Chapter 1—Globalizing Business

TRUE/FALSE

	1.	A multinational enterprise is a firm that engages in foreign direct investment by directly managing value-added activities in other countries.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 4	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	2.	The term “emerging markets” refers to all markets other than the developed markets.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	3.	Gross domestic product (GDP) is the sum of value added by resident firms, households, and governments operating in an economy.

ANS:	T	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	4.	Majority of the global GDP is contributed by the emerging markets.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	5.	Purchasing power parity (PPP) is a conversion that determines the equivalent amount of goods and services different currencies can purchase.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	6.	Purchasing power parity (PPP) is calculated as the sum of value added by resident firms, households, and governments operating in an economy.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	7.	Emerging markets contribute about 26% of global GDP without adjusting for purchasing power parity (PPP).

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	8.	More than half the GDP produced by emerging markets comes from outside the BRIC countries.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	9.	On the global economic pyramid, the Triad refers to developed economies consisting of North America, Western Europe, and Japan.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	10.	All the countries of the BRIC belong to the top tier of the global economic pyramid.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	11.	The second tier of the global economic pyramid is made up of countries with a per capita annual income of more than $20,000.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	12.	The emerging markets of the world are placed at the top of the global economic pyramid.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	13.	The global economic pyramid does not represent countries that have a per capita annual income of less than $2,000.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	14.	The term "base of the pyramid" represents economies where individuals make less than $2,000 a year.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	15.	Reverse innovations are innovations that are adopted first in the Triad-based multinationals and then diffused around the world.

ANS:	F	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	16.	Reverse innovation is an example of bottom up innovation.

ANS:	T	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 10	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	17.	The Group of 20 includes the European Union (EU)—a regional bloc.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 11	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	18.	Globalization has driven up the salaries of low-level jobs.

ANS:	F	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 12	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	19.	An international premium is a significant pay raise awarded to expatriate employees working abroad.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 12	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	20.	Approximately 80 million people worldwide are employed by foreign-owned firms.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 13	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	21.	Overall, the focus on firm performance around the globe defines the field of global business more than anything else.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 15	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	22.	An institution-based view suggests that the success and failure of firms are enabled and constrained by business norms of the host nation.

ANS:	T	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 15	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	23.	Formal institutions include laws, regulations, and rules.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 15	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	24.	The institution-based view places emphasis on the external factors that could affect a firm.

ANS:	T	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	25.	Focusing on a firm’s internal resources and capabilities is the main emphasis of the resource-based view.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	26.	Liability of foreignness is the inherent disadvantage experienced by foreign firms in host counties because of their non-native status.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	27.	Most opponents of globalization view globalization as a long-run historical evolution since trade began.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	pp. 18-19	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	28.	According to the pendulum view of globalization, globalization is a relatively new phenomenon triggered by the information revolution of early 1990s.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 19	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	29.	Scenario planning is a technique to prepare and plan exclusively for high risk scenarios.

ANS:	F	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 20	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	30.	Standardization of markets would lead to a state of semiglobalization.

ANS:	F	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	31.	Semiglobalization is primarily caused by the practice of total isolation.

ANS:	F	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	32.	The current state of globalization around the world is that of semiglobalization.

ANS:	T	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	33.	Semiglobalization calls for adopting one way of doing business for all conditions.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	34.	The strategy of treating the entire world as one market is known as localization.

ANS:	F	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	35.	A dragon multinational is a name given to MNEs from emerging markets.

ANS:	T	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 22	OBJ:	LO: 1-5	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

MULTIPLE CHOICE

	1.	The term "emerging economies" has replaced the term _____.
a.	developed countries	
b.	developing countries	
c.	Triad markets	
d.	first-world markets	

ANS:	B	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	2.	The _____ is measured as the sum of value added by resident firms, households, and governments operating in an economy.
a.	gross national product	
b.	gross national income	
c.	gross domestic product	
d.	national reserve	

ANS:	C	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	3.	A conversion that determines the equivalent amount of goods and services that different currencies can buy is known as _____.
a.	purchasing power parity	
b.	foreign exchange rate	
c.	country's deficit	
d.	gross domestic product	

ANS:	A	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 5	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	4.	The gross domestic product plus the income from non-resident sources abroad gives the ____.
a.	gross national product	
b.	per capita income	
c.	purchasing power parity	
d.	net national income	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 6	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	5.	Without adjusting for PPP, emerging economies contribute about 26% of the global GDP. Adjusting for PPP, they now contribute approximately 45% of the global GDP. The reason there is a huge difference between the two measures is because:
a.	the cost of living in emerging economies tends to be lower than that in developed economies.	
b.	the purchasing power parity is much higher in emerging countries.	
c.	the population in emerging economies is much higher than that in developed economies.	
d.	the deficit spending in emerging economies is much larger than that in developed economies.	

ANS:	A	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Diversity	
KEY:	Bloom's: Knowledge	

	6.	Which of the following countries would be characterized as an emerging economy?
a.	Brazil	
b.	USA	
c.	Germany	
d.	Japan	

ANS:	A	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	7.	Which of the following groups is primarily composed of emerging economies?
a.	The Triad	
b.	BRIC	
c.	Group of Eight (G8)	
d.	NAFTA	

ANS:	B	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	8.	Which of the following countries is included in BRIC?
a.	Belgium	
b.	Russia	
c.	Italy	
d.	Canada	

ANS:	B	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	9.	More than half of all GDP of emerging economies comes from _____.
a.	the Four Asian Tigers (Hong-Kong, Singapore, South Korea, and Taiwan)	
b.	MIKT (Mexico, Indonesia, South Korea, Turkey) 	
c.	the Commonwealth of Independent States	
d.	BRIC (Brazil, Russia, India, and China)	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 7	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	10.	People who live in the Triad countries comprise the _____ of the global economic pyramid.
a.	top tier	
b.	second tier	
c.	base	
d.	outlier	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	11.	Viewing the global economy as a pyramid, the Triad refers to _____.
a.	Taiwan, Hong Kong, and South Korea	
b.	US, the EU, and China	
c.	Brazil, India, and China	
d.	North America, Western Europe, and Japan	

ANS:	D	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	12.	Which of the following countries is represented in the Triad of the global economic pyramid?
a.	India	
b.	China	
c.	Japan	
d.	Russia	

ANS:	C	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	13.	Which of the following regions in the global economic pyramid would comprise developed nations?
a.	The base	
b.	The Triad	
c.	The second tier	
d.	The outlier	

ANS:	B	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	14.	People who earn _____ a year comprise the base of the global economic pyramid.
a.	between $2,000 to $20,000	
b.	less than $2,000	
c.	between $20,000 to $40,000	
d.	more than $40,000	

ANS:	B	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	15.	Which of the following is true of economies in the base of the global economic pyramid?
a.	They are composed of developed economies.	
b.	They are composed of people from North America, Western Europe, and Japan. 	
c.	They are largely ignored by MNEs.	
d.	They attract the largest FDI from MNEs. 	

ANS:	C	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	16.	A _____ is defined as an innovation that is adopted first in emerging economies and then diffused around the world.
a.	reverse innovation	
b.	reverse-engineered innovation	
c.	top down innovation	
d.	traditional innovation	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	17.	Which of the following would be an example of a top down innovation?
a.	Lowering prices and features of existing products to meet emerging market needs	
b.	Launching a product in and for emerging economies	
c.	Adopting an innovation first in emerging economies and then diffusing it around the world	
d.	Introducing products from emerging markets into developed markets	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	18.	Which of the following would be an example of a product undergoing reverse innovation on the global economic pyramid?
a.	Triad nation to Triad nation	
b.	Triad nation to second tier nation	
c.	Second tier to base tier nation	
d.	Base tier nation to Triad nation	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 9	OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	19.	Which of the following is true of the Group of 20 (G-20)?
a.	It only has 19 member countries.	
b.	It doesn’t represent any European nation.	
c.	It meets annually to discuss environmental issues.	
d.	It includes many regional blocs.	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 11	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	20.	Approximately _____ people are employed by foreign-owned firms throughout the world.
a.	80 million	
b.	40 million	
c.	18 million	
d.	1 million	

ANS:	A	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 13	OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	21.	Which of the following does the institution-based view of global business lay emphasis on?
a.	Acquiring resources that belong to the host nation	
b.	Consolidating the internal assets of a firm	
c.	Focusing on the capabilities of the firm’s headquarters	
d.	Understanding the laws and values of the firm’s host nation	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 15	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	22.	The _____ view suggests that the success and failure of firms are largely determined by their environments.
a.	institution-based	
b.	stakeholder-based	
c.	resource-based	
d.	capability-based	

ANS:	A	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	23.	The _____ view of global business focuses on external factors that affect a firm’s performance.
a.	resource-based	
b.	asset-based	
c.	capability-based	
d.	institution-based	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	24.	The resource-based view of global business differs from the institution-based view of global business in that the resource-based view _____.
a.	postulates the ideology of localization	
b.	supports the ideology of total globalization	
c.	focuses on the internal strengths on the firm 	
d.	advocates adopting a single method for achieving globalization	

ANS:	C	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	25.	The _____ view of global business focuses on internal factors that can help a firm overcome its external environment.
a.	resource-based	
b.	industry-based	
c.	socio-cultural	
d.	institution-based	

ANS:	A	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	26.	The liability of foreignness is the inherent disadvantage faced by _____.
a.	domestic firms against other domestic firms that have engaged in global business	
b.	foreign firms in host nations due to their non-native status	
c.	domestic firms from foreign firms setting up in their country	
d.	foreign firms from their home country governments	

ANS:	B	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 16	OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	27.	Which of the following is true of globalization according to the “new force” perspective?
a.	It is a process of trade integration that has both advantages and disadvantages.	
b.	It is a phenomenon that is technologically out of sync.	
c.	It is a historical aspect of human trade.	
d.	It is a western ideology focused on exploiting and dominating the world through MNEs.	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	pp. 18-19	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	28.	Which of the following is true of globalization according to the “pendulum view” perspective?
a.	Globalization is being interrupted by artificial barriers to the flows of goods, services, capital, and knowledge.	
b.	Globalization is a Western ideology focused on exploiting and dominating the world through MNEs.	
c.	Globalization is a not a one-directional phenomenon.	
d.	Globalization is a recent phenomenon of human trade.	

ANS:	C	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 19	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	29.	The _____ of globalization suggests that globalization is neither recent nor one-directional.
a.	new-force view	
b.	long-run historical view	
c.	pendulum view	
d.	colonial view	

ANS:	C	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 19	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	30.	The concept of _____ suggests that barriers to market integration at borders are high, but not high enough to completely insulate countries from each other.
a.	localization	
b.	technocapitalism	
c.	semiglobalization	
d.	total globalization	

ANS:	C	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	31.	Which of the following is true of semiglobalization?
a.	It is a type of globalization that adopts a strategy of treating the entire world as one market.	
b.	It is a type of globalization that lies between total isolation and total globalization.	
c.	It is a form of globalization that treats each country as a unique market.	
d.	It is a form of globalization that considers each nation in isolation when conducting business.	

ANS:	B	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	32.	The strategy of treating each country as a unique market and in total isolation is referred to as _____.
a.	total globalization	
b.	standardization	
c.	semiglobalization	
d.	localization	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	33.	_____ is the strategy of treating the entire world as one market.
a.	Total isolation	
b.	Semiglobalization	
c.	Standardization	
d.	Localization	

ANS:	C	PTS:	1	DIF:	Difficulty: Easy	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

	34.	Which of the following would lead to the standardization of world markets?
a.	Semiglobalization	
b.	Localization	
c.	Total globalization	
d.	Total isolation	

ANS:	C	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 21	OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Comprehension

	35.	Which of the following would be regarded as a dragon MNE?
a.	MNEs from developed countries	
b.	MNEs belonging to the Triad economies	
c.	MNEs coming exclusively from the European Union	
d.	MNEs from emerging markets	

ANS:	D	PTS:	1	DIF:	Difficulty: Moderate	
REF:	p. 22	OBJ:	LO: 1-5	NAT:	BUSPROG: Analytic	
KEY:	Bloom's: Knowledge	

ESSAY

	1.	What is the relationship between gross domestic product (GDP) and purchasing power parity (PPP)?

ANS:	
The IMF uses the United States as benchmark in PPP calculation. PPP is a conversion that determines the equivalent amount of goods and services different currencies can purchase. For example, one dollar spent in Mexico can buy a lot more than one dollar spent in the United States.
Gross domestic product (GDP) is the sum of value added by resident firms, households, and governments operating in an economy. To compare two countries' GDP, a conversion based on PPP is necessary.
The PPP between two countries is the rate at which the currency of one country needs to be converted into that of a second country to ensure that a given amount of the first country's currency will purchase the same volume of goods and services in the second country. Without adjusting for PPP, emerging economies contribute about 26% of the global GDP. But after adjusting for PPP, emerging economies contribute about 45% of the global GDP.

PTS:	1	DIF:	Difficulty: Moderate		REF:	pp. 5-7
OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	2.	The global economy may be viewed as a pyramid. The growing number of opportunities at the base of the pyramid highlights the role this bottom tier will play in the years to come. How can MNEs take advantage of this often-ignored level?

ANS:	
The global economy can be viewed as a pyramid. The top of the pyramid consists of one billion people with per capita annual income of $20,000 or higher. The second tier consists of another billion people making $2,000 to $20,000 a year. The vast majority of the world's populations, representing approximately five billion people, live at the base of this pyramid, making less than $2,000 a year.
Marketers have focused on the top two levels and end up ignoring the bottom tier. An increasing number of countries located in this bottom tier are demonstrating economic and marketing opportunities as they move from low- to middle-income levels. It is much easier to market to consumers with higher incomes. In the emerging world, marketing is different. There is no guarantee media choices will be available or that one’s product will be a success.
The challenges in the bottom of the pyramid require innovation, such as identifying special price points, as well as long-term commitment. Many consumers at the base of the pyramid may be illiterate, but they are brand conscious. Companies need to think outside the box and identify win-win strategies for this emerging consumer market.
Although individuals living in developing economies have less purchasing power than their counterparts living in the developed countries, they still have needs and wants. Global firms capable of fulfilling these needs will make a profit and emerge as global marketers.

PTS:	1	DIF:	Difficulty: Moderate		REF:	pp. 8-9
OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	3.	How is reverse innovation helping emerging economies?

ANS:	
One interesting recent development out of emerging economies is reverse innovation —an innovation that is adopted first in emerging economies and then diffused around the world. On the global economic pyramid, traditionally, innovations are generated by Triad-based multinationals with the needs and wants of rich customers at the top of the pyramid in mind. When such multinationals entered lower-income economies, they tended to simplify the product features and lower the prices. In other words, the innovation flow is top down. The reverse innovation movement suggests that emerging economies are no longer merely low-cost production locations or attractive new markets. They are also sources of new innovations that may not only grow out of bottom-of-the-pyramid markets, but also have the potential to go uphill to penetrate into the top of the global economic pyramid.

PTS:	1	DIF:	Difficulty: Moderate		REF:	pp. 9-10
OBJ:	LO: 1-1	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	4.	Explain the benefits of gaining international business experience and working as an expat.

ANS:	
Answers may vary.

People skills and greater understanding of the complexity of the global business environment are valuable assets for current and future top MNE executives. Expatriates have a unique opportunity to be hands-on managers exposed to the corporation's global organizational dynamics.
Top-level jobs, especially those held by expats, are both financially rewarding and secure. Expats often command a significant premium in compensation, which usually includes a premium pay raise when accepting overseas assignments. Other benefits include more favorable job security in times of downsizing. Managers who have positioned themselves strategically with international business experience have a better chance at continued employment.
When the expat returns from a global assignment, if the current company does not provide attractive career return opportunities, the expat has the skills and expertise to consider other global firms. In most cases, the expat will not have a difficult time identifying other employment opportunities and commanding a higher premium. Expats gain a competitive advantage by accepting global business assignments as it increases their opportunities for upward mobility.

PTS:	1	DIF:	Difficulty: Challenging	REF:	p. 12
OBJ:	LO: 1-2	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	5.	Explain the success and failure of global firms based on institution- and resource-based views.

ANS:	
Global firms can gain success in today's competitive global market by focusing on the institution- and resource-based perspectives. The first factor from an institutional perspective focuses on how companies can earn greater success by understanding the external business environments in international business. MNEs quick to acquaint and internationalize themselves with an understanding of the external environment, such as host country market rules, cultural norms, and policies, will increase their success.
The resource-based view focuses on an MNEs' internal resources, which are firm specific resources and capabilities. Competitors in the same environment do not share these internal capabilities; therefore, a company possessing unique firm-specific capabilities develops a competitive advantage in marketing their products or in the value creation process. Global companies that best utilize their internal strengths will increase their opportunities for business success.

PTS:	1	DIF:	Difficulty: Moderate		REF:	pp. 14-16
OBJ:	LO: 1-3	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	6.	Elaborate on the three prevalent views of globalization.

ANS:	
Globalization is generally seen in three perspectives:
·     a new force sweeping through the world in recent times
·a long-run historical evolution since the dawn of human history 
·a pendulum that swings from one extreme to another from time to time 
The first view sees globalization as a new phenomenon beginning in the late 20th century, driven by recent technological innovations and a Western ideology focused on exploiting and dominating the world through MNEs. The second view contends that globalization has always been part and parcel of human history. The third view suggests that globalization is the “closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of the costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders.”

PTS:	1	DIF:	Difficulty: Moderate		REF:	pp. 18-19
OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	7.	Explain the pendulum view of globalization.

ANS:	
The pendulum view probably makes the most sense because it can help us understand the ups and downs of globalization.
The current era of globalization originated after World War II with the major Western nations committing to globalization. From the 1950s through the 1970s, political unrest in the Communist countries formed a different view of globalization. Non-communist countries, such as Mexico and Brazil, focused on protecting their domestic industries. In contrast, the Four Tigers¾the developing economies of Hong Kong, Singapore, South Korea and Taiwan¾participated in the global economy.
Both the emerging and developed markets benefit greatly from globalization. However, seen in a historical context, globalization never continues in one direction, hence the view of globalization as a pendulum. In the 1990s, globalization was on the fast track. However, globalization proponents witnessed significant backlashes and setbacks. This rapid growth in globalization led to an inaccurate view that globalization was new, which created many negative perceptions. This new globalization created fear, and competition posed a direct threat to countries' culture and values.
More recently, globalization has once again come to be considered a positive, offering contributions to worldwide economic growth. Globalization has both a rosy and dark side, and it changes over time. In some areas, it has resulted in job creation with tremendous outcomes, while in other areas it has resulted in job losses and hardship. How globalization has affected you or your family will influence your perceptions and viewpoints.

PTS:	1	DIF:	Difficulty: Challenging	REF:	pp. 19-20
OBJ:	LO: 1-4	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension

	8.	Explain the role of nongovernmental organizations (NGOs) in globalization.

ANS:	
Many of the opponents of globalization are nongovernmental organizations (NGOs) such as environmentalists, human rights activists, and consumer groups. Ignoring them will be a grave failure when doing business around the globe. Instead of viewing NGOs as opponents, many firms view them as partners. NGOs do raise a valid point when they insist that firms, especially MNEs, should have a broader concern for the various stakeholders affected by the MNEs’ actions around the world. At present, this view is increasingly moving from the peripheral to the mainstream.

PTS:	1	DIF:	Difficulty: Challenging	REF:	pp. 23-24
OBJ:	LO: 1-5	NAT:	BUSPROG: Analytic		KEY:	Bloom's: Comprehension