Globalization, Power Distance, Political Risk, Common Market, and the FDI

You may skip the multiplechoice part and leave it to me. Do let me know if you need additional information on the task.

International Trade & Investment: LRMS1-UC 583--Spring 2020-Remote

Midterm Exam

Name:                                 

Part I (30 Points) 

Circle or use an X to show the letter of the best response below

1. Globalization can be defined as:

a)      A strategy of developing unique products for each nation in the world

b)      Increasing environmental changes across the globe

c)      Increased use of global communication systems

d)     Increased integration of markets and dispersed production across national boundaries

1. Identify the source of globalization from one or more of the factors below:

a)      The advances and growth of telecommunication use

b)      Falling transportation costs

c)      Reduction in trade and FDI barriers

d)     All of the above

1. The WTO was established to promote, among other things, this:

      a) Trade in services and protection of intellectual property rights

            b) Commitment to increase trade-related pollution standards by member countries

      c) Elimination of tariffs on all agricultural products

      d) None of the above

4.  FDI stands for:

a)      Foreign development initiatives of the World Bank

b)      Various investment policies of the Department of Commerce

c)      A foreign company's business ownership in another country

d)     A specific type of international business negotiation strategy

5.   Government interference in the operations of a multinational firm is a form of:

a)      Translation risk

b)      Political Risk

c)      Sales development risk

d)     None of the above

1. All the following is true about culture EXCEPT:

a)      Culture is the shared belief, norms and values that guide everyday life of a group

b)      Culture is passed from generation to generation through norms, values and beliefs

c)      Culture is defined effectively only in terms of religion and language which affect societies

d)     Culture is part of tradition in societies

1. If managers believe that their home cultural norms are universal, this belief may lead to:

a)      Increased gains in a firm’s competitive advantage in global business

b)      Lower business opportunities for a firm in different markets

c)      Increased product acceptance in new markets

d)     Lower incidents of rejection of the company’s products

1. Research on culture suggests that:

a)      Societies differ only in terms of religion, language and ethnicity

b)      Similarities exists among societies on several dimensions of culture

c)      Closely related cultures always avoid trade conflicts

d)     None of the above

1. On which of the following Hofstede's cultural dimensions does the U.S rank near the top of countries surveyed?

a)      Masculinity

b)      Individualism

c)      Global hegemony

d)     Power distance

10. The main idea behind neo-mercantilism is that a country is better off if it maintains a trade:

a) Equilibrium with trading partners

b) Embargo against those imposing tariffs on imports

c) Surplus with trading partners

      d) Deficit in the capital account of the balance of payments

11.   The economic argument for government intervention in the free flow of trade is based on the possibility that some firms can create:

a)      National oligopolies in trade and must be assisted by government

b)      New sources of comparative advantages for the country and must be assisted by government

c)      Demand that must be balanced by supply of imported products

d)     All of the above

12.  If a country possesses a lot of technological resources, trade theory suggests that the country is more likely to:

a)      Export products that require low-wage, semi-skilled labor

b)      Market its products domestically using local content strategies to secure its advantage

c)      Export large amounts of products or services with low-skilled inputs it does not need

d)     None of the above

13. This theory suggests that trade leads to a situation where all trading countries win:

a)      Total advantage

b)      Mercantilism

c)      Comparative advantage

d)     International product life cycle

14.  Political systems across countries can be described in terms of two related dimensions: The degree to which they emphasize i) collectivism versus individualism and ii) the degree to which they are:

a)      Democratic versus absolute power in a party or group

b)      Market-oriented versus production-oriented

c)      Developing versus industrialized

d)     Christian versus animist religions

15. Governments all over the world attempt to restrict FDI because:

a)      That is the surest way to increase economic growth

b)      They stand to gain from absolute and comparative advantages in most industries

c)      They look out for the interests of their countries and the interests of politicians

d)     None of the above

Part II (30 Points) 

Respond to the following questions. Type in your responses using as much space as necessary. However, be as concise as possible.  (Limit your responses to no more than six sentences or clearly stated descriptive phrases that adequately presents your thinking)

1. Current debates on globalization can cause a lot of passion and other emotional responses that lead to controversy.  State two non-economic reasons why such debates can cause disagreement and controversy
2. If a country such as Malaysia scores much higher than the United States on Power Distance (one of Hofstede’s cultural dimensions), how can this information help a manager who plans to operate in both countries? State one area of management that differences in Power Distance is likely to be relevant.
3. Describe the type of political risk a firm in a specific industry would face in any one of today’s emerging markets you are familiar with or have some knowledge of. Select a country and make an assumption that may help in you answering this question, based on the firm’s size or products, among others)
4. Identify and describe briefly two host-country sources of political risk a firm would face as it expands abroad.
5. Show how Heckscher-Ohlin’s theory can be used to explain trade between any two countries of your choice.
6. What does the Product Life Cycle theory of international trade developed to explain? Give one example of the theory’s explanation.
7. Why is a subsidy a form of government intervention in trade?
8. What is a common market in regional economic integration?
9. Give one reason why a firm would prefer to expand into new national markets through an FDI rather than through trade?
10. Give one reason why a firm would prefer a greenfield FDI to FDI through a foreign acquisition?

Part III (40 points) 

Be concise but complete in your responses to the following. Attempt FIVE (5) questions below, including the sub-questions. Select ONE question from each alternate (i.e. select e.g. Q1A OR Q1B, but NOT both).

As above, type in your responses using as much space as necessary. However, be as concise as possible (Limit your responses to no more than one page for each major question, including all sub-questions such as a) b), c)

Q1A.  a) State two reasons to convince someone that globalization is not such a bad idea

        b) State two reasons to convince another person that globalization is a terrible idea

OR:

Q1B. Present opposing arguments for outsourcing of jobs from the U.S to other parts of the world.

a) Two Arguments in favor of outsourcing:

b) Two Arguments against outsourcing:

Q2A.  Describe how a firm’s managers can use one trade theory to help their company expand its operations around the world. Begin your response by first stating the theory below.  

a)      State the trade theory:

b)      Using the theory to expand worldwide:

c)      Describe briefly two other reasons a firm or any other organization will consider in its expansion into foreign markets, besides your selected theory?

OR:

Q2B. In drawing plans to locate your company’s business operations in a country outside the United States, the company hired consultants who presented different country profiles based on their levels of economic and political openness as shown below in a 2-dimensional chart:

a)      Select two of the nine profiles in the chart below. Then assign one country to each cell. (Type in the name of the country in the profile box)

b)      Describe briefly the determinant or source of political risk you would anticipate within the two economic and political profiles you select. (You may make any assumption about the countries, based on your knowledge or information to help describe the sources of political risk).

(Q2B Continued)

c)      In your opinion, in which of the two countries would you recommend a company establish an FDI? Why? (Make assumptions, where necessary, e.g. about the company’s industry or product/service, given the economic and political environment profile above)

Q3A. Describe how a manager can use two cultural dimensions to a company’s advantage in a foreign market/country (identify the specific cultural dimensions and the foreign market/country):

i)     

ii)

OR:

Q3B.  Give two examples of how a high uncertainty-avoidance society can affect a firm that comes from a low uncertainty-avoidance society, based on Hostede’s cultural classification?

Q4A. a) Why are countries forming regional blocs around the world? Present below both economic and         political reasons.

a) One economic reason:

b) One political reason:

c)   What is the difference between a free trade area and a customs union?

d)  As a manager of a company searching for new markets, given a choice, which would you prefer to invest in: a free trade area or a customs union? (Assume all things being equal, e.g. market size and purchasing power)?  Why? Discuss briefly below.

OR:

Q4B. a) In spite of the benefits free trade provides nations, according to trade theory, governments continue to intervene or interfere in the free flow of trade.

a)       State below briefly four reasons why governments continue to use trade policy to intervene in free trade.  

b)  List and describe briefly four (4) ways (other than a subsidy) by which governments interfere in free trade.

Q5A. a) Assume that in Denmark it takes 16 hours to build a Ford minivan and 23 hours in Russia to build a comparable vehicle. Assume also that it takes 6 hours to produce a mobile phone in Denmark and 8 hours to build a similar phone in Russia. According to trade theory, is there a basis for trade between Denmark and Russia? Explain below:

  b)  Why might Russia refuse to trade with Denmark, in spite of what trade theory suggests? Give two reasons.

OR:

Q5B.  a)  Identify four skills you believe are critical to be an effective manager in a global firm. Why do you believe these skills to be critical?

b) Describe briefly four lessons (not just listing of topics) you have personally learned about managing in a global economy in this course, so far? You may cite concepts, cases you may have read in the text, or  other material encountered in the course).

Note: Extra Space Below—if needed)