Chap 006

Chapter 06 - The Political Environment: A Critical Concern
Chapter 06 The Political Environment: A Critical Concern
True / False Questions 1. (p. 162) Companies that have thoroughly studied political considerations before constructing their business models do not have to concern themselves with the political environment when attempting to do business abroad. FALSE
Difficulty: Easy Type: Comprehension
2. (p. 162) International law recognizes the sovereign right of a nation to grant or withhold permission to do business within its political boundaries and to control where its citizens conduct business. TRUE
Difficulty: Moderate Type: Knowledge
3. (p. 162) Sovereignty refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members. TRUE
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4. (p. 162) Adherence to World Trade Organization (WTO) rules means a loss of sovereignty to its member nations. TRUE
Difficulty: Moderate Type: Comprehension
5. (p. 163) At the top of the list of political issues concerning foreign businesses is the issue of taxation and tariffs. FALSE
Difficulty: Hard Type: Comprehension
6. (p. 163) According to the text if China raised the value of its currency that would make it even easier for Chinese firms and government to purchase American companies. TRUE
7. (p. 165) Saudi Arabia permits women to vote if they are at least 18 years old and married or 21 years old, if single. FALSE
8. (p. 165) The three forms of government are dictatorship, aristocracy, and democracy. TRUE
Difficulty: Moderate Type: Application
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9. (p. 167) Knowledge of the philosophies of all major political parties within a country is important to international marketers. TRUE
10. (p. 167) Socialism can best be described as an intense feeling of national pride and unity, an awakening of a nation's people to pride in their country. FALSE
Difficulty: Easy Type: Knowledge
11. (p. 170) Foreign investors, while sometimes feared as a dominant tyrant threatening economic development, are often sought after as a source of needed capital investment. TRUE
12. (p. 169-170) Foreign companies are usually not affected by changes in nationalistic feelings in the countries where they operate. FALSE
13. (p. 169) A good illustration of nationalistic feelings that can cause riffs between allies is the one that occurred between France and the United States over the Iraq/U.S. war. TRUE
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14. (p. 169) Three hot issues in 2008 were the undervalued Chinese currency, the ban on beef imports into Japan, and Chinese subsidies in apparent violation of WHO rules. TRUE
15. (p. 169) Confiscation (as a political risk) is the seizing of a company's assets without payment. TRUE
16. (p. 169) Expropriation occurs when a host country gradually cause the transfer of foreign investment to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company's management. FALSE
Difficulty: Hard Type: Knowledge
17. (p. 170) Exchange controls stem from shortages of foreign exchange held by a country. TRUE
18. (p. 171) As an example of what are called local-content laws NAFTA requires 62 percent local content for all cars coming from member countries. TRUE
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19. (p. 171) Taxes are always considered as a political risk by foreign and domestic investors. FALSE
20. (p. 172) Political sanctions have proved to be a sure-fire method of controlling outlaw nations. FALSE
21. (p. 172) Political and social activists (PSAs) and nongovernmental organizations (NGOs) almost always interrupt the normal flow of trade. FALSE
22. (p. 174) Nongovernment organizations (NGOs) sometimes use foreign companies and their personnel as pawns in domestic disputes. FALSE
23. (p. 173) The newest form of terrorism is called information terrorism because it prevents Third World countries from receiving information. FALSE
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24. (p. 174-175) The authors state that there is reason to believe that international warfare is fast becoming obsolete. TRUE
25. (p. 176) A good illustration of a product class that is likely to be politically sensitive is one that has an impact on exchange rates. TRUE
26. (p. 179) Relationships between governments and multinational corporations (MNCs) are generally positive if the investment contributes to the welfare of political leaders. FALSE
27. (p. 180) One of the methods for reducing political vulnerability and risk is to license products, services, or technology. TRUE
28. (p. 180) Planned domestication is a policy that rarely has a positive impact on political vulnerability or risk. FALSE
Multiple Choice Questions
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29. (p. 162) When the United States and the European Union get into trade disputes, where do both sides go to settle the matter? A. The United Nations B. The World Court C. The Organization of American States D. The World Trade Organization E. The North Atlantic Treaty Organization
30. (p. 161, Global Perspective) When the World Trade Organization attempted to settle what was called a "banana war," what was the outcome? A. The European Union won and received payments from the United States. B. The matter was declared a draw. C. Both sides in the matter were instructed to cease and desist. D. The WTO ruled in favor of the United States, however, the EU ignored the ruling. E. The WTO ruled in favor of the United States and the matter was ended.
Difficulty: Hard Type: Application
31. (p. 162) In the context of international law, a _____________ state is independent and free from all external control. A. bounded B. sovereign C. legal D. free-born E. neutral
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32. (p. 162) A sovereign state, in the context of international law, has all of the following characteristics EXCEPT: A. is obligated to be a member of the United Nations. B. is independent. C. enjoys full legal equality with other states. D. governs its own territory. E. is free from all external control.
33. (p. 162) __________ refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members. A. Sovereignty B. Government C. A cartel D. An international partnership E. A trade pact
34. (p. 164) The ideal political climate for a multinational firm is: A. a country where there are no laws. B. a country where favors can be purchased cheaply. C. a stable, friendly government. D. a government where absolute power is a reality. E. an authoritarian government that can be dealt with through non-legal channels.
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35. (p. 164) At the top of the list of political issues concerning foreign businesses is the: A. ruling party of a country. B. the political history of a country. C. the voting process of a country. D. the court system of a country. E. the stability or instability of prevailing government policies.
36. (p. 165) The five main causes of instability in international markets include trade disputes and all of the following EXCEPT: A. some forms of government seem to be inherently unstable B. changes in political parties C. nationalism D. U.S. domestic political policies E. animosity targeted toward specific countries
37. (p. 163) The proposed purchase of Unocal by the Chinese national oil company was opposed by the U.S. __________. A. because the offer was unrealistically low B. as retaliation for not allowing similar purchases in China by American firms C. because Germany had proposal a high offer D. as a threat to United States' soverignty E. because China could divert oil from Unocal to China
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38. (p. 165) The only country that precludes women from voting and appears to be still completely in the dark ages with regards to suffrage. A. Croatia B. Iran C. Bolivia D. Saudi Arabia E. Venezuela
39. (p. 165-166) Which of the following is NOT one of the common forms of government? A. democracy B. aristocracy C. oligopoly D. monarchy E. dictatorship
40. (p. 164) The election of Vicente Fox as President of Mexico was an example of: A. overthrowing a corrupt regime. B. peaceful political change. C. U.S. interference in international politics. D. cultural adjustment to global expectations. E. corrupt national election.
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41. (p. 166-167) For most countries around the world it is important for international marketers to know the philosophies of all the major political parties, since one them might become dominant and affect: A. the status of WTO control. B. the overall business climate. C. global warming. D. international support for the United Nations. E. liberal or conservative.
42. (p. 167) An intense feeling of national pride and unity, an awakening of a nation's people to pride in their country is called: A. socialism. B. communism. C. fascism. D. nationalism. E. polarism.
43. (p. 167) The phrase "Buy American" would most closely be associated with which of the following? A. Socialism B. Jingoism C. Nationalism D. Mercantilism E. Polarism
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44. (p. 169) No nation-state will tolerate penetration by a foreign company into its market if it perceives a(n) ______________ its well-being. A. sympathy for B. synergistic relationship to C. economic boost D. threat to E. profitable outcome
45. (p. 169) With respect to political risk that can be faced by a company seeking to invest abroad, which of the following presents the most severe political risk? A. confiscation B. expropriation C. domestication D. exchange controls E. local-content laws
46. (p. 169) The seizing of a company's assets without payment is called: A. confiscation. B. expropriation. C. domestication. D. exchange controls. E. local-content laws.
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47. (p. 169) When a government seizes an investment of a foreign investor but some reimbursement for the assets is made, the government is following a process called: A. confiscation. B. expropriation. C. domestication. D. exchange controls. E. local-content laws.
48. (p. 169) Often an expropriated investment becomes ____________ (i.e., it becomes a government-run entity). A. democratized B. domesticated C. nationalized D. prioritized E. socialized
Difficulty: Easy Type: Application
49. (p. 169-170) _____________ occurs when host countries gradually cause the transfer of foreign investment to national control and ownership through a series of government decrees by mandating ownership and greater national involvement in a company's management. A. Confiscation B. Expropriation C. Domestication D. Exchange controls E. Local-content laws
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50. (p. 169-170) The government in Chile recently informed Clint Travis' company that his retail grocery chain in Chile would have to be gradually turned over to the people of Chile by the year 2050. Additionally, starting next year fifty percent of the board of directors of the Chilean operation must be Chileans. Which of the following political risk actions is Mr. Travis facing in Chile? A. Confiscation B. Expropriation C. Domestication D. Nationalism E. Dictatorship
51. (p. 170) The national telephone company in Mexico was privatized; this meant that the Mexican government sold its operation to _________________. A. investors B. regional state regulatory groups. C. democrats D. outsourcers. E. foreigners.
52. (p. 170-171) All of the following are considered to be economic risks that can be faced by international companies EXCEPT: A. exchange controls. B. local-content laws. C. import restrictions. D. tax controls. E. production costs.
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53. (p. 170) If there is a substantial amount of capital leaving the country, the country is likely to implement which of the following to control the situation? A. exchange controls B. local-content laws C. import restrictions D. tax controls E. price controls
54. (p. 170) In Thailand, it is required that any milk sold in the country must contain at least 50 percent milk from Thai dairy farmers. This would be an illustration of which of the following economic risks faced by international producers of milk? A. exchange controls B. local-content laws C. import restrictions D. tax controls E. price controls
55. (p. 171) When Toyota Motor Company built automobile manufacturing plants in Tennessee and Ohio, it faced economic risks associated with _____________. This occurred because the United States required that 50 percent of all parts used in an automobile constructed in the United States must contain parts that were manufactured in the United States. The United States wanted to promote it "Buy American" policy. A. exchange controls. B. local-content laws. C. import restrictions. D. tax controls. E. price controls.
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56. (p. 171) Since the government of Nigeria is strapped for cash, it has decided to tax all foreign investments (such as oil production equipment) by up to forty percent of appraised value. The Nigerian government has found that this is the handiest and quickest means of finding operating funds. This form of economic risk is associated with which of the following? A. exchange controls B. local-content laws C. import restrictions D. tax controls E. price controls
57. (p. 171) In North Korea there is little foreign investment. One of the reasons is the severe application of ________________. Any foreign investor or producer is required to sell its products at prices stated by the North Korean government rather than letting market value and demand determine prices. A. exchange controls B. local-content laws C. import restrictions D. tax controls E. price controls
58. (p. 172) Stopping or refusing to trade with another nation for political reasons is called: A. activism. B. boycotting. C. confiscation. D. democratization. E. expropriation.
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59. (p. 172) Which of the following statements most accurately describes the impact of boycotts? A. In general, these policies normally control and rectify situations that caused the boycotts. B. Boycotts are generally not very successful. C. Boycotts are illegal. D. The United Nations encourages boycotts as a means of settling a dispute as opposed to armed conflict. E. Boycotts are least effective against consumer goods.
60. (p. 173) Crossing Borders 6.2 "Trade Does Not Work as a Stick, Only as a Carrot" suggests: A. Thomas Jefferson understood how to get the French and English to stop fighting. B. The U.S. was able to get the Soviet Union out of Afghanistan by boycotting the Moscow Olympics. C. The U.S. needs to increase its embargo against Myanmar. D. Coercion does not work, exchange does. E. Industrial goods trade is less successful than consumer goods trade.
61. (p. 174) Which of the following would NOT be the best illustration of a NGO (nongovernmental organization) group? A. Red Crescent B. Red Cross C. Amnesty International D. Oxfam E. FedEx
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62. (p. 174) Which of the following is NOT a common goal of terrorists? A. Use victims as pawns in political or social disputes. B. Develop military management capability. C. Inflict fear within a country. D. To generate funds E. To embarrass a government.
63. (p. 174) Why do terrorism experts predict multinational businesses will be targeted by terrorists more frequently? A. They are rich and they are powerful. B. They are capitalists and what they sell. C. They are less well defended and what they symbolize. D. They are destroy the environment. E. They are subterfuge for espionage agents.
64. (p. 174) __________ is fast becoming obsolete; the greater threats to peace are civil strife and terrorism. A. International warfare B. Print media C. Patriotism D. International prejudice E. Religion
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65. (p. 175) The newest form of terrorism directed toward a peaceful world is: A. germ warfare. B. nuclear warfare. C. cyberterrorism. D. hate crimes. E. extortion.
66. (p. 176) Slammer, Melissa, and "Goner worm" are all examples of: A. viruses damaging the Internet B. politically sensitive products C. third-world diseases. D. hackers intent on attacking multinational businesses. E. new video games espousing Internet crime.
67. (p. 177) Although some products are more vulnerable than others with regard to political sensitivity in foreign markets, ______________ have often been the lightning rods for groups opposed to foreign companies. A. grocery chains B. Wal-Mart stores C. fast-food restaurants D. clothing stores E. travel agencies
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68. (p. 176) Some products and issues are more politically sensitive in international trade than others. Which of the following would likely be LEAST the politically sensitive? A. the environment. B. exchange rates. C. national and economic security. D. space travel. E. publicly visible assets.
69. (p. 177) Brian is attempting to forecast political instability and help management identify and evaluate political events and their potential influence on current and future international business decisions. Brian is engaged in: A. political risk assessment. B. political security. C. democratization. D. risk abatement. E. quantification of risk.
70. (p. 179) Relations between governments and multinational corporations are generally positive if: A. products impact national security. B. products are only directed toward the consumer sector. C. products are only directed toward the business sector. D. products can be purchased via the Internet. E. the investment makes tax contributions.
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71. (p. 179) Relations between governments and multinational corporations are generally positive if investments: A. are tied to national security. B. are only oriented toward the consumer sector. C. are under $1 million. D. create jobs. E. do not involve extensive Internet business.
72. (p. 179) Relations between governments and multinational corporations are generally positive if investments do all of the following EXCEPT: A. transfers capital, technology, or skills. B. creates jobs. C. makes tax contributions. D. uses locally produced resources. E. is tied to national security.
73. (p. 179) Juliet is concerned with the potential for political harassment when her company enters a new international market. To reduce the risk of political harassment she will consider using _______________ to enter the market. A. importing B. sole-proprietorships C. multinational corporations D. joint ventures E. all of the above are equal with respect to political harassment
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74. (p. 179-181) All of the following would be considered to be strategies that multinational corporations can use to minimize vulnerability and risk EXCEPT: A. joint ventures. B. sole-proprietorship. C. expanding the investment base. D. planned domestication. E. licensing.
75. (p. 180) Which of the following strategies minimizes political risks for the multinational corporation that wishes to expand into overseas markets? A. joint ventures B. licensing C. expanding the investment base D. planned domestication E. multi-facilities
76. (p. 179-181) All of the following strategies can be effective in forestalling or minimizing the effect of a total takeover of a multinational corporation's holdings by a foreign government EXCEPT: A. joint ventures. B. licensing. C. expanding the investment base. D. advertising. E. planned domestication.
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77. (p. 180) The most effective solution to a situation where a foreign government is demanding local participation in a multinational corporation's business activities in the host country is: A. joint ventures. B. licensing. C. expanding the investment base. D. planned domestication. E. political payoffs.
78. (p. 181) Which of the following best describes the U.S. government's policy toward multinational corporations that are confronted with situations where bribery is an issue? A. A bribe may be paid as long as it is not a domestic situation. B. A bribe is justified is if is the documented traditional practice in a country. C. A bribe may be paid in a foreign country if there is a tie to national security. D. It is illegal for a U.S. citizen to pay a bribe--period. E. The issue revolves around the customs of the country and each issue is decided separately.
79. (p. 181) The most important reason to encourage foreign investment is to: A. accelerate world peace. B. accelerate the development of an economy. C. accelerate the development of the Internet. D. stall the effects of communism and socialism. E. make profits.
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80. (p. 181) A cynical way to look at the motivation behind corporate social responsibility in general is its use as a __________ with foreign publics and governments. A. deception tool B. public relations image C. marketing ploy D. positioning guise E. bargaining chip
81. (p. 182) The principle U.S. agency that supports U.S. business abroad is the: A. State Department. B. Better Business Bureau. C. Department of Commerce. D. Department of Foreign Relations. E. Department of Defense.
Fill in the Blank Questions 82. (p. 162) The term __________ refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members. sovereignty
83. (p. 164) At the top of the list of political issues concerning foreign businesses is the ___________ of prevailing government policies. stability (instability)
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84. (p. 163) Foreign investment can be perceived as a threat to __________. sovereignty
85. (p. 165) __________ is the only country that appears to be still completely in the dark ages with regards to suffrage. Saudi Arabia
86. (p. 165) Socioeconomic and political change are sometimes caused by a surge in ________________. nationalistic pride
87. (p. 167) ___________ can best be described as an intense feeling of national pride and unity, an awakening of a nation's people to pride in their country. Nationalism
88. (p. 167) Feelings of ___________ are expressed in a variety of ways such as a call to "buy our country's products only" or "Buy American." nationalism
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89. (p. 169) ___________ is the seizing of a company's assets without payment. Confiscation
90. (p. 169) __________ occurs when a government seizes an investment but some reimbursement for the assets is made. Expropriation
91. (p. 169) When host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company's management, _____________ has occurred. domestication
92. (p. 170) _________ controls stem from shortages of foreign exchange held by a country. Exchange
93. (p. 170) __________________ laws require any product sold within a country to contain at least some locally made parts. Local-content
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94. (p. 171) _________ may be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation of formal agreements. Taxes
95. (p. 172) When country initiates a _________________ it stops all trade between itself and another country. boycott
96. (p. 172) Greenpeace actions to bring attention to environmental issues are an illustration of an organization that would be labeled as a __________ (PSA). political and social activist
97. (p. 175-176) A virus which overload websites with a flood of electronic messages is considered to be a form of terrorism called _______________. cyberterrorism
98. (p. 175) According to the text, the greater threats to peace and commerce for the 21st Century remain __________ and __________. civil strife; terrorism
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99. (p. 180) Many companies engage in _______________, lobbying and other efforts to avoid potential political risks in countries where they do business. political bargaining
100. (p. 179) A ____________ with locals helps to minimize anti-MNC feelings and limit financial exposure. joint venture
101. (p. 180) A ______________ strategy minimizes or eliminates almost all risks international marketing risks. licensing
102. (p. 180) _______________ is a gradual process of participating with nationals in all phases of company operations resulting in gradual withdrawal of the company from an ownership and control position. Planned domestication
Essay Questions
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103. (p. 162) Describe the characteristics of a sovereign state. A sovereign state is independent and free from all external control; enjoys full legal equality with other states; governs it own territory; selects its own political, economic, and social systems; and has the power to enter into agreements with other nations.
104. (p. 167) Describe the concept of nationalism.
Nationalism can best be described as an intense feeling of national pride and unity, an awakening of a nation's people to pride in their country. This pride can take an anti-foreign business bias, and minor harassment and controls of foreign investment are supported, if not applauded.
105. (p. 169-170) Discuss and compare the terms confiscation, expropriation, and domestication.
Confiscation is the seizing of a company's assets without payment. Expropriation occurs where the government seizes and investment but some reimbursement of assets is made. Domestication occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company's management. For additional information see page 169-170.
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106. (p. 170-171) List and briefly discuss the various economic risks that international companies must face when they seek to market abroad. The text lists six economic risks--exchange controls, local-content laws, import restrictions, tax controls, price controls, and labor problems. See pages 170-171 for analysis and discussion of the various economic risks.
107. (p. 179) Local governments are usually receptive to MNC's investment when the MNC's actions are perceived as beneficial. What are the five types of benefits most local governments consider beneficial?
The five situations are if the investment: (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, or skills; (4) creates jobs; or (5) makes tax contributions.
108. (p. 169-170) Brazil would like to increase its control and ownership of foreign investments in its country. However, Brazil does not want to cut off or discourage foreign investment. Cite and describe a political risk strategy that Brazil could follow that would meet the aforementioned objective.
Brazil could choose domestication (planned domestication). Domestication occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company's management. For additional information see pages 169170.
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109. (p. 179) Richard Branch is considering a multi-million dollar investment in Chile. He hopes that the investment will be positively received by the Chilean government. He does not want anti-MNC feelings to block the deal. Relations between MNC and foreign investors can be positive. What actions should Mr. Branch consider to ensure that his investment offer would be positively received by the Chilean government? According to information presented in the text, Mr. Branch should make sure that his investment provides at least one of the following benefits to the Chilean government and/or the people of Chile--benefits should (1) improve the balance of payments by increasing exports or reducing imports through import substitution; (2) use locally produced resources; (3) transfer capital, technology, or skills; (4) create jobs; or (5) make tax contributions.
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Chapter 06 - The Political Environment: A Critical Concern

Chapter 06 The Political Environment: A Critical Concern

Difficulty: Easy Type: Comprehension

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Hard Type: Comprehension

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Application

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Knowledge

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Application

Difficulty: Easy Type: Comprehension

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Knowledge

Difficulty: Hard Type: Knowledge

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Application

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Comprehension

Difficulty: Moderate Type: Comprehension

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Comprehension

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Comprehension

Difficulty: Moderate Type: Application

Difficulty: Moderate Type: Application

Difficulty: Moderate Type: Application

Multiple Choice Questions

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Hard Type: Application

Difficulty: Easy Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Comprehension

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Hard Type: Knowledge

Difficulty: Moderate Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Knowledge

Difficulty: Moderate Type: Application

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Application

Difficulty: Moderate Type: Application

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Application

Difficulty: Moderate Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Moderate Type: Knowledge

Difficulty: Moderate Type: Comprehension

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Application

Difficulty: Hard Type: Application

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Easy Type: Application

Difficulty: Easy Type: Knowledge

Chapter 06 - The Political Environment: A Critical Concern

Difficulty: Hard Type: Knowledge