Chapter 1: Globalizing Business
TRUE/FALSE
1. Dell Computers has full ownership control over its entire supply chain.
2. A company undertaking foreign direct investment is defined as a multinational enterprises.
3. A multinational enterprise is a firm that engages in foreign direct investment by directly investing in,
controlling, and managing value-added activities in other countries.
4. Gross domestic product (GDP) is the sum of value added by resident firms, households, and
government operating in an economy.
5. Emerging markets contribute about 25% of global GDP when adjusted for purchasing power parity,
PPP.
6. Purchasing power parity (PPP) is a conversion that determines the equivalent amount of goods and
services different currencies can purchase.
7. Purchasing power parity (PPP) is an adjustment that reflects the differences in cost of living in
countries.
8. Gross national product (GNP) is the sum of value added by resident firms, households, and
government operating in an economy.
9. Brazil, Russia, Indonesia, and China are commonly referred to as BRIC countries.
10. Although GDP, GNP, and GNI are often used as yardsticks of economic development, differences in
cost of living make such a direct comparison less meaningful.
11. The term “base of the pyramid” represents economies where individuals make less than €1500 a year.
12. Triad refers to developed economies consisting of North America, Western Europe, and Japan.
13. Most top managers of large firms lack significant global competence.
14. Expatriate managers make ideal candidates for top management positions.
15. Expatriate managers are usually paid salaries coinciding with the salaries paid to foreign local
managers of similar rank.
16. Thanks to globalization, low skills jobs are less vulnerable to competition.
17. Expatriate employees face fewer and lower-ranked employment opportunities upon return to their
home country.
18. Approximately 80 million people worldwide are employed by foreign-owned firms.
19. Both, institution- and resource-based views are two core perspectives answering the fundamental
question: “What determines the success and failure of firms around the globe?“
20. Possessing intimate knowledge about the formal and informal rules governing competition in various
countries is sufficient to succeed globally.
21. Due to following informal rules such as culture and ethics, some developed economies have a hard
time fostering entrepreneurship.
22. Firms that are able to succeed in the difficult, harsh, even hostile foreign environments, established by
unfavorable formal and informal rules, possess unique firm-specific resources and capabilities not
shared by competitors.
23. The liability of outsidership is a major challenge for companies setting up business in another country.
24. Globalization is a relatively new phenomenon triggered by information revolution of late 1980s and
early 1990s.
25. Globalization is defined a process leading to greater interdependence and mutual awareness
(reflexivity) among economic, political and social units in the world, and among actors in general.
26. During the Roman Empire, there was no international trade activity.
27. According to business historians, multinational enterprises were as important to the global economy in
1913 as in the 1990s.
28. In the 1950s, barriers to trade and capital movements were pervasive, even within Western Europe.
29. More than 50% of the exports from any EU country is destined for another EU country.
30. Countries with per capita income below €2,000 are defined as emerging economies.
31. Emerging economies account for more than 80% of the world’s population.
32. Emerging economies account for more that 80% of the world’s exports.
33. Many elites have not failed to take into sufficient account the social, political, and environmental costs
associated with globalization.
MULTIPLE CHOICE
1. According to the opening case, where are Dell computers for sale in the USA manufactured?
a.
China
c.
USA
b.
Malaysia
d.
All of these answers, and more
2. Where are Dell computers for sale in the USA manufactured?
a.
In China
c.
In Germany
b.
In all these and more countries
d.
In the USA
3. The firm that engages in foreign direct investment is:
a.
Foreign direct investor
c.
Global firm
b.
Multinational enterprise
d.
International enterprise
4. Which of the following terms best describes foreign direct investment?
a.
Directly investing in, controlling, and managing value-added activities in other markets.
b.
Directly investing in shares of multinational enterprise.
c.
Directly investing in, controlling, and managing value-added activities in other countries.
d.
All of these answers
5. The term “emerging economy/market” has in 1990s replaced the commonly used term:
a.
Third world economy/market
c.
Undeveloped economy/market
b.
Developing economy/market
d.
Fast growing economy/market
6. ________ is/are measured as the sum of value added by resident firms, households, and government
operating in an economy.
a.
National reserves
c.
Gross national income
b.
Gross domestic product
d.
Gross national product
7. In order to better compare/contrast costs of living in the various environments GNP/GDP may be
adjusted to:
a.
Foreign exchange rate
b.
Country’s inflation rate
c.
PPP (purchasing power parity)
d.
Five-year national bond appreciation/depreciation
8. Without adjusting for PPP, emerging economies contribute about 26% of the global GDP. Adjusting
for PPP, they now contribute approximately 45% of the global GDP. The reason there is a huge
difference between the two measures is because:
a.
The measurements are not very accurate.
b.
The population in emerging economies is much higher than that in developed economies.
c.
The land in emerging economies is much larger than that in developed economies.
d.
The cost of living in emerging economies tends to be lower than that in developed
economies.
9. More than half of the world GDP growth in recent years comes from:
a.
Latin America
b.
Central and Eastern Europe
c.
BRIC (Brazil, Russia, India, and China)
d.
The Four Tigers (Hong-Kong, Singapore, South Korea, and Taiwan)
10. BRIC include the following countries except:
a.
Italy
c.
Brazil
b.
Russia
d.
China
11. The global economy can be viewed as a pyramid. Triad represents:
a.
North America, EU, Japan
c.
US, EU, China
b.
US, Germany, England
d.
Brazil, India, China
12. People who live in the Triad countries comprise the ________ of the global economic pyramid.
a.
Outlier
c.
Top tier
b.
Second tier
d.
Base
13. According to the text, most MNEs are ________ the base of the pyramid.
a.
Ignoring
b.
Aware of countless opportunities of
c.
Focusing on
d.
Considering FDI in the economies at
14. The vast majority of humanity who earn ________ a year comprise the base of the pyramid.
a.
More than €20,000
c.
Less than €1,500
b.
More than €2,000
d.
€2,000 to €20,000
15. An expatriate assignment is:
a.
A job overseas
b.
A class assignment in the IB course
c.
A job working for a multinational enterprise
d.
A relationship counselling job
16. Which of the following definitions best defines an expatriate manager?
a.
A manager of great expertise
b.
An ex manager rehired for advisory purposes
c.
A manager who works abroad to gain such experience
d.
None of these answers
17. When an expat employee returns to their current employer but the employer does not provide attractive
opportunities, she/he often may be hired by a competitor firm. Why?
a.
Competitor firms are also interested in globalizing their business.
b.
Former expats bring instant expertise and experience.
c.
Competing firms will pay a higher premium for expertise.
d.
All of these answers
18. Why study global business?
a.
In order to increase one’s employability
b.
In order to better understand how to become a sought after, globe trotting manager
c.
In order not to get Bangalored or Shanghaied
d.
All of these answers
19. How many individuals are employed by foreign-owned firms throughout the world?
a.
About 18 million
c.
About 80 million
b.
About 40 million
d.
About 1 million
20. The liability of outsidership is increased, if:
a.
A firms knows little about its business partners
b.
A firm has no prior business activity in a country
c.
A firms comes from a very distant country
d.
All of these answers
21. A liability of outsidership is:
a.
The inherent disadvantage that new entrants experience in home countries.
b.
The inherent advantage that new entrants experience in host countries.
c.
The inherent advantage that new entrants experience in home countries.
d.
The inherent disadvantage that new entrants experience in host countries.
22. In order to answer the question: “What determines the success and failures of firms around the
globe?,” the author introduces two core perspectives:
a.
Formal- and informal-rule-based view
b.
Institution- and resource-based view
c.
Capability- and asset-based view
d.
Ability- and mobility-based view
23. The ________-based view suggests that the formal and informal rules of the game, known as
institutions, shed a great deal of light on what is behind firm performance around the globe.
a.
Capability
c.
Asset
b.
Institution
d.
Resource
24. The ________-based view suggests that in order to achieve remarkable success, a firm must possess
some very rare and powerful firm-specific resources and capabilities that are the envy of their rivals
around the globe.
a.
Resource
c.
Asset
b.
Capability
d.
Institution
25. The ________-based view suggests that the success and failure of firms are largely determined by their
environments.
a.
Industry
c.
Resource
b.
Globalization
d.
Institution
26. The Hanseatic League, which operated a network of trading links between cities governed by common
rules, was operating when?
a.
During the first industrial revolution
c.
During the Middle Ages
b.
During the Roman empire
d.
During the age of colonialism
27. The abolishment in the 19 th century of the guild system for trades and crafts is an example of which
type of policy?
a.
Nation-state building
c.
Industrialization
b.
Liberalization
d.
Stabilization
28. In the late 19 th century, what was not a feature of international business?
a.
Multinational enterprises dominating the oil, gas and mining industries
b.
European countries importing raw materials from their colonies
c.
Migration was difficult due to complex visa requirements
d.
Colonies importing manufacturing goods from Europe
29. Institutions are commonly referred to as what?
a.
Rules of the game
c.
Rules of the country
b.
Rules of the fun
d.
Rules for everyone
30. China and Germany are the largest two economies measured by:
a.
Population
c.
GDP
b.
Outward foreign direct investment
d.
Exports
31. The three largest European countries measured by GDP in 2008 are:
a.
Finland, Sweden and the Netherlands
b.
Germany, Italy and the UK
c.
Norway, Sweden and the Netherlands
d.
Germany, France and the UK
32. Which two medium-sized European countries are home to multinational enterprises with outward FDI
stock of over €500 billion each?
a.
Austria and Switzerland
c.
Switzerland and the Netherlands
b.
The Netherlands and Sweden
d.
Sweden and Austria
33. Which type of people are known as cosmopolitans?
a.
Men who support a football team based in another country
b.
Women who always dress after the latest fashion from Paris or Milan
c.
People who live in cities with over 1 million inhabitants
d.
People who embrace the cultural diversity and personal and professional opportunities of
globalization
ESSAY
1. European integration has greatly facilitated business within Europe? Should companies focus on doing
business in Europe only to take advantage of these opportunities.
2. Globalization is a new phenomenon that gradually emerged since the 1950s and accelerated in the
1990s. Do you agree or disagree, and why?
3. Explain the correlation between the success and failure of global firms and the institution- and
resource-based views.
4. The global economy may be viewed as a pyramid. The growing number of opportunities at the base of
the pyramid highlights the role this bottom tier will play in the years to come. How would you take
advantage of this often-ignored level if you were occupying a top management position at a prominent
MNE?
5. Explain the benefits of gaining international business experience and working as an expat.
6. The text labels contemporary globalization as semiglobalization. Discuss challenges that must be met
to successfully develop the world economy into a single market. Provide examples of countries that
are in conflict and how government restricts economic progress and movement to a single market.
7. Explain how the pendulum view attempts to describe globalization as a cyclical phenomenon with
many difficulties.
8. Explain how countries’ gross domestic product (GDP) is changed after adjusting for purchasing power
parity (PPP).