Chapter 03 – Doing Business in Global Markets
Any corporation that exports at least 50% of its total output can be classified as a
multinational corporation.
77. Firms with a physical presence in several different nations are considered multinational
corporations.
78. Sovereign wealth funds (a form of foreign direct investment) are investment funds
controlled by governments that hold large stakes in foreign companies.
79. As a form of franchising, sovereign wealth funds are getting very little attention as a
strategy for doing business in foreign markets.
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86. Governments directly participate in global markets through sovereign wealth funds.
Feedback: Foreign investment in the U.S. indicates foreign investors’ preferences over
investment in other countries by investing in permanent property and businesses in the U.S.
87. The appeal of global marketing strategies is that they all involve the same amount of risk.
Feedback: Licensing one’s product, franchising, and contract manufacturing involve less risk
than foreign direct investment. Acquiring subsidiaries by directly purchasing assets and
property in another nation involves more risk. If political unrest should emerge in a nation
where your business owns substantial assets, the result could be loss of business, employees,
and even the loss of your property and assets. The challenge of global marketing strategies is
that they all do not involve the same amount of risk.
88.
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Leigh has created a technique for drying flowers that retains the vibrant color of certain
flowering plants. Although out of style in the U.S., dried flower arrangements are still
highly sought after in several European and Asian nations. It is difficult to preserve the
ingredients that go into her formula for more than a month. She decides to partner with
firms in other nations to make and sell the formula, but you suggest she license the
formula to foreign companies, and agree to royalties when they create the formula and sell
it. Your advice makes better sense.
Feedback: Often times, a small domestic business can expand its market by going abroad. By
licensing her product to foreign firms, she can increase her market, and potentially her
revenues and profits.
89. The Nissan automobile assembly plant in Tennessee is an example of foreign direct
investment in the United States.
Feedback: Foreign direct investment in the United States is the buying of permanent property
and businesses in the United States like the Nissan automobile plant.
90.
Chapter 03 – Doing Business in Global Markets
Kodak contracts with a firm in Taiwan to manufacture Kodak digital cameras. This is an
example of a joint venture.
Feedback: The relationship described in this question refers to contract manufacturing, not a
joint venture.
91. The All-Sports Gaming Company has avoided contract manufacturing abroad due to the
significant start-up costs in buying land and setting up its own manufacturing plants.
Feedback: Contract manufacturing involves the production of goods by a foreign company.
The benefit is the avoidance of heavy start-up costs. The company entering into contract
manufacturing agreements does not purchase the foreign manufacturer.
92. The Tsingtao Brewing company pays a fee to Anheuser-Busch for the right to brew and
distribute Budweiser in China. Tsingtao is the licensor and the fee paid is a royalty.
Feedback: In this licensing agreement, Tsingtao Brewing is the licensee and Anheuser-Busch
is the licensor. The fee paid is indeed the royalty
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93. The purchase of U.S. based Anheuser-Busch, by Belgian brewer InBev is an example of
foreign direct investment.
Feedback: Foreign direct investment involves the purchase of property, business(s), or
another form of investment by a foreign company, in another nation other than where the
company originates. In this situation, a large Belgian company purchased the assets of another
company, in the same industry.
94. An example of foreign direct investment would be Pepsi granting a Japanese firm the use
of its formula and trademark, for a fee.
Feedback: Licensing allows one firm to manufacture another firm’s product and use their
trademark for a fee. Foreign Direct Investment involves the purchase of property in a foreign
country.
95.
Chapter 03 – Doing Business in Global Markets
General Electric’s (GE) website recently noted, “Russia has been one European country in
which GE has made significant investments. GE is one of the largest foreign companies in
Russia, operating multiple businesses including an equipment fleet with more than 1,500
large units.” With physical presence in Russia, Argentina, Australia, Belgium, Greece,
Kenya, Canada and other countries, GE is an example of a multinational company.
Feedback: A multinational corporation is a company with a physical presence in several
different nations.
96. Ozark Bikes, Inc. has information that its bicycles will sell in Vietnam. In order to sell its
products in Vietnam, the Vietnamese government requires Ozark Bikes to enter into a
partnership, (also known as a joint venture) with a domestic firm. Both firms will assume
costs and risk in the venture.
Feedback: A joint venture is a partnership in which companies (often from two different
countries) join to undertake a major project. Governments sometimes require foreign firms to
enter into joint ventures as a condition of doing business in their countries.
97. In recent years, the government of Saudi Arabia has invested over $900 billion in foreign
companies, including several U.S. companies. This move constitutes the creation of a
sovereign wealth f70-71und, an emerging type of foreign direct investment.
Feedback: Sovereign wealth funds are investment funds controlled by governments. These
funds purchase the bonds and stock of foreign companies. This is a fast-growing form of
foreign direct investment.
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98. Sociocultural, economic, and legal/regulatory hurdles cause significant challenges in
global trade.
99. From a sociocultural perspective, U.S. business people are often accused of
ethnocentricity.
100. Successful multinational corporations disregard cultural differences between countries
where they own property and perform business transactions.
101. Sociocultural differences that affect global businesses include customs, language, and
religion.
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102. In the past, foreign companies have adapted to U.S. culture more easily than U.S firms
have adapted to foreign cultures.
103. Effective human resource management styles are transferable from one culture to
another.
104. Effective marketing strategies focus on the product and ignore the sociocultural
differences in the global environment.
105.
Chapter 03 – Doing Business in Global Markets
Many U.S. companies fail to think globally.
106. In global markets, no central system of law exists.
107. The Foreign Corrupt Practices Act of 1978 created an advantage for American
businesspeople to compete in global markets.
108. An exchange rate is the value of one nation’s currency relative to the currencies of
other nations.
109. Global markets rely on the U.S. dollar as the universal currency.
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110. Under a system of floating exchange rates, the value of a country’s currency is
determined by government regulation.
111. Devaluation refers to a decline in the value of a nation’s currency relative to other
currencies.
112. Bartering is the exchange of goods or services for other goods or services with no
exchange of money traded.
113. Countertrading is a form of exchange where firms will put certain products “on the
counter” offering them to foreign customers at a cheaper price than what they would offer
them to domestic customers.
114.
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Efficient currency exchange markets have eliminated countertrade in global business
transactions.
115. Currency fluctuations can be an advantage to firms trading in the global market.
116. Technological differences can prevent some companies from doing business abroad.
117. The introduction of standardized international laws regulating business organizations
has greatly simplified global trade.
Feedback: Businesses are face with a myriad of laws and regulations in global markets.
118.
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The same proven management styles used by companies in their domestic operations can
be employed in their foreign subsidiaries.
Feedback: In some countries management has more position power where they make
unilateral decisions. In other countries, decision-making is a shared responsibility between
management and workers.
119. A devaluation of the U.S. dollar would make American goods cheaper to foreign
buyers.
Feedback: After devaluation, it would take less foreign currency to acquire U.S. dollars.
Therefore foreign buyers would find that it costs less of their currency to buy U.S. made
goods.
120. From a sociocultural perspective, foreign companies have experienced a good amount
of success in adapting their products and services to the U.S. market.
Feedback: In the past, foreign companies have had great success in reaching U.S. customers.
U.S. companies, on the other hand, have often failed to understand cultural differences when
marketing abroad.
121.
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When it comes to ethics, successful American businesspeople are encouraged to follow
the policy of “when in Rome, do as the Romans.”
Feedback: American businesspeople are required to follow U.S. laws when competing in
global markets (specifically the Foreign Corrupt Practices Act of 1978).
123. If you travel to Mexico and the exchange rate is 12 pesos for one U.S. dollar, the peso
is said to have strength against the dollar because you can get so many more pesos that
you can dollars.
Feedback: If you can get more of the currency you are trading for than you must give up of
your own currency, your currency has strength against the foreign currency.
124.
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American businesspersons often fail to adapt to foreign markets because they feel that
American culture is superior to other cultures in the world.
Feedback: American businesspersons have been accused of being ethnocentric because they
feel the American culture is superior to all others.
125. Differences in electrical systems throughout the world can impair a U.S. firm’s ability
to sell its products to other countries.
Feedback: Technological differences affect the nature of exportable products.
126. Recently a news article described the pirating of music originally recorded by popular
127.
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A United States firm recently won a large contract with a company in Bangladesh by
providing government officials and company officials with American cars and promises to
provide monetary gifts in exchange for the business. Fortunately, U.S. Law, under the
Foreign Corrupt Practices Act permits U.S. companies to operate in this manner.
Feedback: The Foreign Corrupt Practices Act defines bribery or payments to foreign
businesses or the management of foreign businesses in exchange for business contracts as
illegal.
128. When studying abroad last year, Reilly found that his U.S. dollars did not stretch as far
as he had hoped. Each time he exchanged U.S. dollars for euros, he gave up more U.S.
dollars in exchange for less euros. Obviously, the dollar had strength against the euro.
Feedback: A low value of the dollar means a dollar is traded for less foreign currency. This is
the case here. A high value of the dollar means a dollar is trading for more foreign currency.
129.
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The Ozark Bike Company recently entered into an agreement with a large Japanese
retailer to distribute its bicycles in Japan. Ozark Bike Company sees itself in a favorable
position because the Yen is gaining strength compared to the U.S. dollar making it
cheaper for Japanese customers to buy U.S. products.
Feedback: A low value of the dollar means a dollar is traded for less foreign currency. A high
value of the dollar means a dollar is trading for more foreign currency. When the U.S. dollar
is losing strength against the foreign currency, it is cheaper for foreign customers to buy U.S.
products. In this case, the customer will trade fewer yen for the value of the U.S. bicycles.
130. A few years ago, a well-known celebrity who promoted a line of clothing was accused
of supporting child labor in a Honduras manufacturing site where the clothes were made.
131.
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Idle Time Gaming, Inc. needed silicon wafers that it knew could be mass produced
efficiently by Silicon City, Inc., a start-up firm in India. The Indian company needed MSG
(metallurgical grade silicon) in order to make the wafers, which it knew it could get from
a Chinese firm. The Chinese firm (mostly owned by the Chinese government) agreed to
supply the silicon to the Indian company if it could get a certain quantity of gaming
hardware from Idle Time. This beneficial exchange is described as countertrading.
Feedback: Countertrading is the exchange of goods and services, without the exchange of
currency. It is a form of bartering.
132. Joanna Bresee, a graduate student from Carnegie Mellon, connected with the culture
of Madagascar when she created lamba hoany (a native garment) with artful messages to
save the more than 150 rare species of animals that inhabit Madagascar. In contrast to
many Americans trying to do business abroad, Joanna successfully adapted her message to
the native culture when she imprinted it on the native garment.
Feedback: Adapting products to sociocultural factors can be a key to success in global
markets. Joanna obviously understood this in preparing her garments.
133. Trade protectionism is the use of government regulations to encourage the import of
goods and services.
134.
Chapter 03 – Doing Business in Global Markets
Countries often use trade protectionism measures to protect their domestic industries from
foreign competition.
135. Under mercantilism, the basic economic idea was to achieve a favorable balance of
trade.
136. Protective tariffs are designed to raise money for the government.
137. An import quota is a complete ban on the import or export of certain products.
138.