International Business, 13e (Daniels/Radebaugh/Sullivan) Chapter 5 Globalization and Society

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1 International Business, 13e (Daniels/Radebaugh/Sullivan) Chapter 5 Globalization and Society 1) Which of the following is NOT a key stakeholder group that a company must work to satisfy in order to survive in a global environment? A) employees B) competitors C) shareholders D) customers Diff: 2 Page Ref: 183 Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? 2) Which of the following stakeholders groups wants additional sales and increased productivity, which result in higher profits and larger returns going to them? A) customers B) shareholders C) society at large D) government Diff: 2 Page Ref: 183 Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? 3) Which of the following stakeholders are more interested in an MNE providing increased corporate taxes and more trustworthy behavior on the part of corporate executives? A) shareholders B) society C) employees D) customers Diff: 2 Page Ref: 183 Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? 1

2 4) Which of the following statements is true regarding MNEs' relationships with their stakeholders? A) No individual stakeholder group is powerful enough to cause the demise of an MNE. B) An MNE may serve all stakeholder groups equally at any given time. C) All stakeholders of an MNE have the same goals and interests. D) Inadequate familiarity with stakeholders in a foreign operating environment complicates choosing which groups need the most attention. Answer: D Diff: 2 Page Ref: Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? AACSB: Analytic Skills 5) Which of the following statements about foreign direct investment is true? A) Home country governments can enhance but not restrict the activities of MNEs in making FDI. B) Host country governments can restrict but not enhance the activities of MNEs who want to make investments in their countries. C) Home and host governments are often under pressure from various groups to adopt policies to regulate the activities of MNEs as FDI grows worldwide. D) MNEs look at FDI as an objective of their existence rather than as a means of entering foreign markets. Diff: 2 Page Ref: 182 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? 6) Findings from investigations of cause-and-effect relationships between FDI and situations in a host country imply which of the following? A) If employment rises when an MNE invests in a foreign country, it is safe to say that the cause of the rise in employment must be due to the foreign direct investment. B) The effects of an MNE's activities must be positive to both home and host country to warrant a host country permission for an FDI to occur. C) FDI usually results in a win-lose situation, although it is possible to have a win-win situation for both countries. D) It is hard to determine if the actions of an MNE are responsible for effects in host countries, such as economic growth or unemployment. Answer: D Diff: 2 Page Ref: 184 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? AACSB: Analytic Skills 2

3 7) In general, governments should not make general assumptions about the effects of FDI because. A) many critics link individual companies to general situations while proponents don't B) it is too time-consuming and costly C) MNEs are very different in their functions and behaviors, and each has an individual impact on the host country D) governments have a successful history of predicting future impacts of MNEs on host countries Diff: 2 Page Ref: 184 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? 8) When proponents of MNE activities claim that an increase in the collection in tax revenues in a host country is a result of FDI, they are using which type of generalization about the impact of FDI? A) cause and effect relationships B) individual and aggregate effects C) stakeholder tradeoffs D) micro consequences of macro decisions Answer: A Diff: 2 Page Ref: 184 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? AACSB: Reflective Thinking 9) The investment by a U.S. company in an industry in Mexico is an example of. A) a capital inflow into Mexico B) an import stimulus into the U.S. C) a net balance of payments effect D) an export reduction Answer: A Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. AACSB: Reflective Thinking 3

4 10) If a British company sets up a subsidiary in France that produces products for the French market, this investment is most likely to result in what type of economic effect in the short run? A) export stimulus for France B) capital export from France C) import displacement in France D) capital inflow for Britain Diff: 2 Page Ref: 185 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. AACSB: Reflective Thinking 11) Which of the following is the best explanation for why an MNE's investment is initially favorable to the host country but later more favorable to the home country? A) MNEs fear host-country restrictions on capital outflow, which increases capital inflows and discourages capital flight. B) MNEs usually remain in the host country for only four to six years before removing their operations and returning home. C) Although MNEs increase employment in the host country, they do not transfer any technology or capital to the host country. D) Nearly all foreign investors plan eventually to have their subsidiaries remit dividends back to the parent company in excess of what they sent abroad. Answer: D Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. 12) The net export effect of a foreign direct investment is positive in the host country if the FDI results in. A) more imports from the investing country B) the development of markets abroad for the FDI in the host country C) dividends not being sent back to the home office D) a reduction of imports by the home country Diff: 3 Page Ref: 186 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. AACSB: Reflective Thinking 4

5 13) Which of the following statements is true regarding the potential economic effects of MNEs? A) FDI brings only capital inflows to the host country. B) MNEs' investments are initially favorable to the home country and unfavorable to the host country. C) Host country restrictions on capital outflow increase confidence in the economy and encourage MNEs to invest in the host country. D) The effects of MNEs on growth and employment are not a zero-sum game both countries may benefit. Answer: D Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 14) Home country losses due to FDI include. A) the export of jobs to foreign countries B) more optimal use of production factors abroad C) the use of unemployed resources in the foreign market D) the downgrading of resources in the foreign market Answer: A Diff: 2 Page Ref: 187 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 15) In what ways can FDI benefit the host country? A) through the transfer of technology and capital and the creation of new jobs B) through bidding up prices so local investors cannot compete C) by undermining the competitive confidence of local businesspeople D) by exploiting natural resources Answer: A Diff: 1 Page Ref: 188 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 16) Host country losses due to FDI include. A) the transfer of capital and technology B) enhanced capacity or capability of existing companies C) loss of management experience and process technologies D) displacement of local entrepreneurs Answer: D Diff: 2 Page Ref: 187 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 17) Which of the following is a business objective for pursuing ethical behavior? 5

6 A) avoid being perceived as being responsible B) develop competitive advantages C) create better advertisements D) discourage commitment to the firm for the wrong reason Diff: 1 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 18) Which of the following is a business objective for pursuing ethical behavior? A) replace home-country technology with host-country technology B) reduce profit margins C) avoid being perceived as socially irresponsible D) impose home-country behavior in the host country Diff: 1 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 19) Pursuing responsible behavior for strategic and financial success is an example of. A) relative behavior B) normative behavior C) working to achieve the objective of developing a competitive advantage D) working to achieve the objective of avoiding being perceived as irresponsible Diff: 2 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 20) Why would MNEs want to avoid being perceived as socially irresponsible? A) Companies that are socially irresponsible gain support from their home governments. B) Socially irresponsible companies usually have fewer exports and more imports. C) Cultural barriers increase for companies who are socially irresponsible, preventing them from expanding into more countries. D) Social irresponsibility may lead to negative publicity from nongovernmental and other organizations, which could hurt a company's reputation. Answer: D Diff: 2 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 6

7 21) Ethical dilemmas tend to be for MNE managers than for domestic managers. A) more complicated B) less controversial C) easier to decide D) less common Answer: A Diff: 2 Page Ref: 189 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 22) A manager practicing relativism would. A) adapt to local conditions instead of implementing home-country practices B) enforce home-country laws on host-country employees and suppliers C) refuse to change company policy to comply with local norms D) feel that universal laws exist, which should apply to each country despite local traditions Answer: A Diff: 2 Page Ref: 189 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 23) The belief that there are universal standards of behavior that all cultures should follow is called. A) humanism B) relativism C) normativism D) naturalism Diff: 1 Page Ref: 190 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 7

8 24) A manager who refuses to bribe customs officials in a foreign country, even though it is morally acceptable in that country, is most likely to believe in which of the following perspectives on ethics? A) relativism B) normativism C) humanism D) existentialism Diff: 2 Page Ref: 190 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 25) teaches that "people have a responsibility to do what is right and to avoid doing what is wrong." A) Moral relativism B) Implied normativism C) Ethics D) Cultural relativism Diff: 1 Page Ref: 190 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 26) Why is the argument that "anything legal is ethical" insufficient? A) The law is often based on imprecisely defined moral concepts. B) Everything that is unethical is also illegal. C) Laws can never be changed; thus, rules for all possible ethical dilemmas are found in the law. D) The law is an extremely efficient way to solve most ethical dilemmas. Answer: A Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 8

9 27) Which of the following is a reason for an MNE to base its standards for ethical behavior on a country's laws? A) The law embodies many of a country's moral beliefs but is an inadequate guide for proper conduct. B) The law contains unenforceable rules that are impossible to follow. C) The law represents a consensus derived from significant experience and deliberation. D) The law provides a vaguely defined set of rules. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 28) The idea that laws usually underlie local cultural values is a good example of. A) why the law is not a good foundation for ethical behavior B) why laws are similar worldwide C) a reason to use the legal-justification standard for ethical behavior D) the mismatch between cultural values and legal values Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 29) Which of the following is an example of extraterritoriality? A) a U.S. subsidiary operating in China that is forced to follow some U.S. laws, even though China has no comparable laws B) a U.S. sweatshop operating in Thailand that does not follow U.S. labor laws but allows children to work 60 hours a week C) an MNE manager who, after working in the host country, tries to implement foreign practices in the home-country office D) a British subsidiary operating in Indonesia that maintains the same health and safety standards for its foreign factories that are required in Great Britain, even though the British government does not require it to use those standards Answer: A Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. AACSB: Reflective Thinking 9

10 30) A government that enforces its own laws on foreign subsidiaries of its domestic companies practices. A) civil law B) relativism C) externality D) extraterritoriality Answer: D Diff: 1 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. 31) Extraterritoriality suggests that. A) a host country government enforces local laws on foreign companies operating within its borders B) legal and ethical values in a home country may cause its companies to operate abroad according to home country laws rather than host country laws C) companies are not allowed to operate outside of their territorial boundaries D) countries are not allowed to expand their borders beyond what is accepted by the United Nations and the business community Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. AACSB: Analytic Skills 32) The requirement by the U.S. government that its subsidiaries abroad comply with trade restrictions with Cuba is an example of. A) extraterritoriality B) comparative advantage C) absolute advantage D) relative advantage Answer: A Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. AACSB: Reflective Thinking 10

11 33) The FCPA applies. A) only to companies registered in the United States B) only to U.S. companies with foreign subsidiaries C) only to foreign firms quoted on any stock exchange in the United States D) to companies registered in the United States and to foreign firms quoted on any stock exchange in the United States Answer: D Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 34) Which of the following statements describes an inconsistency of the FCPA? A) Facilitation payments (also known as grease money) are classified as bribery. B) Facilitation payments (or grease money) are excluded from the FCPA's definition of bribery. C) Payments to officials who are not directly responsible for carrying out the law are legal. D) Payments to foreign officials who carry out the law are illegal. Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 35) A 1998 U.S. law that outlaws bribery payments by U.S. firms to foreign government officials is known as the. A) Anti-Bribery Act of 2004 B) Foreign Corrupt Practices Act C) Zero Tolerance Initiative D) Sarbanes-Oxley Act Diff: 1 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 11

12 36) Which of the following is permitted by the Foreign Corrupt Practices Act? A) a bribe paid by foreign firms operating in U.S. territories B) a bribe paid by U.S. firms operating in a foreign country that permits bribes to be paid C) a payment to a foreign government official to influence a customs official D) a payment to a customs official to clear legitimate merchandise Answer: D Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 37) According to Transparency International, companies from which of the following four countries are more likely to pay bribes? A) Russia B) Japan C) Singapore D) Canada Answer: A Diff: 3 Page Ref: Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? AACSB: Multicultural and Diversity 38) The OECD Convention against bribery is an example of a(n). A) bilateral agreement B) agreement that targets the demand side of bribery C) agreement that targets the supply side of bribery D) UN Convention dominated by developing countries Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? 12

13 39) Which of the following statements most accurately describes the recent fight against corruption? A) Only public organizations, such as the United Nations, have taken measures to reduce and prevent bribery. B) Only private organizations, such as Transparency International, are trying to control corruption at various levels. C) Many industries have established initiatives to clean up corruption within their respective fields. D) In general, organizations around the world are becoming less likely to enforce punishments for bribery. Diff: 2 Page Ref: 195 Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? 40) A zero tolerance pact against bribery signed by 50 multinational construction and naturalresources companies in 2005 is an example of. A) a UN agreement that brings together government and business B) a private sector initiative that grew out of the World Economic Forum C) a legislated agreement that has been ratified by the countries of the signatory firms D) an ineffective agreement since construction and natural resources companies are not likely to pay bribes Diff: 2 Page Ref: 195 Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? 41) Meeting the needs of the present without compromising the ability of future generations to meet their own needs is known as. A) competitive advantage B) the Kyoto Protocol C) sustainability D) externality Diff: 1 Page Ref: 198 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? 13

14 42) What is the Kyoto Protocol? A) It is an agreement that requires all members of the United Nations to reduce their greenhouse gas emissions by 5.2 percent. B) It is an agreement between the United States and Japan requiring both countries to more tightly control greenhouse gas emissions. C) It is an agreement that requires the signatory countries to cut greenhouse gas emissions to 5.2 percent below 1990 levels. D) It is an agreement that requires each country to report its emissions levels each year. Diff: 1 Page Ref: 198 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? 43) How has the Kyoto Protocol affected U.S. companies operating in Europe? A) Companies are changing the way they do business in order to comply with new emissions standards in Europe. B) The Kyoto Protocol has not affected U.S. companies with subsidiaries in Europe because the United States has not signed the Kyoto Protocol. C) Before U.S. companies can open any more European subsidiaries, the U.S. government must sign the Kyoto Protocol. D) Because the United States is not a party to the Kyoto Protocol, U.S. companies may not operate in European countries that have signed the Kyoto Protocol. Answer: A Diff: 2 Page Ref: 199 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? AACSB: Multicultural and Diversity 44) At the core of the Kyoto Protocol is the theory that is a result of an increase in the emissions of carbon dioxide and other gases. A) soil contamination B) depletion of natural resources C) climate control D) global warming Answer: D Diff: 2 Page Ref: 198 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? 14

15 45) A situation in the pharmaceutical industry in which companies charge a market price in developed countries and a discounted price in developing countries is known as. A) discount pricing B) skimming pricing C) penetration pricing D) tiered pricing Answer: D Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? 46) Some countries reverse engineer pharmaceutical products. A) as a way to charge higher prices in their domestic markets B) to lower the cost of certain drugs to the domestic market C) because they know that generic products are inherently better than branded products D) to comply with patent laws Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? 47) The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). A) allows rich countries to produce generic versions of patented drugs without having to pay royalties to the patent holder B) permits developing countries to import generic products from other countries if they don't have the capacity to produce generic drugs C) requires tiered pricing for most drugs D) deals with vaccines, such as for malaria, but does not cover drugs such as those used to treat HIV/AIDS Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? 15

16 48) A major concern with illegal generic pharmaceutical products is that. A) drug companies don't have enough other products to help them earn profits B) they are generally drugs that do not have a worldwide market demand C) they may or may not be of high and safe quality D) illegal generic products are usually more expensive than legal generic products Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? 49) Which of the labor issues identified by the Ethical Trading Initiative (ETI) receives the most attention? A) the provision of regular employment B) the right to collective bargaining C) freely chosen employment D) child labor Answer: D Diff: 1 Page Ref: 202 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? 50) The Ethical Trading Initiative (ETI). A) is a UN based initiative that is concerned about effective trade laws B) is a British-based initiative the includes many NGOs but not any corporations, which limits its ability to implement change C) wants all companies to reduce greenhouse gas emissions and use tiered pricing for pharmaceutical products D) is concerned with employment practices of MNEs Answer: D Diff: 2 Page Ref: 202 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? 16

17 51) According to the Ethical Trading Initiative (ETI),. A) child labor cannot be used unless there are no suitable alternatives B) employment need not be freely chosen in order to be acceptable C) no harsh or inhumane treatment of workers should be allowed D) MNEs cannot be part of the process of setting ethical employment practices since they are the problem in the first place Diff: 2 Page Ref: 202 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? 52) Which of the following is an argument against MNEs leaving countries with different labor policies? A) MNEs have been shown to have a positive influence on government labor policies in foreign countries. B) Many MNEs have substantially improved the working conditions of their foreign plants. C) MNEs are required to pay workers more than local companies. D) If MNEs employ native workers in their foreign plants, they can deduct the labor expense on their U.S. tax returns. Diff: 2 Page Ref: 204 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? AACSB: Analytic Skills 53) Unethical and behavior by an MNE could result in. A) irresponsible; higher employee morale B) irresponsible; legal headaches C) responsible; fewer consumer boycotts D) responsible; positive word of mouth Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 17

18 54) Which of the following is the most persuasive reason for companies to act more ethically and responsibly? A) Companies face no outside pressures to act responsibly. B) Companies that have good ethical behavior are proven to have higher earnings than unethical companies. C) Unethical or irresponsible behavior can negatively impact employee morale. D) The U.S. government provides tax breaks to companies that donate to international charities. Diff: 2 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 55) A company looking to improve its corporate behavior and public image could do which of the following? A) pay substandard wages to local employees so they don't undermine local wage levels B) use employee time and profits to donate to international charities C) invest in countries that permit the hiring of children to put less pressure on the local education system D) cut costs in order to improve profits and shareholder satisfaction Diff: 2 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 56) Companies need to act responsibly because unethical and irresponsible behavior. A) rarely results in legal sanctions B) could result in consumer boycotts C) usually improves employee morale D) almost always results in lower profit margins Diff: 2 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 57) A guideline for responsible action by a firm in its operations worldwide is a(n). A) code of conduct B) corporate monitoring policy C) education program D) honor code Answer: A Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 18

19 58) A(n) code of conduct comes from outside an MNE and gives the company some general guidance on how to operate. A) internal B) external C) top management D) employee-generated Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 59) Which of the following is necessary for designing an effective internal code of conduct? A) setting a national policy that must be complied with domestically B) communicating the code of conduct only to employees so as to maintain a competitive advantage C) ensuring that the code's policies are carried out D) making sure the company sets up codes for each country where it is operating instead of developing a worldwide code Diff: 2 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 60) Which of the following is an important dimension to ensuring that a code of conduct is carried out? A) make sure employees understand the code and confirm that in writing B) rely on internal rather than external monitoring groups since external groups are often antimne C) rely on suppliers to comply with the code of conduct since it is too expensive to use company resources for compliance purposes D) all of the above Answer: A Diff: 2 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 19

20 61) General Electric has decided to focus on being more "green" because. A) the industry has always looked to GE as a trend setter in green technology B) it feels it can align investor and environmental interests strategically C) it feels there is a huge opportunity to profit from the environmental revolution, even though it is not interested in adopting green measures for the company as a whole D) the U.S. government has decided to use GE as a test case to see if the adoption of the Kyoto Protocol can actually work for a U.S. firm Diff: 2 Page Ref: 179 Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? 62) Which of the following statements about GE and its "Green is Green" movement is true? A) GE is responding in part to the fact that it is operating in many countries which require compliance with higher environmental standards than exist in the United States. B) GE has decided to develop new products that are environmentally friendly rather than adopt internal policies to reduce greenhouse gas emissions. C) GE has moved aggressively to reduce greenhouse gas usage internally but has not been able to develop commercially viable "clean" technologies. D) GE considered joining the U.S. Climate Action Partnership but decided it was too radical in its approach to reducing greenhouse gas emissions. Answer: A Diff: 2 Page Ref: Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? AACSB: Multicultural and Diversity 63) HIV/AIDS is affecting the operations of Anglo American PLC. A) by forcing the company to invest outside of South Africa to avoid having to deal with the health issues B) for workers in South Africa but nowhere else in the world C) in a relatively insignificant way since Anglo American will not hire workers infected with HIV/AIDS D) through health care and related costs Answer: D Diff: 2 Page Ref: Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? 20

21 64) Which of the following is a problem that Anglo American PLC is facing as it tries to adopt an aggressive strategy against HIV/AIDS? A) HIV/AIDS prevention programs are more effective than treatment programs. B) Its programs have been much more effective than imagined, and costs to treat employees have dropped. C) Many employees are not following through on their treatments. D) They have been incurring huge costs to help migrant workers who generally do not have HIV/AIDS and do not take the disease back to their home villages. Diff: 2 Page Ref: 208 Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? 65) In the long run, MNEs must adequately meet the needs of all stakeholders in order to prosper and survive. Diff: 2 Page Ref: 183 Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? 66) Stockholders are far more interested in corporate social responsibility than in earning profits. Diff: 1 Page Ref: 183 Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? 67) Home country governments can enhance but not restrict the activities of MNEs in making FDI. Diff: 2 Page Ref: 183 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? 68) MNEs are very different in their functions and behaviors, and each has an individual impact on its host country. Diff: 2 Page Ref: 184 Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? 21

22 69) The investment by a U.S. company in an industry in Mexico is an example of a capital outflow from Mexico. Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. AACSB: Reflective Thinking 70) Generally, MNEs' investments are initially favorable to the host country and unfavorable to the home country. Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. 71) The effects of MNEs on growth and employment are not a zero-sum game both host and home countries may benefit. Diff: 2 Page Ref: 186 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 72) Host country losses due to FDI include the transfer of capital and technology. Diff: 2 Page Ref: 187 Objective: STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? 73) Pursuing responsible behavior for strategic and financial success is an example of relative behavior. Diff: 2 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 74) An important business objective for pursuing ethical behavior is to create a better relationship with corrupt politicians and customers. Diff: 1 Page Ref: 188 Objective: STUDY QUESTION 5.5: Why do companies care about ethical behaviors? 22

23 75) Relativism is the theory that ethical truths depend on the values of the groups holding them; thus, MNEs should adhere to or adopt the cultures of the countries in which they are located. Diff: 1 Page Ref: 189 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 76) MNEs can face pressures both to comply and not to comply with a country's norms. Diff: 2 Page Ref: 190 Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 77) The law is often based on imprecisely defined moral concepts that cannot be separated from legal concepts. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 78) The argument that "anything legal is ethical" is insufficient as a basis for ethical behavior because the law usually does not apply to everyone and does not have enforceable rules. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 79) Under the practice of extraterritoriality, legal and ethical values in a country may cause its companies to operate abroad according to home country laws rather than host country laws. Diff: 1 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. 23

24 80) The requirement by the U.S. government that its subsidiaries abroad comply with trade restrictions with Cuba is an example of externalities. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. AACSB: Reflective Thinking 81) The Foreign Corrupt Practices Act applies only to companies registered in the United States. Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 82) A payment to a customs official to clear legitimate merchandise is permitted by the Foreign Corrupt Practices Act. Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 83) Transparency International, the OECD, and the ICC are all working to stop bribery around the world. Diff: 1 Page Ref: Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? 84) The OECD Convention against bribery is an example of an agreement that targets the demand side of bribery. Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.10: What other efforts are under way to stop bribery? 24

25 85) Meeting the needs of the present without compromising the ability of future generations to meet their own needs is known as sustainability. Diff: 1 Page Ref: 198 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? 86) U.S. MNEs that operate in Europe are under pressure to conform to the emissions standards of the Kyoto Protocol. Diff: 2 Page Ref: 199 Objective: STUDY QUESTION 5.11: How do environmental concerns affect the strategies of MNEs? AACSB: Multicultural and Diversity 87) When a pharmaceutical company charges a market price in developed countries and a discounted price in developing countries, the company is using partial source pricing. Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? AACSB: Multicultural and Diversity 88) The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) permits developing countries to import generic products from other countries if they don't have the capacity to produce generic drugs. Diff: 2 Page Ref: 201 Objective: STUDY QUESTION 5.12: What are some ethical issues that face the pharmaceutical industry worldwide? AACSB: Multicultural and Diversity 89) In the long run, the best thing for MNEs operating in countries in which labor laws significantly differ from those in the home market is to leave. Diff: 2 Page Ref: 204 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? 25

26 90) According to the Ethical Trading Initiative, child labor cannot be used unless there are no suitable alternatives for employees. Diff: 2 Page Ref: 202 Objective: STUDY QUESTION 5.13: What are some of the major labor issues facing companies? In which industries and countries are these issues most significant? 91) Employee morale is largely unaffected by a company's corporate behavior. Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 92) Companies need to act responsibly because unethical and irresponsible behavior could result in consumer boycotts. Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.14: Why do companies need to act more responsibly? 93) An internal code of conduct is a set of guidelines, recommendations, and rules issued by entities within society but outside the firm with the intent of affecting the behavior of international business entities in order to enhance corporate responsibility. Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 94) The creation of a code of conduct includes steps such as establishing a global policy, communicating the code to employees, ensuring that the policies are followed, and reporting results to external stakeholders. Diff: 1 Page Ref: 205 Objective: STUDY QUESTION 5.15: What is a code of conduct? What are four dimensions to an effective code of conduct? 26

27 95) As part of its efforts to be more environmentally responsive, General Electric is responding in part to the fact that it is operating in many countries which require compliance with higher environmental standards than exist in the United States. Diff: 2 Page Ref: Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? AACSB: Multicultural and Diversity 96) HIV/AIDS is affecting the operations of Anglo American PLC by forcing the company to invest outside of South Africa to avoid having to deal with the health issues. Diff: 2 Page Ref: 208 Objective: STUDY QUESTION 5.16: What lessons/points in Chapter 5 are illustrated by the opening and closing cases? 97) Which stakeholders must companies satisfy? Why is this process more difficult for companies operating abroad? Answer: Stakeholders include stockholders, employees, customers, and society at large. In the short term, the aims of these groups conflict. Stockholders want additional sales and increased productivity, which result in higher profits and larger returns going to them. Employees want additional compensation. Customers want lower prices. And society at large would like to see increased corporate taxes or corporate involvement in social functions. In the long term, all of these aims must be achieved adequately, or none will be attained at all because each stakeholder group is powerful enough to cause the company's demise. Management must be aware of these various interests but serve them unevenly at any given period. At one time, gains may go to consumers; at another, to stockholders. Making necessary trade-offs is difficult enough in the domestic environment. However, abroad, where corporate managers are not so familiar with customs and power groups, the problem of choosing the best alternative is compounded particularly if dominant interests differ among countries. Diff: 2 Page Ref: Objective: STUDY QUESTION 5.1: Which stakeholders must companies satisfy? Why is this process more difficult for companies operating internationally? AACSB: Multicultural and Diversity 27

28 98) What factors make it difficult to evaluate whether the overall effects of FDI are sufficiently positive? Answer: MNEs may affect countries' balance-of-payments, growth, and employment objectives. Under different scenarios, these effects may be positive or negative for either host or home countries. a. Home-country gains Countries want capital inflows because they allow them to increase their imports. However, because FDI brings both capital inflows and outflows, countries worry that the balance-of-payments effect may be negative. Unlike balance-of-payments effects, the effects of MNEs on growth and employment are not necessarily a zero-sum game among countries. The argument that both the home and the host countries may gain from FDI assumes that resources are not necessarily fully employed and that capital and technology cannot be easily transferred from use in one industry to another. b. Home-country losses Foreign production often displaces what would otherwise be domestic production. Critics also cite many examples of highly advanced technology that has been at least partially developed through governmental contracts and then transferred abroad. In fact, some MNEs are moving their most advanced technologies abroad and in some cases producing abroad before they do so in the United States. c. Host-country gains Most observers agree that an inflow of investment from MNEs can initiate greater local development through the employment of unused labor and other resources. A company will want to move resources such as capital and technology abroad when the potential return is high especially in an area where they are in short supply. Most observers also agree that an inflow of investment from MNEs can initiate an upgrading of resources by educating local personnel to use equipment, technology, and modern production methods. d. Host-country losses Some critics have claimed that there are examples of MNEs making investments that domestic companies otherwise would have pursued. The result may be the displacement of local entrepreneurs and entrepreneurial drive. Or MNEs may bid up prices by competing with local companies for labor and other resources. Critics also contend that FDI destroys local entrepreneurial drive, which has an important effect on development. Another argument is that investors learn abroad by observing foreign companies closely. This may give them earlier access to technology abroad that they may copy in their home countries. Critics also say that MNEs absorb local capital, either by borrowing locally or by receiving investment incentives. Diff: 3 Page Ref: Objective: STUDY QUESTION 5.2: Why is it difficult to make generalizations about the overall effect of FDI? STUDY QUESTION 5.3: Describe the potential economic effects of MNEs. STUDY QUESTION 5.4: What are the growth and employment effects of FDI to both the home and host countries? How do these benefits and losses change over time? AACSB: Analytic Skills 28

29 99) Discuss the difference between relativism and normativism. Answer: a. Relativism affirms that ethical truths depend on the groups holding them. This makes intervention by outsiders unethical. The idea of relativism can be expressed by the statement "When in Rome, do as the Romans do." b. Normativism holds that there are universal standards of behavior (based on people's own values) that all cultures should follow, making nonintervention unethical. Managers thus struggle with implementing a "universal" set of truths versus adapting to local conditions on the assumption that every place is different and should be treated differently. Diff: 2 Page Ref: Objective: STUDY QUESTION 5.6: What are important cultural foundations of ethical behaviors? 100) Explain why the argument that "anything that is legal is ethical" is insufficient. Answer: a. The law is not appropriate for regulating all business activity because not everything that is unethical is illegal. b. The law is slow to develop in emerging areas of concern. Laws take time to be legislated and tested in courts. Further, they cannot anticipate all future ethical dilemmas; basically, they are a reaction to issues that have already surfaced. c. The law often is based on moral concepts that are not precisely defined and that cannot be separated from legal concepts. Moral concepts must be considered along with legal ones. d. The law is often in need of testing by the courts. This is especially true of case law, in which the courts establish precedent. e. The law is not very efficient. Efficiency in this case implies achieving ethical behavior at a very low cost, and it would be impossible to solve every ethical behavioral problem with a law. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.7: What are the legal foundations of ethical behavior? 101) In a short essay, explain the idea of extraterritoriality. Answer: Extraterritoriality takes place when governments apply their laws to the foreign operations of their domestic companies. Laws vary from country to country, often because moral values vary from country to country. What some countries accept as illegal may not be considered as such by other countries. Strong governments can attempt to enforce their laws on their domestic companies operating in other countries. Diff: 2 Page Ref: 191 Objective: STUDY QUESTION 5.8: Explain and give an example of extraterritoriality. 29

30 102) What types of payments are legal and illegal under the Foreign Corrupt Practices Act (FCPA) of the United States? Provide an example. Answer: Payments to officials to expedite otherwise legitimate transactions (officially called "facilitation payments" but sometimes referred to as "speed money" or "grease money") are legal, but payments to other officials who are not directly responsible for carrying out the transaction are not. Facilitation payments take many forms. For example, payment to a customs official to clear legitimate merchandise is legal, whereas a payment to a government minister to influence the customs official is illegal. The FCPA allows the former payment because governmental officials in many countries delay compliance of laws indefinitely until they do receive payments, even though such payments may be illegal in those countries. Diff: 2 Page Ref: 194 Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 103) What is the Foreign Corrupt Practices Act, and how does it affect the activities of U.S. and foreign-based MNEs? Answer: The FCPA outlaws bribery payments by U.S. firms to foreign officials, political parties, political officials, and political candidates. According to the act, it is illegal to make payments to government officials to directly engage in illegal activity to benefit the briber. However, it is possible for U.S. companies to make facilitating payments to foreign government officials to expedite legitimate transactions, in other words, doing what they should be doing, not doing something wrong. The FCPA is directed toward U.S. companies operating abroad, although the provisions of the FCPA were extended in 1998 to include bribery by foreign firms operating in the United States or one of its territories. Diff: 2 Page Ref: Objective: STUDY QUESTION 5.9: What types of payments are legal and illegal under the Foreign Corrupt Practices Act of the United States? What are the controversies surrounding the FCPA? 30