Quick Study Questions
Quick Study 1
1. Q: An increase in the economic well-being, quality of life, and general welfare of a nation’s
people is called what?
A: Economic development is a measure for gauging the economic well-being of one nation’s
people, as compared to that of another nation’s people.
2. Q: What are the drawbacks of using national production to measure economic development?
A: National production provides a good estimate of a nation’s overall wealth. It provides
marketers with a broad indicator of whether a nation’s people are wealthy enough to purchase
But there are problems with national production as an indicator of economic
development. First, estimates for the wealth generated in the official economy can be almost
3. Q: The human development index measures what aspects of a nation’s development.
A: The United Nations human development index (HDI) evaluates the extent to which a
government equitably provides its people with a long and healthy life, an education, and a
Quick Study 2
1. Q: What does the economic transition process involve?
A: Several reform measures include: (1) stabilize the economy, reduce budget deficits, and
expand credit availability; (2) allow prices to reflect supply and demand; (3) legalize private
2. Q: What are the key obstacles for countries in transition?
A: (1) A lack of managerial expertise caused by the fact that central planners formerly decided
nearly every aspect of the nation’s commercial activities hampers progress today. There was
little need for managers to learn management skills including how to develop production,
local culture can have serious consequences. (4) Environmental degradation caused by the
headlong rush among transition economies to catch up to developed countries is leaving serious
3. Q: Transition replaces dependence on the government with greater emphasis on what?
A: The process involves several key reform measures to promote economic development. These
include: (1) stabilizing the economy, reducing budget deficits, and expanding credit availability;
Quick Study 3
1. Q: How does political abroad risk affect companies?
A: Terrorism aims to create fear and force change through the sudden and unpredictable
destruction of life or property. Kidnapping and the taking of hostages may be used to fund a
terrorist group’s activities. Each of these increases risks for international companies because
expatriate executives are prime targets because their companies can afford large ransoms.
2. Q: Companies fear open violence and conflict abroad because it can threaten to do what?
A: Conflict and violence can arise from people’s resentment toward their government or over
territorial disputes between countries. Violent disturbances impair a company’s ability to
3. Q: What is the name given to the forced transfer of assets from a company to the government
with compensation?
A: Expropriation is the forced transfer of company assets with compensation.
Quick Study 4
1. Q: How can a company incorporate political risk into its business strategies?
A: (1) Adaptation involves incorporating risk into business strategies—often with the help of
local officials. Companies can incorporate risk by establishing partnerships, localizing
operations, offering development assistance, and obtaining insurance. (2) Information gathering
2. Q: What is a good source of information to help conduct accurate political risk forecasting?
A: There are two sources that companies use to conduct accurate political risk forecasting.
Current employees who have worked in a country long enough to gain insight into local culture
and politics are often a good source of information. Second, agencies specialized in providing
3. Q: What might result from unfavorable political relations among countries?
A: Unfavorable political relations among countries will foster an unstable business
development.
Quick Study 5
1. Q: During what time period did China undergo its most rigorous experience with central
planning?
A: China began its experiment with central planning in 1949, after the communists defeated
nationalists in a long and bloody civil war.
2. Q: What challenges might pose a threat to China’s future economic performance?
A: Political and social problems pose threats to China’s future economic performance. The
nation’s leadership has poor relations with ethnic minorities and skirmishes between secular and
Muslim Chinese in western provinces still occur. For the most part, political leaders restrict
3. Q: Over what aspects of Russia’s centrally planned economy did planners exercise control?
A: Russia’s experience with Communism began in 1917. For the next 15 years, factories,
products were controlled by Russia’s government.
4. Q: What might challenge Russia’s future economic prospects?
A: Political instability, especially in the form of intensified nationalist sentiment is a potential
threat to progress; for example, The Russia–Georgia military confrontation and the Russian
Ethical Challenge
You are managing director of your U.S. firm’s subsidiary in southern France. The social welfare states
of Western Europe were founded in the Second World War with specific ethical considerations in
mind: reduce social and economic inequality, improve living standards for the poor, and provide
nearly free health care for all. Many countries in Western Europe have trimmed social welfare
provisions, privatized businesses, and increased their reliance on market forces.
4-5 Do you think that the cultures of Western Europe have changed over the years and that such
ethical concerns are a remnant of the past?
A: Students responses will vary. Here are some more things that Western European cultures
have in common and that American culture does not have in common: (a) Christianity has less
fervor; there are fewer fundamentalists and fewer political decisions influenced by religion. (b)
4-6 Do you think that free-market reforms will simply re-create the conditions that gave rise to the
welfare state in the first place?
A: Students responses will vary. Welfare States in Europe share several broad characteristics.
These generally include a commitment to full employment, social protections for all citizens,
social inclusion, and democracy. Examples common among European countries include
4-7 What can governments do for workers who become displaced, or perhaps obsolete, in a more
open and competitive economy?
A: As a manager, you must convey to your workers that there are risks involved with
capitalism, yet the potential rewards are great. Ethical issues never become dated. The dilemma
of the role of the state in providing for its people was argued two thousand years ago by the
great philosophers of the time. The issues remain the same, only the context is different. The
Teaming Up
Debate Project. Two groups of four students each will debate the ethics of political lobbying activities
in a foreign country where a company does business. After the first student from each side has spoken,
the second student will question the opponent’s arguments, looking for holes and inconsistencies. The
third student will attempt to answer these arguments. The fourth student will present a summary of
each side’s arguments. Finally, the class will vote on which team has offered the more compelling
argument.
A: Students should be sure to support their arguments with ideas and topics discussed in this chapter.
They should also be prepared to defend their positions, after the debate, if they are called on to give a
Practicing International Management Case
Cuba Comes Off Its Sugar High
4-16 Q: Why do you think the Cuban government requires non-Cuban businesses to hire and pay
workers only through the government?
A: The Cuban government is clearly skimming off the top the difference between what it is
being paid for workers and what is actually paid to workers. This allows the government to
4-17 Q: Suppose Cuba’s government collapses and the nation embarks on a path of economic
transition. How might Cuba’s experience differ from that of Russia and China?
A: There are obviously a large number of possible scenarios. Students should be encouraged to
be creative, yet realistic. They should recognize several important differences between these
nations. First, Cuba became communist in 1959 (versus 1917 for Russia) and this might mean
that the roots of communism are shallower. Second, the tie with the United States is very strong
4-18 Q: A U.S. law permits U.S. companies to sue firms from other nations that traffic in U.S.
property nationalized by Cuba. The law also empowers the U.S. government to deny entry visas
to the executives of such firms as well as their families. Why does the United States maintain
such a hard line against doing business with Cuba?
A: Implementation and enforcement of this law, called the Helms-Burton Law, have been
repeatedly suspended by the United States in fear of reprisals from Canada and European
As far as whether it is in the best interest of the United States, there are again political
and economic arguments involved. Obviously, there is no easy answer to such a question.