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

Question 1

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

Answer 1

False
Explanation: In a conglomerate investment, the goods or services produced are not similar to those produced at home. These types of investments usually are rated as high risk because foreign governments see them as providing fewer benefits to the country and greater benefits to the multinational company than other investments.

Question 2

Terrorism is the use of force or violence against others to promote political or social views.

Answer 2

True
Explanation: Terrorism is the use of force or violence against others to promote political or social views. The ultimate goal of the violence is for government and citizens to change policies and ultimately yield to the beliefs of the terrorist group.

Question 3

Macro risk has been losing importance in the recent years because a growing number of countries are able to successfully transition to a market-driven economy.

Answer 3

False
Explanation: In recent years, macro risk analysis has become of increasing concern to multinational companies (MNCs) because of the growing number of countries that are finding their economies in trouble, as in Southeast Asia, or, even worse, that are unable to make the transition to a market-driven economy. India provides plenty of examples of macro political risks for MNCs.

Question 4

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

Question 5

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

Question 6

In the context of the special nature of foreign direct investment (FDI),patterns of ownership relate to whether businesses are wholly or partially owned.

Question 7

The difference between a science-based industry and a non-science-based industry is that a non-science-based industry requires the continuous introduction of new products or services.

Question 8

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

Question 9

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

Question 10

Local knowledge can be internalized primarily as a result of a multinational company (MNC)operating in that market.

Question 11

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 12

Firms with technology that is not available to the government should the firm be taken over have higher risk than those with technology that is easily acquired.

Question 13

Policy and control mechanisms,along with awareness of the historical treatment of multinational companies (MNCs)within certain nations,allow firms to evaluate the inherent risk of doing business in those countries.

Question 14

Collaboration facilitates rapid market entry by allowing firms to share costs and risks,combine product and market complementarities,and reduce the time-to-market.

Question 15

In the context of the special nature of foreign direct investment (FDI),primary sector industries usually have the highest risk factor,service sector industries have the next highest,and industrial sector industries have the lowest.

Question 16

Alliances are an arena where both value-claiming activities and value-creating activities take place.

Question 17

Vertical 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 18

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

Question 19

The service sector of economic activity includes agriculture,forestry,and mineral exploration and extraction.

Question 20

Comprehensive political strategies are most important in stable policy environments.

Question 21

Which of the following is not an example of risk factors for a multinational company?

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

Question 22

_____ 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 23

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 24

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

A) micro
B) standard
C) macro
D) multidimensional

Question 25

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

A) macro
B) micro
C) proactive
D) relative

Question 26

In their attempts to forestall harm in risky venues,multinational companies 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

Question 27

_____ 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 28

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 29

Which of the following statements is true about expropriation?

A) Firms at the greatest risk of expropriation are in extractive, agricultural, or infrastructural industries such as utilities and transportation.
B) Small firms are more likely targets of expropriation than large firms because more is to be gained by expropriating small firms.
C) Expropriation is least likely to occur in non-Western countries that are poor, relatively unstable, and suspicious of foreign multinationals.
D) Expropriation of foreign enterprises by developing countries were rare in the old days.

Question 30

Multinational companies can minimize their chances of expropriation by _____.

A) investing in non-Western countries that are poor and relatively unstable
B) acquiring an affiliate that depends on the parent company for key areas of operation
C) encouraging the use of high technology
D) imposing an embargo on the participation of local partners

Question 31

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

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

Question 32

Which of the following statements is true of the impact of terrorism within a country on multinational companies in the macro sense?

A) Typically, terrorists target business areas or businesses that have low status or those that have little influence on initiating change.
B) It is extremely difficult to guarantee that companies can fully avoid harm from terrorism, but political risk analysis and preparation may forestall it.
C) Companies are usually proactive and confident about setting up operations even if a country has a high incidence of terrorist attacks against commercial businesses.
D) Most attacks on private businesses are driven by well-trained, professional, underground members who pursue a specific, well-defined objective.

Question 33

In recent years,_____ risk analysis has become of increasing concern to multinational companies 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 34

All of the following actions raise the political risk of doing business in China except _____.

A) interpreting rules and regulations by officials
B) industrial piracy
C) restrictions on foreign exchange transactions
D) concerns on safety and reliability of product quality

Question 35

_____ tends to occur once and often has poorly defined objectives,and therefore members are not as committed.

A) Classic terrorism
B) Amateur terrorism
C) Religiously-motivated terrorism
D) Political terrorism

Question 36

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

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

Question 37

Which of the following is an external economic relations factor that multinational companies may use to evaluate political risk?

A) Per capita income
B) Inflation during the previous two years
C) Traffic system and communication
D) Freedom to set up or engage in partnerships

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

Which of the following statements is true of the impact of domestic and international political developments on multinational companies?

A) Multinational companies are well protected from the hazards that originate directly from variation and unpredictability in political and governance systems around the world.
B) The state and its various institutions and agencies protect multinational companies by refraining from making policy shifts in taxation or regulation.
C) As government policies change, it is imperative that multinational companies be willing and able to adjust their strategies and practices to accommodate new perspectives.
D) A majority of geographic areas and regions carry less political risk than they did in the past because governments are more stable.

Question 40

Identify a true statement about classic terrorism.

A) It is carried out by individuals holding very strong core beliefs, regardless of how well defined their objectives are.
B) It tends to occur once and has poorly defined objectives, and therefore members are less committed.
C) It tends to be more chaotic and scattered because the individuals involved are extremely passionate about the cause, despite the lack of unified goals.
D) It entails a specific, well-defined objective pursued by well-trained, professional, underground members.

Question 41

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 42

A salient feature of vertical investments is that they:

A) include the production of raw materials or intermediate goods that are to be processed into final products.
B) are unlikely to be taken over by the government because they are import-oriented.
C) provide fewer benefits to the country and greater benefits to a multinational company (MNC) than other investments.
D) involve the production of goods or services that are the same as those produced at home.

Question 43

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) defensive techniques

Question 44

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 multinational companies (MNCs) to manage.
C) a less pervasive, minor threat faced by international management.
D) virtually obsolete for international firms as a result of controls imposed by the United Nations.

Question 45

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 46

Which of the following statements is true of a conglomerate investment?

A) It runs the risk of being taken over by the government because it is export-oriented.
B) It is typically made with an eye toward satisfying the host country's market demands.
C) It includes the production of raw materials or intermediate goods that are to be processed into final products.
D) It is a type of high-risk investment in which goods or services produced are different from those produced at home.

Question 47

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 48

_____ 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 49

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 50

A true statement about horizontal investments is that:

A) they 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.
B) they are unlikely to be takeover targets because these investments typically are made with an eye toward satisfying the host country's market demands.
C) they are rated as high risk because foreign governments see them as providing fewer benefits to the country and greater benefits to a multinational company than other investments.
D) they are high-risk investments in which goods or services produced are dissimilar to those produced at home.

Question 51

Which of the following is a salient feature of horizontal investments?

A) They are export-oriented investments which are unlikely to be takeover targets.
B) They are designed with an eye toward satisfying the home country's market demands.
C) They involve the production of goods or services that are the same as those produced at home.
D) They are high-risk investments in which goods or services produced are dissimilar to those produced at home.

Question 52

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 53

The industrial sector of economic activity includes _____.

A) transportation
B) agriculture
C) mineral exploration and extraction
D) manufacturing operations

Question 54

The theory behind _____ is quite simple.A multinational company 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 55

Some multinational corporations attempt to manage political risk by 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 56

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

Question 57

_____ 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 58

The ratings factors that are quantified for multinational companies to manage political risk reflect all of the following except _____.

A) political conditions
B) domestic economic conditions
C) social conditions
D) external economic conditions

Question 59

Which of the following is an example of transfer risks?

A) Dividend remittance
B) Export commitments
C) Pressure for local participation
D) Abrogation of proprietary rights

Question 60

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 61

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 62

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 63

What are proactive political strategies? How do they help multinational companies (MNCs)to respond to political risks?

Question 64

_____ 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 65

Explain the special nature of foreign direct investment (FDI).

Question 66

Explain and give examples of the three basic categories of political risks.

Question 67

Which of the following is an example of a protective and defensive technique for responding to a political risk?

A) Creating joint ventures and hiring local people to manage and run the operation
B) Producing as much of a product locally as possible with the use of in-country suppliers and subcontractors, thus making it a "domestic" product
C) Developing good relations with the host government and other local political groups
D) Doing as little local manufacturing as possible and conducting all research and development outside the country

Question 68

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 69

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

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

Question 70

Which of the following is an example of an integrative technique for responding to political risk?

A) Diversifying production of a product among a number of countries
B) Creating joint ventures and hiring local people to manage and run operations
C) Raising capital from local banks and the host government as well as outside sources
D) Limiting the responsibility of local personnel and hiring only those who are vital to the operation

Question 71

What is terrorism? Explain the various types of terrorism.

Question 72

Identify a true statement about protective strategies for responding to political risks.

A) These strategies are designed to help overseas operation become part of a host country's infrastructure.
B) These strategies are designed with the objective that a multinational company is perceived as less foreign and thus unlikely to be the target of government action.
C) Protective strategies for responding to political risks include developing good relations with the host government and other local political groups.
D) Organizations with an emphasis on innovative technology prefer a protective technique as a way to safeguard against actions such as counterfeiting.

Question 73

Explain relative bargaining power analysis.

Question 74

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

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 75

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