International Business: The New Realities 5th edition by S Tamer Cavusgil test bank
AACSB: Analytical Thinking
45) For internationalizing firms, the consequences of poor business management decisions are usually more costly when mistakes occur abroad than when they occur at home.
Answer: TRUE
Diff: 1: Easy
Skill: Concept
Objective: 1-2: Understand how international business differs from domestic business
AACSB: Analytical Thinking
46) In a short essay, explain the cross-cultural risk faced by internationalizing firms. What causes this type of risk? Why might it pose a problem for internationalizing firms?
Answer: Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. Cross-cultural risk arises from differences in language, lifestyles, mind-sets, customs, and religion. Values unique to a culture tend to be long-lasting and transmitted from one generation to the next. These values influence the mind-set and work style of employees and the shopping patterns of buyers. Foreign customer characteristics differ significantly from those of buyers in the home market.
Language is a critical dimension of culture. In addition to facilitating communication, language is a window on people's value systems and living conditions. When translating from one language to another, it is often difficult to find words that convey the same meanings. Such challenges impede effective communication and cause misunderstandings. Miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers.
Diff: 2: Moderate
Skill: Concept
Objective: 1-2: Understand how international business differs from domestic business
AACSB: Application of Knowledge
47) In a short essay, discuss how international firms manage the four types of international business risk. Provide an example that illustrates the process of risk management.
Answer: When they undertake international business, companies are routinely exposed to four major types of risk. These are: cross-cultural risk, country risk, currency risk, and commercial risk:
1. Cross-cultural risk: A situation or event where a cultural misunderstanding puts some human value at stake.
2. Country risk: Potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country.
3. Currency risk: Risk of adverse fluctuations in exchange rates.
4. Commercial risk: Firm's potential loss or failure from poorly developed or executed business strategies, tactics, or procedures.
The four types of international business risks are omnipresent; the firm may encounter them around every corner. Some international risks are extremely challenging. One example is global financial disruptions. The Greek debt crisis has now lingered on for several years and affects not only the European Union but creditors elsewhere.
Although risk cannot be avoided, it can be anticipated and managed. Experienced international firms constantly assess their environments and conduct research to anticipate potential risks, understand their implications, and take proactive action to reduce their effects.
Diff: 1: Easy
Skill: Concept
Objective: 1-2: Understand how international business differs from domestic business
AACSB: Application of Knowledge
48) Businesses that directly initiate international business transactions are known as ________.
A) focal firms
B) fiscal enterprises
C) fiduciary trusts
D) business affiliates
Answer: A
Diff: 1: Easy
Skill: Concept
Objective: 1-3: Identify major participants in international business
AACSB: Analytical Thinking
49) The Coca-Cola Company is an example of a(n) ________.
A) born global firm
B) SME
C) multinational enterprise