Chapter 01 - Globalization

Chapter 01
Globalization

True / False Questions
1. (p. 4) The notion that national economies are relativel sel!-containe" entities is on the rise.
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'. (p. 4) For the last (0 ears) the volume o! *oo"s) services an" investment crossin* national bor"ers has
consistentl e+pan"e" !aster than ,orl" output.
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/. (p. 4) To"a) the ,orl" econom is !ast movin* to,ar" a ,orl" in ,hich barriers to cross-bor"er tra"e an"
investment are "eclinin*.
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4. (p. 0) The shi!t to,ar" a more inte*rate" an" inter"epen"ent ,orl" econom is re!erre" to as *lobalization.
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(. (p. 0) The mer*in* o! historicall "istinct an" separate mar1ets into one hu*e *lobal mar1etplace is 1no,n as
the *lobalization o! mar1ets.
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0. (p. 0) The ma2orit o! ..%. !irms that e+port are lar*e multinationals that emplo (00 or more people.
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3. (p. 0) The most *lobal mar1ets currentl are mar1ets !or in"ustrial *oo"s an" materials that serve a universal
nee" the ,orl" over.
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4. (p. 3) 5utsourcin* is a process that is limite" to manu!acturin* enterprises.
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6. (p. 6) 7ecause o! their nature) service activities cannot be outsource" to other companies.
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10. (p. 10) The 8orl" 7an1 is responsible !or maintainin* or"er in the #merican monetar sstem.
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11. (p. 11) 5ne o! the .9 central man"ates is the promotion o! hi*her stan"ar"s o! livin*) !ull emploment an"
con"itions o! economic an" social pro*ress an" "evelopment.
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1'. (p. 11) .n"erlin* the tren" to,ar"s *reater *lobalization is technolo*ical chan*e an" a "ecline in barriers
to the !ree !lo, o! *oo"s) services an" capital.
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1/. (p. 1') #ccor"in* to the .nite" 9ations most chan*es bet,een 166' an" '00( to la,s *overnin* F:; have
resulte" in a less !avorable environment !or F:;.
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14. (p. 1') #ccor"in* to 8T5 "ata) the volume o! ,orl" merchan"ise tra"e has *ro,n !aster than the ,orl"
econom since 16(0.
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1(. (p. 1') The e+pansion o! ,orl" tra"e implies that nations are becomin* less "epen"ent on each other !or
important *oo"s an" services.
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10. (p. 14) <oore=s $a, pre"icts that the po,er o! microprocessor technolo* "oubles an" its cost o!
pro"uction !alls b hal! ever 14 months.
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Chapter 01 - Globalization
13. (p. 14) &!!icienc *ains associate" ,ith containerization have cause" transportation costs to !all
"ramaticall.
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14. (p. 10) The a"vent o! commercial 2et travel) b re"ucin* the time nee"e" to *et !rom one location to another)
has e!!ectivel shrun1 the *lobe.
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16. (p. 10) To"a *lobal communication net,or1s an" *lobal me"ia are creatin* a ,orl",i"e culture.
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'0. (p. 10) ;n the earl 1600s) the .nite" %tates ,as b !ar the ,orl"=s "ominant in"ustrial po,er. >o,ever b
'000) it lost its "ominant position an" no, is no lon*er the ,orl"=s lar*est in"ustrial po,er.
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'1. (p. 14) 7 '004) the ..%. ha" seen its share o! e+ports !all to almost hal! its share in the 1600s.
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''. (p. 13) #ccor"in* to !orecasts) a !urther relative "ecline in the share o! ,orl" output an" ,orl" e+ports
accounte" !or b the .nite" %tates an" other lon*-establishe" "evelope" nations is unli1el.
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'/. (p. '1) # current tren" in international business is the *ro,th o! me"ium-size" an" small multinationals)
1no,n as mini-multinationals.
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'4. (p. '') To"a) the ris1s involve" in "oin* business in countries such as -ussia are lo,) but so are the
returns.
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'(. (p. '/) ;! the !ree mar1et re!orms in China continue !or t,o more "eca"es) China ma move !rom Thir"
8orl" status to in"ustrial superpo,er status even more rapi"l than ?apan "i".
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'0. (p. '/) Current tren"s in"icate that the ,orl" is movin* rapi"l to,ar"s an economic sstem that is more
!avorable !or international business.
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'3. (p. '4) <an economists) politicians an" business lea"ers believe that the shi!t to,ar" a more inte*rate" an"
inter"epen"ent *lobal econom is a positive tren".
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'4. (p. '() The anti*lobalization e!!ort is create" an" supporte" onl b a small *roup o! har"-core anarchists.
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'6. (p. '3) The outsourcin* o! 2obs) b corporations such as :ell) ;7< or Citi*roup) to lo, ,a*e nations has
receive" stron* support in the .nite" %tates because it allo,s !irms to ma1e hi*her pro!its an" contributes to
hi*her emploment in the home nation.
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/0. (p. '4) %tu"ies have sho,n that ,a*e rates !or uns1ille" ,or1ers in man a"vance" economies have !allen
in recent ears.
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/1. (p. '4) -ecent evi"ence in"icates that the solution to the problem o! sta*nant incomes amon* the uns1ille"
is to be !oun" in increasin* societ=s investment in e"ucation to re"uce the suppl o! uns1ille" ,or1ers.
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/'. (p. '6) # source o! concern o! critics o! !ree tra"e is that it usuall encoura*es !irms !rom a"vance"
countries to move manu!acturin* !acilities to less "evelope" countries that lac1 a"e@uate re*ulations to protect
labor an" the environment !rom abuse.
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//. (p. '6) #ccor"in* to supporters o! !ree tra"e) as countries *et richer the enact tou*her environmental an"
labor re*ulations.
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Chapter 01 - Globalization
/4. (p. /0) #ccor"in* to critics o! *lobalization to"a=s inter"epen"ent *lobal econom limits a nation=s national
soverei*nt.
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/(. (p. /1) Critics o! *lobalization su**est that over the last centur) the *ap bet,een the rich an" poor nations
o! the ,orl" has shrun1en.
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/0. (p. /1) :ebt continues to be a ma2or bur"en !or poorer nations as the strive to *et ahea".
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/3. (p. /') %upporters o! "ebt relie! ar*ue that ne, "emocratic *overnments in poor nations shoul" not be
!orce" to honor "ebts that their corrupt an" "ictatorial pre"ecessors incurre" an" mismana*e" lon* a*o.
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/4. (p. /') #n international business is an !irm that en*a*es in international tra"e or investment.
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/6. (p. //) The mana*ers o! an international business must "eci"e ,hether it is ethical to a"here to the lo,er
labor an" environmental stan"ar"s !oun" in man less "evelope" nations.
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40. (p. //) ;n *eneral) mana*in* an international business is a more comple+ tas1 than mana*in* a business that
serves onl the local mar1et.
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<ultiple Choice Questions
41. (p. 4) 8hich o! the !ollo,in* is not characteristic o! *lobalizationA
A. National economies are turning into independent economic systems
7. <aterial culture is startin* to loo1 similar the ,orl" over
C. Berceive" "istance is shrin1in* "ue to a"vances in transportation an" telecommunications
:. 7arriers to cross-bor"er tra"e an" investment are "eclinin*

4'. (p. () Globalization has CCCCC the opportunities !or a !irm to e+pan" its revenues b sellin* aroun" the
,orl" an" CCCCC its costs b pro"ucin* in nations ,here 1e inputs are cheap.
#. -e"uce") re"uce"
7. ;ncrease") increase"
C. Increased, reduced
:. -e"uce") increase"
4/. (p. () ;"enti! the incorrect statement concernin* *lobalization.
#. ;t has been blame" !or unemploment in "evelope" nations) environmental "e*ra"ation an" the
#mericanization o! popular culture
7. ;t has create" ne, threats !or businesses accustome" to "ominatin* their "omestic mar1ets
C. It is transforming industries and is highly welcomed by those who believed their jobs were protected
from foreign competition
:. #ccor"in* to most economists it is a ver bene!icial process ,here *ains out,ei*h the losses b a ,i"e
mar*in
44. (p. 0) ;n the ..%.) CCCCC percent o! !irms that e+port are small companies emploin* !e,er than 100
people.
A. 90
7. 3(
C. (0
:. /0
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Chapter 01 - Globalization
4(. (p. 0) The most *lobal mar1ets currentl are mar1ets !or
#. %ervices
7. Consumer *oo"s
C. Consumer "urables
. Industrial goods
40. (p. 6) 8hich o! the !ollo,in* is not an impe"iment that ma1es it "i!!icult !or !irms to achieve the optimal
"ispersion o! their pro"uctive activities to locations aroun" the *lobeA
A. !educed transportation costs
7. Government re*ulations
C. ;ssues associate" ,ith economic an" political ris1
:. 7arriers to !orei*n "irect investment
43. (p. 6) The CCCCCC is primaril responsible !or policin* the ,orl" tra"in* sstem an" ma1in* sure nation-
states a"here to the rules lai" "o,n in tra"e treaties si*ne" b member states.
#. ;nternational :evelopment #ssociation
7. 8orl" 7an1
C. ;nternational court o! 2ustice
. "orld #rade $rgani%ation
44. (p. 10) The CCCCC ,as create" in 1644 b 44 nations that met in 7reton 8oo"s) 9e, >ampshire to promote
economic "evelopment.
A. "orld &an'
7. 8orl" <onetar Fun"
C. 8orl" Tra"e 5r*anization
:. .nite" 9ations
46. (p. 10) The institution) create" in 1644 at 7retton 8oo"s) responsible !or maintainin* or"er in the
international monetar sstem is the
A. I()
7. 8T5
C. .9
:. .9&%C5
(0. (p. 11) CCCCC occur(s) ,hen a !irm e+ports *oo"s or services to consumers in another countr.
A. International trade
7. Forei*n "irect investment
C. ;n,ar" investment
:. <er*er an" ac@uisitions
(1. (p. 11) The CCCCC ,as establishe" to remove barriers to the !ree !lo, o! *oo"s) services an" capital bet,een
nations.
#. .9
7. ;<F
C. *A##
:. ;:#
('. (p. 11) G#TT=s .ru*ua -oun" o! ne*otiations resulte" in all o! the !ollo,in* e+cept that it
#. Further re"uce" tra"e barriers
7. &+ten"e" G#TT to cover services as ,ell as manu!acture" *oo"s
C. Brovi"e" enhance" protection !or patents) tra"emar1s an" copri*hts
. +stablished the International (onetary )und
(/. (p. 11) .n"er the .ru*ua -oun" o! G#TT)
#. -e*ulations to ma1e it har"er !or !orei*n companies to enter mar1ets ,ere man"ate"
&. #he "orld #rade $rgani%ation was established
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Chapter 01 - Globalization
C. The volume o! ,orl" tra"e "ecrease"
:. 7arriers to tra"e in manu!acture" *oo"s ,ere incorporate"
(4. (p. 11) #t the :oha -oun" o! the 8T5 in late '001
#. The 8T5 ,as establishe"
7. G#TT ,as e+ten"e" to inclu"e services
C. 8orl" tra"e volume increase"
. An agenda was established to phase out subsidies to agricultural producers
((. (p. 1') The re"uction in the avera*e tari!! rates on manu!acture" pro"ucts since 16(0 implies all o! the
!ollo,in* e+cept that
#. Firms are "ispersin* parts o! their pro"uction process to *lobal locations to "rive "o,n pro"uction costs an"
increase pro"uct @ualit
7. The economies o! the ,orl"=s nation states are becomin* more intert,ine"
C. Nations are becoming increasingly independent of each other for important goods and services
:. The ,orl" has become si*ni!icantl ,ealthier since 16(0

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Chapter 01 - Globalization
(0. (p. 1/) ;"enti! the incorrect statement concernin* the avera*e earl out!lo, o! F:;.
A. It was about ,-.0 trillion in -9./
7. ;t increase" to D1.' trillion in '000
C. ;t "ecrease" in the earl '000s
:. ;t ,as about D1.' trillion in '000

(3. (p. 1/) 8hich o! the !ollo,in* statement re*ar"in* cross-bor"er tra"e an" investment is not trueA
#. EBrotectionE !rom !orei*n competitors has been) at times) "eman"e" b the .nite" %tates
&. )orecasts indicate a return to the restrictive trade policies of the -900s and 10s
C. ;! tra"e barriers "ecline no !urther the ,ill put a bra1e upon the *lobalization o! both mar1ets an"
pro"uction
:. ;t is not clear ,hether the political ma2orit in the in"ustrialize" ,orl" !avors !urther re"uctions in tra"e
barriers
(4. (p. 1/) The *ro,in* inte*ration o! the ,orl" econom is
A. Increasing the intensity of competition in a wide range of manufacturing and service industries
7. :ecreasin* the intensit o! competition in manu!acturin* in"ustries an" increasin* the intensit o!
competition in services
C. ;ncreasin* the intensit o! competition in manu!acturin* in"ustries an" "ecreasin* the intensit o!
competition in services
:. 9arro,in* the scope o! competition in a ,i"e ran*e o! service) commo"it an" manu!acturin* in"ustries
(6. (p. 14) ;"enti! the incorrect statement pertainin* to the 8orl" 8i"e 8eb
#. ;t ma1es it much easier !or buers an" sellers to !in" each other
7. Fie,e" *loball) it is emer*in* as an e@ualizer
C. It rolls bac' all of the constraints of location, scale and time %ones
:. ;t allo,s businesses to e+pan" their *lobal presence at a lo,er cost than ever be!ore
00. (p. 14) %ince 1640) the ,orl"=s containership !leet has more than CCCCC) re!lectin* in part the *ro,in*
volume o! international tra"e
#. :ouble"
7. Triple"
C. 2uadrupled
:. Quintuple"
01. (p. 10) Technolo*ical innovations have !acilitate" all o! the !ollo,in* e+cept
#. Globalization o! pro"uction
7. Globalization o! mar1ets
C. Creation o! electronic *lobal mar1etplaces
. Creation of absolutely homogeneous consumer mar'ets
0'. (p. 10) #lthou*h the characteristics o! the *lobal econom have chan*e" "ramaticall over the past /0
ears) as late as the 1600s all o! the !ollo,in* "emo*raphic characteristics ,ere true) e+ceptG
#. The ..%. "ominate" the ,orl" econom
&. 3mall, 4.3. entrepreneurial firms dominated the international business scene
C. The ..%. "ominate" the ,orl" !orei*n "irect investment picture
:. -ou*hl hal! the ,orl" ,as *overne" b centrall planne" economies o! the Communist ,orl"
0/. (p. 13) 8hich o! the !ollo,in* observations is not trueA
#. :urin* the 1600s) the ..%. routinel accounte" !or '0 percent o! ,orl" e+ports o! manu!acture" *oo"s
7. The ..%. share o! ,orl" e+ports o! *oo"s an" services ha" slippe" to 6.4 percent b '000
C. ;n '000) .nite" %tates ,as the ,orl"=s lar*est e+porter o! *oo"s an" services
. #he growing economic development and industriali%ation of the world economy has led to an absolute
decline in the health of the 4.3. economy
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Chapter 01 - Globalization
04. (p. 13) 8hich o! the !ollo,in* statements pertainin* to the chan*in* "emo*raphics o! ,orl" G:B an" tra"e
!rom 160/ to '000 is not trueA
A. As emerging economies continue to grow, a relative decline in the share of world output and world
e5ports accounted for by the 4.3. seems unli'ely
7. Forecasts pre"ict a rapi" rise in the share o! ,orl" output accounte" !or b some "evelopin* nations
C. # "ecline in the share en2oe" b rich in"ustrialize" countries such as Great 7ritain) German) ?apan an" the
..%. is li1el
:. ;! current tren"s continue) the Chinese econom coul" be lar*er than that o! the ..%. on a purchasin* po,er
parit basis
0(. (p. 13) 8hich o! the !ollo,in* nation=s ,orl" output has "ecline" the least over the last 40 earsA
#. France
7. .nite" %tates
C. .nite" Hin*"om
. Canada
00. (p. 13) #s o! '000) ,hich o! the !ollo,in* countries ha" the lar*est share o! ,orl" e+portsA
#. German
7. ?apan
C. 4nited 3tates
:. China

03. (p. 13) 8hich o! the !ollo,in* countries has ha" the ma+imum relative "ecline in its share o! ,orl" output
since 160/A
#. Cana"a
&. 4nited 3tates
C. ?apan
:. German

04. (p. 13) <ost !orecasts no, pre"ict
#. # rapi" "ecline in the share o! ,orl" output accounte" !or b "evelopin* nations such as China) ;n"ia an"
others
&. #hat if current trends continue, the economy of India will approach that of *ermany
C. That to"a=s rich nations ma account !or more than 00 percent o! ,orl" economic activit b '0'0
:. That to"a=s "evelopin* nations ma account !or onl about /4 percent o! ,orl" economic activit b '0'0

06. (p. 13) #ccor"in* to 8orl" 7an1 numbers
#. :evelopin* nations currentl account !or more than 00 percent o! ,orl" economic activit
7. -ich nations currentl account !or more than 30 percent o! ,orl" economic activit
C. To"a=s rich nations ma account !or (( percent o! ,orl" economic activit b '0'0
. #oday6s developing nations may account for more than 70 percent of world economic activity by 0000
30. (p. 14) ;n the 1630s) man ?apanese !irms investe" in 9orth #merica an" &urope
#. To avoi" a hi*hl competitive "omestic mar1et
7. To circumvent hi*h "omestic tari!! barriers
C. As a hedge against unfavorable currency movements
:. To ta1e a"vanta*e o! lo, labor costs

31. (p. 16) 8hat is the total cumulative value o! !orei*n investments best re!erre" to asA
#. #ccumulation o! !orei*n shares
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Chapter 01 - Globalization
7. Bort!olio investments
C. 3toc' of foreign direct investments
:. %toc1 mar1et investments

3'. (p. 16) The share o! the total F:; stoc1 accounte" !or b CCCCC !irms "ecline" to about hal! !rom 1640 to
'00(.
A. American
7. ?apanese
C. German
:. French

3/. (p. 16) The share o! the total F:; stoc1 accounte" !or b ,hich o! the !ollo,in* countries increase"
mar1e"l !rom 1640 to '00(A
#. .nite" %tates
&. )rance
C. .nite" Hin*"om
:. 9etherlan"s

34. (p. 16) Firms base" in CCCCC accounte" !or 11.6 percent o! the stoc1 o! !orei*n "irect investment in '00()
up !rom onl 1.1 percent in 1640.
#. 9orth #merica
&. eveloping countries
C. .nite" Hin*"om
:. 9etherlan"s

3(. (p. '0) 8hich o! these statements pertainin* to cross-bor"er F:; !lo,s is trueA
A. #he growth of )I resumed in 0008 and continued through 0007
7. # sur*e in F:; !rom 166( to 1663 ,as !ollo,e" b a slump !rom 1664 to '000
C. #mon* "evelopin* nations) the lar*est recipient o! F:; has been -ussia
:. The "ramatic increase in F:; re!lects the "ecreasin* internationalization o! business corporations

30. (p. '0) 8hich o! the !ollo,in* countries has been the lar*est recipient o! !orei*n "irect investment an"
receive" about D30 billion a ear in in!lo,s in '00( an" '000A
#. 7razil
7. -ussia
C. ;n"ia
. China

33. (p. '0) 7 '00( some '3 o! the ,orl"=s 100 lar*est non-!inancial multinationals ,ere
#. Chinese enterprises
7. 7ritish enterprises
C. 4.3. enterprises
:. ?apanese enterprises
34. (p. '1) #ccor"in* to .9 "ata) the ran1s o! the ,orl"=s lar*est 100 multinationals are "ominate" b !irms
!rom
A. eveloped economies
7. Firms !rom China
C. Firms !rom &urope
:. :evelopin* countries
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Chapter 01 - Globalization

36. (p. '') ;"enti! the incorrect statement re*ar"in* the !ormer Communist nations o! &urope an" #sia.
A. #he economies of most of the former Communist states are very strong and developed
7. <an o! the !ormer Communist nations o! &urope an" #sia share a commitment to !ree mar1et economies
C. #s a result o! "isturbin* si*ns o! *ro,in* unrest an" totalitarian ten"encies) the ris1s involve" in "oin*
business in these countries is ver hi*h
:. For about hal! a centur these countries ,ere essentiall close" to 8estern international business

40. (p. '/) 8hich o! the !ollo,in* observations concernin* $atin #merican countries is trueA
#. Complete restrictions on "irect investment b !orei*n !irms
7. Characterize" b lo, *ro,th) hi*h "ebt an" hperin!lation
C. :ebt an" in!lation are up compare" to previous "eca"es
. 3ubstantial opportunities e5ist, but are accompanied by substantial ris's

41. (p. '/) 8hich o! the !ollo,in* statement pertainin* to chan*es in the *lobal econom o! the '1st centur is
not trueA
#. 7arriers to the !ree !lo, o! *oo"s) services an" capital have been comin* "o,n
7. Folume o! cross-bor"er tra"e an" investment has been *ro,in* more rapi"l than *lobal output
C. National economies are becoming more independent and moving away from the global economic
system
:. #s economies a"vance) more nations are 2oinin* the ran1s o! the "evelope" ,orl"

4'. (p. '/) 8hich o! the !ollo,in* "oes not help create an economic sstem that is !avorable to international
businessA
A. ecreased privati%ation
7. 8i"esprea" "ere*ulation
C. 5pen mar1ets
:. Fallin* tra"e an" investment barriers

4/. (p. '4) ;n :ecember 1666 anti-*lobalization protesters in %eattle tar*ete" the CCCCC) ,hich ,as meetin* to
tr to "iscuss cuttin* barriers to cross-bor"er tra"e an" investment an" ,as seen as a promoter o! *lobalization.
#. G#TT
&. "#$
C. 8orl" 7an1
:. ;<F

44. (p. '() 8hen a compan Ee+ports 2obsE overseas) the compan is
#. >elpin* "omestic ,or1ers b pushin* up ,a*e rates
7. ;ncreasin* the "eman" o! @uali!ie" "omestic ,or1ers
C. #a'ing advantage of lower wages in foreign mar'ets
:. :eceivin* the supporters o! *lobalization

4(. (p. '3) ;! the critics o! *lobalization are correct) all o! the !ollo,in* thin*s must be sho,n e+cept
#. The share o! national income receive" b labor) as oppose" to the share receive" b the o,ners o! capital
shoul" have "ecline" in a"vance" nations
7. &ven thou*h labor=s share o! the economic pie ma have "ecline") livin* stan"ar"s nee" not "eteriorate i! the
size o! the total pie has increase" su!!icientl to o!!set the "ecline in labor=s share
C. The "ecline in labor=s share o! national income must be "ue to movin* pro"uction to lo,-,a*e countries) as
oppose" to improvin* pro"uction technolo* an" pro"uctivit
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Chapter 01 - Globalization
. +conomic growth in developed nations has offset the fall in uns'illed wor'ers6 share of national
income, raising their living standards

40. (p. '4) # stu" b the 5&C:) ,hose members inclu"e the '0 richest economies in the ,orl") note" that
#. The *ap bet,een the poorest an" richest se*ments o! societ in all 5&C: countries ,i"ene"
&. In almost all countries real income levels rose over the 009year period studied
C. The incomes o! the poorest se*ment o! most 5&C: nations !ell
:. The *ap bet,een rich an" poor ha" narro,e" in all 5&C: countries

43. (p. '4) Critics o! *lobalization maintain that the apparent "ecline in real ,a*e rates o! uns1ille" ,or1ers
#. 5,es !ar more to a technolo*-in"uce" shi!t ,ithin a"vance" economies to,ar" 2obs that re@uire si*ni!icant
e"ucation an" s1ills
&. Is due to the migration of low9wage manufacturing jobs offshore and a corresponding reduction in
demand for uns'illed wor'ers
C. >as been impacte" most b technolo*ical chan*e
:. Can be chec1e" b increasin* societ=s investment in e"ucation to re"uce the suppl o! uns1ille" ,or1ers

44. (p. /0) 7e!ore 9#FT# ,as passe"
#. <e+ico a*ree" to establish a hi*her minimum ,a*e
&. #he 4.3. agreed to limit the number of jobs that could be e5ported to (e5ico
C. <e+ico committe" to tou*her en!orcement o! environmental protection re*ulations
:. Cana"a committe" to establish ne, limits o! F:;

46. (p. /0) 8hich o! the !ollo,in* is not a concern o! critics o! *lobalization an" supranational or*anizationsA
#. .nelecte" bureaucrats o! supranational or*anizations ,oul" impose policies on the "emocraticall electe"
*overnments o! nation-states
7. %upranational or*anizations ,oul" un"ermine the soverei*nt o! "emocraticall electe" states
C. # nation=s abilit to control its o,n "estin ,oul" be limite" b supranational or*anizations
. !eal power would reside with individual nation9states, not supranational organi%ations
60. (p. /1) <an o! the ,orl"=s poorer nations su!!erin* !rom economic sta*nation are bein* hel" bac1 b
A. :arge debt burdens
7. %tron* protection o! propert ri*hts
C. &conomic policies that create ,ealth
:. :ecrease" barriers to !ree tra"e


&ssa Questions
9-. ;p. 8< "ith the help of an e5ample discuss the characteristics of globali%ation.
Globalization re!ers to a !un"amental shi!t in the ,orl" econom in ,hich national economies are no lon*er
relativel sel!-containe" entities. ;nstea") nations are movin* to,ar" an inter"epen"ent *lobal economic sstem.
8ithin this ne, *lobal econom) an #merican mi*ht "rive to ,or1 in a car "esi*ne" in German that ,as
assemble" in <e+ico b :aimlerChrsler !rom components ma"e in the ..%. an" ?apan that ,ere !abricate"
!rom Horean steel an" <alasian rubber.
90. ;p. /< =ow has globali%ation changed the business environment>
Globalization has create" man opportunities !or businesses to e+pan" their revenues b sellin* aroun" the
,orl" ,hile at the same time re"ucin* their costs b pro"ucin* in nations ,here labor an" other inputs are
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Chapter 01 - Globalization
cheap. >o,ever) *lobalization has also pro"uce" ne, threats !or companies in the !orm o! increase"
competition.

91. ;p. 7< +5plain what is meant by the globali%ation of mar'ets. ?rovide an e5ample. "hat are the most
global mar'ets>
The *lobalization o! mar1ets re!ers to the i"ea that historicall "istinct an" separate national mar1ets are
mer*in* into a sin*le) hu*e *lobal mar1etplace. For e+ample) Coca-Cola) %tarbuc1s an" <c:onal"=s o!!er the
same basic pro"uct ,orl",i"e an" are in !act) not onl a part o! the tren") but !acilitators o! the tren" as ,ell.
The most *lobal mar1ets are not actuall !or consumer *oo"s) but instea" are !or in"ustrial *oo"s an" materials
that serve the same nee"s across the ,orl".

98. ;p. .99< iscuss the concept of the globali%ation of production.
The *lobalization o! pro"uction re!ers to the sourcin* o! *oo"s an" services !rom locations aroun" the ,orl" to
ta1e a"vanta*e o! national "i!!erences in the cost an" @ualit o! !actors o! pro"uction. Companies that capitalize
on this tren" are able to outsource pro"uction to the best suppliers in the ,orl" an" shoul" there!ore en" up ,ith
a better !inal pro"uct.

9/. ;p. 9< +5plain how a company competes using outsourcing. ?rovide an e5ample.
Companies compete b outsourcin* manu!acturin* activities to the optimal location ,herever in the ,orl" that
ma be *iven pro"uction an" transportation costs. ;7< !or e+ample) "esi*ne" a laptop computer in the ..%.)
outsource" pro"uction o! the case) 1eboar" an" har" "rive to Thailan") pro"uce" the "ispla screen an"
memor in %outh Horea) the ,ireless car" in <alasia an" the microprocessor in the ..%. The !inal pro"uct ,as
assemble" in <e+ico an" ,as then e+porte" to the ..%. !or sale.

97. ;p. 99-0< "hat is the "orld #rade $rgani%ation> "hat is its role in the world economy>
The 8orl" Tra"e 5r*anization (8T5) is primaril responsible !or policin* the ,orl" tra"in* sstem an"
ma1in* sure nation-states a"here to the rules lai" "o,n in tra"e treaties si*ne" b 8T5 members. The 8T5
currentl has 144 members that collectivel account !or 63 percent o! ,orl" tra"e. The 8T5 has been
instrumental in lo,erin* barriers to cross-bor"er tra"e an" investment. ;n a""ition to these responsibilities) the
8T5 also !acilitates the establishment o! a""itional a*reements bet,een member states.

9.. ;p. -09--< "hat is the International (onetary )und> "hat is the "orld &an'> "hat is their
relationship, if any, with each other>
The ;nternational <onetar Fun" (;<F) ,as create" to maintain or"er in the international monetar sstem.
The 8orl" 7an1 ,as establishe" to promote economic "evelopment. 7oth or*anizations ,ere launche" as part
o! the 1644 7retton 8oo"s #*reement an" have emer*e" as si*ni!icant plaers in the *lobal econom.

9@. ;p. -0< +5plain the trends in world trade and foreign direct investment over the last half century.
%ince 16(0) the volume o! ,orl" merchan"ise tra"e has *ro,n !aster than the ,orl" econom. ;n particular)
there has been acceleration in ,orl" tra"e since 1640. This tra"e an" investment pattern implies that !irms are
"ispersin* parts o! their pro"uction to "i!!erent locations aroun" the ,orl" to "rive "o,n pro"uction costs an"
increase pro"uct @ualit) that the economies o! the ,orl"=s nation states are becomin* more intert,ine") that
!orei*n "irect investment is plain* an increasin* role in the *lobal econom as !irms increase their cross-
bor"er investments an" that the ,orl" has become si*ni!icantl ,ealthier over the last (0 ears.

99. ;p. -19-8< =ow has technological change affected global mar'ets> "hat 'ey innovations have changed
the nature of how Awe do business>A
<a2or a"vances in communication) in!ormation processin* an" transportation technolo* have !acilitate" the
*lobalization o! mar1ets an" pro"uction. The microprocessor an" the ;nternet have been central to the
technolo* e+plosion. The "evelopment o! the microprocessor vastl increase" the amount o! in!ormation that
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Chapter 01 - Globalization
can be processe" b in"ivi"uals an" !irms an" the *ro,th o! the ;nternet has allo,e" companies to e+pan" their
*lobal presence at a !raction o! the cost o! more tra"itional metho"s o! business.

-00. ;p. -8< +5plain the notion of the "eb emerging as an eBuali%er.
;n 1660) !e,er than one million users ,ere connecte" to the ;nternet. 7 '000) the ;nternet ha" 343 million
users. For companies) the 8eb is emer*in* as an e@ualizer as it minimizes the constraints o! location) scale an"
time zones. .sin* the ;nternet) buers an" sellers can !in" each other re*ar"less o! location) allo,in*
businesses) both lar*e an" small) the opportunit to e+pan" their *lobal presence at a lo,er cost than ever
be!ore.

-0-. ;p. -89-/< Innovations in transportation have had a major impact on global trade. Consider one of
these innovationsC containeri%ation. "hy is this innovation so significant>
Containerization has revolutionize" the transportation business) si*ni!icantl lo,erin* the costs o! shippin*
*oo"s over lon* "istances. &mer*in* in the 1630s an" 1640s) containerization spelle" an en" to the costl an"
len*th business o! loa"in* an" unloa"in* ships) truc1s an" trains. Cost savin*s associate" ,ith containerization
are si*ni!icant. 7et,een 16'0 an" 1660) avera*e ocean !rei*ht an" port char*es per ton !ell !rom D6( to D'6. #ir
transportation sa, a similar "ecline) as "i" truc1in*.
-00. ;p. -7< iscuss the demographics of world trade since the -970s. =ow has the role of the 4.3.
changed> =ow is world trade e5pected to change in the future>
;n the earl1600s) the ..%. ,as the ,orl"=s "ominant in"ustrial po,er accountin* !or over 40 percent o! ,orl"
output. 7 '000) the ..%. ,as still the ,orl"=s lar*est in"ustrial po,er) but accounte" !or onl about '0 percent
o! ,orl" output. 5ther in"ustrialize" countries also sa, their relative stan"in* slip. Ta1in* their place as active
e+porters are the ne,l in"ustrializin* countries o! %outh Horea an" China. <ost !orecasts pre"ict that the share
o! ,orl" output accounte" !or b "evelopin* countries such as China) ;n"ia an" <e+ico ,ill rise over the ne+t
'0 ears) ,hile at the same time rich in"ustrialize" countries ,ill continue to see their share o! ,orl" output
"ecline.
-01. ;p. -.900< =ow has the foreign direct investment picture changed since the -970s>
The ..%. accounte" !or about t,o-thir"s o! ,orl",i"e !orei*n "irect investment !lo,s in the 1600s) !ollo,e" b
7ritish !irms ,ith about 10 percent o! F:; !lo,s an" ?apanese !irms ,ith ' percent. #s barriers to tra"e !ell)
non-..%. !irms increase" their investments aroun" the ,orl" in search o! optimal pro"uction locations an" a
"irect presence in ma2or mar1ets. :urin* the 1660s) F:; to both "evelope" an" "evelopin* nations increase"
"ramaticall. China also emer*e" as an important "estination !or F:;.

-08. ;p. 0090-< "hat is a multinational enterprise ;(N+<> =ow does a mini9multinational differ from an
(N+>
# multinational enterprise is an business that has pro"uctive activities in t,o or more countries. ;n the1600s
nearl hal! o! the ,orl"=s '00 lar*est <9&s ,ere #merican. 7 '00') 2ust '4 percent ,orl"=s 100 lar*est <9&s
,ere !rom the ..%. Firms !rom "evelopin* countries are e+pecte" to emer*e as important competitors in the
,orl" econom. The number o! mini-multinationals is also on the rise. <ini-multinationals are me"ium-size"
an" small <9&s.

-0/. ;p. 01< (any companies are 'eeping their eyes on China. "hy is China so important to international
business>
;nternational companies are e+cite" about China because ,ith its 1./ billion people it represents a hu*e an"
lar*el untappe" mar1et !or *oo"s an" services. Companies are so intereste" in its potential that F:; to China
sur*e" bet,een 164/ an" '004) *oin* !rom less than D'billion in 164/ to D30 billion in '000. >o,ever) ,hile
China remains a ver attractive mar1et) companies must be,are o! the competition that is be*innin* to emer*e
!orm the countr.

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Chapter 01 - Globalization
-07. ;p. 01< Consider the global economy of the 0-st century. "hat important changes are ta'ing place>
"hat do these changes mean for international companies>
The last '( ears have been a time o! *reat chan*e in the *lobal econom. 7arriers to the !ree !lo, o! *oo"s)
services an" capital have been !allin*) national economies are becomin* more inte*rate" an" more countries are
2oinin* the ran1s o! the "evelope" ,orl". #ll o! these chan*es point to,ar" an economic sstem that is more
!avorable !or international business.

-0.. ;p. 08909< Consider whether the shift toward a more integrated and interdependent global economy
is a good thing. iscuss the shift from the eyes of the consumer, the wor'er, the company and the
environmentalist.
There are man a"vanta*es o! *lobalization. From a broa" perspective) *lobalization creates economic activit
(,hich stimulates economic *ro,th)) creates 2obs) raises income levels an" provi"es consumers ,ith more
choices in re*ar" to the pro"ucts an" services that are available to them. From the perspective o! an in"ivi"ual
!irm) *lobalization has the potential to increase revenues (throu*h e+pan"e" mar1et potential)) "rive "o,n costs
(throu*h a""itional economies o! scale) an" boost pro!its.
>o,ever) critics ar*ue that *lobalization "estros manu!acturin* 2obs in ,ealth countries an" contributes to
pollution. Critics ar*ue that !allin* tra"e barriers allo, !irms in in"ustrialize" countries to move their
manu!acturin* activities o!!shore to countries ,here ,a*e rates are much lo,er. Critics also ar*ue that
*lobalization encoura*es !irms !rom a"vance" nations to move manu!acturin* !acilities o!!shore to less
"evelope" countries to avoi" the more strin*ent pollution controls in place in their home countries.

-0@. ;p. 0890/< iscuss what occurred in 3eattle in -999 at the meeting of the "#$ and why the events
were important to the future of global trade.
;n :ecember 1666) more than 40)000 protesters bloc1e" the streets o! %eattle in an e!!ort to shut "o,n a 8T5
meetin* bein* hel" in the cit. The issue ,as 2ob losses in in"ustries un"er attac1 !rom !orei*n competitors)
!allin* ,a*e rates o! uns1ille" ,or1ers) environmental "e*ra"ations an" cultural imperialism o! *lobal me"ia
an" <9&s. Brotesters believe" that all o! these issues ,ere the result o! *lobalization an" !elt that the 8T5) as
a promoter o! *lobalization) ,as a le*itimate tar*et !or blame. The protest ,as a violent one an" embol"ene" b
the e+perience its e+perience) anti*lobalization protesters no, turn up at almost ever ma2or meetin* o! a *lobal
institution.
-09. ;p. 0/90@< )alling barriers to international trade destroy manufacturing jobs in wealthy advanced
economies. iscuss this statement. o you agree> "hy or why not>
Critics ar*ue that !allin* tra"e barriers allo, !irms to move manu!acturin* activities to countries ,here ,a*e
rates are much lo,er. 7ecause o! such moves the ar*ue that) the ,a*e rates o! poorer #mericans have !allen
si*ni!icantl over the past @uarter o! a centur.
%upporters o! *lobalization repl that critics o! these tren"s miss the essential point about !ree tra"eIthe
bene!its out,ei*h the costs. The ar*ue that !ree tra"e ,ill result in countries specializin* in the pro"uction o!
those *oo"s an" services that the can pro"uce most e!!icientl) ,hile importin* *oo"s an" services that the
cannot pro"uce as e!!icientl.

--0. ;p. 1091-< iscuss the effect of globali%ation on national sovereignty.
Critics o! *lobalization ar*ue that to"a=s increasin*l inter"epen"ent *lobal econom shi!ts economic po,er
a,a !rom national *overnments an" to,ar" supranational or*anizations. The !eel that unelecte" bureaucrats
no, impose policies on the "emocraticall electe" *overnments o! nation-states) thereb un"erminin* the
soverei*nt o! those states an" limitin* the nation=s abilit to control its o,n "estin.
;n contrast man economists an" politicians maintain that the po,er o! supranational or*anizations is limite" to
,hat nation-states collectivel a*ree to *rant. The ar*ue that these bo"ies e+ist to serve the collective interests
o! member states) not to subvert those interests.
%upporters o! supranational or*anizations point out that the po,er o! these bo"ies rests lar*el on their abilit to
1-1/
Chapter 01 - Globalization
persua"e member states to !ollo, a certain action. ;n this vie,) real po,er still resi"es ,ith in"ivi"ual nation-
states) not supranational or*anizations.
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