Chapter 5: The Political and Legal Environment
TRUE/FALSE
1. Political and legal factors often play critical roles in international marketing activities.
2. In making decisions about a firm’s international marketing activities, managers will need to
concentrate on the legal circumstances of the host country but not the home country.
3. The term “embargo” refers to products that are packaged in one country in a particular way, and then
altered to fit the international marketplace in another country.
4. Trade sanctions and embargoes can be used interchangeably.
5. Economic sanctions that are imposed unilaterally by one country tend to be more effective than those
imposed multilaterally by countries.
6. One key concern with trade sanctions is the fact that governments often consider them as being free of
cost.
7. Permitting a foreign national from a controlled country to have access to a highly sensitive computer
program in the United States is not considered as an export.
8. Nuclear nonproliferation is a determinant for export control.
9. Today’s export controls use a “strategic balance” approach affecting specific hotspots rather than the
“tactical balance” approach.
10. Voluntary restraint agreements are self-imposed restrictions aimed at avoiding punitive trade actions
from the host.
11. Boycotts place a tax on imports and raise prices.
12. Political risk can be the result of government action, but it can also be outside the control of
government.
13. Expropriation is a term used to describe the U.S. government’s investment in foreign technology with
the intent to spur development of trade partners.
14. Code law is based on tradition and depends less on written statutes than on precedent and custom.
15. Countries with the common law system have much more rigid laws than those with the code law
system.
16. Lobbyists are well-connected individuals and firms that can provide access to policymakers and
legislators.
17. If supply chains are complex and multinational, the effects of terrorism can potentially spread across
the globe from an initially local focus.
18. Corporate governance frameworks ensure the board of directors’ accountability to the company and its
shareholders.
19. As firms become increasingly multinational, governments respond by increasing global cooperation to
achieve the same principles of taxation and corporate ethics laws across nations.
20. Bribing foreign officials in order to gain contracts is considered permissible in the United States.
MULTIPLE CHOICE
1. When products and goods enter a market in ways not desired by their manufacturers, this is known as
_____ market activities.
a.
black
b.
white
c.
green
d.
gray
2. _____ refer to governmental actions that distort the free flow of trade in goods, services, or ideas for
decidedly adversarial and political, rather than strictly economic, purposes.
a.
Gray market activities
b.
Tariffs and barriers
c.
Trade sanctions and embargoes
d.
Expropriation and confiscation
3. The charter of the United Nations allows for sanctions as an enforcement action by regional agencies.
Which of the following is NOT an example of a regional agency?
a.
The Organization of American Unity
b.
The Organization of African Unity
c.
The Organization of American States
d.
The Arab League
4. When the United Nations (UN) votes on economic sanctions for a country:
a.
it will apply only to nations who are members of the UN.
b.
any permanent member of the Security Council can veto the sanctions.
c.
the government must consider them as being free of cost.
d.
a new set of rules must be written for the specific infractions.
5. _____ are designed to deny or at least delay the acquisition of strategically important goods by
adversaries.
a.
Antidumping laws
b.
Export control systems
c.
Voluntary restraint agreements
d.
Domestication activities
6. Which of the following is an example of a dual-use item?
a.
Handbags
b.
Life jackets
c.
Compact cars
d.
Artillery
7. Which of the following is true about export controls?
a.
The legal basis for export controls is similar across nations.
b.
All export control systems make controls the rule rather than exception.
c.
The U.S. export control system is based on the Export Administration Act.
d.
Services and ideas are not covered under export controls.
8. As required by government mandate, anyone wishing to export a product from the United States needs
a(n) _____.
a.
extended collective license
b.
quasi-contract
c.
voluntary export restraint agreement
d.
export license
9. Which of the following is NOT a method of controlling imports?
a.
Confiscation
b.
Quota systems
c.
Voluntary restraint agreements
d.
Tariffs
10. When firms refuse to do business with someone, often for political reasons, this is known as _____.
a.
image tarnishing
b.
expropriation
c.
boycotting
d.
confiscation
11. Which of the following is true about import controls?
a.
Nontariff barriers like voluntary restraint agreements are self-imposed restrictions and
cutbacks aimed at avoiding punitive trade actions from the host.
b.
Import controls generally exact a small price from domestic consumers.
c.
The social cost of import controls benefits the economy in all situations.
d.
Import controls improve the productivity of an industry, provide it with a level of safety
and a cushion of increased income, and lead the drive for technological advancement.
12. Which of the following is NOT considered a political risk?
a.
Deflation
b.
Tariffs
c.
Expropriation of assets
d.
Restriction in repatriation of profits
13. In the United States, the _____ excludes from antitrust prosecution those firms that are cooperating to
develop foreign markets.
a.
Gramm-Leach-Bliley Act
b.
Sarbanes-Oxley Act
c.
Webb-Pomerene Act
d.
Celler-Kefauver Act
14. Events caused by factors outside the control of government include all of the following EXCEPT:
a.
confiscation.
b.
strikes.
c.
extortion.
d.
revolution.
15. The seizure of foreign assets by a government with payment of compensation to owners is known as
_____.
a.
asset forfeiture
b.
misappropriation
c.
expropriation
d.
dissolution
16. _____ results in a transfer of ownership from the foreign firm to the host country without providing
compensation for the firm.
a.
Defalcation
b.
Injunction
c.
Confiscation
d.
Structuring
17. Which of the following is true about expropriation?
a.
Its use as a policy tool has increased significantly over time.
b.
It does not provide compensation to the former owners.
c.
It immediately transfers a certain amount of wealth and resources from foreign
companies to the host country.
d.
It provides satisfactory settlements and thus encourages foreign firms to invest in the
country.
18. _____ occurs when a government demands partial transfer of ownership and management
responsibility and imposes regulations to ensure that a large share of the product is locally produced
and a larger share of the profit is retained in the country.
a.
Injunction
b.
Defalcation
c.
Domestication
d.
Structuring
19. Which of the following is true about domestication?
a.
It imposes regulations to ensure that no profits are retained by the host country.
b.
It results in inefficiencies due to lack of market discipline, and thus affects the
international competitiveness of operations abroad.
c.
It results in total ownership and total management responsibility being conferred on the
host country.
d.
It imposes regulations to ensure that all high-end products are locally produced while all
low-end products are produced by the host country.
20. Confiscation differs from domestication in that confiscation:
a.
does not involve transfer of ownership from the foreign firm to the host country.
b.
offers compensation in the form of local, nontransferable currency.
c.
does not provide compensation to the foreign firm.
d.
provides compensation on the book value of the firm.
21. Many adverse governmental actions are a result of a host country’s opposition to _____.
a.
domestication
b.
colonial remnants
c.
independence
d.
nationalism
22. Which of the following statements about legal differences and restraints is true?
a.
All countries conform to the same laws, and they are implemented similarly as well.
b.
Many common law countries have adopted commercial codes to govern the conduct of
business.
c.
Countries with the common law system have much more rigid laws than those with the
code law system.
d.
The enforcement of laws have the same effect on national and on foreign marketers.
23. Which of the following is true about common law?
a.
It depends primarily on written statutes and codes.
b.
It is based on Roman law and is found in the majority of the nations of the world.
c.
Countries with the common law system have much more rigid laws than those with the
code law system.
d.
It is based on tradition and depends on precedent and custom.
24. Code law differs from common law in that code law:
a.
is based solely on tradition.
b.
originated in England.
c.
is based on a comprehensive set of written statements.
d.
depends on precedent and custom.
25. Laws that prohibit below-cost sales of products are known as _____ laws.
a.
antidiscrimination
b.
antikickback
c.
antidumping
d.
antideficiency
26. Which of the following is true about the legal procedures preferred by businesses?
a.
Businesses who opt for conciliation fear discrimination in foreign countries and therefore
avoid it.
b.
Arbitration often involves extensive delays and is very costly, and hence is not preferred
by businesses.
c.
Litigation results in much quicker decisions than arbitration, and hence is preferred by
businesses.
d.
Arbitration results in much quicker decisions, and hence is more preferred by businesses.
27. The phenomenon when buyers become uncertain about the state of their nation’s economy, leading to
a sharp reduction in demand for both consumer and industrial goods is known as _____.
a.
the chill effect
b.
functional lubrication
c.
domestication
d.
expropriation
28. The relationships among stakeholders that determine and control the strategic direction and
performance of an organization are called _____.
a.
investor relations
b.
corporate governance
c.
ownership risk
d.
functional lubrication
29. Which of the following is a characteristic of a market-based corporate governance regime?
a.
Combined management and ownership
b.
Dispersed ownership
c.
State ownership of enterprise
d.
Family control
30. State ownership of enterprise, lack of transparency, and no minority influence are characteristics of a
_____ corporate governance regime.
a.
market-based
b.
bank-based
c.
family-based
d.
government affiliated
31. Which of the following refers to a legal entitlement of exclusive rights to use an idea, piece of
knowledge, or invention?
a.
Domestication
b.
Embargoes
c.
Intellectual property
d.
Functional lubrication
32. The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS):
a.
includes maximum standards for copyrights, appellations of geographic origin, industrial
designs, trademarks, and trade secrets.
b.
gives developing countries more time to implement changes related to intellectual
property.
c.
requirements apply equally to all WTO member states except emerging countries.
d.
gives individuals and companies the right to own and sell property as they see fit.
33. Which act passed in 1977 made it a crime for U.S. firms to bribe foreign officials for business
purposes?
a.
The Organized Crime Control Act
b.
The Racketeer Influenced and Corrupt Organizations Act
c.
The Foreign Corrupt Practices Act
d.
The Foreign Intelligence Surveillance Act
34. Which 2002 law protects investors by improving the accuracy and reliability of corporate disclosures,
and also covers issues like corporate responsibility, financial transparency, and accounting oversight?
a.
The Glass-Steagall Act
b.
The Aldrich-Vreeland Act
c.
The Gramm-Leach-Bliley Act
d.
The Sarbanes-Oxley Act
35. Which of the following best describes “ehrbarer Kaufmann”?
a.
It refers to a legal entitlement of exclusive rights to use an idea, piece of knowledge, or
invention.
b.
It refers to governmental actions that distort the free flow of trade in goods, services, or
ideas for decidedly adversarial and political, rather than strictly economic, purposes.
c.
It is a key legal perspective that has faith and belief as its key focus and is also a mix of
societal, legal, and spiritual guidelines.
d.
It focuses on maintaining long-term successful international trade efforts with distant and
often unfamiliar people.
ESSAY
1. Explain the different problems encountered by policymakers when trying to administer import
controls.
ANS:
2. Describe political risk and the different types of political risk.
3. Briefly explain the effects of terrorism on business.
ANS:
