Mgmt Global Business Environment

Question 1

Two countries agree to open their borders to international business transactions with one another without tariffs.

How does this affect global business?

Answer 1

It leads to developing free trade policies with strategic partners.

Question 2

Which negative outcome on political systems comes from globalization?

Answer 2

Creation of isolationist policies

Question 3

Which factor results in a higher rate of globalization?

Answer 3

Reduced trade barriers

Question 4

What are the four factors in Ghemawat’s CAGE analysis?

Answer 4

Culture, administration, geography, economy

Question 5

What is a major drawback to the home country when companies outsource manufacturing jobs to countries with lower worker wages?

Answer 5

Loss of manufacturing jobs

Question 6

A country has a characteristic traditional economic system with poor infrastructure and limited economic opportunity.

What is the impact of this system on the process of globalization?

Answer 6

The globalization process is at a disadvantage as the country has a lower standard of living.

Question 7

What is a characteristic of a market economy?

Answer 7

Firms seek to maximize profits.

Question 8

Which impact does Islamic law directly have on businesses?

Answer 8

It forbids charging interest

Question 9

Which institution helps to maintain availability of global financing to solve trade deficit issues?

Answer 9

International Monetary Fund

Question 10

The Functions of the WTO

Answer 10

Oversee Agreements: Oversee the implementation and administration of the trade agreements between nations that are under the WTO’s scope of authority. The WTO trade agreements cover goods, services, and intellectual property.
Transparency of Trade Policy: All WTO members must publish, undergo a review of, and notify any changes in their trade regulations.
Assist Developing Nations: Many developing countries and emerging markets lack the experience and technical expertise needed to deal with extensive and very comprehensive trade agreements. The WTO provides them with critical training and support, thereby ensuring that the WTO is inclusive and equitable toward both the wealthiest and most impoverished nations in the world.
Provide Outreach: Maintain a dialogue with nongovernmental agencies, the media, and the general public to aid in transparency about WTO procedures, enhance cooperation, and increase awareness about WTO activities.
Settle Disputes: Provide a forum for negotiations and the settling of disputes among nations. (WTO, n.d.).
Ensure Non-discrimination: Most-favored-nation (MFN) status requires that a WTO member must apply the same terms and conditions to trade with all other WTO members. In other words, if a country grants another country (even a non-WTO member) a special favor, then every other WTO member must get the same treatment.

Question 11

The International Monetary Fund

Answer 11

Oversees the international monetary system
Cooperative institution
In phase one, prior to 1973, regulated international exchange rates
In phase two, post-1973, provides a means for effective international currency exchange, supervises economic policies, and provides financial assistance to members
Small: 2,300 staff members
Resources come from quota subscriptions or membership fees
Acts more like a credit union
Loans to all member nations
Voting power in the IMF is based on a quota system. Each member is assigned a quota based on that country’s relative position in the world economy.” A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing” (IMF Quotas, 2016). In addition to basic votes, each country has one additional vote for each Special Drawing Right (SDR), a unit of account in the IMF that represents a claim to currency held my IMF member countries.

Question 12

The World Bank

Answer 12

Encourages developing countries to borrow for development projects
Developmental institution
Financed reconstruction after wars in the 1940s. It is now focused on supporting developing countries
Large: 40 offices, over 10,000 staff
Investment bank owned by the governments of the 180 member nations
Borrows and loans
Borrowers must meet requirements to qualify for loans

Question 13

What is the current focus of the World Bank?

Answer 13

Improving quality of life

Question 14

For which concern has the World Trade Organization been criticized?

Answer 14

Adoption of labor standards protecting labor rights

Question 15

How is the Special Drawing Right of the International Monetary Fund (IMF) valued?

Answer 15

It is based on the value of the five most significant members’ currencies.

Question 16

Two countries agree to open their borders to international business transactions with one another without tariffs.

How does this affect global business?

Answer 16

It leads to developing free trade policies with strategic partners.

Question 17

A country uses its established technology infrastructure to produce a good.

What is the impact of this infrastructure on trade?

Answer 17

It will create barriers to entry for other nations.

Question 18

What was the economic impact of the North American Free Trade Agreement (NAFTA)?

Answer 18

The shift of jobs away from low comparative advantage industries

Question 19

NAFTA

Answer 19

The goal of NAFTA has been to encourage trade between Canada, the United States, and Mexico. By reducing tariffs and trade barriers, the countries hope to create a free-trade zone where companies can benefit from the transfer of goods.2

Question 20

USMCA

Answer 20

The United States, Mexico, and Canada updated the 24-year-old NAFTA Agreement and renamed it the United States-Mexico-Canada Agreement or USMCA.

The major points of the United States-Mexico-Canada Agreement (USMCA) are as follows:

It is an agreement to provide protection and enforcement of intellectual property rights. The new intellectual property agreement will provide ten years of data protection for biological drugs. U.S. creators are given the same intellectual protection rights in domestic markets as they are given in foreign markets. The agreement will continue to provide strong patent protection. The agreement requires a minimum copyright term of the life of the author plus 70 years.
The country of origin rule that states that automobiles must have 75% of their components manufactured in the United States, Canada, or Mexico to qualify for a zero-tariff rate.
Labor provisions for wages state that 40-45% of automobile parts must be made by workers earning a minimum of $16 per hour by 2023.
The Canadian dairy market is more accessible to U.S. farmers.
A sunset clause that states the agreement expires in 16 years and is subject to review every six years

Question 21

A company that is located in Country A would like to sell products in Country B. The government of Country B is pushing for a tariff-based international trade agreement on the product.

What is the reasoning behind Country B’s decision?

Answer 21

Country B seeks to protect its economy and give it the opportunity for long-term expansion.

Question 22

Countries A and B participate in trade agreements that allow free trade among participant countries. However, Country A imposed quotas on several imported products to protect its domestic products.

What is the effect, if any, on the domestic prices of these products?

Answer 22

Increases

Question 23

Two countries decide to open up trade with each other.

What is likely to happen when trade opens up?

Answer 23

Jobs will increase in comparative advantage industries.

Question 24

What is a purpose of a country implementing trade protectionism?

Answer 24

To protect an infant industry

Question 25

trade protectionism

Answer 25

saves jobs in a specific industry by using tariffs and quotas on imported goods in that industry. This can subsequently create new domestic or keep old jobs in that industry. However, there are downsides to protectionism, outweighing the benefits. First, if consumers are paying higher prices to the protected industry, they inevitably have less money to spend on goods from other industries, so jobs are lost in those other industries. Second, if the protected product is sold to other firms, and other firms must now pay a higher price for a key input to their production, then production in those firms will decrease. They may even lose sales to foreign producers who do not need to pay the higher input price. Lost sales translate into lost jobs. The hidden opportunity cost of using protectionism to save jobs in one industry is jobs sacrificed in other industries. This is why the United States International Trade Commission, in its study of barriers to trade, predicts that reducing trade barriers would not lead to an overall loss of jobs. Protectionism reshuffles jobs from industries without import protections to industries that are protected from imports, but it does not create more jobs.

Question 26

exports

Answer 26

goods sold by a domestic country to other countries

Question 27

imports

Answer 27

goods bought by the domestic country from other countries

Question 28

Free trade on imports and exports occurs

Answer 28

when there are little or no government tariffs, quotas, subsidies, or prohibitions to inhibit trade

Question 29

Country A and Country B are trying to mend their relationship. A company from Country A would like to invest in a company in Country B. Which action by Country B will help these two countries meet their goal?

Answer 29

Provide tax exemptions

Question 30

Which level of regional economic integration is a key feature of a Customs Union?

Answer 30

Unified trading policies with non-members

Question 31

What is a drawback of creating regional trade agreements?

Answer 31

They shift employment opportunities.

Question 32

The United States–Mexico– Canada Agreement (USMCA), a modification of the North American Free Trade Agreement (NAFTA), broadened the scope of free-trade between member nations and tightened restrictions in the region. Which regulation was established by this new agreement?

Answer 32

Almost half of all automobile parts must be made by a labor force that earns a minimum of $16 per hour by 2023.

Question 33

A U.S. capital investment firm is researching new markets to enter to diversify its portfolio. The director of foreign investments presented a pitch to the board of directors encouraging entry into the Costa Rican telecommunications market by investing in local companies in the region through acquisition. Which alliance supports this director's suggestion?

Answer 33

Central America Free Trade Agreement

Question 34

Central America Free Trade Agreement

Answer 34

The Central America Free Trade Agreement (CAFTA-DR) was passed in 2005. Besides the United States, the agreement includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The United States is already the principal exporter to these nations, so economists do not think that it will result in a significant increase in U.S. exports.1 However, U.S. exporters of petroleum products, plastics, paper, textiles, motor vehicles, machinery, medical equipment, and agricultural products have seen an increase in exports. There are some perceived adverse effects of CAFTA-DR on both sides as well. For the United States, the potential for increasing trade deficits and shifting production overseas may result in more U.S. jobs lost in manufacturing and downward pressure on wages. For Central America, imports of staple crops and falling prices can displace subsistence farmers, the opportunities in new exports are expected to be less than imports and weakened rules on workers' rights might prevent workers from organizing (Asgary, Samii, & Frutos-Bencze, 2016). Economic growth in El Salvador, Honduras, and Guatemala has been lower than the other Central American countries leading to economic instability. Economic instability provides an environment conducive to drug trade and increases emigration rates

Question 35

A firm based in Country A manufactures its products in Country B and pays the manufacturing employees in the currency in which they are located. Which currency situation will result in the maximum profit for the firm?

Answer 35

The currency in Country A is strong relative to the currency in Country B.

Question 36

Which drawback is associated with regional economic integration?

Answer 36

Increased exclusive internal trade

Question 37

Which factor contributes to the creation of a monopoly?

Answer 37

Control of natural resources

Question 38

Monopoly

Answer 38

A monopoly, exists when there is only one producer of a good or service. Monopolies are characterized by a lack of economic competition in the production of a good or service and a lack of viable substitutes for that good or service. As a result, the producer determines the price by deciding the quantity of the good or service to produce. Control over natural resources or owning intellectual property rights are often sources of monopoly power in the global economy. One example of a monopoly based on resource control is De Beers. De Beers Consolidated Mines was founded in 1888 in South Africa as an amalgamation of a number of individual diamond mining operations. De Beers had a monopoly over the production of raw diamonds for most of the twentieth century, as it owned almost 80% of all the raw diamond mines in the world. It used its dominant position to manipulate the international diamond market. The De Beers model changed at the turn of the twenty-first century, when more diamond mines were discovered and diamond producers from Russia, Canada, and Australia started to distribute diamonds outside of the De Beers channel. The growth of monopolized businesses led to demand for laws to regulate such practices. These policies are known as antitrust laws and are based on one basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up

Question 39

Antitrust Laws

Answer 39

a number of laws that regulate large companies that may hold a monopoly. exist to safeguard the market from anticompetitive practices. Approximately 120 countries have antitrust policies, although the application of such laws differs significantly around the world. For example, fighting cartels is a common objective of both EU and U.S. antitrust policies; however, their approach is different. The EU has a centralized administrative system for antitrust enforcement, meaning that companies are penalized with fines. In contrast, antitrust enforcement in the United States is considered a matter of criminal law. This means that penalties are placed against private individuals, and victims of anticompetitive crimes can sue for the full amount of damage suffered. In the United States, you could personally be accused of a criminal act, such as property crime, and not only face personal financial penalties but also criminal sanctions such as imprisonment.

Question 40

perfectly competitive market,

Answer 40

A market with no barriers to enter or exit the market. Producers compete with each other and consumers can buy from any producer.

Question 41

The Sherman Antitrust Act

Answer 41

1890 expanded in 1914, dealt with limiting the power of price-controlling cartels. This act was expanded upon in 1914 with two more competitive laws: the Clayton Antitrust Act and the Federal Trade Commission Act. Both of these acts sought to organize a governmental body equipped to protect consumers from unfair competitive practices.4

Question 42

Import tariffs

Answer 42

taxes on goods that are imported into a country. They are more common than export tariffs.

Question 43

Export tariffs

Answer 43

taxes on goods that are leaving a country. Taxing exports may be implemented to raise tariff revenue or restrict the world supply of a good.

Question 44

Protective tariffs

Answer 44

tariffs levied to reduce imports of a product and protect domestic industries

Question 45

Revenue tariffs

Answer 45

are tariffs levied to raise revenue for the government.

Question 46

Specific tariffs

Answer 46

tariffs that levy a flat on each item imported. For example, a specific tariff would be a fixed $1,000 duty on every car imported into a country, regardless of how much the car costs.

Question 47

Ad valorem tariffs

Answer 47

Import taxes based on a fixed percentage of the assessed commercial value of imported goods

Question 48

Compound tariffs

Answer 48

Taxes on imported goods that are a combination of a fixed amount and an amount based on the value of the goods

Question 49

harmonized tariff schedule

Answer 49

United States, tariff schedule

Question 50

Which convention provides gap fillers for terms that may not be expressly stated in agreements between two companies?

Answer 50

Contracts for the International Sale of Goods

Question 51

Contracts for the International Sale of Goods

Answer 51

The UN Convention on Contracts for the International Sale of Goods (CISG) applies to the sale of goods between parties from countries that are signatories to this treaty. Like the UCC, it creates a uniform law for the parties that adopt it. Specifically, the CISG applies to contracts for the international sale of commercial goods. It also provides gap-fillers for terms that may not be expressly stated in the contract. However, important differences between the UCC and the CISG exist, particularly with respect to the revocability of an offer, its acceptance, the requirement for a writing to be enforceable, and essential terms.4

Question 52

Uniform Commercial Code (UCC)

Answer 52

In the United States, two primary sources of law govern contracts: the common law and the Uniform Commercial Code (UCC). The UCC Article 2 has rules governing the obligations of parties, specifically to the offer, acceptance, and performance of sales contracts and so on. But it also imposes some general obligations on the parties. One deals with unfair contract terms, and the other involves rules for merchants.

Question 53

Which laws are violated by practices such as price-fixing, price discrimination, restraints, and monopolization?

Answer 53

Anti-trust

Question 54

An international company's consumers are demanding that the owners make socially ethical business decisions concerning their packaging, but the company is finding that the suggested green modifications are increasing the costs of producing the product. Which concern is this company facing by meeting these ethical demands?

Answer 54

Decreased profitability

Question 55

A business is entering a global market at the same time it has been trying to improve its level of corporate social responsibility (CSR). Which CSR goal should this company remember during this process?

Answer 55

Increase shareholder trust via high ethical standards

Question 56

Functional Structure

Answer 56

based on the primary functions performed within an organizational unit (e.g., marketing, finance, production, sales). Each area would have a manager who coordinates all activities related to that function. Functional areas are sometimes referred to as "silos" because each area operates in relative isolation.

Question 57

Divisional Structure

Answer 57

In a divisional structure, employees are divided into departments based on product areas, markets, and/or geographic regions. This type of structure is commonly used in large, international corporations.

Question 58

Matrix Structure

Answer 58

A matrix structure is a combination of different types of structures. Firms that engage in projects of limited duration often use a matrix structure where employees can be put on different teams to maximize creativity and idea flow. This type of structure is common in high-tech and engineering firms. Due to the complexities of international businesses, many large multinational organizations mix different types of departmentalization to form a matrix structure.

Question 59

Teams Structure

Answer 59

A team structure is made up of people with complementary skills working together for a common purpose. This structure is less hierarchical, with shared leadership and objectives. helps increase employee creativity, productivity, and mutual accountability.

Question 60

An international company has employees divided into departments related to designated areas of the business, such as marketing, production, human resources, information technology, and customer service. What is the organizational structure of this company?

Answer 60

Functional

Question 61

A multinational corporation (MNC) with headquarters in the United States is seeking to limit its supply chain to U.S. companies so that decision-making authority is localized at the highest level of the organization. What is a result of using this decision-making structure?

Answer 61

There is increased consistency in operations.

Question 62

A company wants to hold a direct operating presence in a foreign country, so it buys a company in the target country and runs the operations. Which type of business agreement is this company using?

Answer 62

Subsidiary

Question 63

Exporting

Answer 63

Fast entry, low risk Low control, low local knowledge, potential negative environmental impact of transportation

Question 64

Licensing and Franchising

Answer 64

Fast entry, low cost, low risk Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound

Question 65

Strategic Alliance

Answer 65

Shared resources to gain more market share. Very vulnerable relationship – because any one entity could exit at any time

Question 66

International Joint Venture

Answer 66

Shared costs reduce investment needed, reduced risk, seen as local entity Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures

Question 67

Acquisition

Answer 67

Fast entry; known, established operations High cost, integration issues with home office

Question 68

Subsidiary (Greenfield Venture)

Answer 68

Gain local market knowledge; can be seen as insider who employs locals; maximum control High cost, high risk due to unknowns, slow entry due to setup time

Question 69

Ethnocentric:

Answer 69

The company uses the same HR policies and practices in its subsidiaries as in the parent company. Leadership roles and key positions are filled by expatriates from the home country. The focus is on top-down decisions from the home office. This approach is used when the company does not trust the abilities or training of the local employees or has a biased view of foreign workers.

Question 70

Polycentric:

Answer 70

Each subsidiary controls its own HR policies and practices. The focus is on each subsidiary as an autonomous business. Leadership roles and key positions are staffed by local professionals who can be immediately effective without the adjustment period needed for by someone new to the culture. This approach is used when the company values efficiency and respects the talents and education of the host country's workforce.

Question 71

Geocentric

Answer 71

Parent company and subsidiaries work together to create an integrated worldwide HR system that allows for differences but shares resources across the organization. Leadership positions are filled by the best employees worldwide based on a meritocracy rather than on nationality. There is more fluid movement among employees, which creates diversity in the workforce. This approach is used when the company prioritizes quality and talent regardless of its origin (Deters, 2017). The global banking corporations, such as HSBC, often use this model, particularly in the financial capitals of the world.

Question 72

A company wants to reduce the effects of currency fluctuations with its host country subsidiaries for the coming year. Which action should the company take?

Answer 72

Use a forward contract

Question 73

A multinational company uses transfer pricing to reduce its tax burden in the subsidiaries' countries. Which effect does this action have on subsidiaries?

Answer 73

Lowered profit

Question 74

What is an example of a micro risk for multinational companies?

Answer 74

Government nationalization of assets

Question 75

Fourth Industrial Revolution

Answer 75

According to Klaus Schwab (2016), founder and executive chairman of the World Economic Forum, the Fourth Industrial Revolutionopens a new window has been building on the third and is evolving at an exponential, not linear, pace. Mobile devices could connect billions of people with the capability to provide almost unlimited processing power, storage capabilities, and access to knowledge. The strength of this network of connected human intellect is multiplied by advances in AI, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing

Question 76

Enterprise resource planning (ERP)

Answer 76

connects departments and ensures that everyone has access to the data necessary to complete their tasks.

Question 77

An international company works with many economic sectors and notices that one sector in particular is slower to adopt artificial intelligence, which limits their opportunities on a global scale. Which economic sector shows this slower pace?

Answer 77

Education