Deck 10: Managing Political Risk, Government Relations, and Alliances

Question 1

In some instances, it is not clear whether macro or micro political risk is at work.

Answer 1

True
Explanation: In some instances, it is not clear whether macro or micro political risk is at work.

Question 2

Vertical investments run the risk of being taken over by government because they are export-oriented and governments like a business that helps it to generate foreign capital.

Answer 2

True
Explanation: These investments run the risk of being taken over by the government because they are export-oriented, and governments like a business that helps them generate foreign capital.

Question 3

Since the terrorist attacks of 9/11, political risk assessment has become less vital to MNCs.

Answer 3

False
Explanation: Since the terrorist attacks of 9/11, political risk assessment has become especially vital to MNCs. Today, almost all countries are interested in sustaining investment from MNCs.

Question 4

Macro risk issues often take forms such as industry regulations, taxes of specific types of business activity, and various restrictive local laws.

Question 5

There are three sectors of economic activity: the primary sector, the secondary sector, and the service sector.

Question 6

In the context of international strategic alliances, value-claiming activities are competitive and distributive.

Question 7

International political developments have a major impact on MNCs' strategic plans, and domestic political developments have a minor impact on those plans.

Question 8

Tensions continue to rise as U.S.politicians have become frustrated by China's unwillingness to revalue the yuan, and concerns have grown over the safety of goods imported from China.

Question 9

Conglomerate investments usually are rated as low risk, because foreign governments see them as providing fewer benefits to the MNC and greater benefits to the country than other investments.

Question 10

Local knowledge can be internalized primarily as a result of an MNC operating in that market.

Question 11

Political risk is the likelihood that a multinational corporation's foreign investment will be constrained by a host government's policies.

Question 12

Typically, terrorists target business areas or businesses that have high status or those that have great influence on initiating change.

Question 13

Micro political risk analysis is directed toward government policies and actions that influence selected sectors of the economy or specific foreign businesses.

Question 14

Host government mandates that require foreign investors to partner with local state-owned firms or follow local-content rules may still have a positive impact on MNCs.

Question 15

Comprehensive political strategies are most important in stable policy environments.

Question 16

Operational risks result from government policies and procedures that directly constrain the management and performance of local operations.

Question 17

Vietnam has passed a domestic enterprise law and investment law easing and clarifying foreign investment and business rules, signed a trade agreement with the U.S., and joined the WTO.

Question 18

Alliances and joint ventures are increasingly less-common modes of entry and operation in international business.

Question 19

The most difficult cultural differences to manage in international strategic alliances are power distance and uncertainty avoidance.

Question 20

Examples of ownership-control risks include tariffs on exports and imports, as well as restrictions on exports.

Question 21

According to the 2012 Transparency International Corruption Perceptions Index, which of the following is the least corrupt nation?

A)India
B)United States
C)Spain
D)New Zealand

Question 22

In recent years _____ risk analysis has become of increasing concern to MNCs because of the growing number of countries that are finding their economies in trouble as in Southeast Asia or even worse, unable to make the transition to a market-driven economy.

A)Micro
B)Basic
C)Macro
D)Complex

Question 23

China's decision regarding restrictions on foreign exchange transactions is a _____ political risk because it affects all MNCs.

A)Micro
B)Standard
C)Macro
D)Multidimensional

Question 24

_____ risk issues often take forms such as industry regulation, taxes on specific types of business activity, and various restrictive local laws.

A)Macro
B)Standard
C)Direct
D)Micro

Question 25

Which of the following is not a challenge of doing business in Russia?

A)Corruption
B)Red tape
C)Strong faith in government policies
D)Security concerns

Question 26

According to the text, the following are all forms of terrorism except:

A)Classic terrorism
B)Amateur terrorism
C)Religious motivated terrorism
D)Political terrorism

Question 27

Not all MNCs are confident about international investment in countries with:

A)Low labor costs
B)Political unrest
C)Emerging economies
D)Cultural differences

Question 28

The following are internal factors which MNCs may use to evaluate political risk except:

A)Power struggles among elites
B)Ethnic confrontations
C)Regional struggles
D)Regional instabilities

Question 29

Expropriation is more likely to occur in:

A)Non-Western governments that are poor, relatively unstable, and suspicious of foreign multinationals
B)Western governments that are rich, relatively stable, and are experienced in dealing with foreign multinationals
C)Non-Western governments that are neither rich nor poor, relatively stable, and are unsure about the presence of foreign multinationals
D)Western governments that are moderately wealthy, relatively stable, and are new at dealing with foreign multinationals

Question 30

China's government policies regarding investment in the telecommunications industry fall into the _____ political risk category.

A)Macro
B)Micro
C)Integrative
D)Relative

Question 31

Broadly, ________ strategies may include leveraging bilateral, regional, and international trade and investment agreements, drawing on bilateral and multilateral financial support, and using project finance structures to separate project exposure from overall firm risk.

A)protective and defensive
B)vertical investment
C)integrative
D)proactive political strategies

Question 32

The seizure of businesses by a host country with little, if any, compensation to the owners is referred to as:

A)Nationalization
B)Expropriation
C)Dispossession
D)Removal

Question 33

Over the past two decades, political risk has become:

A)An area closely watched by developing countries, but virtually ignored by developed countries
B)A vital area for MNCs to manage
C)A much less pervasive and minor threat facing international management
D)Virtually obsolete for international firms as a result of controls imposed by the UNO

Question 34

The following is not an example of risk factors for an MNC:

A)Freezing the movement of assets out of the host country
B)Limits on the remittance of profits or capital
C)Devaluing the currency
D)Complying with contractual terms of agreements

Question 35

Laws that require that nations hold a majority interest in the operation are known as:

A)Commercial laws
B)Appropriation laws
C)Indigenization laws
D)Expropriation laws

Question 36

The following is not an external factor used by MNCs for evaluating political risks:

A)Alliances with major and regional powers
B)Anti-establishment movements
C)Internal groupings
D)Sources of key raw materials

Question 37

The economies of China, Russia, India, and Vietnam present _____ political risk for MNCs.

A)Macro
B)Micro
C)Proactive
D)Relative

Question 38

_____ reviews major political decisions that are likely to affect all business conducted in a particular country.

A)Macro political risk analysis
B)Micro political risk analysis
C)Standard political risk analysis
D)Multidimensional political risk analysis

Question 39

According to the 2012 Transparency International Corruption Perceptions Index, which of the following is the most corrupt nation?

A)El Salvador
B)Columbia
C)Lebanon
D)Somalia

Question 40

The following actions raise the political risk of doing business in China except:

A)Interpretation of rules and regulations by officials
B)Industrial piracy
C)Restrictions on foreign exchange transactions
D)Concerns on safety and reliability of product quality

Question 41

The special nature of foreign direct investment is not related to:

A)Sector of economic activity
B)Technology sophistication
C)Pattern of ownership
D)Operations

Question 42

Political risks can be broken down into three basic categories.These are:

A)Transfer risks, ownership risks, and labor risks
B)Ownership risks, operational risks, and economic risks
C)Operational risks, bureaucratic risks, and transfer risks
D)Transfer risks, operational risks, and ownership-control risks

Question 43

In a _____ investment, the goods or services produced are not similar to those produced at home.

A)Horizontal
B)Vertical
C)Network
D)Conglomerate

Question 44

The ratings factors that are quantified in order for MNCs to manage political risk reflect all of the following except:

A)Political and economic environment
B)Domestic economic conditions
C)Social conditions
D)External economic conditions

Question 45

_____ investments include the production of raw materials or intermediate goods that are to be processed into final products.

A)Vertical
B)Matrix
C)Conglomerate
D)Horizontal

Question 46

The following are listed as techniques for responding to political risks except:

A)Relative bargaining power analysis
B)Realistic bargaining power analysis
C)Integrative techniques
D)Proactive political strategies

Question 47

Foreign ownership limitations, pressure for local participation, confiscation, expropriation, and abrogation of property rights are examples of:

A)Transfer risks
B)Functional risks
C)Ownership-control risks
D)Tactical risks

Question 48

The theory behind _____ is quite simple.The MNC works to maintain a stronger bargaining power position than that of the host country.

A)Analogous negotiating power
B)Pertinent bargaining power
C)Proportionate negotiating power
D)Relative bargaining power

Question 49

When terrorism entails a specific, well-defined objective pursued by well-trained, professional, underground members, it is called:

A)traditional terrorism
B)amateur terrorism
C)religiously motivated terrorism
D)classic terrorism

Question 50

The primary sector of economic activity includes:

A)manufacturing operations
B)agriculture, forestry, and mineral exploration and extraction
C)industry and service
D)transportation, finance, insurance, and related industries

Question 51

_____ investments typically are made with an eye toward satisfying the host country's market demands.As a result, they are not very likely to be takeover targets.

A)Vertical
B)Horizontal
C)Conglomerate
D)Hierarchical

Question 52

_____ risks are brought about by government policies or actions that inhibit ownership or control of local operations.

A)Transfer
B)Functional
C)Operational
D)Ownership-control

Question 53

Some multinational corporations attempt to manage political risk through simultaneously analyzing a range of variables to derive an overall rating of the degree of political risk in a given jurisdiction.This is referred to as a:

A)Quantification process
B)Quantification circle
C)Quantity risk analysis
D)Quantity management

Question 54

Which of the following criteria involves maximum political risk?

A)International financial standing
B)Economic growth during previous 5 years
C)Restrictions imposed on imports
D)Effectiveness of public administration

Question 55

_____ techniques are designed to help the overseas operation become part of the host country's infrastructure.

A)Protective
B)Defensive
C)Integrative
D)Statutory

Question 56

_____ risks stem from government policies that limit the transfer of capital, payments, production, people, and technology in or out of a country.

A)Operational
B)Bureaucratic
C)Transfer
D)Expropriation

Question 57

MNCs can take a wide variety of strategies to minimize their chances of expropriation.Those strategies do not include:

A)bringing in local partners
B)avoiding countries that have experienced a terrorist incident
C)limiting the use of high technology so that if the firm is expropriated, the country cannot duplicate the technology
D)acquiring an affiliate that depends on the parent company for key areas of the operation

Question 58

Price controls, financing restrictions, export commitments, taxes, and local-sourcing requirements are examples of:

A)Ownership-control risks
B)Operational risks
C)Transfer risks
D)Functional risks

Question 59

Tariffs on exports and imports, restrictions on exports, dividend remittance, and capital repatriation are examples of:

A)Transfer risks
B)Expropriation risks
C)Operational risks
D)Exchange risks

Question 60

_____ investments involve the production of goods or services that are the same as those produced at home.

A)Conglomerate
B)Lateral
C)Horizontal
D)Vertical

Question 61

Examples of proactive political strategies include all of the following except:

A)Formal lobbying
B)Campaign financing
C)Seeking advocacy through embassies and consulates of the home country
D)Downsizing and transferring business elsewhere

Question 62

In the context of international business, what is meant by the term political risk? In general, how do MNCs analyze this risk?

Question 63

Examples of protective and defensive techniques include all of the following except:

A)Limiting the responsibility of local personnel and hiring only those who are vital to the operations
B)Raising capital from local banks and the host government as well as outside forces
C)Diversifying production of the product among a number of countries
D)Producing as much of the product locally as possible with the use of in-country suppliers and subcontractors, thus making it a "domestic" product

Question 64

Benefits of proactive political strategies include all of the following except:

A)Enhancing government relations in unstable and transitional policy environments
B)Mitigating risk before it becomes unmanageable
C)Providing support for national and sub-central governments in transitional economies
D)Counteracting competitors' efforts to influence government policy

Question 65

What are some of the advantages of international strategic alliances?

Question 66

All of the following are examples of integrative techniques except:

A)Developing good relations with the host government and other local political groups
B)Doing as little local manufacturing as possible and conducting all research and development outside the country
C)Producing as much of the product locally as possible with the use of in-country suppliers and subcontractors, thus making it a "domestic" product
D)Developing effective labor-management relations

Question 67

Which of the following cultural differences tend to be more disruptive for international joint ventures than the others?

A)Power distance
B)Uncertainty avoidance
C)Individualism
D)Masculinity

Question 68

_____ techniques are designed to discourage the host government from interfering in operations.

A)Integrative and unifying
B)Consolidating and defensive
C)Protective and unifying
D)Protective and defensive

Question 69

Explain the role of host governments in alliances.

Question 70

Which of the following is not a critical legal issue for successful termination of international alliances?

A)Conditions of termination
B)Disposition of assets and liabilities
C)Distributorship arrangements
D)People-related issues

Question 71

Which of the following is not a critical business issue for successful termination of international alliances?

A)The basic decision to exit
B)People-related issues
C)Rights over sales territories and obligations to customers
D)Relations with the host government

Question 72

When host governments do not require alliances as a condition for entry, many MNCs:

A)Are advised not to voluntarily pursue alliances as they tend to be problematic
B)Are usually indifferent about establishing alliances
C)Find that having an alliance is advantageous to their entry and expansion
D)Are likely to consider alliances, except in emerging markets and highly regulated industries

Question 73

Explain the integrative, protective, and defensive techniques MNCs use to respond to political risks.

Question 74

What is expropriation risk?

Question 75

In their attempts to forestall harm in risky venues, MNCs must thoroughly evaluate the political environment, install modern security systems, compile a crisis handbook, and

A)go on the offensive.
B)appeal to the religious leaders in the country.
C)establish an effective bargaining position.
D)prepare employees for situations that may arise.