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Chapter 7—Global Management
TRUE/FALSE
1. Global business is defined as the buying and selling of goods and services by people from different
countries.
2. Regional trading is defined as a method of investment in which a company builds a new business or
buys an existing business in a foreign country.
3. Direct foreign investment is an increasingly important and common method of conducting global
business.
4. A European car manufacturer signing a contract to manufacture cars in a Chinese factory is an
example of direct foreign investment.
5. Multinational corporations are corporations that own businesses in two or more countries.
6. The Maastricht Treaty of Europe was designed to create the European Union and make the euro, the
one common currency, for all members.
7. The North American Free Trade Agreement (NAFTA) is a regional trade agreement between Canada
and the United States. No other nations have signed this trade agreement.
8. In a multinational company, managers at company headquarters may value global consistency as a
company policy because global consistency simplifies decision-making at corporate headquarters.
9. Multinational companies typically have no difficulty determining the correct balance between global
consistency and local adaptation.
10. Different businesses often need different combinations of global consistency and local adaptation.
11. Historically, companies have generally followed the phase model of globalization.
12. The phase model of globalization means that companies made the transition from a domestic company
to a global company in three sequential phases. The three phases are exporting, followed by wholly
owned subsidiaries, and finishing with strategic alliances.
13. It appears that all companies follow the phase model of globalization when entering foreign markets.
14. The two kinds of cooperative contracts are licensing and franchising.
15. The biggest disadvantage associated with licensing is that the licensor gives up control over the quality
of the good or service sold by the foreign licensee.
16. A joint venture is an example of a strategic alliance.
17. One of the disadvantages of global joint ventures is that, unlike licensing and franchising, they do not
help companies to avoid tariff and nontariff barriers to entry.
18. Global joint ventures can be difficult to manage because they represent a merging of four cultures.
19. Unlike licensing, franchising, or joint ventures, wholly owned affiliates are 100 percent owned by the
parent company.
20. Global new ventures bring a good or service to market in one foreign market at a time.
21. Deciding where to “go global” is just as important as deciding how your company will go global.
22. An attractive business climate is defined by one single dimension: Does the business minimize the
political risk to the company?
23. Two factors that help companies determine the growth potential of foreign markets are the purchasing
power of the consumers and types of foreign competitors already in the market.
24. The criteria for choosing an office/manufacturing location are different from the criteria for entering a
foreign market.
25. When conducting global business, companies should attempt to identify the two types of political risk,
which are political uncertainty and economic uncertainty.
26. The three strategies used to minimize or to adapt to the political risk inherent to global business are
avoidance, control, and cooperation.
27. The evidence clearly shows that how well an expatriate's spouse and family adjust to the foreign
culture is the most important factor in determining the success or failure of an international
assignment.
MULTIPLE CHOICE
1. Global business is defined as____.
a.
the buying and selling of goods and services to people from different countries
b.
includes any sale of goods and services
c.
only involves companies with more than 50 employees
d.
refers to sales made to people from different cultures, different regions, and different
nations
e.
is unregulated
2. ____ is a method of investment in which a company builds a new business or buys an existing
business in a foreign country.
a.
A strategic alliance
b.
Direct foreign investment
c.
A global new venture
d.
A joint venture
e.
Direct exporting
3. Which of the following countries has the largest direct foreign investment in the United States?
a.
Netherlands
b.
Germany
c.
Japan
d.
Canada
e.
United Kingdom
4. Nestlé is a company headquartered in Switzerland with manufacturing plants in Columbia, Australia,
Canada, Egypt, Kenya, and more than 90 other nations. Nestlé is an example of a ____.
a.
multidomestic global company
b.
multinational corporation
c.
ethnocentric organization
d.
acculturated corporation
e.
macro-marketer
5. As Malta got ready for its admittance into the European Union (EU), the EU removed all taxes on the
importation of goods manufactured in Malta. In other words, the EU abolished ____ for
Malta-manufactured merchandise.
a.
import quotas
b.
customs classifications
c.
import standards
d.
tariffs
e.
boycotts
6. Several Arab countries boycott Coca-Cola products because the soft-drink company maintains product
distributors in Israel. This boycott is an example of ____.
a.
geocentrism
b.
nationalism
c.
nationalization
d.
a trade barrier
e.
acculturation
7. The two general kinds of trade barriers are ____.
a.
government import standards and industry import standards
b.
qualitative and quantitative barriers
c.
voluntary and involuntary barriers
d.
nationalistic and geocentric barriers
e.
tariff barriers and nontariff barriers
8. In 2000, the United States imposed a tax on all steel imports in an effort to protect about 5,000 jobs.
This tax is an example of a(n) ____.
a.
import duty
b.
voluntary import restraint
c.
subsidy
d.
financial boycott
e.
tariff
9. Protectionism is the use of trade barriers to protect local companies and their workers from ____.
a.
international unions
b.
foreign competition
c.
trademark infringements
d.
patent violations
e.
all of these
10. The Japanese government has proclaimed that its snow is different from that found in any other region
of the world. As a result, all snow skis marketed in Japan must be manufactured in Japan. This is an
example of a(n) ____.
a.
tariff
b.
nontariff barrier
c.
import boycott
d.
industry subsidy
e.
industry nationalization
11. The Japanese government continues to use the high tariffs to make sure local farmers can earn a living.
The tariff on rice is an example of ____.
a.
a voluntary government restriction
b.
geocentrism
c.
protectionism
d.
a security quota
e.
a bureaucratic subsidy
12. A ____ is a nontax method of increasing the cost or reducing the volume of imported goods.
a.
tariff
b.
nontariff barrier
c.
trade roadblock
d.
risk-aversive boycott
e.
subsidy quota
13. A(n) ____ is a direct tax on imported goods designed to make it more expensive to buy those goods,
instituted in hopes of reducing the volume of those imported goods in a given country.
a.
tariff
b.
nontariff barrier
c.
trade roadblock
d.
boycott quota
e.
import subsidy
14. The Japanese government has proclaimed that its snow is different from that found in any other region
of the world and as a result ensures that all snow skis marketed for sale in Japan must be manufactured
in Japan. This is an example of a(n) ____.
a.
tariff
b.
government subsidy
c.
voluntary export restraint
d.
government import standard
e.
subsidy
15. Russia imposed limits on how much poultry, beef, and pork could be imported into the nation from the
European Union (EU) in retaliation to limits the EU placed on how much grain Russia could export.
What type of nontariff barrier did Russia use to control the amount of poultry, beef, and port it
imported from the EU?
a.
quotas
b.
subsidies
c.
boycotts
d.
customs classifications
e.
duties
16. The European Union (EU) bans the importation of hormone-fed U.S. beef and bioengineered corn and
soybeans on safety grounds. This ban is so consumers in the EU will buy domestic beef and products
made from domestically produced corn and soybeans. This ban is an example of ____.
a.
a subsidy
b.
an involuntary import restraint
c.
geocentrism
d.
expropriation
e.
a government import standard
17. ____ are long-term, low-interest loans, cash grants, and tax deductions used to develop and protect
companies or special industries.
a.
Quotas
b.
Voluntary export restraints
c.
Cooperative contracts
d.
Subsidies
e.
Tariffs
18. To protect its farmers, Japan put limitations on the amount of mushrooms and leeks that could be
imported into Japan from China. This limitation is an example of a(n) ____.
a.
tariff
b.
voluntary import restraint
c.
subsidy
d.
agricultural import standard
e.
quota
19. The trade agreement that represented the most significant change to the regulations governing global
trade during the 1990s was the ____.
a.
Maastricht Treaty of Europe
b.
North American Free Trade Agreement
c.
World Trade Organization
d.
Mercosur
e.
Asian Free Trade Arrangement
20. The signing of the ____ created a regional trading zone in Europe.
a.
Maastricht Treaty
b.
Pact for Free Trade Agreement
c.
Global Agreement for Transactional Trading (GATT)
d.
South-East Asia Pact
e.
all of these
21. As Malta got ready for its admittance into the European Union (EU), all taxes on the importation of
goods manufactured in Malta were eliminated. Malta was preparing to become part of a(n) ____.
a.
zone of ethnocentricity
b.
regional trading zone
c.
neutral trading area
d.
international cartel
e.
global market
22. The acronym GATT stands for the ____.
a.
Global Agreement on Temporal Trade
b.
Governing Agreement on Trade and Transactions
c.
General Agreement on Tariffs and Trade
d.
Government Aid of Trade and Transactions
e.
Global Arrangement for Trade and Taxes
23. The General Agreement on Tariffs and Trade (GATT) ____.
a.
decreases both tariffs and nontariff barriers
b.
puts stricter limits on government subsidies
c.
eliminates tariffs in ten specific industries
d.
protects intellectual property, such as trademarks, patents, and copyright
e.
does all of these
24. The ____ is a regional trade agreement that liberalizes trade between countries more than any other
such agreement.
a.
Maastricht Treaty of Europe
b.
Association of South East Nations
c.
Asia-Pacific Economic Cooperation agreement
d.
North American Free Trade Agreement
e.
Free Trade Area of South America
25. One of the major questions that a company must typically answer about its future, once it has decided
to go global is ____.
a.
How many additional employees will the company need?
b.
To what extent should the company standardize or adapt business procedures?
c.
To what extent should a company abide by global or regional trade agreements?
d.
Will the organization's mission statement need to be changed?
e.
How many new shareholders will be influenced by global activities?
26. A multinational company that acts with ____ has offices, manufacturing plants, and distribution
facilities in different countries all which run based on the same rules, guidelines, policies, and
procedures.
a.
policy certainty
b.
global consistency
c.
global adaptation
d.
global certainty
e.
regiocentrism
27. In a multinational firm, managers at company headquarters typically prefer an emphasis on ____
because it simplifies decisions.
a.
local consistency
b.
local adaptation
c.
global adaptation
d.
global consistency
e.
domestic adaptation
28. Historically, most companies have used the ____ to successfully enter foreign markets.
a.
phase model of globalization
b.
global new venture approach
c.
ripple approach
d.
market echo approach
e.
guerrilla approach
29. Which of the following represents the correct sequence for the phase model of globalization?
a.
exporting; wholly-owned affiliates; cooperative contracts; strategic alliances
b.
exporting; cooperative contracts; wholly-owned affiliates; strategic alliances
c.
exporting; cooperative contracts; strategic alliances; wholly-owned affiliates
d.
exporting; strategic alliances; cooperative contracts; wholly-owned affiliates
e.
home country sales; exporting; job ventures; strategic alliances, and direct investment
30. ____ occurs when a company sells domestically produced products to customers in foreign countries.
a.
Direct foreign investment
b.
Franchising
c.
Licensing
d.
Exporting
e.
A joint venture
31. Fran Wilson Creative Cosmetics is a medium-sized U.S. company that sells 1.5 million tubes of its
lipstick annually in Japan. It has no physical presence within the country beyond the fact its products
are sold there. Fran Wilson Creative Cosmetics uses ____ to reach the Japanese market.
a.
franchising
b.
direct investment
c.
licensing
d.
a strategic alliance
e.
exporting
32. A(n) ____ is an agreement in which a foreign business owner pays a company a fee for the right to
conduct that business in his or her country.
a.
exporting agreement
b.
cooperative contract
c.
joint venture
d.
strategic alliance
e.
direct investment
33. ____ are both examples of cooperative contracts.
a.
Licensing and joint ventures
b.
Franchising and licensing
c.
Direct investment and indirect investment
d.
Direct exporting and indirect exporting
e.
Joint ventures and strategies alliances
34. Sodima is a French cooperative that owns the name, the trade secrets, and the patents on Yoplait
yogurt. General Mills pays Sodima for the right to sell Yoplait yogurt in the United States. This is an
example of ____.
a.
licensing
b.
a global joint venture
c.
exporting
d.
a strategic alliance
e.
direct investment
35. Robert Mondavi Wineries entered into an agreement with Baron Philippe de Rothschild, owner of
Bordeaux's First Growth chateau, to produce a top quality wine in California. The two companies
working together to create a new product is an example of ____.
a.
exporting
b.
licensing
c.
a joint venture
d.
a cooperative contract
e.
a wholly-owned subsidiary
36. Ernst & Young, an international accounting and management consulting company, entered Hungary
first by establishing a joint venture with a local firm. Ernst & Young later acquired the company with
which it had the alliance. As a result Ernst & Young then had a(n) ____ in Hungary.
a.
franchise
b.
licensing arrangement
c.
cooperative contract
d.
wholly owned affiliate
e.
export agency
37. In terms of Hofstede’s cultural differences, the people who are described as happy-go-lucky and are
people who are comfortable with an unstructured life and deal well with sudden changes. In terms of
Hofstede’s cultural differences, these people have a ____.
a.
culture based on equity
b.
low degree of uncertainty avoidance
c.
masculine culture
d.
high degree of uncertainty avoidance
e.
feminine culture
38. All global new ventures share two common factors. One is that the company founders successfully
develop and communicate the company’s global vision from the start. The other is ____.
a.
the bringing of a good or service to several different foreign markets at the same time
b.
the use of local adaptation strategy
c.
a mechanistic organizational culture
d.
the ability to respond quickly and efficiently to any changes in the external environment
e.
the development of culturally-specific implementation policies
39. All global new ventures share two common factors. One is the bringing of a good or service to several
different foreign markets at the same time. The other is ____.
a.
the development of culturally-specific implementation policies
b.
the use of local adaptation strategy
c.
a mechanistic organizational culture
d.
the ability to respond quickly and efficiently to any changes in the external environment
e.
none of these
40. Starbucks is expanding its global operations into South America in spite of the real probability of civil
wars and terrorist activities in many of the continent’s nations. As Starbucks expands into South
America, it must deal with ____.
a.
political uncertainty
b.
economic uncertainty
c.
infrastructure regulation
d.
nationalistic equity
e.
strategy risk
41. Starbucks is a chain that is rapidly expanding its global operation. As it expanded into South America,
its research showed that Chileans on average drink only 150 cups of coffee annually, and people in
Argentina only drink about half that amount. An average citizen of the United States drinks 345 cups
annually. These differences in annual coffee consumption most likely reflect ____.
a.
policy uncertainties
b.
nationalistic motivations
c.
cultural differences
d.
economic uncertainties
e.
differences in internal marketing strategies
42. A news article on Latin America read, “Mexico is the closest Latin America gets to the U.S. both
geographically and culturally.” According to Hofstede, this means the Mexican culture ____.
a.
does not support individualism
b.
is strong in power distance
c.
has a masculine orientation
d.
is not oriented towards individualism
e.
is accurately described by all of these
43. Which of the following types of global organization is most likely to suffer problems associated with
being culture bound?
a.
licensing
b.
franchising
c.
joint ventures
d.
global new ventures
e.
wholly owned subsidiaries
44. When McDonald's entered into an agreement with a French entrepreneur who wanted to own and
operate a McDonald's fast-food restaurant in Paris, McDonald’s saw the new restaurant as an
opportunity. Unfortunately, the restaurant in Paris was not maintained at the cleanliness standards
prescribed by McDonald's (but acceptable to the cleanliness standards of the French). McDonald's
brought legal action to have the restaurant closed. This example illustrates ____.
a.
an opportunity for McDonald's to enter into more joint ventures
b.
a need for McDonald's to curtail its international franchising
c.
a cultural threat against McDonald's
d.
a weakness within the McDonald's franchising system
e.
a problem with franchising in different cultures
45. A ____ is a strategic alliance in which two existing companies collaborate to form a third, independent
company.
a.
joint venture
b.
franchise
c.
wholly owned affiliate
d.
global new venture
e.
cooperative contract
46. Which of the following forms of organizing a global business help companies to avoid tariff and
nontariff barriers to entry of a given foreign market?
a.
licensing
b.
franchising
c.
global joint ventures
d.
wholly owned affiliates
e.
all of these
47. In Canada, two automobile companies have entered into a ____ to create CAMI Automotive. One
firm’s management runs the plant, which makes the other’s cars. The agreement gives one access to
the other’s dealers to sell its brand of vehicles.
a.
licensing agreement
b.
subsidiary arrangement
c.
cooperative contract
d.
exporting agency
e.
joint venture
48. Ford Motor Company owns and operates a $1.9 billion manufacturing plant in Brazil. What method
for organizing for global business has Ford used in this example?
a.
joint venture
b.
strategic alliance
c.
cooperative contract
d.
wholly owned affiliate
e.
strategic franchise
49. The primary disadvantage of using wholly owned affiliates as the means of entering a foreign market
is ____.
a.
dumping
b.
countertrading
c.
nontariff barriers
d.
acculturation
e.
costs
50. German chip manufacturer Infineon AG has joined with Motorola Inc. and Agere Systems Inc. to
establish a new company to develop and license chip designs for cellphones. These three companies
have created a ____.
a.
license facilitator
b.
subsidized corporation
c.
global new venture
d.
joint venture
e.
export merchant
51. Which of the following is a trend that has allowed companies to skip the phase model when going
global?
a.
quick, reliable air travel
b.
the globalization of the cocooning trend
c.
a critical need for resources
d.
the metamorphosis of marketplaces
e.
all of these
52. New companies with sales, employees, and financing in different countries that are found with an
active global strategy are called ____.
a.
global new ventures
b.
strategic alliances
c.
wholly owned affiliates
d.
franchisees
e.
subsidized corporations
53. A country or region that has an attractive business climate for companies that want to go global has
found an ____.
a.
easy access to growing markets
b.
experienced marketplace metamorphosis
c.
eliminated all political risks
d.
a limited infrastructure
e.
all of these
