International Business: The New Realities 3/E S. Tamer Cavusgil solutions manual and test bank
CHAPTER 2
GLOBALIZATION OF MARKETS
AND THE INTERNATIONALIZATION OF THE FIRM
Instructor’s Manual by Marta Szabo White, Ph.D.
I. LECTURE STARTER/LAUNCHER
The Value Chain concept is central to this chapter. To ensure that students understand this concept, you might start the chapter with a basic example. Project the basic value chain model on the screen, and select a simple business. How about shoes, or laptop computers, or automobiles? Suppose you manufacture one of these products. Next, proceed step by step through the model from research & development; to procurement (sourcing raw materials); to manufacturing; to marketing; to distribution; to sales & service. Follow each activity and commensurate value that is added at each step along the way. Now consider locating each one of those activities in a different country, if it is more efficient to do so. If you don’t want to create an example, you can always use the examples in Exhibit 2.10.
Useful tools for introducing the chapter include the following:
Google:
Collaborative Tools: Building a Culture of Knowledge Sharing
http://www.youtube.com/watch?v=Vq4DzmS1shs
Collaborative Tools - Opening Comments
http://www.youtube.com/watch?v=qJuhMC2Suqc
II. LEARNING OBJECTIVES AND THE OPENING VIGNETTE
LEARNING OBJECTIVES
In this chapter, you will learn about:
1. Why globalization is not new
2. Market globalization: An organizing framework
3. Dimensions of market globalization
4. Drivers of market globalization
5. Technological advances
5. Societal consequences of market globalization
6. Firm-level consequences of market globalization:
Internationalization of the firm’s value chain
1■
Key Themes
■ Globalization has been around for centuries- the early civilizations in the Mediterranean, Middle East, Asia, Africa, and Europe have all contributed to its growth.
■ Market Globalization means reconfiguration of the value chain so as to capitalize on low-cost locations.
■ The framework used to explain globalization consists of drivers (inputs), dimensions (processes), and consequences – both societal and firm-level (outputs).
■ Dimensions- growing global interconnectedness of buyers, producers, suppliers, and governments. Globalization has fostered the emergence of regional economic integration blocs, growth of global investment and financial flows, the convergence of buyer lifestyles and needs, and the globalization of production.
■ Drivers- falling trade and investment barriers; market liberalization and adoption of free market economics in formerly closed economies; industrialization and economic development (emerging markets); integration of world financial markets; and technological advances.
■ Globalization makes internationalization an imperative, technology provides the means.
■ Consequences- societal- globalization interferes with national sovereignty, is associated with offshoring, tends to decrease poverty, may widen the gap between the rich and the poor, may harm the natural environment, and may promote the loss of national cultural values.
■ Consequences- firm- Firms are compelled to globally reconfigure key value-adding activities such that value-chain activities reduce the costs of R&D and production, or gain closer access to customers.
Teaching Tips
■ Input-Process-Output model: As this chapter is framed with a globalization model consisting of drivers (inputs), dimensions (processes), and consequences – both societal and firm-level (outputs). Make it simple for your students, and start with an explanation of a fundamental input-output model from Systems Theory. This model can be applied to any open system- from biology to business. Once you highlight the essence of the model, you can break your class into four groups, and assign one of the following to each group: (1) drivers (inputs- what drives it), (2) dimensions (processes- what is it), (3) societal consequences (outputs-results), and (4) firm-level consequences (outputs-results). You may want to help them a bit by sharing some of the points under Key Themes (above). Allocate 10 minutes for each group to understand what their component means and how it fits into the overall model. Then, a designated group member from each group must share their findings with the class.
Commentary on the Opening Vignette:
BANGALORE: IT’S GLOBAL DESTINATION
· Key message
■ The globalization of business and the integration of functions across the value chain and across countries is illustrated by companies such as Accenture, AOL, British Airways, Cisco, Philips, and Ernst & Young which have relocated their customer service centers, software development, chip design, computer systems maintenance, X-ray diagnosis, mortgage processing, tax form preparation, and lost luggage tracking to Bangalore, Delhi, Chennai, Hyderabad, and other emerging high-tech centers across India.
· Uniqueness of the situation described
■ The advantages of sourcing to India are unique:
(1) Indians are paid one-quarter of what Westerners expect for similar work, and in many cases, they do it better.
(2) India is home to several million highly educated knowledge workers.
(3) English is widely spoken.
(4) India is located on the other side of the world from Europe and the U.S., allowing Indians to take advantage of time-sharing; knowledge economy is a 24-hour workday.
■ The advantages of IT globalization:
(1) Virtual meetings with global suppliers- U.S. designers can be on the screen speaking with their Indian software writers and their Asian manufacturers, simultaneously.
(2) Intellectual work (e.g. proprietary software) can be chopped up with parts going to Boston, Bangalore, and Beijing; disaggregated, delivered, distributed, produced, and put back together again, making it easy for anyone to do remote development.
(3) Emerging markets like India, Brazil, and China can compete equally for global knowledge work as never before
■ The implications of globalization:
(1) Consumer products/services no longer identify your global position.
(2) Knowledge work can be developed worldwide, and will locate where maximum factor advantages accrue to the firm.
(3) Free trade and global sourcing benefit consumers worldwide to receive maximum quality at minimum price.
(4) Both producer and consumer nations can increase their wealth and quality of life
(5) Commensurate with the increase in the standard of living and influx of workers, comes congestion, pollution, high rents, a raucous nightlife, and Western values.
■ New Airport- Bangalore recently opened a new, $500 million airport to support the city’s rapid growth, even though fewer than 5% of Bangalore residents have ever been inside an airplane.
■ Housing- Government construction projects focus on high-rise apartments for the wealthy, while a shortage of affordable housing has forced long-time residents out of the city or into slums.
· Classroom discussion
■ Almost everyone in the class will have a personal experience to share regarding sourcing to India, so capitalize on this and make it personal. Some will have a positive story, others less so. What these experiences will illustrate are the tradeoffs that Multinational Enterprises (MNEs) and Small and Medium-sized Enterprises (SMEs) must consider when reconfiguring their value chains globally. Cultural differences will be discussed in Chapter 4, but for now, consider that firms many times do not even reflect upon cultural differences as an issue in deciding the sequencing and location of their value-adding activities. Some of their experiences will be grounded in cultural differences. This introduction serves to underscore the delicate balance of a host of complex variables to be considered when deciding where to configure a firm’s value chain.
III. DETAILED CHAPTER OUTLINE
■ Twin mega trends have altered the international business landscape by enabling both marketing and procurement activities on a global scale: the globalization of markets or economies and technological advances.
■ Globalization of Markets is a broad term referring to the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers, and governments in different countries, i.e. the gradual integration and growing interdependence of national economies.
■ Market globalization is manifested by the production/marketing of branded products/services worldwide.
■ Economic integration is accelerated by declining trade barriers and the Internet.
■ Globalization enables firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge.
■ Technological advances in information, manufacturing, transportation, and the Internet have facilitated rapid and early internationalization of countless firms.
◘ Example- Neogen (www.neogen.com). Having internationalized quickly with a worldwide clientele, Neogen is a highly successful international firm. Founders developed superior diagnostic kits to:
● Test for pesticide residue (farmers)
● Use with pharmaceuticals, vaccines, and topicals (veterinarians)
● Test for E. coli (government agencies)
■ Market Globalization and Technological Advances- Antecedents and Consequences:
◘ Growing world trade and foreign direct investment
◘ Spread of technology
◘ Global sourcing and sales of products/services
◘ Broad product/service consumer options
◘ Competion and innovation foster product/service price reductions
◘ Job creation – contributing to higher living standards
◘ Global convergence of some products- illustrated by universal demand, e.g. music, entertainment, consumer electronics, food
◘ Transformation of national economies
◘ Dissemination of economic, political, and legal values, e.g. liberalized economies, free trade, and intellectual property rights
WHY GLOBALIZATION IS NOT NEW
Globalization is not new; it has simply accelerated and acquired a more complex character in recent decades.
■ Early civilizations in the Mediterranean, Middle East, Asia, Africa, and Europe have all contributed to the growth of globalization.
■ The word ‘trade’ comes from the Anglo-Saxon term trada, which means to walk in the footsteps of others.
■ Ancient trade routes were the foundation for a high level of cross-cultural exchange of ideas that lead to the development of religion, science, economic activity, and government.
■ The phrase “all roads lead to Rome” is not so much a metaphorical reference to Rome’s dominance of the world 2,000 years ago, but to the fact that Rome’s territorial colonies were constructed as commercial resource centers to serve the needs of the Roman Empire and increase its wealth.
■ In an empire that stretched from England to Israel and from Germany to Africa, the Romans created more than 300,000 kilometers of roads. Roman roads were the life-blood of the state that allowed for trade to flourish.
■ In the middle ages, the Knights Templar acted as guardians for pilgrims making the hazardous journey to pay homage to the birth place of the Christian religion.
■ In addition to protecting tourists, this warrior order created the first international banking system with the use of rudimentary traveler’s checks, eliminating the need for travelers to carry valuables on their person, which could be easily robbed.
■ Genghis Khan in 1100 not only united the Mongols but created an empire beyond the Chinese border, including Korea and Japan in the East, Mesopotamia (modern day Iraq and Syria), Russia, Poland, and Hungary.
■ Genghis Khan instituted common laws and regulations over his domain, most notably the preservation of private property to enhance and protect the trading imperative.
■ Arab merchants traded in spices across land routes reaching from northern Arabia across modern-day Turkey, through Asia Minor, and finally reaching China.
■ By concealing the origins of cinnamon, pepper, cloves, and nutmeg, such traders were able to gain a monopoly and control prices. Europeans came to believe that the spices came from Africa, when they had merely changed hands there.
■ Under the traditional trading system, spices, linen, silk, diamonds, pearls, and opium-based medicines reached Europe via indirect routes over land and sea.
■ Representing one of the earliest systems of international distribution, the products passed through many hands on their long voyage. At every juncture, prices increased several fold (i.e. value chain).
■ Globalization evolved out of an international, common heritage shared by worldwide civilizations to reach out and interact with one another.
■ Exchange with others gave societies the opportunity to expand and grow.
■ Trade through the ages fostered civilization; without it, we would be a world of warring tribes using combat to get what we want.
■ Cross-border trading opened the world to innovations and progress.
Phases of Globalization
■ Exhibit 2.1 summarizes the Phases of Globalization. Since the 1800s, the evolution of market globalization has witnessed four distinct phases, each triggered by global events and technological discoveries:
The First Phase of Globalization
1830 – 1880s
■ The first phase of globalization began about 1830 and peaked around 1880.
■ Cross-border commerce became widespread in this period due to the growth of railroads, efficient ocean transport, and the rise of large manufacturing and trading firms.
■ The inventions of the telegraph and telephone in the 1800s facilitated information flows between and within nations and greatly aided early efforts to manage companies’ supply chains.
The Second Phase of Globalization
1900 -1930
■ The second phase of globalization began around 1900 and was correlated with the rise of electricity and steel production.
■ This phase reached its height just before the Great Depression, a worldwide economic downturn that started in 1929.
■ At the turn-of-the-century, Western Europe was the most industrialized region, and its colonization of countries worldwide led to the establishment of some of the earliest subsidiaries of multinational enterprises (MNEs).
■ European companies such as BASF, Nestlé, Shell, Siemens, and British Petroleum had established foreign manufacturing plants by 1900.
■ The Italian manufacturer Fiat supplied vehicles to nations on both sides of the war.
The Third Phase of Globalization
1948 - 1970s
■ The third phase of globalization followed World War II.
■ At war’s end in 1945, substantial pent-up demand existed for consumer products, as well as for resources to rebuild Europe and Japan.
■ Among the leading economies, the U.S. was least harmed by the war and became the world’s dominant economy.
■ Substantial government aid helped stimulate economic activity in Europe.
■ Pre-war years had been characterized by high tariffs and strict controls on currency and capital movements.
■ Post-war, leading industrialized countries including Australia, Britain, and the U.S. sought to reduce international trade barriers.
■ The result of this effort was the General Agreement on Tariffs and Trade (GATT) – the precursor to the World Trade Organization (WTO).
■ GATT, emerging from the Bretton Woods Conference of 23 nations in 1947, served as a global negotiating forum for liberalizing trade barriers and marked the beginning of a series of annual meetings aimed at reducing international trade and investment barriers.
■ Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards.
■ Eventually, many more nations joined the GATT, and their efforts led to the formation of the WTO.
■ WTO- A multilateral governing body empowered to regulate international trade and investment.</glossdef></glossentry></glossary></marginalnote>
■ Some 149 nations are now members of the WTO.
■ Additional global cooperation led to the formation of key international organizations such as the International Monetary Fund, the World Bank, and the United Nations.
■ Early multinationals from this third phase of globalization originated from the U.S., Western Europe, and Japan.
■ Firms like Unilever, Philips, Royal Dutch-Shell, British Petroleum, and Bayer organized their businesses by establishing autonomous subsidiaries in each of the foreign countries where they did business.
■ Numerous companies developed strong brand names, including Nestlé, Kraft, John Deere, Kellogg, Lockheed, Caterpillar, Coca-Cola, Chrysler, Pepsi-Cola, Singer, and Levi’s.
■ U.S. multinationals such as IBM, Boeing, Texas Instruments, Xerox, and McDonnell-Douglas spread out across the globe, leveraging technological competitive advantages.
■ Gradually, MNEs began seeking cost advantages by locating factories in developing countries with low labor costs.
■ 1960s- Growing MNE activities and early efforts at trade liberalization resulted in substantial increases in international trade and investment.
■ 1960s/1970s- Recovered from World War II, MNEs in Europe and Japan began to challenge the global dominance of U.S. multinationals.
■ With the easing of trade barriers and currency controls, capital began to flow freely across national borders, leading to integration of global financial markets.
The Fourth and Current Phase of Globalization 1980s - Present
■ The fourth and current phase of globalization began in the early 1980s.
■ This period witnessed enormous growth in cross-border trade and investment activity. The following innovations caused this phase:
●Commercialization of the personal computer
●Arrival of the Internet and Web browsers
●Advances in communication and manufacturing technologies
●Collapse of the Soviet Union and ensuing market liberalization in central
and Eastern Europe
●Substantial industrialization and modernization efforts of East Asian economies including China
■ Growing global prosperity began to reach emerging markets such as Brazil, India, and Mexico.
■ 1980s - Huge increases in FDI, especially in capital- and technology- intensive sectors
■ Internationalization made feasible for small and medium-sized enterprises (SMEs) - geographically distant yet electronically interconnected- due to technological advances in information, communications, and transportation.
■ These technologies also facilitated the globalization of the service sector in areas such as banking, entertainment, tourism, insurance, and retailing.
■ Growing integration inspired mergers/acquisitions such as GM acquiring Saab in Sweden, Ford taking over Mazda in Japan, and Daimler Benz acquiring Chrysler in the U.S.
■ Globalization and technological advances resulted in the “death of distance”. That is, a shrinking world in terms of geographic and cultural distances that long separated nations.
■ Exhibit 2.2 illustrates the progression of the phases of globalization, shrinking the world into a manageable global marketplace.
MARKET GLOBALIZATION: AN ORGANIZING FRAMEWORK
■ Exhibit 2.3 presents the Drivers and Consequences of Market Globalization.
■ This model distinguishes between:
(1) the drivers or causes of globalization;
(2) the dimensions or manifestations of globalization;
(3a) societal consequences of globalization; and
(3b) firm-level consequences of globalization- factors compelling firms to proactively internationalize.
■ The double arrows illustrate the interactive relationship between market globalization and its consequences.
■ As market globalization intensifies, individual business enterprises are compelled to respond to challenges and exploit new advantages.
■ Proactive internationalization- seek new markets, find lower-cost inputs, or obtain other advantages or adverse home market conditions (e.g. regulation or declining industry sales), push firms to boldly venture abroad
■ Generally, proactive internationalization tends to be more successful than reactive internationalization.
■ Example- Vodafone has internationalized mainly via foreign direct investment (Australia, Hong Kong, Scandinavia, Africa, Asia, Europe, India, and the Americas), and implements a proactive global strategy by selling standardized products and services, and employing standardized marketing programs around the world.
■ Vodafone has annual sales of over $74 billion, with 340 million customers worldwide, equity interests in more than 20 countries, and a 45% ownership stake in U.S. Verizon Wireless.
■ As emerging markets develop economically, they leapfrog past older technologies, e.g. landline systems vs. cell phone technology instead. Vodafone capitalized upon the intersection of technology, globalization, and emerging market trends when it acquired Turkey’s second-biggest mobile phone operator, Telsim in 2008.
■ In 2011, the firm acquired a controlling interest in a major cell phone firm in India, a move that leveraged the country’s rapid economic growth and need to upgrade its phone systems.
■ Universal demand is the pivotal underpinning for a global strategy as standardization and economies of scale are hallmarks for achieving the global efficiencies that this strategy is known for, and can translate to price competition.
DIMENSIONS OF MARKET GLOBALIZATION
■ In the context of international business, market globalization may be viewed simultaneously as:
(a) Consequences of economic, technological, and government policy trends;
(b) Drivers of economic, political, and social phenomena;
(c) Drivers and consequences of firm-level internationalization.
■ Globalization of markets is a multifaceted phenomenon with six major dimensions:
1. Integration and interdependence of national economies.
■ The multicounty aggregate activities of reconfiguring and integrating value-chain activities gives rise to economic integration
■ Governments contribute to this integration by:
(1) Gradually lowering trade and investment barriers;
(2) Harmonizing their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), e.g. EU
(3) Establishing supranational institutions that transcend national borders and involve cooperation among several countries that seek further reductions in
International Business: The New Realities, 3e (Cavusgil)
Chapter 2: Globalization of Markets and the Internationalization of the Firm
1) Nationalization refers to the gradual integration and growing interdependence of national economies.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
2) The initial phase of globalization was triggered by the introduction of the railroads and ocean transport.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
3) The Great Depression marked the beginning of the second phase of globalization.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
4) The third phase of globalization was triggered by the development of personal computers, the Internet, and Web browsers.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
5) Firms expand abroad solely as a reaction to market globalization.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
6) Firms often internationalize proactively, in order to pursue new markets, find lower-cost inputs, or obtain other advantages.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
7) Firms that pursue internationalization as a strategic move tend to approach global competition more aggressively than do firms that internationalize on a purely reactive basis.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
8) Offshoring and the flight of jobs are prime drivers of market globalization.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
9) Globalization of production activities and services is a dimension of market globalization.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
10) Governments have facilitated economic integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
11) In a "common market," barriers to the cross-border flow of factors of production are removed.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
12) The globalization of capital refers to the aggregate activities of firms that gives rise to economic integration.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
13) Converging tastes of consumers worldwide promote traditional lifestyles and values in individual countries.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
14) Companies strive to drive down prices through economies of scale, by standardizing what they sell.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
15) Falling trade barriers are facilitated by the WTO.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
16) The end of the Cold War in 1989 hindered the forces of market liberalization in Eastern Europe.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
17) Industrialization implies that emerging markets are increasing their dependence on low-cost labor.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
18) Technological advances have helped make internationalization affordable for all sizes of firms.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
19) The Internet has increased the cost of transmitting voices, data, and images.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
20) Mobile phones are the most transformative technology in developing economies.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
21) Today, the cost of transportation, as a proportion of the value of products shipped internationally, has increased dramatically.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
22) In international economics, codetermination refers to the tendency for a financial or monetary crisis in one country to spread rapidly to other countries, due to integrated national economies.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
23) Large multinationals are not constrained by market forces because they can exert considerable influence on governments through lobbying.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
24) To minimize globalization's harm and reap its benefits, governments should strive for nationalized economic regimes.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
25) The first wave of offshoring began in the 1990s with the exodus of service-sector jobs in credit card processing, software code writing, accounting, health care, and banking services.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
26) Countries that liberalize international trade and investment enjoy faster per-capita economic growth.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
27) Environmental destruction diminishes as economies develop, at least in the long run.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
28) "McDonaldization" or "Coca-Colonization" of the world refers to the idea that globalization can alter people's norms, values, and behaviors, which may tend to homogenize over time.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
29) Globalization results in more demanding buyers who shop for the best deals worldwide.
Answer: TRUE
Difficulty: Easy
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
30) Market globalization compels firms to organize their sourcing, manufacturing, marketing, and other value-adding activities on a strictly local scale.
Answer: FALSE
Difficulty: Easy
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
31) Which of the following is characteristic of globalization of markets?
A) lack of skilled labor
B) conservatism
C) declining trade barriers
D) diminishing gap between the rich and the poor
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
32) The first phase of globalization was characterized by the ________.
A) rise of steel production
B) rise of SMEs
C) dominance of MNEs in the agricultural industry
D) growth of railroads
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
33) The ________ phase of globalization began around 1900 and was associated with the rise of electricity and steel production.
A) first
B) second
C) third
D) fourth
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
34) The third phase of globalization was triggered by ________.
A) the end of World War II
B) the invention of electricity
C) the end of World War I
D) the Great Depression
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
35) Which of the following reflects the major contribution of GATT to globalization?
A) It instituted strict controls on international currencies.
B) It simplified patent and copyright laws.
C) It reduced barriers to international trade and investment.
D) It eliminated the divide between the rich and the poor.
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
36) The fourth phase of globalization is characterized by ________.
A) rise of railroads and ocean transport
B) reduction of barriers to trade by Western industrialized countries
C) the initiation of the Marshall Plan to reconstruct Europe
D) enormous growth of cross-border trade and investment
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
Internationalization Conference (Scenario)
At a conference on business internationalization strategies, representatives of three different businesses meet to discuss a joint venture between their companies. Business A is located in a country that internationalized during the second phase of globalization. Business B is based in a country that internationalized during the third phase of globalization. Business C is located in an emerging market country.
37) The representative from Business A is most likely from ________.
A) China
B) United Kingdom
C) Mexico
D) Brazil
Answer: B
Difficulty: Moderate
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
38) The representative from Business B is most likely from ________.
A) Panama
B) Hungary
C) Uganda
D) Japan
Answer: D
Difficulty: Moderate
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
39) The representative from Business C is most likely from ________.
A) Italy
B) Brazil
C) the United States
D) France
Answer: B
Difficulty: Moderate
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
40) Over time, the GATT evolved into the ________.
A) World Bank
B) International Monetary Fund
C) World Trade Organization
D) World Intellectual Property Organization
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
41) Early multinationals from the third phase of globalization originated in ________.
A) Japan
B) China
C) India
D) Brazil
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
42) The fourth phase of globalization ________.
A) is characterized by the rise of electricity and steel production
B) is characterized by the rise of MNEs from Japan
C) witnessed the Bretton Woods Conference of twenty-three nations in 1947 that led to the General Agreement on Tariffs and Trade
D) facilitated the globalization of the service sector in such areas as banking and retailing
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
43) As market globalization intensifies, ________.
A) the gap between the rich and the poor shrinks rapidly
B) the distance between consumers worldwide expands
C) individual firms respond to the challenges and new advantages that it brings
D) firms internationalize solely as a reaction to it
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
44) Which of the following is a driver of globalization?
A) greater emphasis on proactive internationalization
B) internationalization of firm's value chain
C) integration of world financial markets
D) globalization of services
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
45) Which of the following is a societal consequence of market globalization?
A) greater emphasis on proactive internationalization
B) internationalization of firm's value chain
C) new risks and instant rivalry from foreign competitors
D) offshoring and the flight of jobs
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
46) Firms that are more successful at global competition display each of the following qualities EXCEPT ________.
A) identifying foreign market opportunities aggressively
B) approaching internationalization from a reactive standpoint
C) actively pursuing partnerships with foreign firms
D) focusing intensively on building organizational capacities
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
Global Operations Report (Scenario)
As Vice President of Global Expansion for Pax Telecom, Deva Mikiri is tasked with preparing a comprehensive report on the company's global operations over the past twenty years. Deva assigns three strategists to collaborate on the History portion of the report, which details the rationale behind Pax's decisions to expand operations in particular areas. Rashid Ahl focuses on early expansion to China, which occurred after China began to make its market more accessible to foreign companies. Markus Teller focuses on Pax's expansion to Eastern Europe, which was motivated by increased industry privatization in key countries. Lavonne Jackson focuses on expansion to Japan, which happened when the company's commercial bank expanded its service network to Asia.
47) To which of the following drivers of market globalization is Markus most likely to attribute his company's expansion to Eastern Europe?
A) advances in technology
B) integration of world financial markets
C) market liberalization
D) industrialization
Answer: C
Difficulty: Moderate
Skill: Application
Objective: 2-2
AACSB: Analytic skills
48) In terms of international business, market globalization can be viewed as a ________.
A) consequence of a strong emphasis on traditional values worldwide
B) consequence of the loss of national sovereignty
C) driver and consequence of firm-level internationalization
D) prime cause of rising diseconomies of scale in emerging economies
Answer: C
Difficulty: Moderate
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
49) A value chain is ________.
A) the sequence of administrative policies implemented to promote economic integration by a government
B) the process of relocating manufacturing and production to valuable and cost-effective locations abroad
C) the process of integrating national economies during a financial crisis
D) the sequence of value-adding activities performed by a firm in the course of developing, producing, marketing, and servicing a product
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
50) Regional economic integration blocs ________.
A) reduce trade and investment barriers
B) reduce private investments
C) adopt a hostile stance toward the private sector
D) hinder the cross-border flow of factors of production
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
51) Which of the following is an example of a supranational institution?
A) the World Intellectual Property Organization
B) the UNICEF
C) the Red Cross
D) the World Trade Organization
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
52) Governments have facilitated economic integration by ________.
A) increasing barriers to international trade and investment
B) developing supranational institutions to further reduce trade barriers
C) adopting different monetary and fiscal policies within the same regional economic integration blocs
D) standardizing consumer lifestyles and preferences
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
53) The free movement of capital around the world is also known as ________.
A) bond-based debt financing
B) contagion
C) the globalization of capital
D) common market arrangement
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
54) ________ refers to the sequence of value-adding activities performed by the firm in the course of developing, producing, marketing, and servicing a product.
A) A value chain
B) A supply chain
C) Value gap
D) Value migration
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
55) Companies strive to drive down prices ________.
A) by centralizing manufacturing and procurement to a single source
B) by standardizing what they sell
C) by thwarting the growth of supranational institutions
D) by discouraging competition
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
56) Convergence of consumer preferences has led to an enhanced emphasis on standardization which implies that ________.
A) the consistently rising prices of consumer goods have led to a demand vacuum in the market
B) the distance between consumers worldwide has increased with the advent of technology
C) the raw materials, parts, and components sourced by professional buyers are very similar in design and structure
D) the globalization of services has adversely affected the quality of service worldwide
Answer: C
Difficulty: Moderate
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
57) Reduction in trade barriers is associated with the emergence of ________.
A) fragmentary monetary and fiscal policies across the borders
B) regional economic integration blocs
C) widespread violation of intellectual property rights law
D) violation of GATT provisions
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
Global Operations Report (Scenario)
As Vice President of Global Expansion for Pax Telecom, Deva Mikiri is tasked with preparing a comprehensive report on the company's global operations over the past twenty years. Deva assigns three strategists to collaborate on the History portion of the report, which details the rationale behind Pax's decisions to expand operations in particular areas. Rashid Ahl focuses on early expansion to China, which occurred after China began to make its market more accessible to foreign companies. Markus Teller focuses on Pax's expansion to Eastern Europe, which was motivated by increased industry privatization in key countries. Lavonne Jackson focuses on expansion to Japan, which happened when the company's commercial bank expanded its service network to Asia.
58) In describing the main driver behind Pax's expansion to China, Rashid is most likely to emphasize ________.
A) high rate of employee attrition in China
B) advances in technology
C) reduction of barriers to trade
D) integration of world financial markets
Answer: C
Difficulty: Moderate
Skill: Concept
Objective: 2-4
AACSB: Analytic skills
59) Which of the following drivers of market globalization is Lavonne's research most likely to recognize as the factor responsible for the company's expansion to Japan?
A) integration of world financial markets
B) the highly conservative nature of the Japanese economy
C) the rise of monopoly markets in Japan
D) reduction of barriers to investment
Answer: A
Difficulty: Moderate
Skill: Concept
Objective: 2-4
AACSB: Analytic skills
60) ________ marked the end of the 50-year Cold War and smoothed the integration of former command economies into the global economy.
A) The end of the World War II
B) The Bolshevik Revolution in Russia
C) China's free-market reforms
D) China's move to join the WTO
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
61) Financial market integration makes it possible for internationally active firms to ________.
A) nationalize manufacturing industries
B) minimize offshoring
C) increase tariffs on the import of automobiles and industrial machinery
D) engage in foreign currency transactions
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
62) The globalization of finance ________.
A) enables companies to minimize offshoring
B) contributes to firms' abilities to develop and operate world-scale production and marketing
C) discourages innovation
D) discourages free international exchange of goods and services
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
63) Which of the following statements is true of technological advances?
A) It provides a means for globalization to happen.
B) It discourages internationalization.
C) It inhibits the growth of new products and services.
D) It helps consolidate traditional values among consumers worldwide.
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
64) Technological leapfrogging is defined as ________.
A) adopting new technology late in the hype cycle
B) adopting new technology as soon as it is released
C) bypassing certain stages of technology to come up with a radical innovation when upgrading to new products
D) boosting demand artificially by postponing the sale of new technology in the market
Answer: C
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
65) The science and process of creating and using information resources is known as ________.
A) information design
B) information technology
C) psychographics
D) demographics
Answer: B
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
66) Which of the following benefits of IT is specific to smaller firms?
A) It mitigates organizational anarchy.
B) It creates competitive advantages by encouraging organizational learning.
C) It aids in the consolidation of market monopolies.
D) It allows firms to design and produce customized products they can target to narrow, cross-national market niches.
Answer: D
Difficulty: Moderate
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Reflective thinking skills
67) ________ are the most transformative technology in developing economies.
A) Mobile phones
B) Televisions
C) Intranets
D) E-mails
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
68) Technological advances have contributed to manufacturing by ________.
A) promoting traditional lifestyles and values
B) reducing cross-border flow of factors of production
C) promoting nationalization
D) reducing production costs
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
69) Stella manages the production team at Camden Inc., a manufacturer of heavy industry machinery in the United States. She needs to decide if her firm should export finished products or manufacture abroad. Which of the following would most likely help her evaluate the best alternative in this instance?
A) What is the gross national income of the United States?
B) What are the costs of transporting raw materials, components, and finished products?
C) Is employee empowerment culturally favored in the United States?
D) What is the average annual rate of employee turnover in the manufacturing industry?
Answer: B
Difficulty: Moderate
Skill: Application
Objective: 2-5
AACSB: Analytic skills
70) ________ refers to the tendency of a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies.
A) Contagion
B) Nationalization
C) Internationalization
D) Codetermination
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
71) The ability of a nation to govern its own affairs is known as ________.
A) sovereignty
B) liberalization
C) interdependence
D) homogenization
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
72) The relocation of manufacturing and other value-chain activities to cost-effective locations abroad is known as ________.
A) insourcing
B) cultural imperialism
C) contagion
D) offshoring
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
73) Which of the following is an example of offshoring?
A) Fahad, a resident of the UAE can share his views—data and information—about the country's construction industry with his friends in the U.S.
B) The IT support services for customers of Mayfair Inc., a U.S. based consumer electronics manufacturer, are based in India.
C) Treat Corp. is a food and beverage manufacturer based in Texas. It decided to move from Houston to Fort Worth in Texas to cut production costs.
D) Lin, a Chinese citizen, decides to move to the U.K. after her application for scholarship is accepted by a leading university in London.
Answer: B
Difficulty: Moderate
Skill: Application
Objective: 2-6
AACSB: Dynamics of the global economy
74) An underground economy ________.
A) refers to the informal economic sector
B) refers to the formal economic sector
C) is characterized by dominantly legal transactions
D) is regulated and monitored by public authorities
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
75) While a degree of cultural imperialism may be at work, it is offset by the countertrend of ________.
A) offshoring
B) McDonaldization
C) privatization
D) local nationalism
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
Globalization Debate (Scenario)
In his international business class, Professor Jang organizes a debate on the societal effects of market globalization. Juan Prince takes a position that highlights the negative effects of market globalization. He emphasizes how multinational enterprises can wield so much influence that they threaten national sovereignty. He also notes the prevalence of low wages and sweatshop conditions as firms utilize low-cost labor abroad. Juan then describes the detrimental effects of corporate pollution on the environment, and he ends his argument by explaining how market globalization helps homogenize national cultures. Rina Taylor is assigned to counter Juan's position.
76) Which of the following is Rina most likely to cite as a counter example to Juan's argument regarding the influence of MNEs on national sovereignty?
A) the dominating influence of market forces on the global economy
B) technological advances in computer-aided design of products
C) the political influence of large firms such as Walmart
D) the actual GDPs of underdeveloped economies
Answer: A
Difficulty: Moderate
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
77) Which of the following most likely supports Rina's argument over Juan's concerning wages and working conditions in developing countries?
A) Most African countries today still suffer from low or negative GDP growth.
B) Vietnam has experienced a five-fold increase in wages as a result of the growth of the footwear industry there.
C) The move of Electrolux to Mexico cost Michigan 2,700 jobs.
D) Minimum wages should be established at set levels, regardless of the impact on the number of jobs.
Answer: B
Difficulty: Moderate
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
78) Rina is most likely to counter Juan's claim regarding environmental effects by pointing out which of the following?
A) The intensity of environmental pollution is far greater in emerging economies than in undeveloped ones.
B) China's landscape was permanently altered by the construction of the Three Gorges Dam.
C) Environmental destruction tends to diminish in the long run, as economies develop.
D) Attempts at foreign cultural imperialism are often blocked by national governments.
Answer: C
Difficulty: Moderate
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
79) Which of the following statements most likely to counters Juan's argument concerning the homogenization of national cultures?
A) As globalization standardizes superficial aspects of life across national cultures, people resist these forces by insisting on their national identity and taking steps to protect it.
B) Foreign values tend to shift not just superficial aspects of culture, but deeply held beliefs as well.
C) Material goods such as cell phones and computers are found in most homes throughout the world.
D) In most industries, domestic operation alone cannot sustain competitive business growth.
Answer: A
Difficulty: Moderate
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
80) The most direct implication of market globalization is on the firm's ________.
A) value chain
B) supply chain
C) internal stakeholders
D) top management
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
81) Which of the following statements is true about value chain and international business?
A) Exporting firms perform most of the downstream value chain activities in the home market.
B) Exporting firms perform most of the upstream value chain activities in the home market.
C) Exporting firms perform most of the upstream value chain activities abroad.
D) Exporting firms perform most of the research and product development and production abroad.
Answer: B
Difficulty: Moderate
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
82) In a typical value chain, the firm ________.
A) rarely conducts research and development
B) performs most upstream value-chain activities abroad, when exporting
C) performs marketing activities such as pricing, promotion, and selling
D) performs most downstream activities in the home market, when exporting
Answer: C
Difficulty: Moderate
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
83) Which of the following statements is true about the firm-level consequences of market globalization?
A) The globalization of markets has narrowed down new business opportunities for internationalizing firms.
B) Globalization drives firms to relocate key value-adding activities to the most advantageous locations around the world.
C) A firm's value chain is not subject to internationalization.
D) Through offshoring, a firm relocates a major value-chain activity by establishing a factory or subsidiary in the home market.
Answer: B
Difficulty: Moderate
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
84) Which of the following stages comes before procurement in a firm's value chain?
A) research & development
B) marketing
C) manufacturing
D) distribution
Answer: A
Difficulty: Easy
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
85) Which of the following represents the final stage in a firm's value chain?
A) marketing
B) procurement
C) research & development
D) sales and service
Answer: D
Difficulty: Easy
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
Acme Software (Scenario)
Acme Software is a U.S.-based maker of software products for the health care industry. Recently Acme has been investigating whether it would be beneficial to internationalize some of its value-chain activities. Acme hires a consulting group to help determine which, if any, value-chain activities could be conducted abroad to promote business growth. The consulting group identifies two health care software development companies in India that could provide programming services at a lower cost than Acme's current expenditures for programming. In addition, the consultants conduct international market research which shows that German health care companies have a strong demand for the type of software that Acme offers.
86) Which of the following activities in Acme's value chain would be internationalized if Acme decides to establish a development contract with one of the Indian software firms?
A) sales
B) distribution
C) marketing
D) procurement
Answer: D
Difficulty: Easy
Skill: Application
Objective: 2-7
AACSB: Dynamics of the global economy
87) Which of the following would be most important for the consulting group to consider when deciding whether to recommend that Acme internationalize its sales efforts to Germany?
A) Will Acme save money on advertising by targeting small rather than large companies?
B) How intense is the competition from German companies offering similar products?
C) What type of training is received by programmers in software firms abroad?
D) Is employee empowerment culturally favored in Germany?
Answer: B
Difficulty: Easy
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills
88) Which of the following would be most important for Acme to determine before outsourcing its programming services to India?
A) What benefits have Indian companies gained historically from internationalizing their value-chain activities?
B) Do Indian businesses outsource value-chain activities to Europe?
C) Would the lower cost of outsourcing allow Acme to sustain a competitive advantage in its business operations?
D) Is either of the Indian health care companies interested in moving their operations abroad?
Answer: C
Difficulty: Easy
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills
89) Describe the role of GATT and the WTO in reducing barriers to trade and investment worldwide, and explain how this reduction has led to the integration and interdependence of national economies.
Answer: The Bretton Woods Conference of twenty-three nations in 1947 led to the General Agreement on Tariffs and Trade (GATT) and a series of negotiations that, over time, reduced barriers to international trade and investment. Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards. The GATT eventually transformed into the World Trade Organization, a multilateral governing body that grew to include 149 member nations. The WTO aims to regulate and ensure fairness and efficiency in global trade and investment. Global cooperation in the post-war era gave birth to other international organizations such as the International Monetary Fund and the World Bank.
Internationally active firms devise multicountry operations through trade, investment, geographic dispersal of company resources, and integration and coordination of value-chain activities. Governments have facilitated this integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), and developing supranational institutions—the World Bank, International Monetary Fund, World Trade Organization, and others—that seek further reductions in trade and investment barriers.
Difficulty: Moderate
Skill: Synthesis
Objective: 2-1, 2-3
AACSB: Dynamics of the global economy
90) In a short essay, discuss the impact of market globalization on consumer lifestyles and preferences around the world. Provide examples to illustrate your answer.
Answer: Around the world, consumers spend their money and time in increasingly similar ways. Lifestyles and preferences are converging. Shoppers in Tokyo, New York, and Paris demand similar household goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPods, Levi's jeans, and BlackBerry cell phones. Major brands have gained a global following, encouraged by greater international travel, movies, global media, and the Internet, which expose people to products, services, and living patterns from around the world. Movies such as Transformers and The Twilight Saga receive much attention from a global audience. Convergence of preferences is also occurring in industrial markets, where professional buyers source raw materials, parts, and components that are increasingly standardized—that is, very similar in design and structure. Yet, even as converging tastes facilitate the marketing of highly standardized products and services to buyers worldwide, they also promote the loss of traditional lifestyles and values in individual countries.
Difficulty: Moderate
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
91) How has the adoption of free markets worldwide served as a driver of market globalization? Provide three examples to support your answer.
Answer: The collapse of the Soviet Union's economy in 1989 and China's free-market reforms marked the end of the 50-year Cold War and smoothed the integration of former command economies into the global economy. Numerous East Asian economies, stretching from South Korea to Malaysia and Indonesia, had already embarked on ambitious market-based reforms. India joined the trend in 1991. These events opened roughly one-third of the world to freer international trade and investment. China, India, and Eastern Europe have become some of the most cost-effective locations for producing goods and services worldwide. Privatization of previously state-owned industries in these countries has encouraged economic efficiency and attracted massive foreign capital into their national economies.
Difficulty: Moderate
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
92) What is implied by industrialization? How does it bring about economic development? What is modernization?
Answer: Industrialization implies that emerging markets—rapidly developing economies in Asia, Latin America, and Eastern Europe—are moving from being low value-adding commodity producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of premium products such as electronics, computers, and aircraft. For example, Brazil is now a leading producer of private aircraft, and the Czech Republic excels in the manufacture of automobiles. As highlighted in the opening story, India has become a leading supplier of computer software. Economic development is enhancing standards of living and discretionary income in emerging markets. Perhaps the most important measure of economic development is gross national income (GNI) per head. Modernization is increasing the attractiveness of emerging markets as investment targets and facilitating the spread of ideas, products, and services across the globe.
Difficulty: Moderate
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy; Use of information technology
93) In a short essay, identify the four areas in which technological advances had their greatest impact on business. Describe the impact of each area on business today.
Answer: Perhaps the most important driver of market globalization has been technological advances in information, communications, manufacturing, and transportation. While globalization makes internationalization imperative, technological advances provide the means for it to happen.
a. Information technology: Information technology (IT) is the science and process of creating and using information resources. Its effect on business has been revolutionary. The cost of computer processing fell by 30 percent per year during the past two decades and continues to fall. IT creates competitive advantages by giving companies new ways to outperform rivals. IT benefits smaller firms too, allowing them to design and produce customized products they can target to narrow, cross-national market niches.
b. Communications: The Internet, and Internet-dependent systems such as intranets, extranets, and e-mail, connect millions of people worldwide. Today, the widest range of products and services—from auto parts to bank loans—is marketed online. Transmitting voices, data, and images is essentially costless, making Seoul, Stockholm, and San Jose next-door neighbors, instantly.
c. Manufacturing: Computer-aided-design (CAD) of products, robotics, and production lines managed and monitored by microprocessor-based controls are transforming manufacturing, mainly by reducing the costs of production. Revolutionary developments now permit low-scale and low-cost manufacturing. Firms can produce products in short production runs cost-effectively. These developments benefit international business by allowing firms to more efficiently adapt products to individual foreign markets, profitably target small national markets, and compete more effectively with foreign competitors who already have cost advantages.
d. Transportation: The development of fuel-efficient jumbo jets, giant ocean-going freighters, and low-cost shipping, often through the use of high-tech composites, have revolutionized international transportation. The "death of distance" refers to the shrinkage of the geographic and cultural distances that long separated nations.
Difficulty: Moderate
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
94) Describe the fourth phase of globalization. What is contagion?
Answer: The fourth phase of globalization began in the early 1980s, which saw enormous growth in cross-border trade and investment. The phase was triggered by the development of personal computers, the Internet, and Web browsers; the collapse of the Soviet Union and ensuing market liberalization in Central and Eastern Europe; and industrialization and modernization in East Asian economies, including China.
Contagion refers to the tendency of a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies. Starting in 2008, the world economy experienced a severe financial crisis and global recession, the worst in decades. The crisis began in the United States and, like a contagious disease, spread around the world.
Difficulty: Moderate
Skill: Synthesis
Objective: 2-1, 2-6
AACSB: Dynamics of the global economy
95) In a short essay, explain the concept of sovereignty. How does globalization affect sovereignty?
Answer: Sovereignty, the ability of a nation to govern its own affairs, is a fundamental principle that underlies global relations. One country's laws cannot be applied or enforced in another country. Globalization can threaten national sovereignty in various ways. MNE activities can interfere with the sovereign ability of governments to control their own economies, social structures, and political systems. Some corporations are bigger than the economies of many nations. Indeed, Walmart's internal economy—its total revenues—is larger than the GDP of most of the world's nations, such as Greece, Peru, and Thailand. Large multinationals can exert considerable influence on governments through lobbying or campaign contributions. They often lobby their government for, say, devaluation of the home currency, which gives them greater price competitiveness in export markets. MNEs influence the legislative process and extract special favors from government agencies. Gradual integration of the global economy and increased global competition, combined with privatization of industries in various nations, are making some companies less powerful within their national markets. Today, globalization and the spread of financial crises compel governments to pursue sound economic policies and managers to manage their firms more effectively. To minimize globalization's harm and reap its benefits, governments should strive for open and liberalized economic regimes. Specifically, governments should ensure the freedom to enter and compete in markets, protect private and intellectual property, enforce the rule of law, and support voluntary exchange through markets rather than through political processes. Banks and financial institutions should be regulated appropriately. Transparency in the affairs of business and regulatory agencies is critical.
Difficulty: Moderate
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
96) Discuss the effect of globalization on national culture.
Answer: Globalization exerts strong pressures on national culture. Market liberalization opens the door to foreign companies, global brands, unfamiliar products, and new values. Consumers increasingly wear similar clothing, drive similar cars, watch the same movies, and listen to the same recording stars. Advertising leads to the emergence of societal values modeled on Western countries, especially the United States. Hollywood dominates the global entertainment industry. In this way, globalization can alter people's norms, values, and behaviors, which may tend to homogenize over time. Critics call these trends the "McDonaldization" or the "Coca-Colonization" of the world. To combat such trends, some governments try to block cultural imperialism and prevent the erosion of local traditions. In Canada, France, and Germany, the public sector attempts to prevent U.S. ideals from diluting local traditions. Hollywood, McDonald's, and Disneyland are seen as Trojan horses that permanently alter food preferences, lifestyles, and other aspects of traditional life. For better or worse, however, such trends are probably inevitable in a globalizing world.
Difficulty: Moderate
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
97) In a short essay, discuss the impact of globalization on Africa.
Answer: Africa is home to the poorest countries. The majority of its 1 billion people live on less than $2 a day. It is the area least integrated into the world economy and accounts for less than 3 percent of world trade. Although it has abundant natural resources, Africa remains underdeveloped due to such factors as inadequate commercial infrastructure, lack of access to foreign capital, high illiteracy, government corruption, wars, and the spread of AIDS. In recent years, experts have suggested that the most effective way to alleviate African poverty is to employ business-based models. After decades of stagnation, several sub-Saharan African countries have experienced significant economic growth thanks to increasing international trade in commodities. For example, Africa is a major supplier of petroleum to Europe and the United States. Angola is among the top oil suppliers to China. There is a ripple effect to economic development. As certain sectors in Africa have boomed in recent years, foreign banks, retailers, and MNEs have set up operations in the continent. In formerly war-torn Rwanda, countless business opportunities have emerged in sectors as diverse as mining, tourism, telecommunications, and real estate. China and India are beating out U.S. firms and quickly increasing their business dealings in Africa. Chinese companies are investing billions of dollars in the continent. International trade and investment are helping to address many of Africa's most pressing development needs. It will take many more years before Africa achieves a critical mass of infrastructure and business culture sufficient to substantially raise average incomes across the continent.
Difficulty: Moderate
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
98) What is meant by the internationalization of a firm's value chain? How do advances in technology contribute to internationalization of firms' value chains?
Answer: The most direct implication of market globalization is on the firm's value chain. Market globalization compels firms to organize their sourcing, manufacturing, marketing, and other value-adding activities on a global scale. In a typical value chain, the firm conducts research and product development (R&D), purchases production inputs, and assembles or manufactures a product or service. Next, the firm performs marketing activities such as pricing, promotion, and selling, followed by distribution of the product in targeted markets and after-sales service.
The value-chain concept is useful in international business because it helps clarify what activities are performed where in the world. For instance, exporting firms perform most "upstream" value-chain activities (R&D and production) in the home market and most "downstream" activities (marketing and after-sales service) abroad. Each value-adding activity in the firm's value chain is subject to internationalization; that is, it can be performed abroad instead of at home. Companies have considerable latitude regarding where in the world they locate or configure key value-adding activities. The most typical reasons for locating value-chain activities in particular countries are to reduce the costs of R&D and production or to gain closer access to customers. Through offshoring, the firm relocates a major value-chain activity by establishing a factory or other subsidiary abroad. A related trend is global outsourcing, in which the firm delegates performance of a value-adding activity to an external supplier or contractor located abroad. Globalization allows firms to relocate key value-adding activities to the most advantageous locations around the world.
While globalization makes internationalization imperative, technological advances provide the means for it to happen. Firms interact more efficiently with foreign partners and value-chain members than ever before. They transmit all kinds of data, information, and vital communications that help ensure the smooth running of their operations worldwide. They use information technology to improve the productivity of their operations, which provides substantial competitive advantages. For example, information technology allows firms to more efficiently adapt products for international markets or produce goods in smaller lots to target international niche markets.
Difficulty: Easy
Skill: Synthesis
Objective: 2-5, 2-7
AACSB: Dynamics of the global economy
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