Chapter 6

Question 1

Sovereignty

Answer 1

Refers to both the powers exercised by a state in relation to other countries and the supreme powers exercised over its own members. So it sets its own rules regarding citizenship , trade, movement of people or goods across borders and citizens are subject to this law beyond national borders.

Question 2

A sovereign state

Answer 2

Independent and free from all external control, enjoys full legal equality with other states, governs it’s own territory, selects its own political, economic, social systems & has the power to enter agreements with other nations.

Question 3

What are the Forms of Governments?

And the greek saying :

Answer 3

Monarchy (dictatorship)
Aristocracy (oligarchy)
Democracy

Rule by one, rule by few , rule by many

Question 4

Examples of Sharing Sovereignty

Answer 4

Membership in: 
NAFTA
EU
NATO
WTO

Question 5

What are the political risks of global business?

Answer 5

Confiscation
Expropriation
Domestication
Nationalization

Question 6

Describe the stability of government policies

Answer 6

Radical shifts in government philosophy can occur when:
An opposing political party ascends to power
Pressure from nationalist and self-interest groups
Weakened economic conditions
Bias against foreign investment or conflicts between governments

Question 7

Describe instability of governments and policies

Answer 7

Some forms of government seem to be inherently unstable (e.g. Coalition governments)
Changes in political parties during elections can have major effects on trade conditions
Nationalism
Animosity targeted toward specific countries
Trade disputes

Question 8

What are some economic risks that international businesses face and few can avoid?

Answer 8

Exchange Controls
Local Content Laws
Import Restrictions
Tax Controls
Price Controls
Labor Problems

Question 9

What is a political sanction and what are three examples?

Answer 9

Cuban crisis of the 1960s
The Iranian revolution in the 1980s
The Persian Gulf War in the 1990s

Question 10

What are some political vulnerabilities?

Answer 10

Changes in Government Policies – banned products
Politically Sensitive Products – fast food
Politically Sensitive Issues – Franken foods
U.S. Lodges WTO Complaint against Europe over GM Food
Political Risk due to change in government

Question 11

How could you forecast poltical risk?

Answer 11

Monitor changes
Subscribe to reports that asses political risk
Device an early warning system
Develop contingency plans
Build a database of past political events for use in predicting future
Risk insurance?

Question 12

How can a firm lessen political risk ?

Answer 12

Joint Ventures
Control Marketing and International Distribution
Expanding the investment base
Licensing
Planned Domestication
Political Bargaining
Political Payoffs
Be a good corporate citizen

Question 13

What does a good relation between government and MNC look like?

Answer 13

improves the balance of payments by increasing exports or reducing imports through import substitution

uses locally produced resources

transfers capital, tech, and or skills

creates jobs

makes tax contributions

Question 14

why do governments encourage foreign direct investment (FDI)

Answer 14

The key reason to encourage foreign investment is to accelerate the country’s economic growth

Question 15

How do governments provide incentives for foreign direct investment (FDI)

Answer 15

Provide incentives for Foreign Direct Investment (FDI)
Tax holidays
Free land, roads, schools

Question 16

How do governments remove disincentives for foreign direct investment (FDI)

Answer 16

Remove disincentives for FDI
  Red tape
  Government guarantees
  Political Stability
  Local-content requirement
  Export requirements

Question 17

What are other encouragement of global business by us gov?

Answer 17

Export Promotion by the Dept. of Commerce
Export-Import Bank
Insurance against political risk
Agency for International Development (AID)
“USAID provides economic and humanitarian assistance in more than 100 countries to provide a better future for all.”
Protection against political risk for “essential” projects

Question 18

Exchange Controls

Answer 18

Exchange Controls This happens when there is a shortage of foreign exchange in the country and the government restricts the spending in foreign currency. This may result in the imposition of differential exchange rates for different products entering the country

Question 19

Local Content Laws

Answer 19

Local Content Laws All countries and regions may have local content laws, for example NAFTA has a 62.5% local content requirement for cars originating from the NAFTA region, the EU has a 45% local content requirement so that it forces companies to use local components.

Question 20

Import Restrictions

Answer 20

Import Restrictions Countries may impose import restrictions to protect local farmers or industries, but this may be detrimental to the local economy if it interrupts production in certain industries.

Question 21

Tax Controls

Answer 21

Tax Controls Taxes that are imposed on foreign companies but not on domestic companies and caused their products to be more expensive in the country because it is passed on to the consumer.

Question 22

Price Controls

Answer 22

Price Controls Countries can impose price controls on foreign companies selling essential products such as food or gasoline, especially during inflationary periods.

Question 23

Labor Problems

Answer 23

Labor Problems Unionism and labor laws are different in different countries and there are especially strict rules for laying off employees by foreign companies. China’s new labor laws have been revamped and require foreign companies to provide a lot more benefits as well as lifelong employment after a certain number of years of service.

Question 24

nationalism

Answer 24

An intense feeling of national pride and unity

This pride can take an anti-foreign business bias where minor harassment and controls of foreign investment are supported. National interest and security are more important than international relations.

Question 25

expropiation

Answer 25

When the government seizes an investment but makes some reimbursement of assets.

In 2008 the Chavez regime in Venezuela expropiated Mexico’s CEMEX operations, paying a negotiated price. Often the expropiated investment is nationalized, that is, it becomes a government run entity.

Question 26

domestication

Answer 26

This occurs when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees that mandate local ownership and greater national involvement in a company’s management.