic activity.
C) Both believe that the pricing of goods should be the responsibility of individuals.
D) Both believe that a violent revolution is necessary to seize control over resources.
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
10
41) Under ________ the government endorses private ownership of property and a market-based
economy but grants little or no political freedom.
A) left-wing totalitarianism
B) theocratic totalitarianism
C) secular totalitarianism
D) right-wing totalitarianism
Answer: D
AACSB: Ethical understanding and reasoning abilities; Multicultural and diversity
understanding
Skill: Concept
Objective: 1
Difficulty: Easy
42) Which of the following terms is also used to refer to communism?

A) tribal totalitarianism
B) right-wing totalitarianism
C) left-wing totalitarianism
D) civil totalitarianism
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
43) Which of the following is an advantage of conducting business in totalitarian nations?

A) International companies are less likely to face local political opposition to their activities.
B) Government deals are always straightforward and transparent.
C) Laws regarding the resolution of contractual disputes are clearly defined.
D) International companies run no risk of their public image being tarnished.
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
11
44) Which of the following is a disadvantage of conducting business in totalitarian nations?
A) Laws regarding the resolution of contractual disputes are rigid and inflexible.
B) Companies have to contend with the interference of local political opposition.
C) A refusal to pay a bribe can result in the forfeiture of investments in the country.
D) The government has little power over the economic activities of the nation.
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
45) A ________ is a political system in which government leaders are elected directly by the
wide participation of the people or by their representatives.
A) democracy
B) theocracy
C) plutocracy
D) autocracy
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
46) Which of the following statements about representative democracies is true?

A) All citizens participate freely and actively in political processes.
B) Leaders of representative democracies can stay in power indefinitely.
C) Citizens elect individuals from political groups to act on their behalf.
D) Representative democracies across the world share identical features.
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
12
47) In a ________ government, the strongest political parties share power by dividing
government responsibilities among themselves.
A) coalition
B) bilateral
C) totalitarian
D) theocratic
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
48) Democracies try to preserve peaceful coexistence among groups of people with diverse
cultural, ethnic, and racial backgrounds. These rights are known as ________ rights.
A) indirect
B) central
C) subcapital
D) minority
Answer: D
Skill: Concept
Objective: 1
Difficulty: Easy
49) The segment of the economic environment comprising independently owned firms that seek
to earn profits is called the ________.
A) political sector
B) private sector
C) democratic sector
D) public sector
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
13
50) Which of the following philosophies asserts that ownership of the means of production
belongs in the hands of individuals and private businesses?
A) capitalism
B) communism
C) tribalism
D) socialism
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
51) Which of the following terms refers to the forced transfer of assets from a company to the
government without compensation?
A) expropriation
B) nationalism
C) nationalization
D) confiscation
Answer: D
Skill: Concept
Objective: 2
Difficulty: Easy
52) ________ is the forced transfer of assets from a company to the government with
compensation.
A) Expropriation
B) Nationalization
C) Confiscation
D) Localization
Answer: A
Skill: Concept
Objective: 2
Difficulty: Easy
14
53) ________ refers to the takeover of an entire industry by the government.
A) Decentralization
B) Globalization
C) Nationalization
D) Automatization
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
54) Which of the following is a disadvantage of local requirement laws to foreign companies?
A) They do not foster local business activity and increase regional and national unemployment.
B) They make it necessary for the government to resort to expropriation and confiscation.
C) The companies are forced to bring in raw material and workers from their own countries.
D) Companies required to hire local personnel might be forced to take on inadequately trained
workers.
Answer: D
Skill: Concept
Objective: 2
Difficulty: Easy
55) The U.S. legal system is largely based on ________.

A) common law
B) social law
C) civil law
D) theocratic law
Answer: A
Skill: Concept
Objective: 3
Difficulty: Easy
15
56) Under ________ law, the justice system decides cases by interpreting the law on the basis of
tradition, precedent, and usage.
A) civil
B) international
C) common
D) theocratic
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
57) ________ is a legal system which is based on a detailed set of written rules and statutes that
constitute a legal code.
A) International law
B) Civil law
C) Tribal law
D) Common law
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
58) A legal tradition based on religious teachings is called ________ law.

A) democratic
B) common
C) civil
D) theocratic
Answer: D
Skill: Concept
Objective: 3
Difficulty: Easy
16
59) A ________ is a right granted to the inventor of a product or process that excludes others
from making, using, or selling the invention.
A) patent
B) trademark
C) watertight
D) copyright
Answer: A
Skill: Concept
Objective: 3
Difficulty: Easy
60) ________ are words or symbols that distinguish a product and its manufacturer from
competitors.
A) Patents
B) Trademarks
C) Watermarks
D) Copyrights
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
61) Shimmer and Sparkle is an American jewellery store which discovers that several shops in
developing countries are selling counterfeited necklaces under their name and label. Which of
the following problems are they facing?
A) patent expiration
B) trademark infringement
C) copyright expiration
D) monopolization
Answer: B
AACSB: Analytic skills; Dynamics of the global economy
Skill: Application
Objective: 5
Difficulty: Easy
17
62) Which of the following is an example of a trademark infringement?
A) manufacturers who sell different versions of their own products in different countries
B) manufacturers who sell counterfeit products under the names and logos of more famous
brands
C) a company which exports factory rejects to developing countries
D) a company which sells products at half the price of their competitors
Answer: B
Objective: 3
63) Which of the following functions does a copyright perform?

A) It protects the trade secrets of an organization, including its business plans.
B) It prevents a company from monopolizing an invention.
C) It distinguishes the product and manufacturers from competitors through distinct words and
symbols.
D) It give creators of original work the freedom to publish or dispose of them as they choose.
Answer: D
Skill: Concept
Objective: 3
Difficulty: Easy
64) Which of the following do governments impose upon people to help pay for the
consequences of using a particular product?
A) income taxes
B) consumption taxes
C) property taxes
D) value-added taxes
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
18
65) Product liability laws are those which ________.
A) provide consumers with a wide variety of products at fair prices
B) add value to a product throughout its production and distribution
C) protect people from defective products
D) define the taxation on locally manufactured products
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
66) Laws designed to prevent companies from fixing prices, sharing markets, and gaining unfair
monopoly advantages are called ________.
A) antitrust laws
B) theocratic laws
C) anarchist laws
D) bilateral laws
Answer: A
Skill: Concept
Objective: 3
Difficulty: Easy
67) ________ is the layer of corporate social responsibility whereby a corporation donates
money and, perhaps, employee time toward a specific social cause.
A) Risk management
B) Strategic CSR
C) Socialist CSR
D) Traditional philanthropy
Answer: D
Skill: Concept
Objective: 4
Difficulty: Easy
19
68) ________ is the layer of corporate social responsibility whereby a company develops a code
of conduct that it will follow in its global operations and agrees to operate with greater
transparency.
A) Strategic CSR
B) Risk management
C) Traditional philanthropy
D) Task orientation
Answer: B
Skill: Concept
Objective: 4
Difficulty: Easy
69) ________ is the layer of corporate social responsibility in which a business builds social
responsibility into its core operations to create value and build competitive advantage.
A) Risk management
B) Traditional philanthropy
C) Strategic CSR
D) Political polity
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
70) Horizon Ltd. is a software company that, over the last year, incorporated social responsibility
into its core operations to create value and build competitive advantage. Which layer of corporate
social responsibility does Horizon Ltd. function at?
A) risk management
B) traditional philanthropy
C) strategic CSR
D) political CSR
Answer: C
Skill: Application
Objective: 4
20
71) Which of the following philosophies maintains that a company's sole responsibility is to
maximize profits for its owners?
A) utilitarian view
B) righteous moralist view
C) Friedman view
D) cultural relativist view
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
72) The ________ view states that a company should adopt local ethics wherever it operates
because all belief systems are determined within a cultural context.
A) Friedman
B) cultural relativist
C) righteous moralist
D) utilitarian
Answer: B
Skill: Concept
Objective: 4
Difficulty: Easy
73) The ________ view says that a company should maintain its home-country ethics wherever it
operates because the home-country's view of ethics and responsibility is superior to others'
views.
A) Friedman
B) righteous moralist
C) cultural relativist
D) utilitarian
Answer: B
Skill: Concept
Objective: 4
Difficulty: Easy
21
74) Which of the following philosophies maintains that a company should maximize "good"
outcomes and minimize "bad" outcomes wherever it operates?
A) Friedman view
B) righteous moralist view
C) cultural relativist view
D) utilitarian view
Answer: D
Skill: Concept
Objective: 4
Difficulty: Easy
75) ________ is the environmental impact of greenhouse gases (measured in units of carbon
dioxide) that results from human activity.
A) Carbon footprint
B) Greenhouse log
C) Carbon cycle
D) Greenhouse check
Answer: A
Skill: Concept
Objective: 4
Difficulty: Easy
76) ________ measures the indirect carbon dioxide emissions from the whole life cycle of
products—from their manufacture to eventual breakdown.
A) Primary footprint
B) Secondary footprint
C) Tertiary footprint
D) Internalized footprint
Answer: B
Skill: Concept
Objective: 5
Difficulty: Easy
22
77) Which of the following does the secondary footprint measure?
A) the burning of fossil fuels
B) direct energy consumption
C) indirect carbon dioxide emissions
D) emissions caused by natural forces
Answer: C
Skill: Concept
Objective: 5
Difficulty: Easy
78) On a recent trip to Hong Kong, a group of tourists found several Prada bags being sold on the
pavement. They cost only a few dollars and were clearly fake; though they bore the Prada
trademark. This is an example of ________.
A) piracy
B) monopolization
C) ethnocentrism
D) nationalization
Answer: A
AACSB: Analytic skills
Skill: Application
Objective: 5
Scenario: Susan Goes Global with Grape Fizz

Susan is the CEO of Grape Fizz, a global drinks-manufacturing company. She wishes to set up
production facilities in other countries and has been advised to assess the political system of each
country before she does so.
79) Susan decides not to set up production facilities in Konesia because its business laws are
vague and are often interpreted according to the convenience of the government. Bribery is a
common feature in conducting business deals there and a refusal to pay up is not an option. What
kind of government does Konesia have?
A) democratic
B) theocratic
C) totalitarian
D) pluralist
Answer: C
Skill: Application
Objective: 1
Difficulty: Easy
23
80) Susan thinks that it would be easiest setting up production facilities in a country whose
government leaders are elected directly by the wide participation of the people or by their
representatives. Which of the following political systems should the country have?
A) anarchist
B) democratic
C) theocratic
D) facist
Answer: B
Skill: Application
Objective: 1
Difficulty: Easy
81) Susan also decides not to set up production facilities in Margazo, a country which functions
by a strict set of religious tenets, because some of them contradict her company's work policy.
Expecting potential employees to break away from these traditions is not an option since religion
plays an important role in the functioning of the nation. What kind of political system prevails in
Margazo ?
A) pluralistic
B) theocracy
C) tribal totalitarian
D) democracy
Answer: B
Skill: Application
Objective: 1
Difficulty: Easy
82) Susan is worried that San Tarino's demand that she must use locally available raw material
and employ local workers might interfere with the quality and efficiency of her business. San
Tarino, on the other hand, views this as a way to foster local business activity and lessen regional
unemployment. What are these laws called?
A) local content requirements
B) antitrust laws
C) nationalization laws
D) internalization policies
Answer: A
Skill: Application
Objective: 1
24
83) Susan finally settles upon Valmira because it has a stable business environment. Which of the
following factors, if true, proves her decision to be a good one?
A) Valmira does not enforce any product liability laws.
B) Valmira's legal system protects individual property rights satisfactorily.
C) The business laws of Valmira are flexible and can be interpreted according to the comfort of
government officials.
D) The government of Valmira does not allow the private sector to flourish.
Answer: B
Objective: 1
Difficulty: Hard
Scenario: Risky Business

Global Trading LLC is a distributor of computer software and hardware, steel and copper scrap,
and telephone equipment. Involved in three very different types of industries, the company faces
many types of risks in its global business.
84) Global Trading just learned that the government of one country in which it does business has
taken over the entire electric utility industry. The government's actions are an example of
________.
A) confiscation
B) globalization
C) expropriation
D) nationalization
Answer: D
Skill: Application
Objective: 2
Difficulty: Easy
85) Had the government taken over (with compensation) the assets of Global Trading but not
those of any other company, the government's actions would be an example of ________.
A) expropriation
B) nationalization
C) confiscation
D) communism
Answer: A
Skill: Application
Objective: 2
25
86) Had the government taken over the assets of Global Trading without compensation, and not
taken over the assets of any other company, the government's actions would be an example of
________.
A) expropriation
B) nationalization
C) confiscation
D) communism
Answer: C
Skill: Application
Objective: 2
Scenario: Common and Civil Law

Wayne's Computer Corporation is considering the possibility of building a new manufacturing
facility in a foreign country in order to lower labor and production costs. The legal department of
Wayne's has been evaluating Paribo and Kirawi—the two countries which are the top contenders
for the new facility—carefully.
87) Which of the following factors should the legal experts of Wayne's consider while evaluating
the legal systems of Paribo and Kirawi?
A) the profits made by local companies in the countries
B) the prevalence of crime in the two countries
C) the resolution of contractual dispute with local vendors
D) the profits made by international companies in other countries
Answer: C
Objective: 3
Difficulty: Hard
88) Which of the following statements is true of Kirawi, a democratic nation whose legal system
is based on common law?
A) The law is based on religious teachings and is enforced by the country's religious leaders.
B) The law is inflexible and is applied the same way in all situations.
C) The law is based on a detailed set of written rules that constitute a legal code.
D) The law is interpreted on the basis of tradition, precedent and usage.
Answer: D
Skill: Application
Objective: 3
Difficulty: Easy
26
89) Which of the following statements is true of Paribo, a democratic nation whose legal system
is based on civil law?
A) The law is based on religious teachings and is enforced by the country's religious leaders.
B) The law is flexible and its interpretations differ with situations.
C) The law is based on a detailed set of written rules that constitute a legal code.
D) The law is interpreted on the basis of tradition, precedent and usage.
Answer: C
Skill: Application
Objective: 3
Difficulty: Easy
90) Which of the following, if true, demonstrates that Kirawi has an unstable business
environment?
A) Its business laws are inflexible and cannot be intrepreted according to the comfort of
government officials.
B) Its government does not enforce product liability laws or protect individual property rights.
C) Its activities are bound by several multilateral agreements conducted with neighboring
countries.
D) Its private sector comprises independently owned firms that exist to make profits.
Answer: B
Objective: 3
Difficulty: Hard
91) Compare and contrast the world's three main political ideologies: anarchism, totalitarianism,
and pluralism.
Answer: Totalitarianism is the belief that every aspect of people's lives must be controlled for a
nation's political system to be effective. Totalitarianism disregards individual liberties and treats
people as slaves of the political system. The state reigns supreme over institutions such as family,
religion, business, and labor. Totalitarian political systems include authoritarian regimes such as
communism and fascism.
Anarchism is the belief that only individuals and private groups should control a nation's
political activities. An anarchist views public government as unnecessary and unwanted because
it tramples personal liberties.
Pluralism is the belief that both private and public groups play important roles in a nation's
political activities. Each group (consisting of people with different ethnic, racial, class, and
lifestyle backgrounds) serves to balance the power that can be gained by the other. Pluralistic
political systems include democracies, constitutional monarchies, and some aristocracies.
Skill: Concept
Objective: 1
Difficulty: Easy
27
92) Briefly explain each of the three main methods companies use to manage political risk.
Answer: International companies benefit from monitoring and attempting to predict political
changes that
can negatively affect their activities. When an international business opportunity arises in an
environment plagued by extremely high risk, simply not investing in the location may be the
wisest course of action. Yet when risk levels are moderate and the local market is attractive,
international companies find other ways to manage political risks, including:
1. ADAPTATION Adaptation means incorporating risk into business strategies, often with the
help of local officials. Companies can incorporate risk by means of four strategies:
Partnerships help companies leverage expansion plans. They can be informal arrangements or
include joint ventures, strategic alliances, and cross-holdings of company stock. Partnering helps
a company to share the risk of loss, which is especially important in emerging markets.
Localization entails modifying operations, the product mix, or some other business element—
even the company name—to suit local tastes and culture.
Development assistance lets an international business assist the host country or region in
improving the quality of life for locals.
Insurance against political risk can be essential to companies entering risky business
environments. The Overseas Private Investment Corporation insures U.S. companies that invest
abroad against loss and can provide project financing.
2. INFORMATION GATHERING International firms attempt to gather information that will

help them predict and manage political risk. Two sources that companies use to conduct accurate
political risk forecasting are Current Employees with Relevant Information and Agencies
Specializing in Political-Risk Services.
3. POLITICAL INFLUENCE Managers must work within the established rules and regulations
of each national business environment. Business law in most nations undergoes frequent change,
with new laws being enacted and existing ones modified. Influencing local politics means
dealing with local lawmakers and politicians directly or through lobbyists. Lobbying is the policy
of hiring people to represent a company's views on political matters. Bribes often represent
attempts to gain political influence.
Skill: Concept
Objective: 1, 2
Difficulty: Easy
28
93) Explain the three types of property seizure. Why might property seizure be a risk for a
business operating in a totalitarian nation?
Answer: Governments sometimes seize the assets of companies doing business within their
borders. Asset seizures fall into one of three categories: confiscation, expropriation, or
nationalization.
The forced transfer of assets from a company to the government without compensation is
called confiscation. Usually the former owners have no legal basis for requesting compensation
or the return of assets.
The forced transfer of assets from a company to the government with compensation is called
expropriation. The expropriating government normally determines the amount of compensation.
There is no framework for legal appeal, and compensation is typically far below market value.
Today, governments rarely resort to confiscation or expropriation because these acts can force
companies to leave the nation and can jeopardize future investment in the country.
Whereas expropriation involves one or several companies in an industry, nationalization

means government takeover of an entire industry. Nationalization is more common than
confiscation and expropriation. Likely candidates for nationalization include industries important
to a nation's security and those that generate large revenues. In recent years, Venezuela's
President Hugo Chavez nationalized that country's telephone, electricity, and oil industries and
threatened to nationalize many more. Businesses from other countries reacted to these moves by
not investing in Venezuela.
In general, a government may nationalize an industry to:

1. Use subsidies to protect an industry for ideological reasons.
2. Save local jobs in an ailing industry to gain political clout.
3. Control industry profits so they cannot be transferred to low-tax-rate countries.
4. Invest in sectors, such as public utilities, that private companies cannot afford.
The extent of nationalization varies widely from country to country. Whereas the governments of
Cuba, North Korea, and Vietnam control practically every industry, those of the United States
and Canada own very few. Many countries, including France, Mexico, Poland, and India, try to
strike a balance between government and private ownership.
Property seizure is a risk in a totalitarian nation because totalitarianism is the belief that every
aspect of people's lives must be controlled for a nation's political system to be effective.
Totalitarianism disregards individual liberties and treats people as slaves of the political system.
The state reigns supreme over institutions such as family, religion, business, and labor.
Totalitarian political systems include authoritarian regimes such as communism and fascism.
Totalitarian systems deny citizens the constitutional guarantees woven into the fabric of
democratic practice. They limit, abuse, or reject concepts such as freedom of expression,
periodically held elections, guaranteed civil and property rights.
29
AACSB: Reflective thinking skills
Skill: Synthesis
Objective: 2, 3
Difficulty: Hard
94) Explain each of the four means of incorporating risk into business strategies when companies
employ an adaptation strategy.
Answer: Adaptation means incorporating risk into business strategies, often with the help of
local officials. Companies can incorporate risk by means of four strategies:
1. Partnerships help companies leverage expansion plans. They can be informal arrangements or
a company to share the risk of loss, which is especially important in emerging markets. If
partners own shares (equity) in local operations, they get cuts of the profits; if they loan cash
(debt), they receive interest. Local partners who can help keep political forces from interrupting
operations include firms, trade unions, financial institutions, and government agencies.
2. Localization entails modifying operations, the product mix, or some other business element—
even the company name—to suit local tastes and culture.
3. Development assistance lets an international business assist the host country or region in
improving the quality of life for locals. For example, by helping to develop distribution and
communications networks, both a company and a nation benefit.
4. Insurance against political risk can be essential to companies entering risky business
abroad against loss and can provide project financing. Some policies protect companies when
local governments restrict the convertibility of local money into home-country currency, while
others insure against losses created by violent events, including war and terrorism. The Foreign
Credit Insurance Association also insures U.S. exporters against loss due to a variety of causes.
Skill: Concept
Objective: 2
Difficulty: Easy
30
95) Compare and contrast two prevalent political systems: totalitarianism and democracy, and
explain how a country's political system influences its legal system.
Answer: In a totalitarian system, individuals govern without the support of the people, tightly
control people's lives, and do not tolerate opposing viewpoints. Nazi Germany under Adolf Hitler
and the former Soviet Union under Joseph Stalin are historical examples of totalitarian
governments. Today, Myanmar and North Korea are prominent examples of totalitarian
governments. Totalitarian leaders attempt to silence those with opposing political views and,
therefore, require the near-total centralization of political power. But a "pure" form of
totalitarianism is not possible because no totalitarian government is capable of entirely silencing
all its critics.
A democracy is a political system in which government leaders are elected directly by the wide
participation of the people or by their representatives. Democracy differs from totalitarianism in
nearly every respect. The foundations of modern democracy go back at least as far as the ancient
Greeks. The Greeks tried to practice a pure democracy, one in which all citizens participate
freely and actively in the political process. But a pure democracy is more an ideal than a
workable system for several reasons. Some people have neither the time nor the desire to get
involved in the political process. Also, citizens are less able to participate completely and
actively as a population grows and as the barriers of distance and time increase. Finally, leaders
in a pure democracy may find it difficult or impossible to form cohesive policies because direct
voting can lead to conflicting popular opinion.
A country's political system also influences its legal system. Totalitarian governments tend to
favor public ownership of economic resources and enact laws limiting entrepreneurial behavior.
By contrast, democracies tend to encourage entrepreneurial activity and protect business with
strong property-rights laws. The rights and responsibilities of parties to business transactions also
differ from nation to nation. Political systems and legal systems, therefore, are naturally
interlocked. A country's political system inspires and endorses its legal system, and its legal
system legitimizes and supports its political system.
Skill: Synthesis
Objective: 1, 3
Difficulty: Hard
31
96) Describe the importance of a nation's legal system, and identify the main differences between
the three main types of legal systems.
Answer: A country's legal system is its set of laws and regulations, including the processes by
which its laws are enacted and enforced and the ways in which its courts hold parties accountable
for their actions. Many cultural factors—including ideas on social mobility, religion, and
individualism influence a nation's legal system. Likewise, many laws and regulations are enacted
to safeguard cultural values and beliefs.
Key characteristics of each type of legal system in use around the world (common law, civil law,
and theocratic law),include:
1. Common law: A common law legal system reflects three elements:

Tradition. A country's legal history
Precedent. Past cases that have come before the courts
Usage. How laws are applied in specific situations
Under common law, the justice system decides cases by interpreting the law on the basis of
tradition, precedent, and usage. Yet each law may be interpreted somewhat differently in each
case to which it is applied. In turn, each new interpretation sets a precedent that may be followed
in later cases. As new precedents arise, laws are altered to clarify vague wording or to
accommodate situations not previously considered.
2. A civil law system is based on a detailed set of written rules and statutes that constitute a legal
code. Civil law can be less adversarial than common law because there tends to be less need to
interpret what a particular law states. Because all laws are codified and concise, parties to
contracts tend to be more concerned only with the explicit wording of the code. All obligations,
responsibilities, and privileges follow directly from the relevant code. Less time and money are
typically spent, therefore, on legal matters.
3. Theocratic law: A legal tradition based on religious teachings is called theocratic law. Three
prominent theocratic legal systems are Islamic, Hindu, and Jewish law. Islamic law is the most
widely practiced theocratic legal system today. Islamic law was initially a code governing moral
and ethical behavior and was later extended to commercial transactions. It restricts the types of
investments companies can make and sets guidelines for business transactions.
Skill: Concept
Objective: 3
Difficulty: Easy
32
97) Explain the risk-management method of "adaptation." Why would it most likely be less
costly and time-consuming to pursue this method in a nation that practices civil law rather than
in a nation that practices common law?
Answer: Adaptation means incorporating risk into business strategies, often with the help of
local officials. Companies can incorporate risk by means of four strategies:
1. Partnerships help companies leverage expansion plans. They can be informal arrangements or
a company to share the risk of loss, which is especially important in emerging markets. If
partners own shares (equity) in local operations, they get cuts of the profits; if they loan cash
(debt), they receive interest. Local partners who can help keep political forces from interrupting
operations include firms, trade unions, financial institutions, and government agencies.
2. Localization entails modifying operations, the product mix, or some other business
element— even the company name— to suit local tastes and culture.
3. Development assistance lets an international business assist the host country or region in
improving the quality of life for locals. For example, by helping to develop distribution and
communications networks, both a company and a nation benefit.
4. Insurance against political risk can be essential to companies entering risky business
abroad against loss and can provide project financing. Some policies protect companies when
local governments restrict the convertibility of local money into home-country currency, while
others insure against losses created by violent events, including war and terrorism. The Foreign
Credit Insurance Association also insures U.S. exporters against loss due to a variety of causes.
Pursuing adaptation in a nation that practices civil law would most likely be less costly and time-
consuming because of the lack of room for arbitrary interpretation of the law. A civil law system
is based on a detailed set of written rules and statutes that constitute a legal code. Civil law can
be less adversarial than common law because there tends to be less need to interpret what a
particular law states. Because all laws are codified and concise, parties to contracts tend to be
more concerned only with the explicit wording of the code. All obligations, responsibilities, and
privileges follow directly from the relevant code. Less time and money are typically spent,
therefore, on legal matters.
AACSB: Multicultural and diversity understanding; Reflective thinking skills
Skill: Synthesis
Objective: 1, 2
33
98) Explain each of the following terms, giving examples of each: patent, trademark, and
copyright.
Answer: A patent is a right granted to the inventor of a product or process that excludes others
from making, using, or selling the invention. Patents can be sought for any invention that is new,
useful, and not obvious to any individual of ordinary skill in the relevant technical field. Patents
motivate companies to pursue inventions and make them available to consumers because they
protect investments companies make in research and development.
Trademarks are words or symbols that distinguish a product and its manufacturer. The Nike
"swoosh" is a trademark, as is the name "Lexus." Trademark law creates incentives for
manufacturers to invest in developing new products. It also benefits consumers because they
know what to expect when they buy a particular brand. In other words, you would not expect a
canned soft drink labeled "Coca-Cola" to taste like one labeled "Sprite."
Copyrights give creators of original works the freedom to publish or dispose of them as they
choose. A copyright is typically denoted by the well-known symbol ©, a date, and the copyright
holder's name. A copyright holder has the legal rights to:
Reproduce the copyrighted work

Derive new works from the copyrighted work
Sell or distribute copies of the copyrighted work
Perform the copyrighted work
Display the copyrighted work publicly
Copyright holders include artists, photographers, painters, literary authors, publishers, musical
composers, and software developers. Works created after January 1, 1978, are automatically
copyrighted for the creator's lifetime plus 50 years. Publishing houses receive copyrights for
either 75 years from the date of publication or 100 years after creation, whichever comes first.
Skill: Concept
Objective: 3
Difficulty: Easy
34
99) Explain the benefits and drawbacks of a value-added tax.
Answer: Many countries impose a value added tax (VAT)—a tax levied on each party that adds
value to a product throughout its production and distribution. The United States has not
previously implemented a VAT tax, but the nation's considerable debt level is causing speculation
that it may soon impose one. Supporters of the VAT system contend that it distributes taxes on
retail sales more evenly between producers and consumers. Consumers pay no additional tax at
the point of sale because the government has already collected taxes from each party in the value
chain. Still, consumers end up paying the tax because producers and distributors must increase
prices to compensate for their tax burdens. So the poor are not overly burdened, many countries
exclude the VAT on certain items such as children's clothing.
Skill: Concept
Objective: 3
Difficulty: Easy
100) Explain the purpose of antitrust laws. How would the Friedman philosophy of corporate
social responsibility most likely support a decision by a company to expand internationally into a
country with weak antitrust laws? Include a description of the Friedman philosophy in your
answer.
Answer: Laws designed to prevent companies from fixing prices, sharing markets, and gaining
unfair monopoly advantages are called antitrust (antimonopoly) laws. These laws try to provide
consumers with a wide variety of products at fair prices. The United States and European Union
are the world's strictest antitrust regulators. Companies based in strict antitrust countries often
argue that they are at a disadvantage against competitors whose home countries condone market
sharing, whereby competitors agree to serve only designated segments of a certain market. That
is why firms in strict antitrust countries often lobby for exemptions in certain international
transactions. Small businesses also argue that they could better compete against large
international companies if they could join forces without fear of violating antitrust laws.
In the absence of a global antitrust enforcement agency, international companies must concern
themselves with the antitrust laws of each nation where they do business. The Friedman
philosophy of corporate responsibility - named for its main supporter, the late economist Milton
Friedman - says that a company's sole responsibility is to maximize profits for its owners (or
shareholders) while operating within the law. If a company moved operations from a country
having strict antitrust laws to a country having no such laws, managers subscribing to the
Friedman philosophy would most likely applaud this decision. They would most likely argue that
the company is doing its duty to increase profits for owners and, moreover, is operating within
the law in the foreign country. Many people disagree with this argument against socially
responsible activities.
Skill: Synthesis
Objective: 3, 4
35
101) Describe the Foreign Corrupt Practices Act, and explain how it relates to corporate social
responsibility.
Answer: The Foreign Corrupt Practices Act forbids U.S. companies from bribing government
officials or political candidates in other nations (except when a person's life is in danger). A bribe
constitute "anything of value"— money, gifts, and so forth— and cannot be given to any "foreign
government official" empowered to make a "discretionary decision" that may be to the payer's
benefit. The law also requires firms to keep accounting records that reflect their international
activities and assets.
Bribery and corruption are corporate social responsibility issues. In certain countries, bribes are
routinely paid to distributors and retailers to push a firm's products through distribution channels.
Bribes can mean the difference between obtaining an important contract and being completely
shut out of a market. But corruption is detrimental to society and business. Among other things,
corruption can send resources toward inefficient uses, hurt economic development, distort public
policy, and damage national integrity. The Foreign Corrupt Practices Act addresses this issue by
making bribery illegal.
AACSB: Ethical understanding and reasoning abilities; Reflective thinking skills
Skill: Synthesis
Objective: 1, 2
Difficulty: Hard
36
102) Describe four corporate responsibility issues and explain how these issues can impact a
company's international relations.
Answer: Conscientious business leaders realize that the future of their companies rests on
healthy workforces and environments worldwide. The following are four issues of corporate
responsibility.
1. BRIBERY AND CORRUPTION Similar to other cultural and political elements, the
prevalence of corruption varies from nation to nation. In certain countries, bribes are routinely
paid to distributors and retailers to push a firm's products through distribution channels. Bribes
can mean the difference between obtaining an important contract and being completely shut out
of a market. But corruption is detrimental to society and business. Among other things,
corruption can send resources toward inefficient uses, hurt economic development, distort public
policy, and damage national integrity.
2. LABOR CONDITIONS AND HUMAN RIGHTS To fulfill their responsibilities to society,

companies are monitoring the actions of their own employees and the employees of companies
with whom they conduct business. Pressure from human rights activists drove conscientious
apparel companies to introduce codes of conduct and monitoring mechanisms for their
international suppliers.
3. FAIR TRADE PRACTICES Fair trade products are those that involve companies working
with suppliers in more equitable, meaningful, and sustainable ways. TransFair USA is the
nonprofit organization that independently certifies fair trade products. The Fair Trade model of
international trade benefits more than 1 million farmers and farm laborers in 58 developing
countries across Africa, Asia, and Latin America. Fair Trade products now include coffee, tea,
herbs, cocoa, chocolate, fruit, rice, sugar, flowers, honey, and spices. TransFair USA certifies that
a product meets criteria in the following categories: Fair Prices, Fair Labor Conditions, Direct
Trade, Democratic Community Development, and Environmental Sustainability.
4. ENVIRONMENT Concern for the environment and ecosystem is no longer left to government
agencies and nongovernmental organizations. Today companies pursue "green" initiatives to
reduce their toll on the environment and to reduce operating costs and boost profit margins.
These types of corporate responsibility issues have an impact on international relations because
they affect political relations. The political relations between a company's home country and the
nations in which it does business affect its international business activities. Favorable political
relationships foster stable business environments and increase international cooperation in many
areas, including the development of international communications and distribution
infrastructures. In turn, a stable environment requires a strong legal system through which
disputes can be resolved quickly and fairly. In general, favorable political relations lead to
increased business opportunities and lower risk.
Skill: Synthesis
Objective: 4, 5
37

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International Business: The Challenges of Globalization, 7e (Wild)

Chapter 3 Politics, Law, and Business Ethics

17) Totalitarian governments tend to favor private ownership of economic resources.

28) Totalitarian political systems include authoritarian regimes such as ________.

33) Which of the following is a characteristic of totalitarian governments?

40) What do communists and socialists have in common?

42) Which of the following terms is also used to refer to communism?

43) Which of the following is an advantage of conducting business in totalitarian nations?

46) Which of the following statements about representative democracies is true?

55) The U.S. legal system is largely based on ________.

58) A legal tradition based on religious teachings is called ________ law.

63) Which of the following functions does a copyright perform?

Scenario: Susan Goes Global with Grape Fizz

Scenario: Risky Business

Scenario: Common and Civil Law

2. INFORMATION GATHERING International firms attempt to gather information that will

Whereas expropriation involves one or several companies in an industry, nationalization

In general, a government may nationalize an industry to:

1. Common law: A common law legal system reflects three elements:

Reproduce the copyrighted work

2. LABOR CONDITIONS AND HUMAN RIGHTS To fulfill their responsibilities to society,

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