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

Question 1

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

Answer 1

True

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

Question 3

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

Answer 3

False

Question 4

Comprehensive political strategies are most important in stable policy environments.

Question 5

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

Question 6

Firms that are at the greatest risk in regard to expropriation are in extractive, agricultural or infrastructural industries such as utilities and transportation because of the importance of these industries to the country.

Question 7

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 8

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

Question 9

Over the past decade and with the recent terrorist attacks on the U.S., political risk assessment has become less vital to MNCs.

Question 10

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

Question 11

Protective and defensive techniques are designed to encourage the host government to actively participate in the management of the MNC.

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Some MNCs attempt to manage political risk through a quantification process in which a range of variables are simultaneously analyzed to derive an overall rating of the degree of political risk in a given jurisdiction.

Question 21

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 22

According to the 2009 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 23

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 24

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 25

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 26

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 27

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

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

Question 28

_____ 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 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

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)Pressure on the MNCs to do things in a particular way
D)Concerns on safety and reliability of product quality

Question 31

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 32

Over the past decade 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 assess and 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 33

According to the 2009 Transparency International Corruption Perceptions Index, which of the following is the most corrupt nation?

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

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

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

A)Social
B)Development
C)Legal
D)Political

Question 36

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 37

_____ 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 38

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 39

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 40

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 41

_____ 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 42

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 43

_____ 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 44

_____ 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 45

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 46

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

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

Question 47

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

A)Sector
B)Technology
C)Ownership
D)Operations

Question 48

_____ 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 49

_____ 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 50

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 51

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 52

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 53

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 54

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 55

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 56

MNCs attempt to manage political risk through a quantification process, to derive an overall rating of the degree of political risk in a given jurisdiction.The factors that are quantified reflect all of the following except:

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

Question 57

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 58

_____ 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 59

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 60

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

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

Question 61

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

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

Question 62

What are some of the advantages of international strategic alliances?

Question 63

_____ 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 64

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

Question 65

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

Question 66

What is expropriation risk?

Question 67

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 68

All of the following are examples of integrative techniques except:

A)Developing good relations with the host government and other local political parties
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 69

All the following are motivations for firms to enter into international strategic alliances except:

A)Faster entry and payback
B)Economies of scale
C)Co-opting or blocking competition
D)Stronger control over technologies and patents

Question 70

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 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

Explain the role of host governments in alliances.

Question 73

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 74

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 75

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