Chapter 03 Doing Business in Global Markets 1. Today, over 90% of the companies doing business globally believe it is important for their employees to have experience working in other countries. True False
Importing is the selling of products to another country. True False
Exporting is the selling of products to another country. True False
The United States imports more products and services than any nation in the world. True False
The United States is the largest exporter in the world. True False
While the U.S. is a large exporter, Germany exports a higher percentage of their GDP. True False
Competition in exporting is very intense. True False
One reason countries trade with other countries is that even technologically advanced nations cannot produce all the products their people want and need. True False
Free trade is the movement of goods and services between nations without political or economic barriers. True False
Global trade is the exchange of goods and services between countries. True False
Global trade includes the exchange of art, sports, and cultural events. True False
Absolute advantage is the basis for most global trade today. True False
Comparative advantage theory states that a country should sell to other countries those products that it produces most efficiently and buy from other countries those products it cannot produce as efficiently. True False
A country has an absolute advantage if it has a monopoly in the production of a specific product or is able to produce it more efficiently than all other nations. True False
Today, there are more countries that have some form of absolute advantage in a product or service, than years ago. True False
Free trade results in a mutually beneficial exchange between and among nations. True False
Global trade in services and entertainment has lagged behind the global trade of products. True False
With respect to free trade, many U.S. citizens prefer "fair trade, not free trade." True False
Opportunities for college graduates in international business continue to decrease as it gets more expensive to travel abroad. True False
An example of a U.S. import would be the purchase of oil by U.S. companies from Saudi Arabia. True False
According to the theory of comparative advantage, a country should buy from other countries those goods it produces most efficiently. True False
In order to enjoy the highest standard of living possible, comparative advantage theory states that all nations should strive to become self-sufficient. True False
Products made in Canada are sold in the U.S. because these two nations agree to eliminate economic and political barriers between nations. They participate in free trade. True False
After finishing college, Nathan joined his uncle's company in Miami, FL, a company that buys bauxite, copper, and other minerals from the country of Chile, and brings them into the U.S. Everyday, he brokers trades with mines in Chile. His uncle's company is in the export business. True False
In southern California, there are banana plantations. These plantations cannot produce all the bananas consumed by persons in the U.S. The fact that the U.S. grows and sells bananas gives it a comparative advantage in bananas. It is not an absolute advantage and that is why we choose to import bananas from other countries, as well. True False
Small businesses are less involved in global trade today than in the past. True False
Many foreign students in U.S. colleges and universities have discovered profitable opportunities by importing goods from their home countries into the United States. True False
The U.S. Department of Commerce predicts that by the year 2018, at least half of all small businesses will be exporters. True False
Just about anything that can be sold in the United States can also be sold to buyers in other countries. True False
Foreign travel can help in identifying global business opportunities. True False
If your business has an outstanding product, exporting offers a quick, easy, no hassle way to improve your profitability. True False
U.S. exports boost the U.S. economy. True False
A favorable balance of trade occurs when the value of a country's imports exceeds the value of its exports. True False
A favorable balance of trade occurs when the value of a country's exports exceeds the value of its exports. True False
In the Spotlight on Small Business topic, "Finding Cracks in the Great Wall," Mitch Free of MFG.com learned that lessons in doing business with other cultures are probably an unnecessary expense. True False
The balance of payments measures the inflows and outflows of money from tourism, foreign aid, military expenditures and foreign investments as well as flows resulting from exports and imports. True False
A trade deficit is the same as a favorable balance of trade. True False
The United States enjoys a trade surplus in the global market. True False
Recently the United States has experienced its highest trade deficits with China. True False
Even though the U.S. exports a vast amount of goods globally, it exports a much lower percentage of its products than other countries do. True False
Dumping is the practice of selling products in foreign markets at lower prices than what domestic firms are charging for the same product. True False
In order to prevent dumping, U.S. law stipulates that foreign firms selling similar products as domestic firms to U.S. customers must charge at least 10% more than what U.S. firms charge. True False
When trading in global markets, most countries prefer to import more than they export. True False
Compared to many other industrialized countries, the United States has historically exported a lower percentage of its products than other countries do. True False
Compared to many other industrialized countries, the United States has historically exported a much higher percentage of its products than other countries do. True False
The United States currently enjoys a favorable balance of trade with the rest of the world. True False
A favorable balance of trade occurs when the value of a nation's exports exceeds its imports. True False
In any given year, the United States' cash outflow to other nations exceeds its cash inflow from other nations. True False
Some firms will practice "dumping" in order to gain a foothold in a new market. True False
Foreign firms find it difficult to sell goods in the United States because most goods produced by foreign firms are already produced more efficiently by American firms. True False
As the most powerful economy in the world, the United States does not need to concern itself with having an unfavorable balance of payments. True False
The country of Nelly exports $250 of goods and services and imports $170 of goods and services. Nelly has an unfavorable balance of trade of $80. True False
If visitors from Germany spend money at Orlando, Florida's Disney World, it will increase the U.S.'s unfavorable balance of payments. True False
A Chinese steel manufacturer is selling certain types of steel in the United States at a price significantly lower than it sells the same steel in its home market. This practice may be a violation of U.S. law. True False
Japanese auto manufacturers, such as Toyota and Nissan, have invested billions of dollars in the United States by building new factories, warehouses, and offices. These investments increase "favorably" the balance of payments for the United States. True False
When the U.S. provides foreign aid to Israel and Egypt, a balance of payments outflow occurs. True False
The value of Chinese exports coming to the United States is greater than the value of goods China buys from the United States. This results in a U.S. trade deficit with China. True False
According to the Spotlight on Small Business box, "Finding Cracks In the Great Wall", the Internet (alone) made it possible for the owner of MFG.com to penetrate and develop long lasting relationships in the Chinese market. True False
The country of New Florentina mines more fluorite each year than it needs for its own manufacturing purposes. Recently, a neighboring country complained that its manufacturing sites could buy fluorite from New Florentina cheaper than they could buy it from its own mines. A government trading expert's claim that New Florentina is dumping fluorite onto its neighbor's market is probably accurate. True False
When competing in global markets, business organizations utilize a variety of strategies to reach foreign buyers. True False
Through licensing, domestic firms give foreign manufacturers/producers the right to produce their product and use their trademark in exchange for royalties. True False
When a firm agrees to license its product, it gains notoriety but gives up all revenues. True False
Franchising is popular both domestically and internationally. True False
An advantage of licensing is that licensors spend little or no money to produce and market their products. These costs are born by the licensees. True False
The U.S. government is reducing Export Assistance Centers due to businesses' lack of interest in their support. True False
Export trading companies assist businesses in reaching buyers, and dealing with customs, documentation, and payment. True False
One advantage of licensing is the relatively low cost of entering a foreign market. True False
One advantage of licensing as a strategy to enter the global market is the sharing of trade secrets. True False
While franchising is popular in the United States, it is not an accepted strategy for firms in the global market. True False
One advantage of franchising is that the parent corporation does not need to concern itself with adapting to the culture of another country. True False
According to Reaching Beyond our Borders box, the McDonald's Corporation is king of franchising due to its ability to adapt to other cultures. True False
Contract manufacturing is when a firm pays foreign manufacturers to produce its product. The Foreign manufacturer places the domestic company's label on the products. True False
Contract manufacturing requires heavy start-up costs by the domestic company. True False
Contract manufacturing is a form of outsourcing. True False
A joint venture is a partnership in which two or more companies join to undertake a major project. All parties commit financing and risk to the project. True False
According to current U.S. laws, American firms are prohibited from participating in joint ventures with foreign firms. True False
The purpose of forming strategic alliances is to share the costs of marketing new products and services to several countries. True False
A disadvantage of creating a foreign subsidiary is the loss of control over technology and expertise used in the production of the product. True False
Foreign direct investment refers to the buying of goods produced in another country. True False
Expropriation occurs when a host government takes over the assets of a foreign company. True False
Any corporation that exports at least 50% of its total output can be classified as a multinational corporation. True False
Firms with a physical presence in several different nations are considered multinational corporations. True False
Sovereign Wealth Funds (a form of foreign direct investment) are investment funds controlled by governments that hold large stakes in foreign companies. True False
As a form of franchising, Sovereign Wealth Funds are getting very little attention as a strategy for doing business in foreign markets. True False
According to the "Reaching Beyond Our Borders" box, McDonald's global sales continue to increase due to its willingness to serve a variety of foods, depending upon the nation where it is doing business. True False
One characteristic of an international joint venture is all parties sharing the risk of a major project. True False
A firm desiring to enter a foreign market with a limited investment should consider licensing. True False
When Nestlé, a Swiss company, purchased Ralston Purina, a U.S. company, Ralston Purina became a foreign licensee. True False
A firm may export everything it produces overseas and yet not be considered a multinational. True False
Contract manufacturing is a low cost way for GAP to outsource the production of its clothing designs. True False
Strategic alliances almost always result in one company taking over the financial interests of another company. True False
Governments directly participate in global markets through sovereign wealth funds. True False
The appeal of global marketing strategies is that they all involve the same amount of risk. True False
Leigh has created a technique for drying flowers that retains the vibrant color of certain flowering plants. Although out of style in the U.S., dried flower arrangements are still highly sought after in several European and Asian nations. It is difficult to preserve the ingredients that go into her formula for more than a month. She decides to partner with firms in other nations to make and sell the formula, but you suggest she license the formula to foreign companies, and agree to royalties when they create the formula and sell it. Your advice makes better sense. True False
The Nissan automobile assembly plant in Tennessee is an example of foreign direct investment in the United States. True False
Kodak contracts with a firm in Taiwan to manufacture Kodak digital cameras. This is an example of a joint venture. True False
The All-Sports Gaming Company has avoided contract manufacturing abroad due to the significant start-up costs in buying land and setting up its own manufacturing plants. True False
The Tsingtao Brewing company pays a fee to Anheuser-Busch for the right to brew and distribute Budweiser in China. Tsingtao is the licensor and the fee paid is a royalty. True False
The purchase of U.S. based Anheuser-Busch, by Belgian brewer InBev is an example of foreign direct investment. True False
An example of foreign direct investment would be Pepsi granting a Japanese firm the use of its formula and trademark, for a fee. True False
General Electric's (GE) website recently noted, "Russia has been one European country in which GE has made significant investments. GE is one of the largest foreign companies in Russia, operating multiple businesses including an equipment fleet with more than 1,500 large units." With physical presence in Russia, Argentina, Australia, Belgium, Greece, Kenya, Canada and other countries, GE is an example of a multinational company. True False
Ozark Bikes, Inc. has information that its bicycles will sell in Vietnam. In order to sell its products in Vietnam, the Vietnamese government requires Ozark Bikes to enter into a partnership, (also known as a joint venture) with a domestic firm. Both firms will assume costs and risk in the venture. True False
In 2007, the government of Saudi Arabia invested about $900 billion in western companies. This strategic global investment was considered a way for Saudi Arabia to expropriate others from investing in its nation. True False
In recent years, the government of Saudi Arabia has invested over $900 billion in foreign companies, including several U.S. companies. This move constitutes the creation of a Sovereign Wealth Fund, an emerging type of foreign direct investment. True False
Sociocultural, economic, and legal/regulatory hurdles cause significant challenges in global trade. True False
From a sociocultural perspective, U.S. business people are often accused of ethnocentricity. True False
Successful multinational corporations disregard cultural differences between countries where they own property and perform business transactions. True False
Sociocultural differences that affect global businesses include customs, language, and religion. True False
In the past, foreign companies have adapted to U.S. culture more easily than U.S firms have adapted to foreign cultures. True False
Effective human resource management styles are transferable from one culture to another. True False
Effective marketing strategies focus on the product and ignore the sociocultural differences in the global environment. True False
Many U.S. companies fail to think globally. True False
In global markets, no central system of law exists. True False
The Foreign Corrupt Practices Act of 1978 created an advantage for American businesspeople to compete in global markets. True False
An exchange rate is the value of one nation's currency relative to the currencies of other nations. True False
Global markets rely on the U.S. dollar as the universal currency. True False
Under a system of floating exchange rates, the value of a country's currency is determined by government regulation. True False
Devaluation refers to a decline in the value of a nation's currency relative to other currencies. True False
Bartering is the exchange of goods or services for other goods or services with no exchange of money traded. True False
Countertrading is a form of exchange where firms will put certain products "on the counter" offering them to foreign customers at a cheaper price than what they would offer them to domestic customers. True False
Efficient currency exchange markets have eliminated countertrade in global business transactions. True False
Currency fluctuations can be an advantage to firms trading in the global market. True False
Technological differences can prevent some companies from doing business abroad. True False
The introduction of standardized international laws regulating business organizations has greatly simplified global trade. True False
The same proven management styles used by companies in their domestic operations can be employed in their foreign subsidiaries. True False
A devaluation of the U.S. dollar would make American goods cheaper to foreign buyers. True False
From a sociocultural perspective, foreign companies have experienced a good amount of success in adapting their products and services to the U.S. market. True False
When it comes to ethics, successful American businesspeople are encouraged to follow the policy of "when in Rome, do as the Romans." True False
Since patent and copyright laws are the same in all nations, they are not of much impact to firms that compete globally. True False
If you travel to Mexico and the exchange rate is 12 pesos for one U.S. dollar, the peso is said to have strength against the dollar because you can get so many more pesos that you can dollars. True False
American businesspersons often fail to adapt to foreign markets because they feel that American culture is superior to other cultures in the world. True False
Differences in electrical systems throughout the world can impair a U.S. firm's ability to sell its products to other countries. True False
Recently a news article described the pirating of music originally recorded by popular celebrities in the U.S. It seems that a recording made in the U.S. can be copied within a couple of hours and sold abroad. The U.S. government is able to readily prosecute foreign companies involved in these illegal actions. True False
A United States firm recently won a large contract with a company in Bangladesh by providing government officials and company officials with American cars and promises to provide monetary gifts in exchange for the business. Fortunately, U.S. Law, under the Foreign Corrupt Practices Act permits U.S. companies to operate in this manner. True False
When studying abroad last year, Reilly found that his U.S. dollars did not stretch as far as he had hoped. Each time he exchanged U.S. dollars for euros, he gave up more U.S. dollars in exchange for less euros. Obviously, the dollar had strength against the euro. True False
The Ozark Bike Company recently entered into an agreement with a large Japanese retailer to distribute its bicycles in Japan. Ozark Bike Company sees itself in a favorable position because the Yen is gaining strength compared to the U.S. dollar making it cheaper for Japanese customers to buy U.S. products. True False
A few years ago, a well-known celebrity who promoted a line of clothing was accused of supporting child labor in a Honduras manufacturing site where the clothes were made. Although the celebrity's image was tarnished, he immediately was able to close down the operation due to a violation of international law. True False
Idle Time Gaming, Inc. needed silicon wafers that it knew could be mass produced efficiently by Silicon City, Inc., a start-up firm in India. The Indian company needed MSG (metallurgical grade silicon) in order to make the wafers which it knew it could get from a Chinese firm. The Chinese firm (mostly owned by the Chinese government) agreed to supply the silicon to the Indian company if it could get a certain quantity of gaming hardware from Idle Time. This beneficial exchange is described as countertrading. True False
Joanna Bresee, a graduate student from Carnegie Mellon, connected with the culture of Madagascar when she created lamba hoany (a native garment) with artful messages to save the more than 150 rare species of animals that inhabit Madagascar. In contrast to many Americans trying to do business abroad, Joanna successfully adapted her message to the native culture when she imprinted it on the native garment. True False
Trade protectionism is the use of government regulations to encourage the import of goods and services. True False
Countries often use trade protectionism measures to protect their domestic industries from foreign competition. True False
Under mercantilism, the basic economic idea was to achieve a favorable balance of trade. True False
Protective tariffs are designed to raise money for the government. True False
An import quota is a complete ban on the import or export of certain products. True False
A complete ban on the import or export of a specific good is called an embargo. True False
Restrictive standards that detail exactly how a product must be sold in a country are examples of protective tariffs. True False
Nontariff barriers such as the Japanese keiretsu can be just as detrimental to free trade as tariffs. True False
The main goal of the General Agreement on Tariffs and Trade (GATT) was to reduce trade restrictions among world nations. True False
The World Trade Organization (WTO) was established to mediate trade disputes among nations. True False
One goal of the World Trade Organization (WTO) is to increase national subsidies on agricultural products. True False
A common market is a group of countries that have no internal tariffs among member nations, yet have a common external tariff. True False
A major goal of the Mercosur common market consisting of several South American countries is to develop a common currency. True False
In 1999, the European Economic Community adopted a common currency known as the Euro. True False
CAFTA permits the United States, Canada, and Mexico to reduce trade barriers with one another while maintaining independent trade agreements with other countries. True False
Since the approval of the North American Free Trade Agreement (NAFTA), the value of U.S. exports to Mexico and Canada has increased. True False
Opponents of The North American Free Trade Agreement (NAFTA) warned that it would have serious economic consequences such as the loss of U.S. jobs. True False
The benefits of free trade agreements and common markets are hotly debated by economists. Some think they are good for trade; others believe they are detrimental to developing nations. True False
According to the theory of mercantilism, a country should develop policies that encourage a favorable balance of trade. True False
The principle of mercantilism encouraged nations to keep economics separate from politics. True False
If a protective tariff is placed on an imported product, the added cost will go to the government. True False
The complete ban on the sale of Cuban cigars in the United States is an example of an import quota. True False
The traditional Japanese keiretsu has increased trade opportunities for U.S. firms. True False
Imported wines such as Pinot Noirs from France or Italy often sell at a higher price than wine from Napa Valley, California. This is due to the protective tariff importers pay for the foreign wine. True False
The purpose of enacting some type of protectionist policy toward foreign goods is to limit competition from abroad, particularly when the country has domestic companies that produce and sell the same products and services. True False
The North American Free Trade Agreement (NAFTA) requires member nations to negotiate uniform trade agreements with nonmember nations. True False
With the achievements of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO), nearly all barriers to trade expansion are finally removed. True False
Many global economists believe the movement toward free trade areas and common markets is bad news for poorer countries that aren't members of a trading bloc. True False
The objectives of the North American Free Trade Agreement (NAFTA) include allowing free immigration between Canada, Mexico and the U.S. True False
A more recent free trade agreement between Cost Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the U.S., is known as the Central American Free Trade Agreement. Its strategy is to open new markets for all member countries and to lower tariffs between participating nations. True False
On a number of issues, the strategy behind common markets is debatable, but GATT is certain that such alliances do not prohibit individual member nations from expanding globally. True False
One of the rules of a common market is that all participating nations will uphold a common tariff on goods and services that are imported from countries that are not members of the trading bloc. Goods imported from non-member countries are more expensive than goods coming from member countries. True False
If two nations have a dispute over an international patent, the World Trade Organization may be asked to mediate and provide a decision within one year's time. True False
The nation of New Maraguay has a small commercial airplane industry that is struggling to keep up with the two large international commercial airplane manufacturers. The other nations in its trading bloc have agreed on an import quota on commercial airplanes, which limits the number of planes that any country in the trading bloc can buy from other airplane manufacturers. This strategy is necessary to help the New Maraguay's airplane manufacturer while it is in its infancy. True False
A small Italian grocery store in a large city sells five different kinds of feta cheese: Bulgarian, French, Danish, Greek, and a domestic cheese from Oregon. The domestic cheese sells for less than $2.00 per pound, while all the international cheeses are priced at over $4.00 per pound. Clearly, there is an embargo on international food products. True False
NAFTA is now over 15 years old. According to the Legal Briefcase box titled, "NAFTA or SHAFTA?" the agreement was strongly promoted by most U.S. organized labor groups. These unions still sing its praises due to the increases in manufacturing jobs in Mexico, and its ability to help deter illegal immigration. True False
The country of New Florentina requires that all imported beverages be contained in clear, well-labeled recyclable glass bottles. Several beverage producers refuse to trade with New Florentina because the cost of glass bottles cuts into their profits to the point where it just isn't worth it. New Florentina has created a nontariff barrier. True False
With all its perception of opportunity, the expansion of global trade is still plagued by terrorism, nuclear proliferation, rogue states, and other issues. True False
China and Russia present enormous trading opportunities. However, due to political risks in those counties, foreign direct investment is halted. True False
While Asia represents an important source of U.S. imports, few export opportunities exist for U.S. firms to sell goods and services to Asian consumers. True False
China is currently one of the three largest exporters in the world today. True False
The "China price" means the market value that U.S. firms place on products that they export to China. True False
The growth of the Internet and e-commerce enables companies to enter global markets without using the traditional distribution channels. True False
India and Russia are emerging markets that present enormous business opportunities. True False
Profitable opportunities in global markets are diminishing for small and medium sized businesses. True False
Offshore outsourcing is another term used to describe the act of U.S. firms selling their domestically manufactured goods to foreign customers. True False
A "second wave" of offshore outsourcing involves sizable numbers of skilled, well-educated, middle-income workers in service-sector jobs. True False
One advantage of offshore outsourcing is that consumers benefit from lower prices. True False
The second wave of offshore outsourcing is having a more negative effect on the U.S. job market. True False
Only large firms have the resources needed to successfully compete in the global environment. True False
As a market for U.S. exports, China represents the only major business opportunity on the continent of Asia. True False
China's one-party political system, its past human rights abuses, and issues related to counterfeiting of products continue to concern some U.S. firms about doing business there. True False
In the past few decades, U.S. manufacturers shifted focus from manufacturing and assembling products, to the design and architecture of products. Now, a new shift: the offshore outsourcing of design and architecture is proving to be an even more serious disruption to the U.S. economy. True False
Yesterday, Frank was trying to use his new laptop features, with only a negligible amount of success. His warranty said that he had three months of free technical support, so he promptly called the tech support number. After several minutes, he finally got through to someone who spoke English (the same language he speaks), but the dialect was still difficult to understand. He shook his head as he tried to listen carefully to every word the guy at the help desk provided, and thought to himself, "There are some pros and cons to outsourcing. I'm not certain the service is adding value for the customer." True False
Telewhiz, Inc. just contracted with a firm in the Philippines to provide customer service for its cell phone customers. Although there were cheaper labor markets that Telewhiz could have tapped, customers have reported that they understand English speaking Filipino people better than English speaking people in other countries. As an outsourcing option, it is a good compromise. True False
As you round out your final year at the university, you are trying to decide on the last two business electives you need to take. You are leaning toward international marketing and international financing because you recall reading that Forrester Research estimates that more than three million jobs could move to global markets in the next ten years. True False
You sell paint products and accessories for painters. Recently, you were in contact with merchants from India who have taken an interest in your products and are willing to talk more about entering into a contractual deal to purchase your goods. This opportunity may be just the thing to get your business over its slump, because you learned from your Introduction to Business class that very few barriers exist between U.S. and Indian markets. True False
____________ is the selling of products to another country. A. In-trading B. Exporting C. Importing D. Dumping
_____________ is buying products from another country. A. Importing B. Outsourcing C. Retailing D. Exporting
The largest importer in the global market today is: A. Japan. B. Russia. C. Germany. D. The United States.
In volume of exports, the three leading nations are: A. U.S., Germany, and China. B. U.S., France, and Canada. C. China, India, and Germany. D. England, China, and U.S.
The world market is approximately ______________. A. 7 billion potential customers B. 300 million potential customers C. 200 billion potential customers D. 30 billion potential customers
Which of the following continents is home to the largest percentage of the world's population? A. Africa B. Europe C. North America D. Asia
A nation has a ___________ in the production of a good or service if it can produce that good or service more effectively or efficiently than it can produce other goods. A. supreme advantage B. primary efficiency C. qualified advantage D. comparative advantage
__________ occurs when a country has a monopoly on producing a product or is able to produce it at a cost well below that of all other countries. A. Comparative advantage B. Absolute advantage C. Complete advantage D. Dumping advantage
The theory of comparative advantage exists because: A. there are too many products and services to choose from today. B. customers are always comparing the quality of service from companies in the same industry. C. no nation can produce all the products its people want and need. D. free trade agreements became the trend during the past 15 years.
One advantage of free trade is: A. jobs are shifted to low-wage global markets. B. service jobs are moved overseas. C. advanced production operations are built in low-wage countries. D. innovation for new products occurs which keeps firms competitively challenged.
The concept of free trade means: A. buyers and sellers contract with each other and offer some goods at no cost. B. goods and services can be traded freely across borders without political and/or economic barriers. C. there is no exchange of currency for these products. D. there is no exchange of currency, but the trading partners determine the value of the product and perform a bartering process to exchange goods.
Why does it make sense to trade with other nations? A. After producing all the product and service its people want and need, a nation can sell the excess products to the world. B. Some nations have lots of natural resources and technological know-how. They have an ethical obligation to offer the rest to other nations. C. Other nations need foreign currency. D. A nation will produce what it can produce most efficiently and effectively and buy from other nations what they can produce most efficiently and effectively.
Which of the following statements best describes the theory of comparative advantage? A. The best way for a nation to ensure full employment is to be totally self-sufficient rather than relying on other nations to obtain goods and services. B. Each nation should produce those goods that it can produce more efficiently and effectively than other nations, and buy the goods it cannot produce efficiently from other nations. C. The nation that has the largest reserves of gold and other natural resources will enjoy a position of comparative advantage in trade relationships. D. A nation should produce those goods for which domestic demand is comparatively strong, and should import those goods for which domestic demand is comparatively weak.
Country A is extremely efficient in the mining of tin. However, its climate and terrain makes it difficult to produce corn. According to the theory of comparative advantage, Country A should: A. produce both tin and corn in order to remain self-sufficient. B. watch the global market to see which product is bringing the highest price. C. import the resources needed to produce corn. D. concentrate its production on tin and buy corn from an efficient producer.
The theory of _______________ states that a nation should produce and sell goods to other countries that it produces most efficiently, and buy goods from other nations that they produce more efficiently. A. comparative advantage B. absolute advantage C. mercantilism D. bilateral advantage
Free trade between nations generally results in: A. industrialized nations gaining at the expense of developing nations. B. an increase of jobs in developed nations. C. mutually beneficial exchange relationships. D. higher prices for imported goods.
The United States currently enjoys a comparative advantage in __________. A. diamonds B. sheep production C. coffee D. software services
A free trade agreement is likely to result in: A. an increase in imported goods and services. B. an absolute advantage. C. less competition. D. productivity increases in all product categories, for all participating nations.
Carrie, a United States resident says that her home computer was made in Japan. Carrie purchased a(n): A. imported item. B. exported item. C. protected good. D. generic good.
Household Appliances, Inc. has a manufacturing plant near Chicago. The company specializes in compact washers and dryers for countries where consumers have less living space. Household Appliances participates in the global market through: A. importing. B. dumping. C. exporting. D. balancing trade.
Many of the toy products sold in the United States are imported from Taiwan because the Taiwanese can produce these products more efficiently than U.S. companies. This is an example of: A. Bilateral advantage. B. Comparative advantage. C. Absolute advantage. D. Unilateral advantage.
Climate and terrain in several South American countries are conducive to growing coffee efficiently. While other countries can grow coffee, they are not as efficient and effective at coffee growing because of short seasons and climate concerns. This fact would lead you to believe that South American countries have a (n) __________ advantage in the production of coffee. A. comparative B. absolute C. unprotected D. progressive
The only deposits of a rare and sought after mineral known as Yuksporite are found in Russia. Since no other nation has deposits of Yuksporite, Russia has a(n)__________ in this mineral. A. protected advantage B. diversified benefit C. absolute advantage D. relative internal benefit
First Engineering, a large U.S. based mechanical engineering firm, is considering entering the global market. Upon careful analysis of the global market, they will find that global trade: A. Opportunities are diminishing. B. Is dominated by emerging, developing countries. C. Is big business today and is expected to be more important in the future. D. Is likely to be severely restricted in the future by nontariff trade barriers.
After finishing college, Nathan joined his uncle's company in Miami, FL, a(n) _______ of bauxite, copper, and other minerals from the Chile. Everyday, he brokers trades with mines in Chile to buy and transport these minerals into the U.S. A. exporter B. quota manager C. importer D. domestic trader
According to the "Spotlight on Small Business" box in Chapter 3, MFG.com's owner found that when going global, it was as important to focus on ____________ as such business related details like accounting, banking, and legal regulations. A. language associations B. cultural differences C. geologic differences D. climate associations
Fred Bergsten of the Institute for International Economics that every $1 billion of U.S. exports: A. replaces 250 service sector jobs with 25 manufacturing jobs in the U.S. B. causes lost revenues for the U.S. federal government. C. results in reduced profits for U.S. businesses. D. generates over 20,000 jobs in the U.S.
A favorable balance of trade occurs when the value of: A. imports equal the value of exports. B. the cash inflows equal the value of the cash outflows. C. the value of imports is less than the value of exports. D. the value of the dollar is greater than the value of the Euro.
An unfavorable balance of trade occurs when the value of: A. Imports equal the value of exports. B. Imports exceed the value of exports. C. Cash inflows are equal to the value of cash outflows. D. Exports exceed the value of imports.
The _____________ is the total value of a nation's exports compared to its imports measured over a specific period of time. A. balance of payments B. balance of trade surplus C. balance of trade deficit D. balance of trade
The __________ is the difference between money flowing into a country from exports, and money leaving the country for imports, plus money flows coming from other factors such as tourism, foreign aid, military expenditures, and foreign investment. A. balance of payments B. balance of trade surplus C. balance of cash flows D. balance of trade
Which of the following is included when calculating a country's balance of payments? A. Foreign aid B. Domestic unemployment C. Domestic inflation rates D. Foreign inflation rates
Which of the following is considered when calculating a country's balance of payments? A. military expenditures B. state unemployment C. domestic inflation rates D. foreign inflation rates
Since 1975, the U.S. has had a(n) ____________. A. export surplus B. import surplus C. trade surplus D. trade deficit
__________ is the practice of selling a product in foreign countries for a lower price than the good is sold in the producing country. A. Deflating B. Countertrading C. Inflating D. Dumping
When Anheuser-Busch/In Bev sells Budweiser beer made in St. Louis, MO., to Germany, the sales of its product would be classified as a U.S. ____________. A. countertrade arrangement B. export C. import D. foreign aid shipment
Even though the U.S. exports a large ___________ of goods and services, it exports a much lower __________ of its products than many other countries do. A. percentage; amount B. amount; percentage C. amount; value D. percentage; percentage
An important principle for firms desiring to export is: A. sell to countries with high standards of living. B. keep in mind that American methods are probably always best. C. find a need in the global market and fill it. D. if your product sells well in the U.S. it will sell well globally.
As a business strategy, the strategy behind "dumping" is to ____________. A. gain a foothold in a new market B. better utilize e-commerce opportunities C. avoid trade protectionist laws D. achieve eligibility for foreign aid
The value of goods imported into France exceeds the value of French exports. This indicates that France: A. Has an exchange rate decrease. B. Utilizes high tariffs. C. Has a budget deficit. D. Has a trade deficit.
An American firm recently criticized a Chinese steel producer for charging a lower price for its steel in the United States than it charges in China. If proven to be true, the Chinese firm has engaged in _________. A. industrial protectionism B. a low labor cost strategy C. dumping D. exchange rate manipulation
Current trade data indicates that the nation of Bogusland exports more to other nations than it imports. Bogusland has: A. an unfavorable balance of trade. B. a trade surplus. C. a trade deficit. D. a low balance of trade.
Japanese automobile producers sold more of their Japanese production overseas than they sold in Japan. Their business strategy emphasizes: A. importing. B. licensing. C. dumping. D. exporting.
Monique's Unique Tile Boutique offers decorative tile from around the world. The owner regularly travels overseas to locate the best and most unusual tile that foreign producers have to offer. Monique participates in _____________. A. importing B. licensing C. dumping D. exporting
Last year, the nation of Tigerland imported goods totaling $500 million and exported products totaling $386 million. Tigerland experienced a(n): A. unfavorable balance of trade. B. favorable balance of trade. C. trade surplus. D. benefit from membership in a free trade zone.
Last year, the nation of Kwansai reported that it had a favorable balance of trade even though it imported $11 billion worth of goods. This indicates that Kwansai: A. exported $11 billion worth of goods. B. exported more than $11 billion worth of goods. C. overpriced the value of its exports. D. exported less than $11 billion worth of goods.
Reviewing the recent experience of the United States in global markets reveals that the U.S has: A. a merchandise trade surplus with the rest of the world. B. a large trade deficit with China. C. avoided becoming a debtor nation. D. attracted very little foreign direct investment.
The nation of Redland reported that its imports for the previous year were $4 billion greater than its exports. During the same period, Redland reported a favorable balance of payments. This information suggests: A. Redland has made an error in their reporting. The nation must have had a balance of payments deficit since more money flowed out of Redland for imports than flowed into the country for its exports. B. Redland's gold reserves have increased in value. C. money inflows from tourism, foreign aid, foreign investment and other sources more than offset Redland's trade deficit. D. Redland devalued their currency to obtain a more favorable exchange rate.
According to the material in the "Reaching Beyond Our Borders" box in Chapter 3, which of the following statements best describes McDonald's current involvement in global markets? A. McDonald's focus is on the U.S. market, and currently has no plans to participate in global markets. B. The key to McDonald's success worldwide is its adherence to its U.S. menu as standard throughout all of its international franchises. C. McDonald's global market success reflects its willingness to adapt its menu to local tastes and culture. D. Unlike Kentucky Fried Chicken and Burger King, McDonald's continues to experience problems abroad due to its inability to adapt to local culture.
The president of Auto Parts of America Corporation recently testified before Congress, urging them to limit the flow of imported automobile parts into the United States. He contended that these imports were priced lower than foreign producers were charging for them in their own countries. He believes foreign producers are: A. dumping. B. exercising trade deficits. C. promoting free trade. D. exhibiting ethnocentricity.
Nikkei Auto Parts testified before Congress defending the company against an accusation that it was dumping auto parts on the U.S. market. In her testimony, the president claimed _________________. Using traditional guidelines, Congress determined that Nikkei was not dumping. A. Nikkei includes 10% overhead costs and an 8 percent profit margin in the price of all the parts they export to the U.S. B. Japan runs a trade deficit with the U.S. in auto parts. C. Nikkei is a staunch supporter of free trade. D. Nikkei sells more auto parts in Europe than it does in the U.S.
Granting a foreign company the right to manufacture your product or to use your firm's trademark in return for a fee is called: A. A joint venture. B. A foreign subsidiary. C. Licensing. D. Outsourcing.
The fee paid to a firm in a licensing agreement that gives another firm the right to manufacture their product or use its trademark is called: A. a joint venture. B. a royalty. C. a licensee. D. an outsource agreement.
A major advantage of licensing is: A. these arrangements almost always lead to a joint venture. B. the bulk of the revenues gained by the licensee come back to the licensor. C. your company name does not need to be associated with the product in a foreign country. D. very little cost to the licensor.
A disadvantage of licensing is: A. very costly for the licensor. B. the licensee can decide to end the contract at a moment's notice. C. your company's image is never permitted to be associated with the product, even though you are the developer. D. the licensee may decide to use the expertise you have developed, break the agreement, and begin producing the product on his/her own.
The federal government created ___________ to help small and medium sized businesses get involved in exporting. A. the World Trade Organization B. Federal Export Loan Banks C. Export Assistance Centers D. the Federal Trade Promotion Commission
_______________ are specialists that match buyers and sellers from different countries and provide services to ease the process of entering global markets. A. Export trading companies B. Licensees C. Strategic alliances D. Keiretsu
Export trading companies: A. enter into joint ventures with firms wanting to export goods and services. B. are government owned businesses that help companies go global. C. connect sellers in the U.S. with buyers in other nations, and help with customs, documentation and payments. D. is similar to a corporation that sells franchises.
__________ is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell the parent company's product or service to others in a given territory in a specified manner. A. Franchising B. Contract manufacturing C. Import trading D. Export trading
According to Reaching Beyond our Borders box, the king of global franchising is: A. Burger King. B. McDonald's. C. Taco Bell. D. Merry Maids.
When a company's strategy is __________ the firm makes arrangements for a foreign manufacturer to produce the product. The domestic company's label and/or trademark are attached to the completed product. A. franchising B. contract manufacturing C. import sourcing D. export trading
A __________ is a partnership in which two or more companies (often from different countries) join together and share the risk and costs in order to undertake a major project. A. multinational cooperative B. joint venture C. franchisee transfer D. recruit affiliation
A __________ represents a long-term partnership between two or more companies established to help each firm build competitive market advantages, without sharing the cost of risk. A. multinational cooperative B. shared venture C. global franchise D. strategic alliance
An advantage of forming a joint venture is: A. no shared costs or risk. B. a perpetual arrangement. C. it's a good strategy for entering new markets where you have never had a presence. D. it's a great way to enter new markets without divulging any marketing or management strategy to the other member of the joint venture.
A form of foreign direct investment, where a domestic company purchases a company in a foreign country to produce a similar product or service is a: A. licensor. B. joint venture. C. foreign subsidiary. D. host company.
When foreign firms build production facilities in the United States, they are engaging in: A. exporting. B. foreign direct investment. C. importing. D. countertrading.
A risk unique to firms with direct investment in a foreign county is the potential takeover of the firm's assets by the government of that country. This takeover is called a(n): A. hostile takeover. B. political bias. C. appropriation. D. expropriation.
The __________________ is a firm that has made sizeable investments and has a physical presence in several foreign countries as a manufacturer and marketer of products and services. A. trade cartel B. multinational corporation C. host company D. import trading company
A fast-growing form of foreign direct investment is ______________ which are government controlled investments in foreign companies. A. sovereign wealth funds B. multinational wealth funds C. government mutual funds D. government wealth management derivatives
A specialized organization that assists businesses in creating relationships with foreign customers and suppliers is known as a(n): A. export trading company. B. international brokerage house. C. keiretsu. D. global trade bank.
A benefit of contracting with export trading companies is: A. They are the experts in establishing trading partners abroad, and negotiating all the details in retaining customers. B. They are experts in staying out of the financial transactions of establishing new markets. C. They will always assume the risk if your product does not sell to the foreign customer. D. They keep you legal because they serve as the franchisor and make certain that your products meet ISO requirements.
One of the purposes of Export Assistance Centers is to: A. help multinational corporations reach agreements with foreign governments. B. provide subsidies to domestic firms hurt by dumping by foreign firms. C. provide trade-finance support for small and medium-sized firms involved in direct exporting. D. encourage domestic firms to become more competitive by forming keiretsu-like organizations, much like those found in Japan.
When entering a foreign market, Mountain Stream Brewery entered into an agreement with a local firm to brew and market Mountain Stream's beer. This is an example of: A. licensing. B. franchising. C. foreign direct investment. D. foreign subsidiaries.
Licensing is a popular strategy because: A. It boosts domestic market revenues. B. The licensee has incentive to work hard and succeed because he/she has borne the cost. C. Licensees spend little or no money to produce and market their products. D. There are seldom any long-term contractual requirements.
Firms such as McDonald's, Pizza Hut, and KFC, have entered the global market by offering investors the opportunity to buy: A. licensed trade offices. B. independent exporting houses. C. multinational subsidiaries. D. franchises.
Using contract manufacturing as a strategy to reach global markets offers firms the advantage of: A. expert and experienced laborers. B. reduced financial risks. C. increased volatility. D. currency stability.
Companies may have several reasons for creating joint ventures. Which of the following statements is one reason why firms may decide to form a joint venture? A. They may wish to contract manufacture with each other. B. They will save time to market if they pool their technological know-how. C. These arrangements are always less risky than strategic alliances. D. These arrangements avoid the temptation to tap into marketing and management expertise of the parent companies.
For a firm to be considered a multinational corporation, which of the following conditions must be true? A. It must have manufacturing facilities and a physical presence in several countries. B. Its marketing arm must be based at the company's world corporate headquarters. C. Stock ownership must be domestic. D. All transactions must be financed by the International Monetary Fund.
A fast-growing form of foreign direct investment is sovereign wealth funds (SWFs). Why do these investments by governments with surplus cash flows worry trade experts? A. SWFs invest in high risk start-ups with no proven history of producing goods and services that developing or developed countries need. They may likely undermine the years of development of growing economies. B. SWFs have a greater risk of going bankrupt than other investments because governments are not good at running businesses. C. Some fear that governments investing their SWFs in large firms may gain control of natural resources, sensitive technologies, and the decision making of management. D. Some trading experts believe that SWFs are supported by terrorist organizations, and their strategy is an indirect way to undermine the creation of U.S. jobs.
The Dabble Corporation wants to begin exporting its products. The company needs advice about how to get started, as well as trade-finance support. The federal government has established _____________ to help companies like Dabble Corporation. A. the World Trade Commission B. Export Assistance Centers C. export trading companies D. Federal Reserve Banks
Pepsi Cola entered into a long-term contract with a South African beverage company. The contract calls for the South African firm to produce and market Pepsi Cola in South Africa. Pepsi will receive royalties on each case of beverage sold. This is an example of: A. licensing. B. a joint venture. C. a foreign subsidiary. D. foreign direct investment.
McHugh Corporation of Ireland and Enomoto Enterprises based in Japan recently produced a new electric car with rechargeable batteries that can be driven at high speeds for long distances. They have shared the investment, each contributing important technological expertise to the effort. These firms entered into a(n) ____ to build this car. A. Joint venture B. Multinational cartel C. Industrial countertrade agreement D. Multinational limited partnership
Currently boasting a $1.6 billion Ketchup brand, the H.J. Heinz Company is flying high with a 44% increase in its sales of Indonesian based ABC, a soy sauce company that it owns. ABC is a _____________ of Heinz. A. licensed venture B. joint venture C. export trading company D. foreign subsidiary
Nike _________________ its products in foreign countries, where labor is cheap and production sites are owned by other companies. This strategy allows Nike to experiment in new markets without incurring large start-up costs involved with building their own production facilities. A. contract franchises B. pays governments to market C. globally licenses D. contract manufactures
If a Swiss chocolate firm purchases an American ice cream manufacturer, the American ice cream manufacturer becomes a: A. global franchise. B. a global joint venture. C. foreign subsidiary. D. contract manufacturer.
Which of the following statements is the most accurate observation regarding multinational corporations? A. Rather than manage manufacturing and marketing facilities overseas, most multinational corporations attempt to enter global markets by exporting domestically produced goods. B. Most multinational corporations are small- to medium-sized firms. C. Because of political and economic concerns, most multinational corporations choose to ignore investment opportunities in China and Russia. D. Only those firms with a physical presence in different nations qualify as multinational corporations.
In 2008, Emerson, Inc. reported that it owns and operates 265 companies worldwide with 23% of its sales coming from Europe, 18% from Asia, 46% from the U.S., and 13% from other parts of the world. Clearly, Emerson exemplifies ________________. A. a sovereign wealth fund B. a multinational corporation C. a foreign subsidiary D. an expropriated organization
Adam's Apple Corporation ships all of the apples from its orchards in Washington to a single buyer in Japan. The firm's entire profits are derived from this international transaction. Adam's Apple Corporation: A. is an example of a multinational corporation. B. is not a multinational corporation. C. is contributing to the U.S. balance of trade deficit. D. will benefit greatly from the establishment of NAFTA.
ExxonMobil Corporation refines and markets its petroleum products in many different nations. In addition, Exxon's stockholders and managers come from many different nations. If some of the nations where it operates decided to take over the assets of the company, this act would constitute: A. patent infringement. B. expropriation. C. illegal activity. D. hostile takeover.
An article published in the journal of "Modern Healthcare" reported that in 2007, the governments of the following nations held sizeable investments in U.S. companies, (including U.S. healthcare providers):
These investments are called _____________ and some experts fear that the strategy behind these governments sinking large amounts of capital in U.S. companies may have ____________________. A. Government Funded Businesses (GFBs); terrorist implications B. Government Bond Funds (GBFs); aggressive growth implications C. Trade Agreement Funds (TAFs); strategic maneuvers to socialize medicine D. Sovereign Wealth Funds (SWFs); geopolitical objectives
Which of the following terms describes the set of values, beliefs, rules, language, and institutions held by a specific group of people? A. Culture B. Ethnocentricity C. Institutional society D. Social myopia
____________ describes an attitude held by some American business people that American culture is superior to all others. A. Primary culture B. Ethnocentricity C. Cultural institutionalism D. Social myopia
Ethnocentricity means: A. "When in Rome, do as the Romans!" B. You believe your culture is superior to others. C. Cultural awareness. D. A trend toward accepting other cultures and trying various foods and religions to see if they fit your lifestyle.
Which of the following sociocultural forces can have a significant impact on global business operations? A. Religion B. Universal sales standards C. Single-phase marketing D. Global marketing
Which of the following represents the value of one nation's currency relative to the currencies of another country? A. Euro rate B. Currency rate C. Exchange rate D. Standard of living
Global financial markets operate under a system of ___________, where the supply and demand for various currencies dictate their value at any moment in time. A. living rates B. foreign good rates C. floating exchange rates D. live trading rates
__________ is the exchange of merchandise or servi
Excerpt from file: 1.(p.60)Today,over90%ofthecompaniesdoingbusinessgloballybelieveitisimportantfortheiremployeesto haveexperienceworkinginothercountries. TRUE AACSB:ReflectiveThinking Bloom's:Knowledge LearningGoal:031 LevelofLearning1:Knowledgeofkeyterms NickelsChapter03#1 Topic:TheDynamicGlobalMarket
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