Ch.6 The Political Environment A Critical Concern Exam Prep

International Marketing, 18e (Cateora)

Chapter 6 The Political Environment: A Critical Concern

1) Sovereignty is exclusive to the supreme powers exercised by a nation over its own members.

2) Sovereignty may be threatened by foreign investment.

3) Adherence to the World Trade Organization (WTO) does not result in the loss of national sovereignty.

4) Foreign businesses no longer need to be concerned about the stability or instability of prevailing government policies.

5) Pressure from nationalist and self-interest groups affect the stability of a government.

6) Saudi Arabia began permitting women to vote in 2015.

7) Nationalism supports foreign business because it improves local economies.

8) Nationalistic feelings in general bear no relation to the domestic economy.

9) Property may legally be seized by the government with or without compensation.

10) The most severe political risk of global business is the government action of domestication.

11) The ultimate goal of domestication is to require companies to produce more products to export than was the case before domestication.

12) Through expropriation and nationalization, nationalized businesses have become more efficient, technologically strong, and competitive in world markets.

13) Barring Latin America, the risks of confiscation and expropriation have decreased over the last two decades.

14) Many countries have domestication as a condition for investment.

15) Price controls are only targeted at nonessential products.

16) Political sanctions are usually an unsuccessful means of achieving the goal of forcing a country to accept the demands of the boycotting country.

17) Political and social activists generally have no impact on the normal flow of trade.

18) Nongovernmental organizations can affect the policy decisions made by governments through lobbying.

19) Risk of violence does not tend to be a consideration in assessing the political vulnerability of a multinational company's activities.

20) International warfare is fast gaining popularity among nations.

21) Due to advancements in technology, it is relatively easy to determine whether a cyber attack has been launched by a rogue state, a terrorist, or a hacker as a prank.

22) As cultural and political scenarios vary so widely across nations, there is no way to generalize the tendency for a particular product to be politically sensitive.

23) Products that have or are perceived to have an effect on the environment are more likely to be politically sensitive.

24) It is common for a single company to directly control or alter the political environment of the country within which it operates.

25) Relations between governments and MNCs are generally negative, particularly if the investment made by the MNCs increases exports or reduces imports.

26) Licensing is not effective in situations where the technology is unique and the risk is high.

27) Planned domestication involves taking over an industry in a foreign country.

28) It is illegal for U.S. citizens to pay a bribe unless it is a common practice in the host country.

29) The principal agency that supports U.S. business abroad is the Global Chamber of Commerce (GCC).

30) The Agency for International Development underwrites trade and investments for U.S. firms.

31) In the context of international law, a ________ governs its own territory and may enter into agreements with other nations.

A) bounded

B) sovereign

C) legal

D) liberal

E) neutral

32) A sovereign state is one that

A) is obligated to be a member of the World Trade Organization.

B) has its political and economic systems determined by the United Nations Development Program.

C) enjoys full legal equality with other states.

D) has its territory governed by the United Nations.

E) is bounded by external control.

33) ________ refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members.

A) Sovereignty

B) Self-governance

C) Federalism

D) Autocracy

E) Nationalism

34) In April 2009, the G20 nations agreed to cede some sovereignty and

A) include all G20 nations in the Security Council.

B) raise oil prices.

C) increase infrastructure funding.

D) reject protectionism.

E) increase aid to South Africa.

35) Adherence to the WTO inevitably means

A) a definite increase in import tariffs worldwide.

B) the loss of national security to a large extent.

C) reduction in world trade of at least 70 percent.

D) the loss of some degree of national sovereignty.

E) complete stoppage of foreign direct investments.

36) For a multinational firm, the ideal political climate is a

A) country where international laws do not apply.

B) country where favors can be purchased easily.

C) country with a stable and friendly government.

D) government with absolute power.

E) government that radically shifts its philosophy.

37) What is the top political issue concerning foreign businesses?

A) demographic profile of political leaders

B) government policies on infrastructure

C) economic awareness of political leaders

D) stability of prevailing government policies

E) membership of governments in trade treaties

38) What is one of the main political causes of instability in international markets?

A) varied taxing conventions

B) differences in economic philosophies

C) global focus

D) environmental awareness

E) trade disputes

39) Monarchy, like ________, is a form of government ruled by one.

A) aristocracy

B) dictatorship

C) democracy

D) monopoly

E) oligarchy

40) The ancient Greeks conceived three fundamental forms of government. Which term refers to a government ruled by one?

A) aristocracy

B) monarchy

C) democracy

D) monopoly

E) oligarchy

41) Which government form can be most accurately described as rule by few?

A) aristocracy

B) dictatorship

C) democracy

D) monopoly

E) monarchy

42) According to ancient Greeks, what fundamental government form represents rule by many?

A) aristocracy

B) dictatorship

C) democracy

D) monopoly

E) monarchy

43) What is a common term for a form of government in use today?

A) protectionism

B) duopoly

C) oligopoly

D) capitalism

E) oligarchy

44) What country recently allowed women the right to vote for the first time?

A) Croatia

B) Iran

C) Bolivia

D) Saudi Arabia

E) Venezuela

45) What event caused a drop in "economic freedom" in the United States, according to the Heritage Foundation?

A) Hurricane Katrina

B) the war in Iran

C) Obamacare

D) the bombing of the World Trade Towers

E) the economic stimulus of 2008–2009

46) ________ is an intense feeling of state pride and unity, an awakening of a country's people to pride in their country.

A) Nepotism

B) Absolutism

C) Fascism

D) Nationalism

E) Polarism

47) Which action is most likely a manifestation of nationalism?

A) membership in bilateral trade treaties

B) a call to buy a global counterpart's products

C) restrictions on imports

D) removal of tariffs and quotas

E) a focus on global security

48) With which term would the phrase "Buy American" be most closely associated?

A) socialism

B) communism

C) nationalism

D) abstractionism

E) polarism

49) What is true of nationalism?

A) The more a country feels threatened by some outside force the less nationalistic the country becomes.

B) A call to "buy our country's products only" is one form of manifestation of national feelings.

C) Nationalist feelings lead to loss of control over foreign investment.

D) The more a country's domestic economy declines, the less nationalistic it becomes.

E) Nationalistic feelings are not prevalent in economically prosperous countries.

50) With respect to the political risk that can be faced by a company seeking to invest abroad, which action is most severe?

A) confiscation

B) expropriation

C) domestication

D) exchange controls

E) local-content laws

51) The seizing of a company's assets without payment is called

A) confiscation.

B) expropriation.

C) domestication.

D) exchange controls.

E) local-content laws.

52) When a government seizes an investment of a foreign investor but some reimbursement for the assets is made, the government follows a process called

A) confiscation.

B) expropriation.

C) domestication.

D) exchange controls.

E) local-content laws.

53) When an expropriated investment becomes a government-run entity, it is

A) democratized.

B) domesticated.

C) nationalized.

D) prioritized.

E) socialized.

54) ________ occurs when host countries gradually cause the transfer of foreign investment to national control and ownership through a series of government decrees.

A) Confiscation

B) Expropriation

C) Domestication

D) Democratization

E) Socialization

55) The government in Chile recently informed Mario's company that his retail grocery chain in Chile would have to be gradually turned over to the people of Chile by the year 2050 as it is a foreign company in Chile. Additionally, starting the following year, 50 percent of the board of directors of the Chilean operation of the company must be Chileans. What political risk action is Mario's company facing in Chile?

A) confiscation

B) expropriation

C) domestication

D) patronization

E) nationalization

56) Which statement about domestication is correct?

A) The ultimate goal of domestication is to force domestic investors to share more of the profits with the government.

B) The risk of domestication appears to have decreased over the last two decades.

C) Domestication has always led to more technologically advanced and competitive businesses.

D) Countries often require companies to become domesticated as a condition for investment.

E) Domestication refers to the seizing of a company's assets without payment.

57) Marziland found that a large amount of capital was leaving the country due to foreign corporate ownership, so it instituted controls over all movements of capital to conserve the supply of foreign exchange. These are called ________ controls.

A) exchange

B) local-content

C) price

D) tax

E) production

58) If there is a substantial amount of capital leaving a country, what is a country most likely to implement to control the situation?

A) exchange controls

B) local-content laws

C) import restrictions

D) tax controls

E) price controls

59) In Thailand, it is required that any milk product sold in the country by a foreign company must use the milk that is at least 50 percent produced by Thai dairy farmers. What economic risk is faced by the international producers of milk products in this situation?

A) exchange controls

B) local-content laws

C) export restrictions

D) tax controls

E) price controls

60) The United States requires that 50 percent of all parts used to construct an automobile in the United States be manufactured in the United States. As a result of this, when Toyota Motor Company builds automobile manufacturing plants in Tennessee and Ohio, it faces economic risks associated with

A) exchange controls.

B) local-content laws.

C) export restrictions.

D) tax controls.

E) price controls.

61) Taxes must be classified as a(n) ________ risk when used as a means of controlling foreign investments.

A) political

B) social

C) ignorable

D) environmental

E) harmless

62) The government of Namibia is strapped for cash, and it has decided to tax all foreign investments (such as food packaged in the country) by up to 40 percent of the appraised value. The Namibian government has found that this is the handiest and quickest means of finding operating funds. The economic risk in discussion here is

A) exchange controls.

B) local-content laws.

C) tax restrictions.

D) tax controls.

E) price controls.

63) Price controls applied during inflationary periods may have the effect of

A) controlling the cost of living.

B) restricting exports to foreign countries.

C) negotiating trade contracts favoring the host country.

D) encouraging imports.

E) collecting taxes on foreign investments.

64) In North Korea, foreign investors or producers are required to sell products at prices stated by the North Korean government rather than letting market value and demand determine the prices. This implies that there is application of

A) exchange controls.

B) local-content laws.

C) import restrictions.

D) tax controls.

E) price controls.

65) Which of these items is most likely to be subjected to price control?

A) leather garments

B) mobile phone accessories

C) aspirin and antacids

D) camcorders and lenses

E) ceramic tiles

66) Stopping or refusing to trade with another nation for political reasons is called

A) monopolizing.

B) boycotting.

C) confiscation.

D) democratization.

E) expropriation.

67) What is true of political sanctions?

A) Political sanctions normally control and rectify situations within a nation.

B) Political sanctions are generally unsuccessful.

C) Political sanctions are illegal.

D) The United Nations encourages boycotts as a means of settling political disputes.

E) The use of political sanctions is the most effective way to increase world trade.

68) What are effective tools that political and social activists (PSAs) use to spread word about their causes?

A) political sanctions

B) monetary barriers and trade embargoes

C) the Internet and cellphones

D) local-content laws and questionnaires

E) export controls

69) Which of these organizations is an NGO (nongovernmental organization)?

A) Central Intelligence Agency

B) Peace Corps

C) Millennium Challenge Corporation

D) Oxfam

E) FedEx

70) Why do terrorism experts predict multinational businesses will be targeted by terrorists more frequently?

A) They impose export controls on the underdeveloped nations.

B) They are the major cause for political sanctions against Arab nations.

C) They are less well defended than government targets.

D) They destroy and pollute the environment.

E) They are subterfuge for espionage agents.

71) Which form of terrorism is most likely to use the Internet to inflict damage?

A) Germterrorism

B) Bioterrorism

C) Cyberterrorism

D) Ecoterrorism

E) Narcoterrorism

72) As the FBI investigates security breaches, the analyses are more often pointing to ________ as the most serious threat.

A) Russian government supported hackers

B) religious extremists

C) white supremacists

D) American rogue hackers

E) the Chinese government

73) Bao is attempting to forecast political instability and help his company's management identify and evaluate political events and their potential influence on current and future international business decisions. Bao is engaged in

A) political risk assessment.

B) political confiscation.

C) democratization.

D) arbitration.

E) risk expropriation.

74) In terms of political risk, what poses the greatest threat to international marketers?

A) newer environmental regulations approved by global trade bodies

B) change of economic policies

C) exchange rate fluctuations affecting margins

D) the possibility of the government actually failing

E) membership or withdrawal of membership of the government in trade blocs

75) Relations between governments and MNCs are generally positive if the investment

A) increases the volume of imports.

B) uses globally produced resources.

C) transfers capital, technology, and skills.

D) brings in a higher number of foreign nationals.

E) decreases the volume of exports.

76) Meteora Inc. is planning to enter the Kenyan market by establishing a mobile phone manufacturing operation in Kenya. Meteora is most likely to have a positive relationship with Kenyan government through its investment if it

A) uses locally produced resources.

B) imports phone components from China.

C) establishes an R&D center in California and has all its technology patented there.

D) ensures that its middle and upper management are expatriates.

E) bargains for a tax holiday for the next five financial years.

77) Juliet is concerned with the potential for political harassment when her company enters a new international market. To reduce the risk of political harassment, she is most likely to consider using ________ to enter the market.

A) externally produced products

B) a smaller investment base

C) foreign technology

D) a joint venture

E) the threat of sanctions

78) What strategy is used by multinational corporations to minimize political vulnerability and risk?

A) expropriation

B) sanctions

C) buyouts

D) confiscation

E) licensing

79) Which strategy can be effective in forestalling or minimizing the effect of a total takeover of a multinational corporation's holdings by a foreign government?

A) confiscation

B) sole proprietorship

C) expanding the investment base

D) advertising

E) leasing

80) Which strategy to minimize political vulnerability and risk has the advantage of engaging the power of several investors and banks in the host country whenever any kind of government takeover or harassment is threatened?

A) joint ventures

B) licensing

C) expanding the investment base

D) sole proprietorship

E) political bargaining

81) Which strategy is most effective in minimizing political risks for a multinational corporation in situations in which the technology is unique and the risk is high?

A) trade embargo

B) licensing

C) expanding the investment base

D) planned confiscation

E) expropriation

82) The most effective long-range solution to a situation where a foreign government is demanding local participation in a multinational corporation's business activities in the host country is

A) joint ventures.

B) licensing.

C) expanding the investment base.

D) planned domestication.

E) political payoffs.

83) While expanding the investment base of a company, what can be used as a powerful ally in dealing with threats of government takeovers or harassment?

A) banks that have lent money to the host government

B) the World Trade Organization

C) the International Labor Organization

D) regional trade blocs

E) opposing political parties

84) An attempt to lessen political risks by paying those in power to intervene on behalf of the multinational company is referred to as a

A) subornation.

B) protectionism.

C) political payoff.

D) buyout.

E) rake-off.

85) What is the U.S. government's policy toward multinational corporations that are confronted with situations where bribery is an issue?

A) A bribe may be paid as long as it is not a domestic situation.

B) Bribery is justified if it is a documented traditional practice in a country.

C) A bribe can be paid in a foreign country if it is tied to national security.

D) It is illegal for a U.S. citizen to pay a bribe.

E) The issue revolves around the customs of the country and each issue is decided separately.

86) What principle U.S. agency supports U.S. businesses abroad?

A) State Department of Entrepreneurship

B) Better Business Bureau

C) Department of Commerce

D) Department of Foreign Relations

E) Department of Defense

87) Within the same country, some foreign businesses may fall prey to politically induced harassment, while others may be placed under a government umbrella of protection and preferential treatment. What factor explains this difference?

A) the level of domestication achieved

B) the differences in level of technology between the two countries

C) the cultural differences between the host nation and the business's home country

D) the import tariffs set by the host country

E) the evaluation of a company's contribution to the nation's interest

88) What is the most important reason for a country to encourage foreign investment?

A) to improve the global image of a country

B) to accelerate the development of an economy

C) to evade political tensions between countries

D) to minimize negative political fallouts within the domestic economy

E) to improve ties between the investing country and the host country

89) Which agency underwrites trade and investments for U.S. firms?

A) Export-Import Bank

B) the Federal Trade Commission

C) the Agency for International Development

D) Social Security Advisory Board

E) the Overseas Private Investment Corporation

90) Waldo's company was expanding into some underdeveloped countries, and needed to acquire risk insurance to cover potential fallout from political unrest that was occurring in those countries. What organization might be able to provide this for Waldo?

A) Commodity Futures Trading Commission (CFTC)

B) the Federal Trade Commission (FTC)

C) the Small Business Administration (SBA)

D) the United States International Trade Commission (USITC)

E) the Overseas Private Investment Corporation

91) You live in a nation that is considered to be a sovereign state. What does this mean?

92) Discuss stability of governments and list the main political causes of instability in international markets.

93) Describe the concept of nationalism and list some of the ways it manifests, particularly in today's political environment.

94) Discuss the terms confiscation, expropriation, and domestication. Choose one of these concepts and describe a situation in which it might occur.

95) List and briefly discuss the various economic risks that international companies must face when they seek to market abroad.

96) Briefly discuss the role of PSAs and NGOs.

97) Discuss the threats posed by cyberterrorism or cyberattacks. Give an example of a recent occurrence of these.

98) What are the conditions under which relations between governments and MNCs are generally positive?

99) Ranzan Inc. has invested in a country showing signs that it will use domestication in the near future to force foreign investors to share more of the profits with the government. Cite and describe a strategy to deal with this potential of domestication that Ranzan could follow to ensure that its business remains profitable.

100) Compare and contrast the government agencies that are involved in promoting foreign investment and international business.