IB-CHAPTER-2.2

STUDY QUESTION 2: What is the collectivist orientation and how does it influence how governments intervene in the economy? 5. In a country that emphasizes collectivism, ________. a. the interests of the individual are more important than the interests of the state b. one person or political party exercises absolute control over the political and economic systems c. the needs of society and the needs of individuals are treated as equally important d. the needs of society take precedence over individual freedoms (d; p. 102; Application; Moderate) {AACSB: Multicultural and Diversity} 6. Select from the following types of philosophical orientations that which champions the idea that the right of an individual or business to do something may be restricted because it threatens the common welfare of society. a. liberalism b. socialism c. collectivism d. individualism (c; p. 101; Concept; Easy) 7. Political systems based on the ________ paradigm, such as those of Japan and China, promote the principle that government may intervene to ensure that business practices benefit society. a. individualistic b. collectivistic c. freedom d. community (b; p. 101; Concept; Easy) {AACSB: Multicultural and Diversity} 8. Managers commonly assess political systems in terms of two related dimensions. One concern is the emphasis given to the ideas of democracy versus totalitarianism. The other concern looks at the degree to which a country emphasizes the ________. a. ideas of individualism versus collectivism b. ideas that are individualistic versus representative c. ideas that stress the common good of communities versus collectives d. ideas that are liberal versus pluralistic (a; p. 101; Application; Moderate) 54 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

19. Totalitarianism is a political ideology that involves elimination of dissent within the system. Methods used by totalitarian governments commonly include which of the following? a. propaganda and persecution b. constructive conflict c. a free press d. open access to foreign information (a; p. 105; Concept; Moderate) 20. An emergent form of totalitarianism such as we see to a considerable degree in modern- day China, Russia, Egypt, and Iran generally grants individuals some degree of ________ but restricts individuals’ ________ on the grounds that the latter tends to create social and civil unrest. a. social rights ; economic liberty b. cultural liberties ; political integrity c. economic freedom ; political freedom d. forms of expression ; economic freedom (c; p. 105: Application; Moderate) {AACSB: Analytic Skills} STUDY QUESTION 6: What are the types of a totalitarian political system? What differentiates them from each other? 21. The four major forms of totalitarianism are ________. a. authoritarian, fascist, secular, and theocratic b. democratic, liberal, theocratic, and fascist c. secular, communal, decentralized, and multiparty d. communist, theocratic, social, and authoritarian (a; p. 107; Concept; Moderate) 22. A secular totalitarian government is a ________. a. dictatorship established by a religious group b. system in which individuals elect an elite group of leaders to make decisions for the society as a whole c. dictatorship that is established without any affiliation to religious groups or ideologies d. system in which all resources and production are managed by the government (c; p. 107; Concept; Moderate) 23. An authoritarian form of totalitarianism as seen to a large degree in modern day China generally permits individual _____ but restricts individual political freedom on the grounds that the latter would lead to the rise of social and civil unrest. a. forms of expression b. cultural liberties c. social rights d. economic freedom (d; p. 111; Concept; Moderate) 24. A political system that uses the power of the state to merge and forcibly control all aspects of the business environment is known as _________. a. Fascism 57 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

32. Select the correct order, going from low to high total impact on an MNE, of the following types of political risk: (1) procedural political risk, (2) systemic political risks, (3) distributive political risks, (4) catastrophic political risks. a. 3, 2, 1, 4 b. 1, 2, 3, 4 c. 2, 3, 4, 1 d. 2, 1, 3, 4 (a; p. 113; Application; Challenging) {AACSB: Analytic Skills} STUDY QUESTION 9: What are the characteristics of an active versus passive approach to managing political risk? 33. The premise for active political risk management is the notion that positive and negative political events in any nation are ________. a. interdependent and occasional b. mostly interrelated and unpredictable c. neither independent nor random d. independent and occasional (c; p. 114; Concept; Moderate) 34. Which of the following statements about approaches to political risk management is not true? a. Passive political risk management discourages managers from fully or partially hedging their bets against exposure to political hazards. b. Passive political risk management assumes that it is difficult, if not impossible, to systematically model political risk. c. Active political risk management assumes that positive and negative political events in any country are neither independent nor random events. d. Active political risk management assumes that political events unfold in observable patterns that statistical methods can detect. (a; p. 114; Concept; Moderate) 35. The Overseas Private Investment Corporation helps U.S. companies make foreign direct investments in emerging overseas markets by offering ________. a. cultural analysis b. social assessment c. legal guidance d. political risk insurance (d; p. 114; Concept; Moderate) 60 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

46. While managers face many legal considerations when operating internationally, presently the key legal challenge involves ________. a. navigating between the danger of submitting to the “rule of man” and the danger of assuming that some form of the “rule of law” always prevails b. the dilemma of whether to respond first to operational or strategic regulations c. identifying the best operating practices in a global environment increasingly oriented toward the idea of the rule of man d. identifying from country to country those individuals who stand above the law (a; p. 119; Concept; Moderate) {AACSB: Multicultural and Diversity} 47. Presently, managers typically find that the rule of law is prevalent in ________. a. well-to-do industrialized countries b. countries whose economies are geared toward the service sector c. emerging economies experiencing rapid growth d. a random assortment of countries who are biased toward totalitarian standards of government (a; p. 121; Concept; Moderate) {AACSB: Multicultural and Diversity} STUDY QUESTION 13: How does a country's legal system affect operational aspects of the local business activity of domestic and foreign companies? 48. Laws on local business activities directly influence the operations of domestic and foreign companies in areas such as ________. a. ethical standards and consumerism ideals b. charitable activities c. consumer ideals d. employment practices, contractual relationships, and business formation (d; p. 122; Concept; Moderate) 49. Countries with a ________ legal system tend to encourage precise, detailed contracts, whereas countries with a ________ legal system tend to encourage shorter and less specific contracts. a. theocratic, mixed b. common, civil c. civil, customary d. customary, common (b; p. 124; Concept; Challenging) 50. Reports suggest ________ between the per capita income of a country and its tendency to regulate business activity. a. a direct relationship b. no relationship c. an inverse relationship d. a varying relationship (c; p. 124; Concept; Moderate) 51. Richer countries tend to regulate business activity ________, whereas poorer countries tend to regulate business activity ________. a. unpredictably; predictably 63 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

60. The relationship between intellectual property rights and violations, principally in the form of intellectual piracy, imposes high costs and extreme risks. Identify which of the following is not an example of these costs or risks. a. distributes safer merchandise that poses few personal threats b. accelerates the rate of lost sales and ruined brand reputation c. requires more extensive policing and legal proceedings d. encourages managers to engage in intellectual piracy in countries that have vague regulations (a; p. 126; Application; Challenging) {AACSB: Ethical Reasoning} 61. Which of the following statements referring to intellectual property rights and violations is incorrect ? a. Richer countries claim looser regulation of intellectual property rights will slow, if not halt, innovation. b. Historically, the number of International Patent Applications, particularly during the period 1978–2001, has grown slowly. c. The International Anti-Counterfeiting Coalition estimates international trade in counterfeit products at $500 billion a year, or about 9 percent of the value of world trade. d. Developing markets claim tougher regulation of IPRs will slow, if not halt, their economic development (b; p. 129; Concept; Challenging) {AACSB: Multicultural and Diversity} 62. The piracy of intellectual property rights ________. a. involves losses that are not considered extensive in industrialized countries b. is combated most zealously by lesser developed countries c. can both benefit and harm consumers d. usually benefits the property holder (c; p. 127; Application; Moderate) {AACSB: Ethical Reasoning} 63. All of the following are reasons piracy has occurred except ________. a. technology allows copyrighted material to be reproduced cheaply without much loss of quality b. some countries offer little protection for certain products c. in some cultures, people see little morally wrong in buying counterfeit goods d. the protection of intellectual property rights varies little from country to country (d; p. 129; Concept; Moderate) {AACSB: Ethical Reasoning} 66 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

STUDY QUESTION 6: What are the types of a totalitarian political system? What differentiates them from each other? 78. Four major forms of totalitarianism exist in the world today. These are secular totalitarianism, authoritarianism, fascism, and theocratic totalitarianism. (True; p. 107; Concept; Easy) {AACSB: Multicultural and Diversity} 79. Secular totalitarianism is found in states where political power is monopolized by a party, group, or individual that governs according to religious principles. (False; p. 107; Concept; Easy) STUDY QUESTION 7: What sorts of political systems exist in the world today? What conditions have spurred political change? How do political systems change and evolve? 80. Presently, more people live in countries with elected democratic governments than at any other time in history. (True; p. 108; Concept; Moderate) {AACSB: Multicultural and Diversity} 81. The general movement toward democracy and open economies inevitably leads to the homogenization of political systems around the world. (False; p. 108 Concept; Easy) {AACSB: Multicultural and Diversity} STUDY QUESTION 8: What is meant by political risk ? What are the major causes and costs of political risk? 82. Political risk is the chance that political decisions, events, or conditions in a country will lead to a higher than projected rate of return for a company's investments. (False; p. 113; Concept; Easy) 83. Four major forms of political risk affect the operations of MNEs. These are systemic political risks, procedural political risks, distributive political risks, and catastrophic political risks. (True; p. 113; Concept; Easy) STUDY QUESTION 9: What are the characteristics of an active versus passive approach to managing political risk? 84. Managers who take an active approach are likely to rely on statistical modeling to quantify the precise degree of political risk. (True; p. 114; Concept; Moderate) 85. Companies that see political risk as an unpredictable hazard of international business and seek cost-effective measures are more likely to take an active approach to managing it. (False; p. 114; Application; Moderate) {AACSB: Reflective Thinking} 69 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

STUDY QUESTION 1: What is the individualistic orientation and how does it influence how governments intervene in the economy? STUDY QUESTION 2: What is the collectivist orientation and how does it influence how governments intervene in the economy? 102. Discuss the relationship between individualistic and collectivist paradigms and the roles of governments. The individualistic paradigm represents minimal intervention in the economy. As such, it endorses the principle that political officials and agencies play limited roles in social transactions. The individualistic paradigm states a belief in regulation, and individualistic governments are likely to be democratic and economically free. They will handle market defects, such as entry barriers and insufficient consumer knowledge and power, but they will not intervene too much. Furthermore, when competition is constrained or absent, government can ensure fair competition by instituting laws to regulate the marketplace. Basically, countries with an individualistic orientation encourage business to support the good of the community by promoting fair and just competition. It is important to note that government officials operating in an individualistic context will generally rely on the rule of law to guide their policies and anchor their decisions. Ultimately, because government remains independent of day-to-day business practices, the relationship between government and business is often adversarial. In contrast, political systems that feature a collectivist orientation, such as those of Japan and China, promote the principle that government may intervene in certain cases—namely, those involving the structure of industries, the conduct of companies, and the actions of managers—to ensure that business practices benefit society. Typically, governments in collectivistic societies thrive on a respected, centralized bureaucracy with a stable political party or coalition in power. Hence, in terms of this preference, rather than relying on arm’s- length transaction and regulation, officials prefer to establish both formal and informal relationships within the business community. Ultimately, government in a collectivist society is connected to and interdependent with business; relations between the two sectors are often cooperative. (p. 101; Application; Moderate) {AACSB: Multicultural and Diversity} 72 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

STUDY QUESTION 3: What is a political ideology? 103. What does the idea of political ideology refer to? How does it affect international business? A political ideology is the body of constructs, theories, and aims that constitute a sociopolitical program. The liberal ideology of the Democratic Party and the conservative ideology of the Republican Party in the United States are examples of political ideologies. Most modern societies are pluralistic politically, meaning different ideologies coexist because there is no one ideology that everyone accepts. Managers from the United States, where there are only two key political parties, might find it difficult to understand the political environment in a country where there are many different ideologies even within the political parties themselves. This makes it difficult for the manager to determine how to articulate the firm's interests and how to influence policy-making. (p. 102; Application; Moderate) {AACSB: Analytic Skills} STUDY QUESTION 4: What are the fundamental features and elements of a democracy? STUDY QUESTION 5: What are the fundamental features and elements of a totalitarian system? 104. In a short essay, discuss the differences between democratic and totalitarian political systems. Democracy basically involves wide participation by citizens in a decision-making process. Or as the text notes, Abraham Lincoln, the sixteenth president of the United States, saw democracy is a government “of the people, by the people, and for the people.” Practically speaking, a democracy is a political system that endorses the rule of law and grants the voting citizenry the power to alter the laws and structures of government, to make all decisions (either directly or through representatives), and to participate in elections that express their decisions. These are the principles and practices that enable a democracy to institutionalize political freedoms and civil liberties. As a result, democracy is typically represented by a high level of civil liberties, such as freedom of opinion, expression, and the press. In a totalitarian system, a single agent—whether an individual, group, or party— monopolizes political power and tries to mobilize the population toward two ends: unquestioning support for the official state ideology and opposition to activities that run counter to the goals of the state. The ideological standards of totalitarianism require agents of the government to eliminate dissent within the system. In dramatic contrast to the democratic ideal of freedom, totalitarianism enforces restrictions that subordinate the day- to-day life of people—including occupation, income, personal interests, religion, and even family structure—to the interests of the state persecution, surveillance, propaganda, censorship, and violence. Consequently, there is little to no political freedom and few, if any, civil liberties. (p. 103; Concept; Moderate) {AACSB: Multicultural and Diversity} 73 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

STUDY QUESTION 8: What is meant by political risk ? What are the major causes and costs of political risk? 105. What is meant by political risk? Investing overseas exposes a company to the risks that arise from the quirks of international politics or, as commonly called, political risk. Generally, political risk is the chance that political decisions, events, or conditions in a country will affect the business environment in ways that lead investors to (1) lose some or all of the value of their investment or (2) be forced to accept a lower than projected rate of return. Although political risks can occur in democratic as well as totalitarian political regimes, they tend to be more prevalent in totalitarian regimes. (p. 112; Concept; Easy) STUDY QUESTION 10: What is the role and function of a legal system? 106. Identify the three common components of modern legal systems and explain their relevance to managers. Unquestionably, legal systems differ from country to country, primarily because of differences in tradition, precedent, usage, custom, or religious precepts. Even so, the purpose of every legal system is to establish a comprehensive legal network to regulate social activities. As such, modern legal systems share three components to achieve this goal, specifically: • A system of constitutional law designed to guarantee an open and just political order • A system of criminal law designed to safeguard the social order • A system of civil and commercial laws designed to ensure fairness and efficiency in business transactions. Finally, it is useful to note that aspects of all three components bear on the decisions made by managers and foreign investors. Certainly, differences in each will adjust how managers see the legal system in a particular country. Still, they can take confidence in the fact that when the legal system is functioning well, no matter how it blends these three components, it ensures that a society can pursue economic and social development and, when disagreements arise, resolve them without collapsing into anarchy. (p. 116; Concept; Moderate) {AACSB: Multicultural and Diversity} 74 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

STUDY QUESTION 11: What are the principal types of legal systems? 107. Contrast common law, civil law, customary law, and theocratic law. a. Common law—The United States and the United Kingdom are examples of countries with a common law system. Common law is based on tradition, precedent, custom, and usage. The courts fulfill an important role in interpreting the law according to those characteristics. In a common law country, contracts tend to be detailed, with all contingencies spelled out. b. Civil law—Civil law is based on a detailed set of laws that make up a code. Rules for conducting business transactions are a part of the code. More than 70 countries, including Germany, France, and Japan operate on a civil law basis. In a civil law country, contracts tend to be shorter and less specific because many of the issues that a common law contract would cover already are included in the civil code. c. Customary law— A customary law system anchors itself in the wisdom of daily experience or, more intellectually, great spiritual or philosophical traditions. Few countries in the world today operate under a legal system that is wholly customary. Still, customary laws sometimes play a significant role, namely in matters of personal conduct, in many countries with mixed legal systems. d. Theocratic law—A theocratic law system relies on religious and spiritual principles to define the legal environment. Religious leaders hold ultimate legal authority, applying religious law to govern social transactions. The best example of this system is Islamic law, which is prevalent in Muslim countries. (p. 116; Concept; Moderate) {AACSB: Multicultural and Diversity} STUDY QUESTION 12: What are some of the powerful legal trends unfolding in the world today? Distinguish between the ideas of the rule of man versus the rule of law. 75 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674

108. Compare and contrast the ideas of the rule of law and the rule of man. The rule of man has been around for millennia, in the sense that for much of history, the ruler and the rule were synonymous. The law was the will of the ruler, whether in the person of the king, czar, raj, caliph, or emperor. Regardless of the title used today, such as chairman, general, supreme leader, the principle places ultimate power in the hands of one person, making his (or her) word and will (and whim) law, no matter how unfair, unjust, or nonsensical. Because it grants inherent authority for the ruling party to act without being subject to checks and balances, the rule of man principle is a keystone of totalitarian government. The rule of law, in contrast, rejects the notion of an omnipotent leader arbitrarily ruling society. Instead, the rule of law, a hallmark of democracy, holds that governmental authority is legitimately exercised in accordance with written, publicly disclosed laws that have been appropriately adopted and are enforced in keeping with established procedure. Ideally, the rule of law institutes a just political and social environment, guarantees the enforceability of commercial contracts and business transactions, and safeguards personal property and individual freedom. Everyone who lives under it expects every legitimately enacted law, code, and statute to be grounded in and validated by the principles of the rule of law. No individual—whether public official or private citizen—stands above the law. Indeed, perhaps the primary purpose of the principle of the rule of law is to regulate and restrain the behavior of men and women, parties, juntas, clans, and dynasties that aspire to govern in its place. (p. 119; Application; Moderate) {AACSB: Analytic Skills} 76 Downloaded by K60 Nguy?n Th? Thanh Hà (k60.2113253003@ftu.edu.vn) lOMoARcPSD|11098674