Question 1

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

Accepted Answer

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.

Accepted Answer

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.

Accepted Answer

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.

Accepted Answer

Micro risk issues often take such forms as industry regulation, taxes on specific types of business activity, and restrictive local laws. The essence of these micro risk issues is that some MNCs are treated differently from others, thus increasing the cost of doing business for some.

Question 5

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

Accepted Answer

There are three sectors of economic activity: (1) the primary sector, which consists of agriculture, forestry, and mineral exploration and extraction; (2) the industrial sector, consisting of manufacturing operations; and (3) the service sector, which includes transportation, finance, insurance, and related industries.

Question 6

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

Accepted Answer

Alliances are an arena where both value-claiming activities (competitive, distributive negotiation) and value-creating activities (collaborative, integrative negotiation) take place.

Question 7

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

Accepted Answer

Both domestic and international political developments have a major impact on MNCs' strategic 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.

Accepted Answer

In fact, 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.

Accepted Answer

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 MNC than other investments.

Question 10

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

Accepted Answer

Some kinds of local knowledge cannot be internalized simply as a result of an MNC entering and operating in a foreign market; acquisition of some kinds of local knowledge requires local firm participation.

Question 11

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

Accepted Answer

Applied to international management, political risk is the unanticipated likelihood that an MNC'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.

Accepted Answer

Typically, terrorists target business areas or businesses that have high status or those that have great influence on initiating change. While terrorists now use an extensive array of attack methods, they tend to avoid institutions with high security; most attacks on private businesses are either driven by the amateur terrorist or those that are religiously motivated.

Question 13

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

Accepted Answer

Another approach is micro political risk analysis, which 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.

Accepted Answer

These mandates can include specific requirements that investors select local state-owned firms (China) or that investors form joint ventures to meet local regulatory requirements where restrictions or local-content rules apply (Central and Eastern Europe).

Question 15

Comprehensive political strategies are most important in stable policy environments.

Accepted Answer

Comprehensive strategies are especially important in unstable and transitional policy environments.

Question 16

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

Accepted Answer

Operational risks result from government policies and procedures that directly constrain the management and performance of local operations. Examples include price controls, financing restrictions, export commitments, taxes, and local sourcing requirements.

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.

Accepted Answer

Vietnam had passed a domestic enterprise law and investment law easing and clarifying foreign investment and business rules, including those pertaining to joint ventures, signed a trade agreement with the United States, and, in 2005, joined the WTO.

Question 18

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

Accepted Answer

As mentioned in Chapter 9, alliances and joint ventures can significantly improve the success of MNC entry and operation in many international markets, especially emerging economies.

Question 19

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

Accepted Answer

Differences in the cultural backgrounds of partners can potentially cause problems in alliances. One study tried to determine whether some differences are more disruptive than others. The researchers found that differences in uncertainty avoidance and in long-term orientation, in particular, cause problems (see Chapter 4 for cultural dimensions). These differences have a negative impact on survival and decrease the likelihood that firms will enter a foreign country through an alliance rather than a wholly owned subsidiary. Apparently, these differences, which translate into differences in how partners perceive and adapt to opportunities and threats in their environment, are more difficult to resolve than differences in other cultural dimensions. Perhaps cultural differences in power distance, individualism, and masculinity are more easily resolved because they are mainly reflected in different attitudes toward the management of personnel-something firms can make explicit.

Question 20

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

Accepted Answer

Ownership-control risks are embodied in government policies or actions that inhibit ownership or control of local operations. Examples include foreign-ownership limitations, pressure for local participation, confiscation, expropriation, and abrogation of proprietary rights.

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

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

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.

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

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

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

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

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

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.

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.

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

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

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

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

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.

Comprehensive political strategies are most important in stable policy environments.

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

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.

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

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

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