Chapter 01 Globalization - TestBankSter€¦ · Chapter 01 - Globalization 1-4 22. According to forecasts, a further relative decline in the share of world output and world exports

Chapter 01 - Globalization

1-1

Chapter 01

Globalization

True / False Questions

1. The notion that national economies are relatively self-contained entities is on the rise.

True False

2. The shift toward a more integrated and interdependent world economy is referred to as

globalization.

True False

3. The merging of historically distinct and separate markets into one huge global marketplace

is known as the globalization of markets.

True False

4. The majority of U.S. firms that export are large multinationals that employ 500 or more

people.

True False

5. The most global markets currently are markets for industrial goods and materials that serve

a universal need the world over.

True False

6. Outsourcing is a process that is limited to manufacturing enterprises.

True False

7. Because of their nature, service activities cannot be outsourced to other companies.

True False


1-2

8. One of the UN central mandates is the promotion of higher standards of living, full

employment, and conditions of economic and social progress and development.

True False

9. Underlying the trend towards greater globalization is technological change and a decline in

barriers to the free flow of goods, services, and capital.

True False

10. According to the United Nations most changes between 1992 and 2005 to laws governing

FDI have resulted in a less favorable environment for FDI.

True False

11. According to WTO data, the volume of world merchandise trade has grown faster than the

world economy since 1950.

True False

12. The expansion of world trade implies that nations are becoming less dependent on each

other for important goods and services.

True False

13. In the period 1950-1990, the world GDP showed a consistent decline as opposed to the

volume of exports.

True False

14. During the period 1990 - 2000, the volume of total exports was more than twice the world

GDP.

True False


1-3

15. Declining barriers to cross-border trade and investment cannot be taken for granted.

True False

16. The globalization of markets and production and the resulting growth of world trade,

foreign direct investment, and imports all imply that firms are finding their home markets

protected from foreign competitors.

True False

17. Moore's Law predicts that the power of microprocessor technology doubles and its cost of

production falls by half every 18 months.

True False

18. Efficiency gains associated with containerization have caused transportation costs to fall

dramatically.

True False

19. Today global communication networks and global media are creating a worldwide

culture.

True False

20. In the early 1960s, the United States was by far the world's dominant industrial power.

However by 2006, it lost its dominant position and now, is no longer the world's largest

industrial power.

True False

21. By 2008, the U.S. had seen its share of exports fall to almost half its share in the 1960s.

True False


1-4

22. According to forecasts, a further relative decline in the share of world output and world

exports accounted for by the United States and other long-established developed nations is

unlikely.

True False

23. A current trend in international business is the growth of medium-sized and small

multinationals, known as mini-multinationals.

True False

24. Today, the risks involved in doing business in countries such as Russia are low, but so are

the returns.

True False

25. If the free market reforms in China continue for two more decades, China may move from

Third World status to industrial superpower status even more rapidly than Japan did.

True False

26. Current trends indicate that the world is moving rapidly towards an economic system that

is more favorable for international business.

True False

27. Many economists, politicians, and business leaders believe that the shift toward a more

integrated and interdependent global economy is a positive trend.

True False

28. The antiglobalization effort is created and supported only by a small group of hard-core

anarchists.

True False


1-5

29. Studies have shown that wage rates for unskilled workers in many advanced economies

have fallen in recent years.

True False

30. Some critics argue that outsourcing has caused wage rates of poorer Americans to fall

significantly over the past quarter of a century.

True False

31. Recent evidence indicates that the solution to the problem of stagnant incomes among the

unskilled is to be found in increasing society's investment in education to reduce the supply of

unskilled workers.

True False

32. A source of concern of critics of free trade is that it usually encourages firms from

advanced countries to move manufacturing facilities to less developed countries that lack

adequate regulations to protect labor and the environment from abuse.

True False

33. According to supporters of free trade, as countries get richer they enact tougher

environmental and labor regulations.

True False

34. According to critics of globalization, today's interdependent global economy limits a

nation's national sovereignty.

True False

35. Critics of globalization suggest that over the last century, the gap between the rich and

poor nations of the world has shrunken.

True False


1-6

36. Debt continues to be a major burden for poorer nations as they strive to get ahead.

True False

37. Supporters of debt relief argue that new democratic governments in poor nations should

not be forced to honor debts that their corrupt and dictatorial predecessors incurred and

mismanaged long ago.

True False

38. An international business is any firm that engages in international trade or investment.

True False

39. The managers of an international business must decide whether it is ethical to adhere to

the lower labor and environmental standards found in many less developed nations.

True False

40. In general, managing an international business is a more complex task than managing a

business that serves only the local market.

True False

Multiple Choice Questions

41. Which of the following is not characteristic of globalization?

A. National economies are turning into independent economic systems.

B. Material culture is starting to look similar the world over.

C. Perceived distance is shrinking due to advances in transportation and telecommunications.

D. Barriers to cross-border trade and investment are declining.


1-7

42. Globalization has _____ the opportunities for a firm to expand its revenues by selling

around the world and _____ its costs by producing in nations where key inputs are cheap.

A. reduced, reduced

B. increased, increased

C. increased, reduced

D. reduced, increased

43. Since the collapse of communism at the end of the 1980s, the erstwhile communist nations

have transformed their economies by encouraging all of the following except:

A. privatizing state-owned enterprises.

B. regulating markets.

C. increasing competition.

D. welcoming investment by foreign businesses.

44. Identify the incorrect statement concerning globalization.

A. It has been blamed for unemployment in developed nations, environmental degradation

and the Americanization of popular culture.

B. It has created new threats for businesses accustomed to dominating their domestic markets.

C. It is transforming industries and is highly welcomed by those who believed their jobs were

protected from foreign competition.

D. According to most economists it is a very beneficial process where gains outweigh the

losses by a wide margin.

45. In the U.S., _____ percent of firms that export are small companies employing fewer than

100 people.

A. 90

B. 75

C. 50

D. 30


1-8

46. The most global markets currently are markets for:

A. services.

B. consumer goods.

C. consumer durables.

D. industrial goods.

47. Which of the following is not an impediment that makes it difficult for firms to achieve

the optimal dispersion of their productive activities to locations around the globe?

A. Reduced transportation costs.

B. Government regulations.

C. Issues associated with economic and political risk.

D. Barriers to foreign direct investment.

48. The ______ is primarily responsible for policing the world trading system and making

sure nation-states adhere to the rules laid down in trade treaties signed by member states.

A. International Development Association

B. World Bank

C. International Court of justice

D. World Trade Organization

49. The _____ was created in 1944 by 44 nations that met in Breton Woods, New Hampshire

to promote economic development.

A. World Bank

B. International Trade Center

C. World Trade Organization

D. United Nations

50. The institution, created in 1944 at Bretton Woods, responsible for maintaining order in the

international monetary system is the

A. IMF.

B. WTO.

C. UN.

D. UNESCO.


1-9

51. _____ occur(s) when a firm exports goods or services to consumers in another country.

A. International trade

B. Foreign direct investment

C. Inward investment

D. Merger and acquisitions

52. The _____ was established to remove barriers to the free flow of goods, services, and

capital between nations.

A. UN

B. IMF

C. GATT

D. IDA

53. At the Doha Round of the WTO in late 2001,

A. the WTO was established.

B. GATT was extended to include services.

C. world trade volume increased.

D. an agenda was established to phase out subsidies to agricultural producers.

54. The reduction in the average tariff rates on manufactured products since 1950 implies all

of the following except that

A. firms are dispersing parts of their production process to global locations to drive down

production costs and increase product quality.

B. the economies of the world's nation states are becoming more intertwined.

C. nations are becoming increasingly independent of each other for important goods and

services.

D. the world has become significantly wealthier since 1950.


1-10

55. The growing integration of the world economy is:

A. increasing the intensity of competition in a wide range of manufacturing and service

industries.

B. decreasing the intensity of competition in manufacturing industries, and increasing the

intensity of competition in services.

C. increasing the intensity of competition in manufacturing industries, and decreasing the


D. narrowing the scope of competition in a wide range of service, commodity, and

manufacturing industries.

56. Which of the following statements regarding cross-border trade and investment is not

true?

A. "Protection" from foreign competitors has been, at times, demanded by the United States.

B. Forecasts indicate a return to the restrictive trade policies of the 1920s and 30s.

C. If trade barriers decline no further they will put a brake upon the globalization of both

markets and production.

D. It is not clear whether the political majority in the industrialized world favors further

reductions in trade barriers.

57. Identify the incorrect statement pertaining to the World Wide Web.

A. It makes it much easier for buyers and sellers to find each other.

B. Viewed globally, it is emerging as an equalizer.

C. It rolls back all of the constraints of location, scale, and time zones.

D. It allows businesses to expand their global presence at a lower cost than ever before.

58. Since 1980, the world's containership fleet has more than _____, reflecting in part the

growing volume of international trade.

A. doubled

B. tripled

C. quadrupled

D. quintupled


1-11

59. Technological innovations have facilitated all of the following except:

A. globalization of production.

B. globalization of markets.

C. creation of electronic global marketplaces.

D. creation of absolutely homogeneous consumer markets.

60. Although the characteristics of the global economy have changed dramatically over the

past 30 years, as late as the 1960s all of the following demographic characteristics were true,

except:

A. the U.S. dominated the world economy.

B. small, U.S. entrepreneurial firms dominated the international business scene.

C. the U.S. dominated the world foreign direct investment picture.

D. roughly half the world was governed by centrally planned economies of the Communist

world.

61. Which of the following nation's world output has declined the least over the last 40 years?

A. France

B. United States

C. United Kingdom

D. Canada

62. Which of the following countries has had the maximum relative decline in its share of

world output since 1963?

A. Canada

B. United States

C. Japan

D. Germany


1-12

63. Which of the following statements pertaining to the changing demographics of world

GDP and trade from 1963 to 2006 is not true?

A. As emerging economies continue to grow, a relative decline in the share of world output

and world exports accounted for by the U.S. seems unlikely.

B. Forecasts predict a rapid rise in the share of world output accounted for by some

developing nations.

C. A decline in the share enjoyed by rich industrialized countries such as Great Britain,

Germany, Japan, and the U.S. is likely.

D. If current trends continue, the Chinese economy could be larger than that of the U.S. on a

purchasing power parity basis.

64. According to World Bank numbers,

A. developing nations currently account for more than 60 percent of world economic activity.

B. rich nations currently account for more than 70 percent of world economic activity.

C. today's rich nations may account for 55 percent of world economic activity by 2020.

D. today's developing nations may account for more than 60 percent of world economic

activity by 2020.

65. In the 1970s, many Japanese firms invested in North America and Europe

A. to avoid a highly competitive domestic market.

B. to exploit high domestic tariff barriers.

C. as a hedge against unfavorable currency movements.

D. to take advantage of low labor costs.

66. What is the total cumulative value of foreign investments best referred to as?

A. Accumulation of foreign shares

B. Portfolio investments

C. Stock of foreign direct investments

D. Stock market investments


1-13

67. The share of the total FDI stock accounted for by which of the following countries

increased markedly from 1980 to 2005?

A. United States

B. France

C. United Kingdom

D. Netherlands

68. Firms based in _____ accounted for 14.7 percent of the stock of foreign direct investment

in 2007, up from only 1.1 percent in 1980.

A. Asia

B. developing countries

C. United Kingdom

D. NAFTA region

69. Which of these statements pertaining to cross-border FDI flows is true?

A. The growth of FDI resumed in 2004 and continued through 2006.

B. A surge in FDI from 1995 to 1997 was followed by a slump from 1998 to 2000.

C. Among developing nations, the largest recipient of FDI has been Russia.

D. The dramatic increase in FDI reflects the decreasing internationalization of business

corporations.

70. Which of the following countries has been the largest recipient of foreign direct

investment and received about $70 billion a year in inflows in 2005 and 2006?

A. Brazil

B. Russia

C. India

D. China

71. By 2006 some 24 of the world's 100 largest non-financial multinationals were:

A. Chinese enterprises.

B. British enterprises.

C. U.S. enterprises.

D. Japanese enterprises.


1-14

72. Identify the incorrect statement regarding the former Communist nations of Europe and

Asia.

A. The economies of most of the former Communist states are very strong and developed.

B. Many of the former Communist nations of Europe and Asia share a commitment to free

market economies.

C. As a result of disturbing signs of growing unrest and totalitarian tendencies, the risks

involved in doing business in these countries is very high.

D. For about half a century these countries were essentially closed to Western international

business.

73. Which of the following observations concerning Latin American countries is true?

A. Complete restrictions on direct investment by foreign firms.

B. Characterized by low growth, high debt, and hyperinflation.

C. Debt and inflation are up compared to previous decades.

D. Substantial opportunities exist, but are accompanied by substantial risks.

74. Which of the following statement pertaining to changes in the global economy of the 21st

century is not true?

A. Barriers to the free flow of goods, services, and capital have been coming down.

B. Volume of cross-border trade and investment has been growing more rapidly than global

output.

C. National economies are becoming more independent and moving away from the global

economic system.

D. As economies advance, more nations are joining the ranks of the developed world.

75. Which of the following does not help create an economic system that is favorable to

international business?

A. Decreased privatization

B. Widespread deregulation

C. Open markets

D. Falling trade and investment barriers


1-15

76. When a company "exports jobs" overseas, the company is:

A. helping domestic workers by pushing up wage rates.

B. increasing the demand of qualified domestic workers.

C. taking advantage of lower wages in foreign markets.

D. deceiving the supporters of globalization.

77. If the critics of globalization are correct, all of the following things must be shown

except:

A. the share of national income received by labor, as opposed to the share received by the

owners of capital should have declined in advanced nations.

B. even though labor's share of the economic pie may have declined, living standards need not

deteriorate if the size of the total pie has increased sufficiently to offset the decline in labor's

share.

C. the decline in labor's share of national income must be due to moving production to low-

wage countries, as opposed to improving production technology and productivity.

D. economic growth in developed nations has offset the fall in unskilled workers' share of

national income, raising their living standards.

78. A study by the OECD, whose members include the 20 richest economies in the world,

noted all of the following except:

A. the gap between the poorest and richest segments of society in some OECD countries

widened.

B. in almost all countries real income levels rose over the 20-year period studied.

C. falling unemployment rates brought gains to low-wage workers and fairly broad-based

wage growth.

D. the gap between rich and poor had narrowed in all OECD countries.

79. Critics of globalization maintain that the apparent decline in real wage rates of unskilled

workers

A. owes far more to a technology-induced shift within advanced economies toward jobs that

require significant education and skills.

B. is due to the migration of low-wage manufacturing jobs offshore and a corresponding

reduction in demand for unskilled workers.

C. has been impacted most by technological change.

D. can be checked by increasing society's investment in education to reduce the supply of

unskilled workers.


1-16

80. Before NAFTA was passed

A. Mexico agreed to establish a higher minimum wage.

B. the U.S. agreed to limit the number of jobs that could be exported to Mexico.

C. Mexico committed to tougher enforcement of environmental protection regulations.

D. Canada committed to establish new limits of FDI.

Essay Questions

81. With the help of an example discuss the characteristics of globalization.

82. Define globalization and discuss it has changed the business environment?

83. Explain what is meant by the globalization of markets. Provide an example. What are the

most global markets?


1-17

84. Discuss the concept of the globalization of production.

85. What is the World Trade Organization? What is its role in the world economy?

86. What is the International Monetary Fund? What is the World Bank? What is their

relationship, if any, with each other?

87. Explain how a company competes using outsourcing. Provide an example.


1-18

88. Explain the trends in world trade and foreign direct investment over the last half century.

89. How has technological change affected global markets? What key innovations have

changed the nature of how "we do business?"

90. Explain the notion of the Web emerging as an equalizer.

91. Innovations in transportation have had a major impact on global trade. Consider one of

these innovations: containerization. Why is this innovation so significant?


1-19

92. Discuss the demographics of world trade since the 1960s. How has the role of the U.S.

changed? How is world trade expected to change in the future?

93. How has the foreign direct investment picture changed since the 1960s?

94. What is a multinational enterprise (MNE)? How does a mini-multinational differ from an

MNE?

95. Many companies are keeping their eyes on China. Why is China so important to



1-20

96. Consider the global economy of the 21st century. What important changes are taking

place? What do these changes mean for international companies?

97. Consider whether the shift toward a more integrated and interdependent global economy

is a good thing. Discuss the shift from the eyes of the consumer, the worker, the company, and

the environmentalist.

98. Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the events

were important to the future of global trade.

99. Falling barriers to international trade destroy manufacturing jobs in wealthy advanced

economies. Discuss this statement. Do you agree? Why or why not?


1-21

100. Discuss the effect of globalization on national sovereignty.


1-22

Chapter 01 Globalization Answer Key

True / False Questions

1. (p. 4) The notion that national economies are relatively self-contained entities is on the rise.

FALSE

We are moving away from a world in which national economies were relatively self-

contained entities.

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Medium Learning Objective: 01-1

2. (p. 6) The shift toward a more integrated and interdependent world economy is referred to as

globalization.

TRUE

AACSB: Analytic

Bloom's: Comprehension Difficulty: Easy

Learning Objective: 01-1


1-23

3. (p. 6) The merging of historically distinct and separate markets into one huge global

marketplace is known as the globalization of markets.

TRUE

AACSB: Analytic

Bloom's: Knowledge Difficulty: Easy


4. (p. 6) The majority of U.S. firms that export are large multinationals that employ 500 or more

people.

FALSE

AACSB: Analytic Bloom's: Knowledge

Difficulty: Easy


5. (p. 11) The most global markets currently are markets for industrial goods and materials that

serve a universal need the world over.

TRUE

AACSB: Analytic

Bloom's: Knowledge


6. (p. 8) Outsourcing is a process that is limited to manufacturing enterprises.

FALSE

AACSB: Reflective Thinking

Bloom's: Comprehension Difficulty: Medium



1-24

7. (p. 8) Because of their nature, service activities cannot be outsourced to other companies.

FALSE




8. (p. 11) One of the UN central mandates is the promotion of higher standards of living, full

employment, and conditions of economic and social progress and development.

TRUE


Difficulty: Medium


9. (p. 11) Underlying the trend towards greater globalization is technological change and a

decline in barriers to the free flow of goods, services, and capital.

TRUE


Bloom's: Comprehension


10. (p. 12) According to the United Nations most changes between 1992 and 2005 to laws

governing FDI have resulted in a less favorable environment for FDI.

FALSE

AACSB: Analytic

Bloom's: Knowledge Difficulty: Medium



1-25

11. (p. 12) According to WTO data, the volume of world merchandise trade has grown faster

than the world economy since 1950.

TRUE

AACSB: Analytic



12. (p. 12) The expansion of world trade implies that nations are becoming less dependent on

each other for important goods and services.

FALSE

AACSB: Reflective Thinking Bloom's: Comprehension

Difficulty: Medium


13. (p. 13) In the period 1950-1990, the world GDP showed a consistent decline as opposed to

the volume of exports.

TRUE

AACSB: Analytic

Bloom's: Knowledge


14. (p. 12) During the period 1990 - 2000, the volume of total exports was more than twice the

world GDP.

TRUE

AACSB: Analytic




1-26

15. (p. 14) Declining barriers to cross-border trade and investment cannot be taken for granted.

TRUE




16. (p. 13) The globalization of markets and production and the resulting growth of world trade,

foreign direct investment, and imports all imply that firms are finding their home markets

protected from foreign competitors.

FALSE

AACSB: Analytic Bloom's: Comprehension

Difficulty: Easy


17. (p. 14) Moore's Law predicts that the power of microprocessor technology doubles and its

cost of production falls by half every 18 months.

TRUE

AACSB: Analytic

Bloom's: Knowledge


18. (p. 15) Efficiency gains associated with containerization have caused transportation costs to

fall dramatically.

TRUE





1-27

19. (p. 16) Today global communication networks and global media are creating a worldwide

culture.

TRUE

AACSB: Technology



20. (p. 16) In the early 1960s, the United States was by far the world's dominant industrial

power. However by 2006, it lost its dominant position and now, is no longer the world's

largest industrial power.

FALSE


Difficulty: Medium


21. (p. 17) By 2008, the U.S. had seen its share of exports fall to almost half its share in the

1960s.

TRUE

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Hard Learning Objective: 01-3

22. (p. 17) According to forecasts, a further relative decline in the share of world output and

world exports accounted for by the United States and other long-established developed

nations is unlikely.

FALSE

AACSB: Analytic




1-28

23. (p. 21) A current trend in international business is the growth of medium-sized and small

multinationals, known as mini-multinationals.

TRUE

AACSB: Analytic



24. (p. 23) Today, the risks involved in doing business in countries such as Russia are low, but

so are the returns.

FALSE

AACSB: Analytic Bloom's: Application

Difficulty: Medium


25. (p. 23) If the free market reforms in China continue for two more decades, China may move

from Third World status to industrial superpower status even more rapidly than Japan did.

TRUE

AACSB: Analytic

Bloom's: Knowledge


26. (p. 24) Current trends indicate that the world is moving rapidly towards an economic system

that is more favorable for international business.

TRUE





1-29

27. (p. 24) Many economists, politicians, and business leaders believe that the shift toward a

more integrated and interdependent global economy is a positive trend.

TRUE

AACSB: Analytic



28. (p. 26) The antiglobalization effort is created and supported only by a small group of hard-

core anarchists.

FALSE


Difficulty: Medium


29. (p. 28) Studies have shown that wage rates for unskilled workers in many advanced

economies have fallen in recent years.

TRUE

AACSB: Analytic

Bloom's: Knowledge


30. (p. 26) Some critics argue that outsourcing has caused wage rates of poorer Americans to fall

significantly over the past quarter of a century.

TRUE

AACSB: Analytic




1-30

31. (p. 29) Recent evidence indicates that the solution to the problem of stagnant incomes

among the unskilled is to be found in increasing society's investment in education to reduce

the supply of unskilled workers.

TRUE

AACSB: Analytic



32. (p. 29) A source of concern of critics of free trade is that it usually encourages firms from

advanced countries to move manufacturing facilities to less developed countries that lack

adequate regulations to protect labor and the environment from abuse.

TRUE

AACSB: Analytic Bloom's: Comprehension

Difficulty: Medium


33. (p. 29) According to supporters of free trade, as countries get richer they enact tougher

environmental and labor regulations.

TRUE

AACSB: Analytic

Bloom's: Knowledge


34. (p. 31) According to critics of globalization, today's interdependent global economy limits a

nation's national sovereignty.

TRUE

AACSB: Analytic

Bloom's: Comprehension Difficulty: Hard



1-31

35. (p. 31) Critics of globalization suggest that over the last century, the gap between the rich

and poor nations of the world has shrunken.

FALSE

AACSB: Analytic



36. (p. 32) Debt continues to be a major burden for poorer nations as they strive to get ahead.

TRUE


Difficulty: Easy


37. (p. 32) Supporters of debt relief argue that new democratic governments in poor nations

should not be forced to honor debts that their corrupt and dictatorial predecessors incurred and

mismanaged long ago.

TRUE

AACSB: Analytic



38. (p. 33) An international business is any firm that engages in international trade or

investment.

TRUE

AACSB: Analytic




1-32

39. (p. 33) The managers of an international business must decide whether it is ethical to adhere

to the lower labor and environmental standards found in many less developed nations.

TRUE




40. (p. 33) In general, managing an international business is a more complex task than managing

a business that serves only the local market.

TRUE


Difficulty: Easy


Multiple Choice Questions

41. (p. 4) Which of the following is not characteristic of globalization?

A. National economies are turning into independent economic systems.

B. Material culture is starting to look similar the world over.

C. Perceived distance is shrinking due to advances in transportation and telecommunications.

D. Barriers to cross-border trade and investment are declining.

We have been moving away from a world in which national economies were relatively self-

contained entities. And we are moving toward a world in which barriers to cross-border trade

and investment are declining.

AACSB: Analytic




1-33

42. (p. 4) Globalization has _____ the opportunities for a firm to expand its revenues by selling

around the world and _____ its costs by producing in nations where key inputs are cheap.

A. reduced, reduced

B. increased, increased

C. increased, reduced

D. reduced, increased

The global expansion of enterprises has been facilitated by favorable political and economic

trends.

AACSB: Analytic



43. (p. 5) Since the collapse of communism at the end of the 1980s, the erstwhile communist

nations have transformed their economies by encouraging all of the following except:

A. privatizing state-owned enterprises.

B. regulating markets.

C. increasing competition.

D. welcoming investment by foreign businesses.

Since the collapse of communism at the end of the 1980s, the pendulum of public policy in

nation after nation has swung toward the free market end of the economic spectrum. This has

allowed businesses both large and small, from both advanced nations and developing nations,

to expand internationally.

AACSB: Analytic

Bloom's: Knowledge



1-34

44. (p. 5) Identify the incorrect statement concerning globalization.

A. It has been blamed for unemployment in developed nations, environmental degradation

and the Americanization of popular culture.

B. It has created new threats for businesses accustomed to dominating their domestic markets.

C. It is transforming industries and is highly welcomed by those who believed their jobs were

protected from foreign competition.

D. According to most economists it is a very beneficial process where gains outweigh the

losses by a wide margin.

As globalization unfolds, it is transforming industries and creating anxiety among those who

believed their jobs were protected from foreign competition.

AACSB: Analytic



45. (p. 6) In the U.S., _____ percent of firms that export are small companies employing fewer

than 100 people.

A. 90

B. 75

C. 50

D. 30

Nearly 90 percent of firms that export are small businesses employing less than 100 people,

and their share of total U.S. exports has grown steadily over the last decade to now exceed 20

percent.

AACSB: Analytic

Bloom's: Knowledge



1-35

46. (p. 6) The most global markets currently are markets for:

A. services.

B. consumer goods.

C. consumer durables.

D. industrial goods.

The most global markets currently are not markets for consumer products—where national

differences in tastes and preferences are still often important enough to act as a brake on

globalization—but markets for industrial goods and materials that serve a universal need the

world over.

AACSB: Analytic



47. (p. 9) Which of the following is not an impediment that makes it difficult for firms to

achieve the optimal dispersion of their productive activities to locations around the globe?

A. Reduced transportation costs.

B. Government regulations.

C. Issues associated with economic and political risk.

D. Barriers to foreign direct investment.

Substantial impediments still make it difficult for firms to achieve the optimal dispersion of

their productive activities to locations around the globe. These impediments include formal

and informal barriers to trade between countries, barriers to foreign direct investment,

transportation costs, and issues associated with economic and political risk.

AACSB: Analytic


Difficulty: Easy Learning Objective: 01-1


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48. (p. 9) The ______ is primarily responsible for policing the world trading system and making

sure nation-states adhere to the rules laid down in trade treaties signed by member states.

A. International Development Association

B. World Bank

C. International Court of justice

D. World Trade Organization

As of 2009, 153 nations that collectively accounted for 97 percent of world trade were WTO

members, thereby giving the organization enormous scope and influence. The WTO is also

responsible for facilitating the establishment of additional multinational agreements between

WTO member states.

AACSB: Analytic



49. (p. 10) The _____ was created in 1944 by 44 nations that met in Breton Woods, New

Hampshire to promote economic development.

A. World Bank

B. International Trade Center

C. World Trade Organization

D. United Nations

The World Bank has focused on making low-interest loans to cash-strapped governments in

poor nations that wish to undertake significant infrastructure investments.

AACSB: Analytic

Bloom's: Knowledge



1-37

50. (p. 10) The institution, created in 1944 at Bretton Woods, responsible for maintaining order

in the international monetary system is the

A. IMF.

B. WTO.

C. UN.

D. UNESCO.

The IMF is often seen as the lender of last resort to nation-states whose economies are in

turmoil and currencies are losing value against those of other nations.

AACSB: Analytic



51. (p. 11) _____ occur(s) when a firm exports goods or services to consumers in another

country.

A. International trade

B. Foreign direct investment

C. Inward investment

D. Merger and acquisitions

Foreign direct investment (FDI) occurs when a firm invests resources in business activities

outside its home country.

AACSB: Analytic




1-38

52. (p. 11) The _____ was established to remove barriers to the free flow of goods, services, and

capital between nations.

A. UN

B. IMF

C. GATT

D. IDA

Under the umbrella of GATT, eight rounds of negotiations among member states (now

numbering 153) have worked to lower barriers to the free flow of goods and services. The

most recent round of negotiations to be completed, known as the Uruguay Round, were

finalized in December 1993.

AACSB: Analytic



53. (p. 12) At the Doha Round of the WTO in late 2001,

A. the WTO was established.

B. GATT was extended to include services.

C. world trade volume increased.

D. an agenda was established to phase out subsidies to agricultural producers.

The Doha agenda includes cutting tariffs on industrial goods, services, and agricultural

products; phasing out subsidies to agricultural producers; reducing barriers to cross-border

investment; and limiting the use of antidumping laws.

AACSB: Analytic

Bloom's: Knowledge



1-39

54. (p. 13) The reduction in the average tariff rates on manufactured products since 1950 implies

all of the following except that

A. firms are dispersing parts of their production process to global locations to drive down

production costs and increase product quality.

B. the economies of the world's nation states are becoming more intertwined.

C. nations are becoming increasingly independent of each other for important goods and

services.

D. the world has become significantly wealthier since 1950.

As trade expands, nations are becoming increasingly dependent on each other for important

goods and services.

AACSB: Analytic



55. (p. 13) The growing integration of the world economy is:

A. increasing the intensity of competition in a wide range of manufacturing and service

industries.

B. decreasing the intensity of competition in manufacturing industries, and increasing the


C. increasing the intensity of competition in manufacturing industries, and decreasing the


D. narrowing the scope of competition in a wide range of service, commodity, and

manufacturing industries.

The growing integration of the world economy into a single, huge marketplace is increasing

the intensity of competition in a range of manufacturing and service industries.

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Easy



1-40

56. (p. 14) Which of the following statements regarding cross-border trade and investment is not

true?

A. "Protection" from foreign competitors has been, at times, demanded by the United States.

B. Forecasts indicate a return to the restrictive trade policies of the 1920s and 30s.

C. If trade barriers decline no further they will put a brake upon the globalization of both

markets and production.

D. It is not clear whether the political majority in the industrialized world favors further

reductions in trade barriers.

Although a return to the restrictive trade policies of the 1920s and 30s is unlikely, it is not

clear whether the political majority in the industrialized world favors further reductions in

trade barriers.

AACSB: Analytic

Bloom's: Knowledge Difficulty: Hard


57. (p. 14) Identify the incorrect statement pertaining to the World Wide Web.

A. It makes it much easier for buyers and sellers to find each other.

B. Viewed globally, it is emerging as an equalizer.

C. It rolls back all of the constraints of location, scale, and time zones.

D. It allows businesses to expand their global presence at a lower cost than ever before.

It rolls back some of the constraints of location, scale, and time zones. The Web makes it

much easier for buyers and sellers to find each other, wherever they may be located and

whatever their size. It allows businesses, both small and large, to expand their global presence

at a lower cost than ever before.

AACSB: Analytic

Bloom's: Knowledge



1-41

58. (p. 15) Since 1980, the world's containership fleet has more than _____, reflecting in part the

growing volume of international trade.

A. doubled

B. tripled

C. quadrupled

D. quintupled

As a result of the efficiency gains associated with containerization, transportation costs have

plummeted, making it much more economical to ship goods around the globe, thereby helping

to drive the globalization of markets and production.

AACSB: Analytic



59. (p. 16) Technological innovations have facilitated all of the following except:

A. globalization of production.

B. globalization of markets.

C. creation of electronic global marketplaces.

D. creation of absolutely homogeneous consumer markets.

While modern communication and transportation technologies are ushering in the "global

village," significant national differences remain in culture, consumer preferences, and

business practices.

AACSB: Analytic

Bloom's: Knowledge



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60. (p. 16) Although the characteristics of the global economy have changed dramatically over

the past 30 years, as late as the 1960s all of the following demographic characteristics were

true, except:

A. the U.S. dominated the world economy.

B. small, U.S. entrepreneurial firms dominated the international business scene.

C. the U.S. dominated the world foreign direct investment picture.

D. roughly half the world was governed by centrally planned economies of the Communist

world.

In 1963 the United States accounted for 40.3 percent of world economic activity, measured by

Gross Domestic Product (GDP). By 2008, the United States accounted for 20.7 percent of

world GDP, still the world's largest industrial power but down significantly in relative size

since the 1960s.

AACSB: Analytic



61. (p. 17) Which of the following nation's world output has declined the least over the last 40

years?

A. France

B. United States

C. United Kingdom

D. Canada

Table 1.2: The Changing Demographics of World GDP and Trade

AACSB: Analytic

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1-43

62. (p. 17) Which of the following countries has had the maximum relative decline in its share

of world output since 1963?

A. Canada

B. United States

C. Japan

D. Germany

Table 1.2: The Changing Demographics of World GDP and Trade

AACSB: Analytic



63. (p. 17) Which of the following statements pertaining to the changing demographics of world

GDP and trade from 1963 to 2006 is not true?

A. As emerging economies continue to grow, a relative decline in the share of world output

and world exports accounted for by the U.S. seems unlikely.

B. Forecasts predict a rapid rise in the share of world output accounted for by some

developing nations.

C. A decline in the share enjoyed by rich industrialized countries such as Great Britain,

Germany, Japan, and the U.S. is likely.

D. If current trends continue, the Chinese economy could be larger than that of the U.S. on a

purchasing power parity basis.

As emerging economies such as China, India, and Brazil continue to grow, a further relative

decline in the share of world output and world exports accounted for by the United States and

other long-established developed nations seems likely.

AACSB: Analytic

Bloom's: Knowledge



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64. (p. 17) According to World Bank numbers,

A. developing nations currently account for more than 60 percent of world economic activity.

B. rich nations currently account for more than 70 percent of world economic activity.

C. today's rich nations may account for 55 percent of world economic activity by 2020.

D. today's developing nations may account for more than 60 percent of world economic

activity by 2020.

The World Bank has estimated that today's developing nations may account for more than 60

percent of world economic activity by 2020, while today's rich nations, which currently

account for more than 55 percent of world economic activity, may account for only about 38

percent.

AACSB: Analytic



65. (p. 19) In the 1970s, many Japanese firms invested in North America and Europe

A. to avoid a highly competitive domestic market.

B. to exploit high domestic tariff barriers.

C. as a hedge against unfavorable currency movements.

D. to take advantage of low labor costs.

Beginning in the 1970s, European and Japanese firms began to shift labor-intensive

manufacturing operations from their home markets to developing nations where labor costs

were lower. In addition, many Japanese firms invested in North America and Europe—often

as a hedge against unfavorable currency movements and the possible imposition of trade

barriers.

AACSB: Analytic

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1-45

66. (p. 19) What is the total cumulative value of foreign investments best referred to as?

A. Accumulation of foreign shares

B. Portfolio investments

C. Stock of foreign direct investments

D. Stock market investments

The stock of foreign direct investment refers to the total cumulative value of foreign

investments.

AACSB: Analytic



67. (p. 19) The share of the total FDI stock accounted for by which of the following countries

increased markedly from 1980 to 2005?

A. United States

B. France

C. United Kingdom

D. Netherlands

The share of the total stock accounted for by U.S. firms declined from about 38 percent in

1980 to 17.9 percent in 2007. Meanwhile, the shares accounted for by France and the world's

developing nations increased markedly.

AACSB: Analytic

Bloom's: Knowledge



1-46

68. (p. 19) Firms based in _____ accounted for 14.7 percent of the stock of foreign direct

investment in 2007, up from only 1.1 percent in 1980.

A. Asia

B. developing countries

C. United Kingdom

D. NAFTA region

Firms based in Hong Kong, South Korea, Singapore, Taiwan, India and mainland China

accounted for much of this investment.

AACSB: Analytic



69. (p. 20) Which of these statements pertaining to cross-border FDI flows is true?

A. The growth of FDI resumed in 2004 and continued through 2006.

B. A surge in FDI from 1995 to 1997 was followed by a slump from 1998 to 2000.

C. Among developing nations, the largest recipient of FDI has been Russia.

D. The dramatic increase in FDI reflects the decreasing internationalization of business

corporations.

A surge in foreign direct investment from 1998 to 2000 was followed by a slump from 2001

to 2003. Among developing nations, the largest recipient of foreign direct investment has

been China. Throughout the 1990s, the amount of investment directed at both developed and

developing nations increased dramatically, a trend that reflects the increasing

internationalization of business corporations.

AACSB: Analytic

Bloom's: Knowledge



1-47

70. (p. 20) Which of the following countries has been the largest recipient of foreign direct

investment and received about $70 billion a year in inflows in 2005 and 2006?

A. Brazil

B. Russia

C. India

D. China

Among developing nations, the largest recipient of foreign direct investment has been China,

which in 2004-2008 received $60-$90 billion a year in inflows.

AACSB: Analytic



71. (p. 21) By 2006 some 24 of the world's 100 largest non-financial multinationals were:

A. Chinese enterprises.

B. British enterprises.

C. U.S. enterprises.

D. Japanese enterprises.

By 2006 things had shifted significantly. Some 24 of the world's 100 largest non-financial

multinationals were U.S. enterprises; 13 were French; 12, German; 12, British; and 9,

Japanese. The globalization of the world economy has resulted in a relative decline in the

dominance of U.S. firms in the global marketplace.

AACSB: Analytic

Bloom's: Knowledge



1-48

72. (p. 23) Identify the incorrect statement regarding the former Communist nations of Europe

and Asia.

A. The economies of most of the former Communist states are very strong and developed.

B. Many of the former Communist nations of Europe and Asia share a commitment to free

market economies.

C. As a result of disturbing signs of growing unrest and totalitarian tendencies, the risks

involved in doing business in these countries is very high.

D. For about half a century these countries were essentially closed to Western international

business.

The economies of many of the former Communist states are still relatively undeveloped, and

their continued commitment to democracy and free market economics cannot be taken for

granted.

AACSB: Analytic



73. (p. 23) Which of the following observations concerning Latin American countries is true?

A. Complete restrictions on direct investment by foreign firms.

B. Characterized by low growth, high debt, and hyperinflation.

C. Debt and inflation are up compared to previous decades.

D. Substantial opportunities exist, but are accompanied by substantial risks.

Throughout most of Latin America, debt and inflation are down, governments have sold state-

owned enterprises to private investors, foreign investment is welcomed, and the region's

economies have expanded. These changes have increased the attractiveness of Latin America,

both as a market for exports and as a site for foreign direct investment.

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Medium



1-49

74. (p. 24) Which of the following statement pertaining to changes in the global economy of the

21st century is not true?

A. Barriers to the free flow of goods, services, and capital have been coming down.

B. Volume of cross-border trade and investment has been growing more rapidly than global

output.

C. National economies are becoming more independent and moving away from the global

economic system.

D. As economies advance, more nations are joining the ranks of the developed world.

The volume of cross-border trade and investment has been growing more rapidly than global

output, indicating that national economies are becoming more closely integrated into a single,

interdependent, global economic system.

AACSB: Analytic



75. (p. 24) Which of the following does not help create an economic system that is favorable to


A. Decreased privatization

B. Widespread deregulation

C. Open markets

D. Falling trade and investment barriers

In keeping with the normative prescriptions of liberal economic ideology, in country after

country we have seen state-owned businesses privatized, widespread deregulation adopted,

markets opened to more competition, and commitment increased to removing barriers to

cross-border trade and investment.

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Medium



1-50

76. (p. 26) When a company "exports jobs" overseas, the company is:

A. helping domestic workers by pushing up wage rates.

B. increasing the demand of qualified domestic workers.

C. taking advantage of lower wages in foreign markets.

D. deceiving the supporters of globalization.

CNN news anchor Lou Dobbs has been running TV shows that are highly critical of the trend

by American companies to take advantage of globalization and "export jobs" overseas. As the

world slipped into a recession in 2008, Dobbs stepped up his anti globalization rhetoric.

AACSB: Analytic



77. (p. 28) If the critics of globalization are correct, all of the following things must be shown

except:

A. the share of national income received by labor, as opposed to the share received by the

owners of capital should have declined in advanced nations.

B. even though labor's share of the economic pie may have declined, living standards need not

deteriorate if the size of the total pie has increased sufficiently to offset the decline in labor's

share.

C. the decline in labor's share of national income must be due to moving production to low-

wage countries, as opposed to improving production technology and productivity.

D. economic growth in developed nations has offset the fall in unskilled workers' share of

national income, raising their living standards.

This is the position argued by supporters of globalization.

AACSB: Analytic

Bloom's: Knowledge



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78. (p. 28) A study by the OECD, whose members include the 20 richest economies in the

world, noted all of the following except:

A. the gap between the poorest and richest segments of society in some OECD countries

widened.

B. in almost all countries real income levels rose over the 20-year period studied.

C. falling unemployment rates brought gains to low-wage workers and fairly broad-based

wage growth.

D. the gap between rich and poor had narrowed in all OECD countries.

A study by the Organization for Economic Cooperation and Development, whose members

include the 20 richest economies in the world, noted that while the gap between the poorest

and richest segments of society in some OECD countries had widened, this trend was by no

means universal.

AACSB: Analytic



79. (p. 29) Critics of globalization maintain that the apparent decline in real wage rates of

unskilled workers

A. owes far more to a technology-induced shift within advanced economies toward jobs that

require significant education and skills.

B. is due to the migration of low-wage manufacturing jobs offshore and a corresponding

reduction in demand for unskilled workers.

C. has been impacted most by technological change.

D. can be checked by increasing society's investment in education to reduce the supply of

unskilled workers.

Supporters of globalization maintain that the apparent decline in real wage rates of unskilled

workers owes far more to a technology-induced shift within advanced economies away from

jobs where the only qualification was a willingness to turn up for work every day and toward

jobs that require significant education and skills.

AACSB: Analytic

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80. (p. 29) Before NAFTA was passed

A. Mexico agreed to establish a higher minimum wage.

B. the U.S. agreed to limit the number of jobs that could be exported to Mexico.

C. Mexico committed to tougher enforcement of environmental protection regulations.

D. Canada committed to establish new limits of FDI.

Supporters of free trade point out that it is possible to tie free trade agreements to the

implementation of tougher environmental and labor laws in less developed countries.

NAFTA, for example, was passed only after side agreements had been negotiated that

committed Mexico to tougher enforcement of environmental protection regulations.

AACSB: Analytic



Essay Questions

81. (p. 4) With the help of an example discuss the characteristics of globalization.

Globalization refers to a fundamental shift in the world economy in which national economies

are no longer relatively self-contained entities. Instead, nations are moving toward an

interdependent global economic system. Within this new global economy, an American might

drive to work in a car designed in Germany that was assembled in Mexico by

DaimlerChrysler from components made in the U.S. and Japan that were fabricated from

Korean steel and Malaysian rubber. A company does not have to be the size of these

multinational giants to facilitate, and benefit from, the globalization of markets.

AACSB: Analytic

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82. (p. 4-5) Define globalization and discuss it has changed the business environment?

Globalization has created many opportunities for businesses to expand their revenues by

selling around the world while at the same time reducing their costs by producing in nations

where labor and other inputs are cheap. However, globalization has also produced new threats

for companies in the form of increased competition.

AACSB: Analytic



83. (p. 6-7) Explain what is meant by the globalization of markets. Provide an example. What

are the most global markets?

The globalization of markets refers to the idea that historically distinct and separate national

markets are merging into a single, huge global marketplace. For example, Coca-Cola,

Starbucks, and McDonald's offer the same basic product worldwide, and are in fact, not only a

part of the trend, but facilitators of the trend as well. The most global markets are not actually

for consumer goods, but instead are for industrial goods and materials that serve the same

needs across the world.

AACSB: Analytic

Bloom's: Knowledge


84. (p. 7-9) Discuss the concept of the globalization of production.

The globalization of production refers to the sourcing of goods and services from locations

around the world to take advantage of national differences in the cost and quality of factors of

production. Companies that capitalize on this trend are able to outsource production to the

best suppliers in the world, and should therefore end up with a better final product.

AACSB: Analytic




1-54

85. (p. 9-10) What is the World Trade Organization? What is its role in the world economy?

The World Trade Organization (WTO) is primarily responsible for policing the world trading

system and making sure nation-states adhere to the rules laid down in trade treaties signed by

WTO members. The WTO currently has 148 members that collectively account for 97 percent

of world trade. The WTO has been instrumental in lowering barriers to cross-border trade and

investment. In addition to these responsibilities, the WTO also facilitates the establishment of

additional agreements between member states.

AACSB: Analytic



86. (p. 10) What is the International Monetary Fund? What is the World Bank? What is their

relationship, if any, with each other?

The International Monetary Fund (IMF) was created to maintain order in the international

monetary system. The World Bank was established to promote economic development. Both

organizations were launched as part of the 1944 Bretton Woods Agreement, and have

emerged as significant players in the global economy. The IMF is often seen as the lender of

last resort to nation-states whose economies are in turmoil and currencies are losing value

against those of other nations.

AACSB: Analytic

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87. (p. 12) Explain how a company competes using outsourcing. Provide an example.

Companies compete by outsourcing manufacturing activities to the optimal location wherever

in the world that may be; given production and transportation costs. Thus, a firm might design

a product in one country, produce component parts in two other countries, assemble the

product in yet another country, and then export the finished product around the world. IBM

for example, designed a laptop computer in the U.S., outsourced production of the case,

keyboard, and hard drive to Thailand, produced the display screen and memory in South

Korea, the wireless card in Malaysia, and the microprocessor in the U.S. The final product

was assembled in Mexico, and was then exported to the U.S. for sale.

AACSB: Analytic



88. (p. 13-14) Explain the trends in world trade and foreign direct investment over the last half

century.

Since 1950, the volume of world merchandise trade has grown faster than the world economy.

In particular, there has been acceleration in world trade since 1980. This trade and investment

pattern implies that firms are dispersing parts of their production to different locations around

the world to drive down production costs and increase product quality, that the economies of

the world's nation states are becoming more intertwined, that foreign direct investment is

playing an increasing role in the global economy as firms increase their cross-border

investments, and that the world has become significantly wealthier over the last 50 years.

AACSB: Analytic

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1-56

89. (p. 14) How has technological change affected global markets? What key innovations have

changed the nature of how "we do business?"

Major advances in communication, information processing, and transportation technology

have facilitated the globalization of markets and production. The microprocessor and the

Internet have been central to the technology explosion. The development of the

microprocessor vastly increased the amount of information that can be processed by

individuals and firms, and the growth of the Internet has allowed companies to expand their

global presence at a fraction of the cost of more traditional methods of business.

AACSB: Analytic



90. (p. 14) Explain the notion of the Web emerging as an equalizer.

In 1990, fewer than one million users were connected to the Internet. By May 2009 the

Internet had 1.6 billion users. For companies, the Web is emerging as an equalizer as it

minimizes the constraints of location, scale, and time zones. Using the Internet, buyers and

sellers can find each other regardless of location, allowing businesses, both large and small,

the opportunity to expand their global presence at a lower cost than ever before.

AACSB: Analytic

Bloom's: Knowledge



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91. (p. 14-15) Innovations in transportation have had a major impact on global trade. Consider

one of these innovations: containerization. Why is this innovation so significant?

Containerization has revolutionized the transportation business, significantly lowering the

costs of shipping goods over long distances. Emerging in the 1970s and 1980s,

containerization spelled an end to the costly and lengthy business of loading and unloading

ships, trucks, and trains. Cost savings associated with containerization are significant.

Between 1920 and 1990, average ocean freight and port charges per ton fell from $95 to $29.

Air transportation saw a similar decline, as did trucking.

AACSB: Analytic



92. (p. 16-18) Discuss the demographics of world trade since the 1960s. How has the role of the

U.S. changed? How is world trade expected to change in the future?

In the early1960s, the U.S. was the world's dominant industrial power accounting for over 40

percent of world output. By 2008, the United States accounted for 20.7 percent of world GDP,

still the world's largest industrial power but down significantly in relative size since the

1960s. Other industrialized countries also saw their relative standing slip. Taking their place

as active exporters are the newly industrializing countries of South Korea and China. Most

forecasts predict that the share of world output accounted for by developing countries such as

China, India, and Mexico will rise over the next 20 years, while at the same time rich

industrialized countries will continue to see their share of world output decline.

AACSB: Analytic

Bloom's: Knowledge



1-58

93. (p. 18-20) How has the foreign direct investment picture changed since the 1960s?

The U.S. accounted for about two-thirds of worldwide foreign direct investment flows in the

1960s, followed by British firms with about 10 percent of FDI flows, and Japanese firms with

2 percent. As barriers to trade fell, non-U.S. firms increased their investments around the

world in search of optimal production locations and a direct presence in major markets.

During the 1990s, FDI to both developed and developing nations increased dramatically.

China also emerged as an important destination for FDI.

AACSB: Analytic



94. (p. 20-21) What is a multinational enterprise (MNE)? How does a mini-multinational differ

from an MNE?

A multinational enterprise is any business that has productive activities in two or more

countries. In the1960s nearly half of the world's 260 largest MNEs were American. By 2006,

some 24 of the world's 100 largest non-financial multinationals were now U.S. enterprises.

Firms from developing countries are expected to emerge as important competitors in the

world economy. The number of mini-multinationals is also on the rise. Mini-multinationals

are medium-sized and small MNEs.

AACSB: Analytic

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95. (p. 23) Many companies are keeping their eyes on China. Why is China so important to


International companies are excited about China because with its 1.3 billion people it

represents a huge, and largely untapped market for goods and services. Companies are so

interested in its potential that FDI to China surged between 1983 and 2004, going from less

than $2 billion in 1983 to $70 billion in 2006. However, while China remains a very attractive

market, companies must beware of the competition that is beginning to emerge from the

country.

AACSB: Analytic



96. (p. 24) Consider the global economy of the 21st century. What important changes are taking

place? What do these changes mean for international companies?

The last 25 years have been a time of great change in the global economy. Barriers to the free

flow of goods, services, and capital have been falling, national economies are becoming more

integrated, and more countries are joining the ranks of the developed world. All of these

changes point toward an economic system that is more favorable for international business.

AACSB: Analytic

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97. (p. 24-31) Consider whether the shift toward a more integrated and interdependent global

economy is a good thing. Discuss the shift from the eyes of the consumer, the worker, the

company, and the environmentalist.

There are many advantages of globalization. From a broad perspective, globalization creates

economic activity (which stimulates economic growth), creates jobs, raises income levels, and

provides consumers with more choices in regard to the products and services that are

available to them. From the perspective of an individual firm, globalization has the potential

to increase revenues (through expanded market potential), drive down costs (through

additional economies of scale), and boost profits.

However, critics argue that globalization destroys manufacturing jobs in wealthy countries

and contributes to pollution. Critics argue that falling trade barriers allow firms in

industrialized countries to move their manufacturing activities offshore to countries where

wage rates are much lower. Critics also argue that globalization encourages firms from

advanced nations to move manufacturing facilities offshore to less developed countries to

avoid the more stringent pollution controls in place in their home countries.

AACSB: Analytic



98. (p. 25-26) Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the

events were important to the future of global trade.

In December 1999, more than 40,000 protesters blocked the streets of Seattle in an effort to

shut down a WTO meeting being held in the city. The issue was job losses in industries under

attack from foreign competitors, falling wage rates of unskilled workers, environmental

degradations, and cultural imperialism of global media and MNEs. Protesters believed that all

of these issues were the result of globalization, and felt that the WTO, as a promoter of

globalization, was a legitimate target for blame. The protest was a violent one and

emboldened by the experience its experience, antiglobalization protesters now turn up at

almost every major meeting of a global institution.

AACSB: Analytic

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99. (p. 26-29) Falling barriers to international trade destroy manufacturing jobs in wealthy

advanced economies. Discuss this statement. Do you agree? Why or why not?

Critics argue that falling trade barriers allow firms to move manufacturing activities to

countries where wage rates are much lower. Because of such moves they argue that, the wage

rates of poorer Americans have fallen significantly over the past quarter of a century.

Supporters of globalization reply that critics of these trends miss the essential point about free

trade—the benefits outweigh the costs. They argue that free trade will result in countries

specializing in the production of those goods and services that they can produce most

efficiently, while importing goods and services that they cannot produce as efficiently.

AACSB: Analytic



100. (p. 31) Discuss the effect of globalization on national sovereignty.

Critics of globalization argue that today's increasingly interdependent global economy shifts

economic power away from national governments and toward supranational organizations.

They feel that unelected bureaucrats now impose policies on the democratically elected

governments of nation-states, thereby undermining the sovereignty of those states and

limiting the nation's ability to control its own destiny.

In contrast many economists and politicians maintain that the power of supranational

organizations is limited to what nation-states collectively agree to grant. They argue that these

bodies exist to serve the collective interests of member states, not to subvert those interests.

Supporters of supranational organizations point out that the power of these bodies rests

largely on their ability to persuade member states to follow a certain action. In this view, real

power still resides with individual nation-states, not supranational organizations.

AACSB: Analytic

Bloom's: Knowledge

Difficulty: Medium


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Chapter 01 Globalization - TestBankSter€¦ · Chapter 01 - Globalization 1-4 22. According to forecasts, a further relative decline in the share of world output and world exports