Download Chapter 01 Globalization

Chapter 01 - Globalization
Chapter 01
Globalization
True / False Questions
1. The notion that national economies are relatively self-contained entities is on the rise.
True False
2. The shift toward a more integrated and interdependent world economy is referred to as
globalization.
True False
3. The merging of historically distinct and separate markets into one huge global marketplace
is known as the globalization of markets.
True False
4. The majority of U.S. firms that export are large multinationals that employ 500 or more
people.
True False
5. The most global markets currently are markets for industrial goods and materials that serve
a universal need the world over.
True False
6. Outsourcing is a process that is limited to manufacturing enterprises.
True False
7. Because of their nature, service activities cannot be outsourced to other companies.
True False
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Chapter 01 - Globalization
8. One of the UN central mandates is the promotion of higher standards of living, full
employment, and conditions of economic and social progress and development.
True False
9. Underlying the trend towards greater globalization is technological change and a decline in
barriers to the free flow of goods, services, and capital.
True False
10. According to the United Nations most changes between 1992 and 2005 to laws governing
FDI have resulted in a less favorable environment for FDI.
True False
11. According to WTO data, the volume of world merchandise trade has grown faster than the
world economy since 1950.
True False
12. The expansion of world trade implies that nations are becoming less dependent on each
other for important goods and services.
True False
13. In the period 1950-1990, the world GDP showed a consistent decline as opposed to the
volume of exports.
True False
14. During the period 1990 - 2000, the volume of total exports was more than twice the world
GDP.
True False
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Chapter 01 - Globalization
15. Declining barriers to cross-border trade and investment cannot be taken for granted.
True False
16. The globalization of markets and production and the resulting growth of world trade,
foreign direct investment, and imports all imply that firms are finding their home markets
protected from foreign competitors.
True False
17. Moore's Law predicts that the power of microprocessor technology doubles and its cost of
production falls by half every 18 months.
True False
18. Efficiency gains associated with containerization have caused transportation costs to fall
dramatically.
True False
19. Today global communication networks and global media are creating a worldwide
culture.
True False
20. In the early 1960s, the United States was by far the world's dominant industrial power.
However by 2006, it lost its dominant position and now, is no longer the world's largest
industrial power.
True False
21. By 2008, the U.S. had seen its share of exports fall to almost half its share in the 1960s.
True False
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Chapter 01 - Globalization
22. According to forecasts, a further relative decline in the share of world output and world
exports accounted for by the United States and other long-established developed nations is
unlikely.
True False
23. A current trend in international business is the growth of medium-sized and small
multinationals, known as mini-multinationals.
True False
24. Today, the risks involved in doing business in countries such as Russia are low, but so are
the returns.
True False
25. If the free market reforms in China continue for two more decades, China may move from
Third World status to industrial superpower status even more rapidly than Japan did.
True False
26. Current trends indicate that the world is moving rapidly towards an economic system that
is more favorable for international business.
True False
27. Many economists, politicians, and business leaders believe that the shift toward a more
integrated and interdependent global economy is a positive trend.
True False
28. The antiglobalization effort is created and supported only by a small group of hard-core
anarchists.
True False
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Chapter 01 - Globalization
29. Studies have shown that wage rates for unskilled workers in many advanced economies
have fallen in recent years.
True False
30. Some critics argue that outsourcing has caused wage rates of poorer Americans to fall
significantly over the past quarter of a century.
True False
31. Recent evidence indicates that the solution to the problem of stagnant incomes among the
unskilled is to be found in increasing society's investment in education to reduce the supply of
unskilled workers.
True False
32. A source of concern of critics of free trade is that it usually encourages firms from
advanced countries to move manufacturing facilities to less developed countries that lack
adequate regulations to protect labor and the environment from abuse.
True False
33. According to supporters of free trade, as countries get richer they enact tougher
environmental and labor regulations.
True False
34. According to critics of globalization, today's interdependent global economy limits a
nation's national sovereignty.
True False
35. Critics of globalization suggest that over the last century, the gap between the rich and
poor nations of the world has shrunken.
True False
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Chapter 01 - Globalization
36. Debt continues to be a major burden for poorer nations as they strive to get ahead.
True False
37. Supporters of debt relief argue that new democratic governments in poor nations should
not be forced to honor debts that their corrupt and dictatorial predecessors incurred and
mismanaged long ago.
True False
38. An international business is any firm that engages in international trade or investment.
True False
39. The managers of an international business must decide whether it is ethical to adhere to
the lower labor and environmental standards found in many less developed nations.
True False
40. In general, managing an international business is a more complex task than managing a
business that serves only the local market.
True False
Multiple Choice Questions
41. Which of the following is not characteristic of globalization?
A. National economies are turning into independent economic systems.
B. Material culture is starting to look similar the world over.
C. Perceived distance is shrinking due to advances in transportation and telecommunications.
D. Barriers to cross-border trade and investment are declining.
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42. Globalization has _____ the opportunities for a firm to expand its revenues by selling
around the world and _____ its costs by producing in nations where key inputs are cheap.
A. reduced, reduced
B. increased, increased
C. increased, reduced
D. reduced, increased
43. Since the collapse of communism at the end of the 1980s, the erstwhile communist nations
have transformed their economies by encouraging all of the following except:
A. privatizing state-owned enterprises.
B. regulating markets.
C. increasing competition.
D. welcoming investment by foreign businesses.
44. Identify the incorrect statement concerning globalization.
A. It has been blamed for unemployment in developed nations, environmental degradation
and the Americanization of popular culture.
B. It has created new threats for businesses accustomed to dominating their domestic markets.
C. It is transforming industries and is highly welcomed by those who believed their jobs were
protected from foreign competition.
D. According to most economists it is a very beneficial process where gains outweigh the
losses by a wide margin.
45. In the U.S., _____ percent of firms that export are small companies employing fewer than
100 people.
A. 90
B. 75
C. 50
D. 30
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Chapter 01 - Globalization
46. The most global markets currently are markets for:
A. services.
B. consumer goods.
C. consumer durables.
D. industrial goods.
47. Which of the following is not an impediment that makes it difficult for firms to achieve
the optimal dispersion of their productive activities to locations around the globe?
A. Reduced transportation costs.
B. Government regulations.
C. Issues associated with economic and political risk.
D. Barriers to foreign direct investment.
48. The ______ 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 member states.
A. International Development Association
B. World Bank
C. International Court of justice
D. World Trade Organization
49. The _____ was created in 1944 by 44 nations that met in Breton Woods, New Hampshire
to promote economic development.
A. World Bank
B. International Trade Center
C. World Trade Organization
D. United Nations
50. The institution, created in 1944 at Bretton Woods, responsible for maintaining order in the
international monetary system is the
A. IMF.
B. WTO.
C. UN.
D. UNESCO.
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Chapter 01 - Globalization
51. _____ occur(s) when a firm exports goods or services to consumers in another country.
A. International trade
B. Foreign direct investment
C. Inward investment
D. Merger and acquisitions
52. The _____ was established to remove barriers to the free flow of goods, services, and
capital between nations.
A. UN
B. IMF
C. GATT
D. IDA
53. At the Doha Round of the WTO in late 2001,
A. the WTO was established.
B. GATT was extended to include services.
C. world trade volume increased.
D. an agenda was established to phase out subsidies to agricultural producers.
54. The reduction in the average tariff rates on manufactured products since 1950 implies all
of the following except that
A. firms are dispersing parts of their production process to global locations to drive down
production costs and increase product quality.
B. the economies of the world's nation states are becoming more intertwined.
C. nations are becoming increasingly independent of each other for important goods and
services.
D. the world has become significantly wealthier since 1950.
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Chapter 01 - Globalization
55. The growing integration of the world economy is:
A. increasing the intensity of competition in a wide range of manufacturing and service
industries.
B. decreasing the intensity of competition in manufacturing industries, and increasing the
intensity of competition in services.
C. increasing the intensity of competition in manufacturing industries, and decreasing the
intensity of competition in services.
D. narrowing the scope of competition in a wide range of service, commodity, and
manufacturing industries.
56. Which of the following statements regarding cross-border trade and investment is not
true?
A. "Protection" from foreign competitors has been, at times, demanded by the United States.
B. Forecasts indicate a return to the restrictive trade policies of the 1920s and 30s.
C. If trade barriers decline no further they will put a brake upon the globalization of both
markets and production.
D. It is not clear whether the political majority in the industrialized world favors further
reductions in trade barriers.
57. Identify the incorrect statement pertaining to the World Wide Web.
A. It makes it much easier for buyers and sellers to find each other.
B. Viewed globally, it is emerging as an equalizer.
C. It rolls back all of the constraints of location, scale, and time zones.
D. It allows businesses to expand their global presence at a lower cost than ever before.
58. Since 1980, the world's containership fleet has more than _____, reflecting in part the
growing volume of international trade.
A. doubled
B. tripled
C. quadrupled
D. quintupled
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Chapter 01 - Globalization
59. Technological innovations have facilitated all of the following except:
A. globalization of production.
B. globalization of markets.
C. creation of electronic global marketplaces.
D. creation of absolutely homogeneous consumer markets.
60. 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.
61. Which of the following nation's world output has declined the least over the last 40 years?
A. France
B. United States
C. United Kingdom
D. Canada
62. Which of the following countries has had the maximum relative decline in its share of
world output since 1963?
A. Canada
B. United States
C. Japan
D. Germany
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Chapter 01 - Globalization
63. Which of the following statements pertaining to the changing demographics of world
GDP and trade from 1963 to 2006 is not true?
A. As emerging economies continue to grow, a relative decline in the share of world output
and world exports accounted for by the U.S. seems unlikely.
B. Forecasts predict a rapid rise in the share of world output accounted for by some
developing nations.
C. A decline in the share enjoyed by rich industrialized countries such as Great Britain,
Germany, Japan, and the U.S. is likely.
D. If current trends continue, the Chinese economy could be larger than that of the U.S. on a
purchasing power parity basis.
64. According to World Bank numbers,
A. developing nations currently account for more than 60 percent of world economic activity.
B. rich nations currently account for more than 70 percent of world economic activity.
C. today's rich nations may account for 55 percent of world economic activity by 2020.
D. today's developing nations may account for more than 60 percent of world economic
activity by 2020.
65. In the 1970s, many Japanese firms invested in North America and Europe
A. to avoid a highly competitive domestic market.
B. to exploit high domestic tariff barriers.
C. as a hedge against unfavorable currency movements.
D. to take advantage of low labor costs.
66. What is the total cumulative value of foreign investments best referred to as?
A. Accumulation of foreign shares
B. Portfolio investments
C. Stock of foreign direct investments
D. Stock market investments
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Chapter 01 - Globalization
67. The share of the total FDI stock accounted for by which of the following countries
increased markedly from 1980 to 2005?
A. United States
B. France
C. United Kingdom
D. Netherlands
68. Firms based in _____ accounted for 14.7 percent of the stock of foreign direct investment
in 2007, up from only 1.1 percent in 1980.
A. Asia
B. developing countries
C. United Kingdom
D. NAFTA region
69. Which of these statements pertaining to cross-border FDI flows is true?
A. The growth of FDI resumed in 2004 and continued through 2006.
B. A surge in FDI from 1995 to 1997 was followed by a slump from 1998 to 2000.
C. Among developing nations, the largest recipient of FDI has been Russia.
D. The dramatic increase in FDI reflects the decreasing internationalization of business
corporations.
70. Which of the following countries has been the largest recipient of foreign direct
investment and received about $70 billion a year in inflows in 2005 and 2006?
A. Brazil
B. Russia
C. India
D. China
71. By 2006 some 24 of the world's 100 largest non-financial multinationals were:
A. Chinese enterprises.
B. British enterprises.
C. U.S. enterprises.
D. Japanese enterprises.
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72. Identify the incorrect statement regarding the former Communist nations of Europe and
Asia.
A. The economies of most of the former Communist states are very strong and developed.
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.
73. Which of the following observations concerning Latin American countries is true?
A. Complete restrictions on direct investment by foreign firms.
B. Characterized by low growth, high debt, and hyperinflation.
C. Debt and inflation are up compared to previous decades.
D. Substantial opportunities exist, but are accompanied by substantial risks.
74. Which of the following statement pertaining to changes in the global economy of the 21st
century is not true?
A. Barriers to the free flow of goods, services, and capital have been coming down.
B. Volume of cross-border trade and investment has been growing more rapidly than global
output.
C. National economies are becoming more independent and moving away from the global
economic system.
D. As economies advance, more nations are joining the ranks of the developed world.
75. Which of the following does not help create an economic system that is favorable to
international business?
A. Decreased privatization
B. Widespread deregulation
C. Open markets
D. Falling trade and investment barriers
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Chapter 01 - Globalization
76. When a company "exports jobs" overseas, the company is:
A. helping domestic workers by pushing up wage rates.
B. increasing the demand of qualified domestic workers.
C. taking advantage of lower wages in foreign markets.
D. deceiving the supporters of globalization.
77. If the critics of globalization are correct, all of the following things must be shown
except:
A. the share of national income received by labor, as opposed to the share received by the
owners of capital should have declined in advanced nations.
B. even though labor's share of the economic pie may have declined, living standards need not
deteriorate if the size of the total pie has increased sufficiently to offset the decline in labor's
share.
C. the decline in labor's share of national income must be due to moving production to lowwage countries, as opposed to improving production technology and productivity.
D. economic growth in developed nations has offset the fall in unskilled workers' share of
national income, raising their living standards.
78. A study by the OECD, whose members include the 20 richest economies in the world,
noted all of the following except:
A. the gap between the poorest and richest segments of society in some OECD countries
widened.
B. in almost all countries real income levels rose over the 20-year period studied.
C. falling unemployment rates brought gains to low-wage workers and fairly broad-based
wage growth.
D. the gap between rich and poor had narrowed in all OECD countries.
79. Critics of globalization maintain that the apparent decline in real wage rates of unskilled
workers
A. owes far more to a technology-induced shift within advanced economies toward jobs that
require significant education and skills.
B. is due to the migration of low-wage manufacturing jobs offshore and a corresponding
reduction in demand for unskilled workers.
C. has been impacted most by technological change.
D. can be checked by increasing society's investment in education to reduce the supply of
unskilled workers.
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Chapter 01 - Globalization
80. Before NAFTA was passed
A. Mexico agreed to establish a higher minimum wage.
B. the U.S. agreed to limit the number of jobs that could be exported to Mexico.
C. Mexico committed to tougher enforcement of environmental protection regulations.
D. Canada committed to establish new limits of FDI.
Essay Questions
81. With the help of an example discuss the characteristics of globalization.
82. Define globalization and discuss it has changed the business environment?
83. Explain what is meant by the globalization of markets. Provide an example. What are the
most global markets?
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Chapter 01 - Globalization
84. Discuss the concept of the globalization of production.
85. What is the World Trade Organization? What is its role in the world economy?
86. What is the International Monetary Fund? What is the World Bank? What is their
relationship, if any, with each other?
87. Explain how a company competes using outsourcing. Provide an example.
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Chapter 01 - Globalization
88. Explain the trends in world trade and foreign direct investment over the last half century.
89. How has technological change affected global markets? What key innovations have
changed the nature of how "we do business?"
90. Explain the notion of the Web emerging as an equalizer.
91. Innovations in transportation have had a major impact on global trade. Consider one of
these innovations: containerization. Why is this innovation so significant?
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Chapter 01 - Globalization
92. Discuss the demographics of world trade since the 1960s. How has the role of the U.S.
changed? How is world trade expected to change in the future?
93. How has the foreign direct investment picture changed since the 1960s?
94. What is a multinational enterprise (MNE)? How does a mini-multinational differ from an
MNE?
95. Many companies are keeping their eyes on China. Why is China so important to
international business?
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Chapter 01 - Globalization
96. Consider the global economy of the 21st century. What important changes are taking
place? What do these changes mean for international companies?
97. Consider whether the shift toward a more integrated and interdependent global economy
is a good thing. Discuss the shift from the eyes of the consumer, the worker, the company, and
the environmentalist.
98. Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the events
were important to the future of global trade.
99. Falling barriers to international trade destroy manufacturing jobs in wealthy advanced
economies. Discuss this statement. Do you agree? Why or why not?
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Chapter 01 - Globalization
100. Discuss the effect of globalization on national sovereignty.
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Chapter 01 - Globalization
Chapter 01 Globalization Answer Key
True / False Questions
1. (p. 4) The notion that national economies are relatively self-contained entities is on the rise.
FALSE
We are moving away from a world in which national economies were relatively selfcontained entities.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
2. (p. 6) The shift toward a more integrated and interdependent world economy is referred to as
globalization.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-1
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Chapter 01 - Globalization
3. (p. 6) The merging of historically distinct and separate markets into one huge global
marketplace is known as the globalization of markets.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-1
4. (p. 6) The majority of U.S. firms that export are large multinationals that employ 500 or more
people.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-1
5. (p. 11) The most global markets currently are markets for industrial goods and materials that
serve a universal need the world over.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
6. (p. 8) Outsourcing is a process that is limited to manufacturing enterprises.
FALSE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-1
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Chapter 01 - Globalization
7. (p. 8) Because of their nature, service activities cannot be outsourced to other companies.
FALSE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-1
8. (p. 11) One of the UN central mandates is the promotion of higher standards of living, full
employment, and conditions of economic and social progress and development.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
9. (p. 11) Underlying the trend towards greater globalization is technological change and a
decline in barriers to the free flow of goods, services, and capital.
TRUE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-2
10. (p. 12) According to the United Nations most changes between 1992 and 2005 to laws
governing FDI have resulted in a less favorable environment for FDI.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
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Chapter 01 - Globalization
11. (p. 12) According to WTO data, the volume of world merchandise trade has grown faster
than the world economy since 1950.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
12. (p. 12) The expansion of world trade implies that nations are becoming less dependent on
each other for important goods and services.
FALSE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-2
13. (p. 13) In the period 1950-1990, the world GDP showed a consistent decline as opposed to
the volume of exports.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
14. (p. 12) During the period 1990 - 2000, the volume of total exports was more than twice the
world GDP.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
1-25
Chapter 01 - Globalization
15. (p. 14) Declining barriers to cross-border trade and investment cannot be taken for granted.
TRUE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-2
16. (p. 13) The globalization of markets and production and the resulting growth of world trade,
foreign direct investment, and imports all imply that firms are finding their home markets
protected from foreign competitors.
FALSE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-2
17. (p. 14) Moore's Law predicts that the power of microprocessor technology doubles and its
cost of production falls by half every 18 months.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
18. (p. 15) Efficiency gains associated with containerization have caused transportation costs to
fall dramatically.
TRUE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-2
1-26
Chapter 01 - Globalization
19. (p. 16) Today global communication networks and global media are creating a worldwide
culture.
TRUE
AACSB: Technology
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
20. (p. 16) In the early 1960s, the United States was by far the world's dominant industrial
power. However by 2006, it lost its dominant position and now, is no longer the world's
largest industrial power.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
21. (p. 17) By 2008, the U.S. had seen its share of exports fall to almost half its share in the
1960s.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
22. (p. 17) According to forecasts, a further relative decline in the share of world output and
world exports accounted for by the United States and other long-established developed
nations is unlikely.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
1-27
Chapter 01 - Globalization
23. (p. 21) A current trend in international business is the growth of medium-sized and small
multinationals, known as mini-multinationals.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
24. (p. 23) Today, the risks involved in doing business in countries such as Russia are low, but
so are the returns.
FALSE
AACSB: Analytic
Bloom's: Application
Difficulty: Medium
Learning Objective: 01-3
25. (p. 23) If the free market reforms in China continue for two more decades, China may move
from Third World status to industrial superpower status even more rapidly than Japan did.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
26. (p. 24) Current trends indicate that the world is moving rapidly towards an economic system
that is more favorable for international business.
TRUE
AACSB: Reflective Thinking
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
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Chapter 01 - Globalization
27. (p. 24) Many economists, politicians, and business leaders believe that the shift toward a
more integrated and interdependent global economy is a positive trend.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-4
28. (p. 26) The antiglobalization effort is created and supported only by a small group of hardcore anarchists.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-4
29. (p. 28) Studies have shown that wage rates for unskilled workers in many advanced
economies have fallen in recent years.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
30. (p. 26) Some critics argue that outsourcing has caused wage rates of poorer Americans to fall
significantly over the past quarter of a century.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-4
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Chapter 01 - Globalization
31. (p. 29) Recent evidence indicates that the solution to the problem of stagnant incomes
among the unskilled is to be found in increasing society's investment in education to reduce
the supply of unskilled workers.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-4
32. (p. 29) A source of concern of critics of free trade is that it usually encourages firms from
advanced countries to move manufacturing facilities to less developed countries that lack
adequate regulations to protect labor and the environment from abuse.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-4
33. (p. 29) According to supporters of free trade, as countries get richer they enact tougher
environmental and labor regulations.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-4
34. (p. 31) According to critics of globalization, today's interdependent global economy limits a
nation's national sovereignty.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Hard
Learning Objective: 01-4
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Chapter 01 - Globalization
35. (p. 31) Critics of globalization suggest that over the last century, the gap between the rich
and poor nations of the world has shrunken.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-4
36. (p. 32) Debt continues to be a major burden for poorer nations as they strive to get ahead.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-4
37. (p. 32) Supporters of debt relief argue that new democratic governments in poor nations
should not be forced to honor debts that their corrupt and dictatorial predecessors incurred and
mismanaged long ago.
TRUE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Hard
Learning Objective: 01-4
38. (p. 33) An international business is any firm that engages in international trade or
investment.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-5
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Chapter 01 - Globalization
39. (p. 33) The managers of an international business must decide whether it is ethical to adhere
to the lower labor and environmental standards found in many less developed nations.
TRUE
AACSB: Reflective Thinking
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-5
40. (p. 33) In general, managing an international business is a more complex task than managing
a business that serves only the local market.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-5
Multiple Choice Questions
41. (p. 4) Which of the following is not characteristic of globalization?
A. National economies are turning into independent economic systems.
B. Material culture is starting to look similar the world over.
C. Perceived distance is shrinking due to advances in transportation and telecommunications.
D. Barriers to cross-border trade and investment are declining.
We have been moving away from a world in which national economies were relatively selfcontained entities. And we are moving toward a world in which barriers to cross-border trade
and investment are declining.
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-1
1-32
Chapter 01 - Globalization
42. (p. 4) Globalization has _____ the opportunities for a firm to expand its revenues by selling
around the world and _____ its costs by producing in nations where key inputs are cheap.
A. reduced, reduced
B. increased, increased
C. increased, reduced
D. reduced, increased
The global expansion of enterprises has been facilitated by favorable political and economic
trends.
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-1
43. (p. 5) Since the collapse of communism at the end of the 1980s, the erstwhile communist
nations have transformed their economies by encouraging all of the following except:
A. privatizing state-owned enterprises.
B. regulating markets.
C. increasing competition.
D. welcoming investment by foreign businesses.
Since the collapse of communism at the end of the 1980s, the pendulum of public policy in
nation after nation has swung toward the free market end of the economic spectrum. This has
allowed businesses both large and small, from both advanced nations and developing nations,
to expand internationally.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-33
Chapter 01 - Globalization
44. (p. 5) Identify the incorrect statement concerning globalization.
A. It has been blamed for unemployment in developed nations, environmental degradation
and the Americanization of popular culture.
B. It has created new threats for businesses accustomed to dominating their domestic markets.
C. It is transforming industries and is highly welcomed by those who believed their jobs were
protected from foreign competition.
D. According to most economists it is a very beneficial process where gains outweigh the
losses by a wide margin.
As globalization unfolds, it is transforming industries and creating anxiety among those who
believed their jobs were protected from foreign competition.
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 01-1
45. (p. 6) In the U.S., _____ percent of firms that export are small companies employing fewer
than 100 people.
A. 90
B. 75
C. 50
D. 30
Nearly 90 percent of firms that export are small businesses employing less than 100 people,
and their share of total U.S. exports has grown steadily over the last decade to now exceed 20
percent.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-34
Chapter 01 - Globalization
46. (p. 6) The most global markets currently are markets for:
A. services.
B. consumer goods.
C. consumer durables.
D. industrial goods.
The most global markets currently are not markets for consumer products—where national
differences in tastes and preferences are still often important enough to act as a brake on
globalization—but markets for industrial goods and materials that serve a universal need the
world over.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
47. (p. 9) Which of the following is not an impediment that makes it difficult for firms to
achieve the optimal dispersion of their productive activities to locations around the globe?
A. Reduced transportation costs.
B. Government regulations.
C. Issues associated with economic and political risk.
D. Barriers to foreign direct investment.
Substantial impediments still make it difficult for firms to achieve the optimal dispersion of
their productive activities to locations around the globe. These impediments include formal
and informal barriers to trade between countries, barriers to foreign direct investment,
transportation costs, and issues associated with economic and political risk.
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-1
1-35
Chapter 01 - Globalization
48. (p. 9) The ______ 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 member states.
A. International Development Association
B. World Bank
C. International Court of justice
D. World Trade Organization
As of 2009, 153 nations that collectively accounted for 97 percent of world trade were WTO
members, thereby giving the organization enormous scope and influence. The WTO is also
responsible for facilitating the establishment of additional multinational agreements between
WTO member states.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-1
49. (p. 10) The _____ was created in 1944 by 44 nations that met in Breton Woods, New
Hampshire to promote economic development.
A. World Bank
B. International Trade Center
C. World Trade Organization
D. United Nations
The World Bank has focused on making low-interest loans to cash-strapped governments in
poor nations that wish to undertake significant infrastructure investments.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-1
1-36
Chapter 01 - Globalization
50. (p. 10) The institution, created in 1944 at Bretton Woods, responsible for maintaining order
in the international monetary system is the
A. IMF.
B. WTO.
C. UN.
D. UNESCO.
The IMF is often seen as the lender of last resort to nation-states whose economies are in
turmoil and currencies are losing value against those of other nations.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-1
51. (p. 11) _____ occur(s) when a firm exports goods or services to consumers in another
country.
A. International trade
B. Foreign direct investment
C. Inward investment
D. Merger and acquisitions
Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 01-2
1-37
Chapter 01 - Globalization
52. (p. 11) The _____ was established to remove barriers to the free flow of goods, services, and
capital between nations.
A. UN
B. IMF
C. GATT
D. IDA
Under the umbrella of GATT, eight rounds of negotiations among member states (now
numbering 153) have worked to lower barriers to the free flow of goods and services. The
most recent round of negotiations to be completed, known as the Uruguay Round, were
finalized in December 1993.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-2
53. (p. 12) At the Doha Round of the WTO in late 2001,
A. the WTO was established.
B. GATT was extended to include services.
C. world trade volume increased.
D. an agenda was established to phase out subsidies to agricultural producers.
The Doha agenda includes cutting tariffs on industrial goods, services, and agricultural
products; phasing out subsidies to agricultural producers; reducing barriers to cross-border
investment; and limiting the use of antidumping laws.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-2
1-38
Chapter 01 - Globalization
54. (p. 13) The reduction in the average tariff rates on manufactured products since 1950 implies
all of the following except that
A. firms are dispersing parts of their production process to global locations to drive down
production costs and increase product quality.
B. the economies of the world's nation states are becoming more intertwined.
C. nations are becoming increasingly independent of each other for important goods and
services.
D. the world has become significantly wealthier since 1950.
As trade expands, nations are becoming increasingly dependent on each other for important
goods and services.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
55. (p. 13) The growing integration of the world economy is:
A. increasing the intensity of competition in a wide range of manufacturing and service
industries.
B. decreasing the intensity of competition in manufacturing industries, and increasing the
intensity of competition in services.
C. increasing the intensity of competition in manufacturing industries, and decreasing the
intensity of competition in services.
D. narrowing the scope of competition in a wide range of service, commodity, and
manufacturing industries.
The growing integration of the world economy into a single, huge marketplace is increasing
the intensity of competition in a range of manufacturing and service industries.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-2
1-39
Chapter 01 - Globalization
56. (p. 14) Which of the following statements regarding cross-border trade and investment is not
true?
A. "Protection" from foreign competitors has been, at times, demanded by the United States.
B. Forecasts indicate a return to the restrictive trade policies of the 1920s and 30s.
C. If trade barriers decline no further they will put a brake upon the globalization of both
markets and production.
D. It is not clear whether the political majority in the industrialized world favors further
reductions in trade barriers.
Although a return to the restrictive trade policies of the 1920s and 30s is unlikely, it is not
clear whether the political majority in the industrialized world favors further reductions in
trade barriers.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-2
57. (p. 14) Identify the incorrect statement pertaining to the World Wide Web.
A. It makes it much easier for buyers and sellers to find each other.
B. Viewed globally, it is emerging as an equalizer.
C. It rolls back all of the constraints of location, scale, and time zones.
D. It allows businesses to expand their global presence at a lower cost than ever before.
It rolls back some of the constraints of location, scale, and time zones. The Web makes it
much easier for buyers and sellers to find each other, wherever they may be located and
whatever their size. It allows businesses, both small and large, to expand their global presence
at a lower cost than ever before.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
1-40
Chapter 01 - Globalization
58. (p. 15) Since 1980, the world's containership fleet has more than _____, reflecting in part the
growing volume of international trade.
A. doubled
B. tripled
C. quadrupled
D. quintupled
As a result of the efficiency gains associated with containerization, transportation costs have
plummeted, making it much more economical to ship goods around the globe, thereby helping
to drive the globalization of markets and production.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
59. (p. 16) Technological innovations have facilitated all of the following except:
A. globalization of production.
B. globalization of markets.
C. creation of electronic global marketplaces.
D. creation of absolutely homogeneous consumer markets.
While modern communication and transportation technologies are ushering in the "global
village," significant national differences remain in culture, consumer preferences, and
business practices.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-2
1-41
Chapter 01 - Globalization
60. (p. 16) 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.
In 1963 the United States accounted for 40.3 percent of world economic activity, measured by
Gross Domestic Product (GDP). By 2008, the United States accounted for 20.7 percent of
world GDP, still the world's largest industrial power but down significantly in relative size
since the 1960s.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
61. (p. 17) Which of the following nation's world output has declined the least over the last 40
years?
A. France
B. United States
C. United Kingdom
D. Canada
Table 1.2: The Changing Demographics of World GDP and Trade
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
1-42
Chapter 01 - Globalization
62. (p. 17) Which of the following countries has had the maximum relative decline in its share
of world output since 1963?
A. Canada
B. United States
C. Japan
D. Germany
Table 1.2: The Changing Demographics of World GDP and Trade
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
63. (p. 17) Which of the following statements pertaining to the changing demographics of world
GDP and trade from 1963 to 2006 is not true?
A. As emerging economies continue to grow, a relative decline in the share of world output
and world exports accounted for by the U.S. seems unlikely.
B. Forecasts predict a rapid rise in the share of world output accounted for by some
developing nations.
C. A decline in the share enjoyed by rich industrialized countries such as Great Britain,
Germany, Japan, and the U.S. is likely.
D. If current trends continue, the Chinese economy could be larger than that of the U.S. on a
purchasing power parity basis.
As emerging economies such as China, India, and Brazil continue to grow, a further relative
decline in the share of world output and world exports accounted for by the United States and
other long-established developed nations seems likely.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
1-43
Chapter 01 - Globalization
64. (p. 17) According to World Bank numbers,
A. developing nations currently account for more than 60 percent of world economic activity.
B. rich nations currently account for more than 70 percent of world economic activity.
C. today's rich nations may account for 55 percent of world economic activity by 2020.
D. today's developing nations may account for more than 60 percent of world economic
activity by 2020.
The World Bank has estimated that today's developing nations may account for more than 60
percent of world economic activity by 2020, while today's rich nations, which currently
account for more than 55 percent of world economic activity, may account for only about 38
percent.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
65. (p. 19) In the 1970s, many Japanese firms invested in North America and Europe
A. to avoid a highly competitive domestic market.
B. to exploit high domestic tariff barriers.
C. as a hedge against unfavorable currency movements.
D. to take advantage of low labor costs.
Beginning 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. In addition, many Japanese firms invested in North America and Europe—often
as a hedge against unfavorable currency movements and the possible imposition of trade
barriers.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-44
Chapter 01 - Globalization
66. (p. 19) What is the total cumulative value of foreign investments best referred to as?
A. Accumulation of foreign shares
B. Portfolio investments
C. Stock of foreign direct investments
D. Stock market investments
The stock of foreign direct investment refers to the total cumulative value of foreign
investments.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-3
67. (p. 19) The share of the total FDI stock accounted for by which of the following countries
increased markedly from 1980 to 2005?
A. United States
B. France
C. United Kingdom
D. Netherlands
The share of the total stock accounted for by U.S. firms declined from about 38 percent in
1980 to 17.9 percent in 2007. Meanwhile, the shares accounted for by France and the world's
developing nations increased markedly.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
1-45
Chapter 01 - Globalization
68. (p. 19) Firms based in _____ accounted for 14.7 percent of the stock of foreign direct
investment in 2007, up from only 1.1 percent in 1980.
A. Asia
B. developing countries
C. United Kingdom
D. NAFTA region
Firms based in Hong Kong, South Korea, Singapore, Taiwan, India and mainland China
accounted for much of this investment.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
69. (p. 20) Which of these statements pertaining to cross-border FDI flows is true?
A. The growth of FDI resumed in 2004 and continued through 2006.
B. A surge in FDI from 1995 to 1997 was followed by a slump from 1998 to 2000.
C. Among developing nations, the largest recipient of FDI has been Russia.
D. The dramatic increase in FDI reflects the decreasing internationalization of business
corporations.
A surge in foreign direct investment from 1998 to 2000 was followed by a slump from 2001
to 2003. Among developing nations, the largest recipient of foreign direct investment has
been China. Throughout the 1990s, the amount of investment directed at both developed and
developing nations increased dramatically, a trend that reflects the increasing
internationalization of business corporations.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
1-46
Chapter 01 - Globalization
70. (p. 20) Which of the following countries has been the largest recipient of foreign direct
investment and received about $70 billion a year in inflows in 2005 and 2006?
A. Brazil
B. Russia
C. India
D. China
Among developing nations, the largest recipient of foreign direct investment has been China,
which in 2004-2008 received $60-$90 billion a year in inflows.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
71. (p. 21) By 2006 some 24 of the world's 100 largest non-financial multinationals were:
A. Chinese enterprises.
B. British enterprises.
C. U.S. enterprises.
D. Japanese enterprises.
By 2006 things had shifted significantly. Some 24 of the world's 100 largest non-financial
multinationals were U.S. enterprises; 13 were French; 12, German; 12, British; and 9,
Japanese. The globalization of the world economy has resulted in a relative decline in the
dominance of U.S. firms in the global marketplace.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
1-47
Chapter 01 - Globalization
72. (p. 23) Identify the incorrect statement regarding the former Communist nations of Europe
and Asia.
A. The economies of most of the former Communist states are very strong and developed.
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.
The economies of many of the former Communist states are still relatively undeveloped, and
their continued commitment to democracy and free market economics cannot be taken for
granted.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
73. (p. 23) Which of the following observations concerning Latin American countries is true?
A. Complete restrictions on direct investment by foreign firms.
B. Characterized by low growth, high debt, and hyperinflation.
C. Debt and inflation are up compared to previous decades.
D. Substantial opportunities exist, but are accompanied by substantial risks.
Throughout most of Latin America, debt and inflation are down, governments have sold stateowned enterprises to private investors, foreign investment is welcomed, and the region's
economies have expanded. These changes have increased the attractiveness of Latin America,
both as a market for exports and as a site for foreign direct investment.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
1-48
Chapter 01 - Globalization
74. (p. 24) Which of the following statement pertaining to changes in the global economy of the
21st century is not true?
A. Barriers to the free flow of goods, services, and capital have been coming down.
B. Volume of cross-border trade and investment has been growing more rapidly than global
output.
C. National economies are becoming more independent and moving away from the global
economic system.
D. As economies advance, more nations are joining the ranks of the developed world.
The volume of cross-border trade and investment has been growing more rapidly than global
output, indicating that national economies are becoming more closely integrated into a single,
interdependent, global economic system.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-3
75. (p. 24) Which of the following does not help create an economic system that is favorable to
international business?
A. Decreased privatization
B. Widespread deregulation
C. Open markets
D. Falling trade and investment barriers
In keeping with the normative prescriptions of liberal economic ideology, in country after
country we have seen state-owned businesses privatized, widespread deregulation adopted,
markets opened to more competition, and commitment increased to removing barriers to
cross-border trade and investment.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-3
1-49
Chapter 01 - Globalization
76. (p. 26) When a company "exports jobs" overseas, the company is:
A. helping domestic workers by pushing up wage rates.
B. increasing the demand of qualified domestic workers.
C. taking advantage of lower wages in foreign markets.
D. deceiving the supporters of globalization.
CNN news anchor Lou Dobbs has been running TV shows that are highly critical of the trend
by American companies to take advantage of globalization and "export jobs" overseas. As the
world slipped into a recession in 2008, Dobbs stepped up his anti globalization rhetoric.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
77. (p. 28) If the critics of globalization are correct, all of the following things must be shown
except:
A. the share of national income received by labor, as opposed to the share received by the
owners of capital should have declined in advanced nations.
B. even though labor's share of the economic pie may have declined, living standards need not
deteriorate if the size of the total pie has increased sufficiently to offset the decline in labor's
share.
C. the decline in labor's share of national income must be due to moving production to lowwage countries, as opposed to improving production technology and productivity.
D. economic growth in developed nations has offset the fall in unskilled workers' share of
national income, raising their living standards.
This is the position argued by supporters of globalization.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-4
1-50
Chapter 01 - Globalization
78. (p. 28) A study by the OECD, whose members include the 20 richest economies in the
world, noted all of the following except:
A. the gap between the poorest and richest segments of society in some OECD countries
widened.
B. in almost all countries real income levels rose over the 20-year period studied.
C. falling unemployment rates brought gains to low-wage workers and fairly broad-based
wage growth.
D. the gap between rich and poor had narrowed in all OECD countries.
A study by the Organization for Economic Cooperation and Development, whose members
include the 20 richest economies in the world, noted that while the gap between the poorest
and richest segments of society in some OECD countries had widened, this trend was by no
means universal.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-4
79. (p. 29) Critics of globalization maintain that the apparent decline in real wage rates of
unskilled workers
A. owes far more to a technology-induced shift within advanced economies toward jobs that
require significant education and skills.
B. is due to the migration of low-wage manufacturing jobs offshore and a corresponding
reduction in demand for unskilled workers.
C. has been impacted most by technological change.
D. can be checked by increasing society's investment in education to reduce the supply of
unskilled workers.
Supporters of globalization maintain that the apparent decline in real wage rates of unskilled
workers owes far more to a technology-induced shift within advanced economies away from
jobs where the only qualification was a willingness to turn up for work every day and toward
jobs that require significant education and skills.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-4
1-51
Chapter 01 - Globalization
80. (p. 29) Before NAFTA was passed
A. Mexico agreed to establish a higher minimum wage.
B. the U.S. agreed to limit the number of jobs that could be exported to Mexico.
C. Mexico committed to tougher enforcement of environmental protection regulations.
D. Canada committed to establish new limits of FDI.
Supporters of free trade point out that it is possible to tie free trade agreements to the
implementation of tougher environmental and labor laws in less developed countries.
NAFTA, for example, was passed only after side agreements had been negotiated that
committed Mexico to tougher enforcement of environmental protection regulations.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
Essay Questions
81. (p. 4) With the help of an example discuss the characteristics of globalization.
Globalization refers to a fundamental shift in the world economy in which national economies
are no longer relatively self-contained entities. Instead, nations are moving toward an
interdependent global economic system. Within this new global economy, an American might
drive to work in a car designed in Germany that was assembled in Mexico by
DaimlerChrysler from components made in the U.S. and Japan that were fabricated from
Korean steel and Malaysian rubber. A company does not have to be the size of these
multinational giants to facilitate, and benefit from, the globalization of markets.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-52
Chapter 01 - Globalization
82. (p. 4-5) Define globalization and discuss it has changed the business environment?
Globalization has created many opportunities for businesses to expand their revenues by
selling around the world while at the same time reducing their costs by producing in nations
where labor and other inputs are cheap. However, globalization has also produced new threats
for companies in the form of increased competition.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
83. (p. 6-7) Explain what is meant by the globalization of markets. Provide an example. What
are the most global markets?
The globalization of markets refers to the idea that historically distinct and separate national
markets are merging into a single, huge global marketplace. For example, Coca-Cola,
Starbucks, and McDonald's offer the same basic product worldwide, and are in fact, not only a
part of the trend, but facilitators of the trend as well. The most global markets are not actually
for consumer goods, but instead are for industrial goods and materials that serve the same
needs across the world.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
84. (p. 7-9) Discuss the concept of the globalization of production.
The globalization of production refers to the sourcing of goods and services from locations
around the world to take advantage of national differences in the cost and quality of factors of
production. Companies that capitalize on this trend are able to outsource production to the
best suppliers in the world, and should therefore end up with a better final product.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-53
Chapter 01 - Globalization
85. (p. 9-10) What is the World Trade Organization? What is its role in the world economy?
The World Trade Organization (WTO) 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 members. The WTO currently has 148 members that collectively account for 97 percent
of world trade. The WTO has been instrumental in lowering barriers to cross-border trade and
investment. In addition to these responsibilities, the WTO also facilitates the establishment of
additional agreements between member states.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
86. (p. 10) What is the International Monetary Fund? What is the World Bank? What is their
relationship, if any, with each other?
The International Monetary Fund (IMF) was created to maintain order in the international
monetary system. The World Bank was established to promote economic development. Both
organizations were launched as part of the 1944 Bretton Woods Agreement, and have
emerged as significant players in the global economy. The IMF is often seen as the lender of
last resort to nation-states whose economies are in turmoil and currencies are losing value
against those of other nations.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-54
Chapter 01 - Globalization
87. (p. 12) Explain how a company competes using outsourcing. Provide an example.
Companies compete by outsourcing manufacturing activities to the optimal location wherever
in the world that may be; given production and transportation costs. Thus, a firm might design
a product in one country, produce component parts in two other countries, assemble the
product in yet another country, and then export the finished product around the world. IBM
for example, designed a laptop computer in the U.S., outsourced production of the case,
keyboard, and hard drive to Thailand, produced the display screen and memory in South
Korea, the wireless card in Malaysia, and the microprocessor in the U.S. The final product
was assembled in Mexico, and was then exported to the U.S. for sale.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
88. (p. 13-14) Explain the trends in world trade and foreign direct investment over the last half
century.
Since 1950, the volume of world merchandise trade has grown faster than the world economy.
In particular, there has been acceleration in world trade since 1980. This trade and investment
pattern implies that firms are dispersing parts of their production to different locations around
the world to drive down production costs and increase product quality, that the economies of
the world's nation states are becoming more intertwined, that foreign direct investment is
playing an increasing role in the global economy as firms increase their cross-border
investments, and that the world has become significantly wealthier over the last 50 years.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-2
1-55
Chapter 01 - Globalization
89. (p. 14) How has technological change affected global markets? What key innovations have
changed the nature of how "we do business?"
Major advances in communication, information processing, and transportation technology
have facilitated the globalization of markets and production. The microprocessor and the
Internet have been central to the technology explosion. The development of the
microprocessor vastly increased the amount of information that can be processed by
individuals and firms, and the growth of the Internet has allowed companies to expand their
global presence at a fraction of the cost of more traditional methods of business.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
90. (p. 14) Explain the notion of the Web emerging as an equalizer.
In 1990, fewer than one million users were connected to the Internet. By May 2009 the
Internet had 1.6 billion users. For companies, the Web is emerging as an equalizer as it
minimizes the constraints of location, scale, and time zones. Using the Internet, buyers and
sellers can find each other regardless of location, allowing businesses, both large and small,
the opportunity to expand their global presence at a lower cost than ever before.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-2
1-56
Chapter 01 - Globalization
91. (p. 14-15) Innovations in transportation have had a major impact on global trade. Consider
one of these innovations: containerization. Why is this innovation so significant?
Containerization has revolutionized the transportation business, significantly lowering the
costs of shipping goods over long distances. Emerging in the 1970s and 1980s,
containerization spelled an end to the costly and lengthy business of loading and unloading
ships, trucks, and trains. Cost savings associated with containerization are significant.
Between 1920 and 1990, average ocean freight and port charges per ton fell from $95 to $29.
Air transportation saw a similar decline, as did trucking.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-2
92. (p. 16-18) Discuss the demographics of world trade since the 1960s. How has the role of the
U.S. changed? How is world trade expected to change in the future?
In the early1960s, the U.S. was the world's dominant industrial power accounting for over 40
percent of world output. By 2008, the United States accounted for 20.7 percent of world GDP,
still the world's largest industrial power but down significantly in relative size since the
1960s. Other industrialized countries also saw their relative standing slip. Taking their place
as active exporters are the newly industrializing countries of South Korea and China. Most
forecasts predict that the share of world output accounted for by developing countries such as
China, India, and Mexico will rise over the next 20 years, while at the same time rich
industrialized countries will continue to see their share of world output decline.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
1-57
Chapter 01 - Globalization
93. (p. 18-20) How has the foreign direct investment picture changed since the 1960s?
The U.S. accounted for about two-thirds of worldwide foreign direct investment flows in the
1960s, followed by British firms with about 10 percent of FDI flows, and Japanese firms with
2 percent. As barriers to trade fell, non-U.S. firms increased their investments around the
world in search of optimal production locations and a direct presence in major markets.
During the 1990s, FDI to both developed and developing nations increased dramatically.
China also emerged as an important destination for FDI.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
94. (p. 20-21) What is a multinational enterprise (MNE)? How does a mini-multinational differ
from an MNE?
A multinational enterprise is any business that has productive activities in two or more
countries. In the1960s nearly half of the world's 260 largest MNEs were American. By 2006,
some 24 of the world's 100 largest non-financial multinationals were now U.S. enterprises.
Firms from developing countries are expected to emerge as important competitors in the
world economy. The number of mini-multinationals is also on the rise. Mini-multinationals
are medium-sized and small MNEs.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 01-3
1-58
Chapter 01 - Globalization
95. (p. 23) Many companies are keeping their eyes on China. Why is China so important to
international business?
International companies are excited about China because with its 1.3 billion people it
represents a huge, and largely untapped market for goods and services. Companies are so
interested in its potential that FDI to China surged between 1983 and 2004, going from less
than $2 billion in 1983 to $70 billion in 2006. However, while China remains a very attractive
market, companies must beware of the competition that is beginning to emerge from the
country.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
96. (p. 24) Consider the global economy of the 21st century. What important changes are taking
place? What do these changes mean for international companies?
The last 25 years have been a time of great change in the global economy. Barriers to the free
flow of goods, services, and capital have been falling, national economies are becoming more
integrated, and more countries are joining the ranks of the developed world. All of these
changes point toward an economic system that is more favorable for international business.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-3
1-59
Chapter 01 - Globalization
97. (p. 24-31) Consider whether the shift toward a more integrated and interdependent global
economy is a good thing. Discuss the shift from the eyes of the consumer, the worker, the
company, and the environmentalist.
There are many advantages of globalization. From a broad perspective, globalization creates
economic activity (which stimulates economic growth), creates jobs, raises income levels, and
provides consumers with more choices in regard to the products and services that are
available to them. From the perspective of an individual firm, globalization has the potential
to increase revenues (through expanded market potential), drive down costs (through
additional economies of scale), and boost profits.
However, critics argue that globalization destroys manufacturing jobs in wealthy countries
and contributes to pollution. 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. Critics also argue that globalization encourages firms from
advanced nations to move manufacturing facilities offshore to less developed countries to
avoid the more stringent pollution controls in place in their home countries.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 01-4
98. (p. 25-26) Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the
events were important to the future of global trade.
In December 1999, more than 40,000 protesters blocked the streets of Seattle in an effort to
shut down a WTO meeting being held in the city. The issue was job losses in industries under
attack from foreign competitors, falling wage rates of unskilled workers, environmental
degradations, and cultural imperialism of global media and MNEs. Protesters believed that all
of these issues were the result of globalization, and felt that the WTO, as a promoter of
globalization, was a legitimate target for blame. The protest was a violent one and
emboldened by the experience its experience, antiglobalization protesters now turn up at
almost every major meeting of a global institution.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-4
1-60
Chapter 01 - Globalization
99. (p. 26-29) Falling barriers to international trade destroy manufacturing jobs in wealthy
advanced economies. Discuss this statement. Do you agree? Why or why not?
Critics argue that falling trade barriers allow firms to move manufacturing activities to
countries where wage rates are much lower. Because of such moves they argue that, the wage
rates of poorer Americans have fallen significantly over the past quarter of a century.
Supporters of globalization reply that critics of these trends miss the essential point about free
trade—the benefits outweigh the costs. They 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.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
100. (p. 31) Discuss the effect of globalization on national sovereignty.
Critics of globalization argue that today's increasingly interdependent global economy shifts
economic power away from national governments and toward supranational organizations.
They feel that unelected bureaucrats now impose policies on the democratically elected
governments of nation-states, thereby undermining the sovereignty of those states and
limiting the nation's ability to control its own destiny.
In contrast many economists and politicians maintain that the power of supranational
organizations is limited to what nation-states collectively agree to grant. They argue that these
bodies exist to serve the collective interests of member states, not to subvert those interests.
Supporters of supranational organizations point out that the power of these bodies rests
largely on their ability to persuade member states to follow a certain action. In this view, real
power still resides with individual nation-states, not supranational organizations.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 01-1
1-61