Chapter 12 – International Business Negotiation and Diplomacy
Multiple Choice Questions
CONTRAST THE BARGAINING AND THE HIERARCHICAL VIEWS CONCERNING THE TERMS BY WHICH COMPANIES CAN OPERATE IN FOREIGN COUNTRIES.
1. Which of the following best describes the theory that the negotiated terms for a foreign investor’s operations depend on how much the investor and host country need each other’s assets?
a. bargaining school theory (moderate, page 350)
b. adaptation theory
c. digression theory
d. diversion theory
2. The bargaining relationship between companies and governments principally depends on whether the parties see agreements as _______________ or _______________.
a. negative-sum; positive-sum
b. zero-sum; positive-sum (moderate, page 350)
c. zero-sum; negative-sum
d. lateral-sum; vertical-sum
3. In which of the following would relationships likely conflict because the parties think they lose by making any concessions?
c. zero-sum (moderate, page 350)
4. In which of the following would the relationship be seen as a partnership of cooperation and interdependence?
d. positive-sum (moderate, page 350)
WHAT ARE THE MAIN SOURCES OF BARGAINING STRENGTH FOR COUNTRIES WHEN NEGOTIATING WITH FOREIGN DIRECT INVESTORS?
5. Te biggest bargaining strengths for countries are _______________ and ______________.
a. large markets; political stability (moderate, page 350)
b. strong currency; political stability
c. political stability; low inflation
d. large markets; low inflation
6. Generally, companies prefer to establish investments in developed countries because those countries offer _______________ and _______________.
a. strong currency; political stability
b. large markets; political stability (moderate, page 350)
c. political stability; low inflation
d. large markets; low inflation
7. Foreign ownership in _______________ and _______________ sectors is not very welcome in many countries because of historical foreign domination of these sectors and enduring beliefs about public resources.
a. service; manufacturing
b. automobile; manufacturing
c. agriculture; extractive (moderate, page 350)
d. retail; restaurant
WHAT ARE THE MAIN SOURCES OF BARGAINING STRENGTH FOR COMPANIES WHEN NEGOTIATING WITH FOREIGN GOVERNMENTS?
8. All of the following are examples of company bargaining assets EXCEPT:
a. marketing expertise
b. ability to export output
c. local product diversity
d. low labor needs (easy, page 351)
9. Since the 1980s, many developing countries _______________ have pushed them to depend more on FDI inflows for their future capital needs.
a. debt-servicing challenges (moderate, page 351)
b. cultural diversity challenges
c. political unity challenges
d. environmental challenges
10. Which of the following is NOT one of the primary assets foreign investors use to command a strong bargaining position in foreign operations when they have few competitors?
a. process technology
b. organizational culture (moderate, page 351)
c. marketing expertise
d. product diversity
HOW DO JOINT COMPANY ACTIVITIES ALTER THE BARGAINING STRENGTH BETWEEN COMPANIES AND FOREIGN GOVERNMENTS?
11. To counter too high a dependence on foreign companies, countries have encouraged joint company activities so as to do all of the following EXCEPT:
a. lessen dependence on foreign companies
b. diversify the degree of risk
c. create more jobs for expatriates (moderate, page 351)
d. deal more strongly with governments
12. Which of the following is the most notable effort of countries giving governmental assistance for R&D as well as favoritism for governmental contracts in order to counter dependence on foreign competitors?
a. General Motors
c. Airbus Industrie (moderate, page 351)
13. Which of the following statements regarding joint company activities and the bargaining strength between companies and foreign governments is FALSE?
a. Investing a larger amount in a given locality permits each company to invest in more countries, thereby reducing the impact of loss in one. (difficult, page 351)
b. Preventing extreme dependence on foreign companies often prompts countries to encourage their own manufacturers to consolidate operations.
c. Officials have granted governmental assistance for R&D and given preference to their own companies in awarding governmental contracts.
d. Sometimes, two or more companies from different countries invest jointly abroad, not so much to strengthen the initial negotiating terms as to improve their positions in later negotiations.
LIST SOME OF THE INVESTMENT INCENTIVES GOVERNMENTS SOMETIMES OFFER FOREIGN INVESTORS. WHAT ARE THE PROBLEMS COMPANIES CAN ENCOUNTER WHEN THEY ACCEPT THESE INVESTMENT INCENTIVES?
14. All of the following are examples of direct incentives that countries often offer foreign investors EXCEPT:
a. R&D grants and incentives
b. labor laws that forbid work disruption (moderate, page 352)
c. accelerated depreciation schedules
d. exemption of import duties
15. Countries also provide _______________ incentives, which include a trained labor force and labor laws that prevent work disruptions.
c. indirect (moderate, page 352)
16. The typical foreign investments in developing countries were largely in which of the following sectors?
a. manufacturing sector
b. retail sector
c. automobile sector
d. utility sector (moderate, page 352)
HOW DO RENEGOTIATIONS BETWEEN HOST GOVERNMENTS AND INVESTORS DIFFER FROM ORIGINAL NEGOTIATIONS?
17. _______________ are a means by which a company may initiate, carry on, or terminate operations in a foreign country.
a. Negotiations (moderate, page 355)
18. All of the following are arrangements where negotiations are effective EXCEPT:
a. licensing agreements
b. determining exchange rates (moderate, page 355)
c. debt repayment schedules
d. large-scale export sales
19. Which of the following terms best describes the following example? “An MNE reaches an agreement with a local company to purchase an interest in a product or company, but the MNE may need to negotiate with its home government to transfer technology or borrow funds.”
a. multilevel marketing
c. multitiered bargaining (difficult, page 355)
20. In the bargaining process, agreement occurs only if there are:
a. overlapping cultural zones.
b. overlapping situational zones.
c. no overlapping acceptance zones.
d. overlapping acceptance zones. (moderate, page 355)
WHAT CULTURAL AND LANGUAGE PROBLEMS INHIBIT INTERNATIONAL NEGOTIATIONS?
21. Which of the following DOES NOT represent cultural differences among negotiators?
a. Some negotiators are experienced; others are inexperienced. (moderate, page 356)
b. Some negotiators are decision makers; some are not.
c. Some negotiators take a pragmatic view; others take a holistic view.
d. Some negotiator are trusting, while others are less so.
22. Individual negotiators from some countries are more likely to have the power to make decisions than their counterparts from some other countries, in part because of:
a. differences between pragmatist cultures and idealist cultures.
b. differences between individualist and collectivist societies. (moderate, page 356)
c. differences from cultures with high trust and cultures with low trust.
d. differences from monochromic cultures and polychronic cultures.
23. Negotiators from _______________ cultures want to get to the heart of the matter quickly, whereas negotiators from _______________ cultures want to spend time developing rapport and trust before addressing business details.
a. individualistic; collectivist
b. pragmatist; idealistic
c. low-context; high-context (moderate, page 356)
d. monochromic; polychronic
24. Negotiators from _______________ cultures attempt to separate the issues into small categories, whereas negotiators from _______________ cultures view negotiations more holistically.
a. individualistic; collectivist
b. low-context; high-context
c. monochromic; polychronic
d. pragmatist; idealistic (moderate, page 356)
WHAT DIFFERENT CULTURAL STRATEGIES CAN COMPANIES FOLLOW WHEN NEGOTIATING WITH FOREIGN COUNTERPARTS OR FOREIGN GOVERNMENTS?
25. Generally, a company’s best bargaining position exists:
a. before a company invests in a foreign country. (moderate, page 357)
b. during the capital transition process of a company making an investment in a foreign country.
c. after a company invests in a foreign country.
d. as the company transfers capital and equipment to a foreign country.
26. The gradual erosion of an MNE’s bargaining strength as countries gain assets for them is known as the:
a. theory of absolute advantage.
b. theory of the obsolescing bargain. (difficult, page 357)
c. theory of factor endowment.
d. theory of competitive advantage.
27. Which of the following is not is not a method a company can use to improve its bargaining position when making an investment in a foreign country?
a. use plant expansion as a bargaining weapon
b. negotiate that partial earnings go to the host government
c. promise to transfer unskilled labor from abroad (moderate, page 357)
d. use export markets as bargaining weapons
28. In international negotiations, misunderstandings among participants may result from differences in all of the following EXCEPT:
d. none of the above (easy, page 357)
HOW HAVE HOME-COUNTRY GOVERNMENTS HELPED PROTECT THE FOREIGN DIRECT INVESTMENTS OF COMPANIES HEADQUARTERED IN THEIR COUNTRIES?
29. Examples of assets that companies are concerned that foreign countries will appropriate without providing adequate compensation include all of the following EXCEPT:
a. management expertise (easy, page 359)
30. Historically, more foreign investment disputes concerned _______________, particularly in developing countries.
b. expropriation (moderate, page 359)
d. import tariffs
31. Which of the following best describes the concept of home countries ensuring through military force and coercion that host governments would give foreign investors prompt, adequate, and effective compensation in cases of expropriation?
a. theory of absolute advantage
b. theory of comparative advantage
c. international standard of fair dealing (moderate, page 359)
d. theory of competitive advantage
WHAT IS DEPENDENCIA THEORY?
32. (The) _______________ holds that developing countries, as host nations, practically have little to no power when dealing with MNEs.
a. theory of absolute advantage
b. theory of comparative advantage
c. theory of competitive advantage
d. dependencia theory (moderate, page 359)
33. _______________ agreements generally improve the investment climates for investments abroad.
a. Bilateral (moderate, page 360)
34. Home-country insurance to investors often covers losses from all of the following EXCEPT:
a. political violence
b. natural disasters (moderate, page 360)
c. governmental contract cancellation
d. currency control
WHAT ARE INTELLECTUAL PROPERTY RIGHTS (IPRs)?
35. _______________ means a country must grant to foreigners the same property rights that are available to its own citizens.
a. Intellectual property right diversion
b. Intellectual cultural right creation
c. Intellectual property right reciprocity (moderate, page 361)
d. Intellectual cultural right reciprocity
36. Which of the following best describes the first major attempt to achieve cross-national cooperation in the protection of patents, trademarks, and other property rights?
a. The German Convention, initiated in 1883
b. The Brazilian Convention, initiated in 1883
c. The Latin American Convention, initiated in 1883
37. Which of the following gave rise to the International Bureau for the Protection of Industrial Property rights?
b. The German Convention, initiated in 1883
c. The Brazilian Convention, initiated in 1883
d. The Latin American Convention, initiated in 1883
38. The three most important contemporary cross-national patent agreements include all of the following EXCEPT:
a. The Patent Cooperation Treaty of the World Intellectual Property Organization
b. The Cuban Economic Community Patent Convention (moderate, page 361)
c. The European Patent Convention
WHAT FACTORS HAVE LED TO THE INCREASED UNAUTHORIZED USE OF INTELLECTUAL PROPERTY RIGHTS?
39. On the international level, the _______________ and the varying rules and regulations in different countries make keeping up with patents difficult.
a. rapid changes in inflation rates
b. rapid changes in foreign exchange rates
c. rapid development of technology (moderate, page 364)
d. rapid changes in country cultures
40. An example of a brand name that has entered the “public domain” is:
a. Microsoft Windows
c. General Electric.
d. Swiss army knife. (easy, page 364)
41. The Trademark Registration Treaty is also commonly known as:
b. the Latin American Convention.
c. the German Convention.
d. the Cuban Convention.
HOW MIGHT CONSUMERS GAIN OR LOSE THROUGH LACK OF PROTECTION (PIRATING) OF INTELLECTUAL PROPERTY RIGHTS?
42. The term _______________ describes production without the consent of the company holding the patent, trademark, or copyright.
a. cross-national exchange
b. piracy (moderate, page 364)
c. bilateral agreement
d. multilateral agreement
43. All of the following are reasons piracy has occurred EXCEPT:
a. technology allows copyrighted material such as tapes to be reproduced cheaply without loss of quality
b. some countries offer little protection for certain products
c. the devaluation of local currencies has taken place in industrial countries worldwide (difficult, page 364)
d. many people see nothing morally wrong in buying counterfeit goods
44. Which of the following strategies best describes the French luggage manufacturer, Vuitton, which sells registered and numbered goods only in company-owned retail outlets instead of selling through independent retailers?
a. diversification strategy
b. divestment strategy
c. harvesting strategy
d. withdrawl strategy (moderate, page 364)
HOW MIGHT GOOD CORPORATE CITIZENSHIP IN INTERNATIONAL OPERATIONS HELP A COMPANY’S PERFORMANCE?
45. A company’s public relations efforts are often which of the following?
a. defensive (moderate, page 366)
46. An MNE might increase the number of local proponents through all of the following EXCEPT:
a. ownership sharing
b. government subsidies (moderate, page 366)
c. avoiding direct confrontation
d. local management
47. From an ethical standpoint, all of the following questions about information gathering in general might raise issues EXCEPT:
a. Is it collected openly or clandestinely?
b. Is it in the public domain or proprietarily owned by companies?
c. Is it available on the Internet or just through periodicals and magazines? (moderate, page 366)
d. Is it made available to anyone or only
48. In a short essay, discuss the bargaining school theory citing zero-sum and positive-sum gains.
Bargaining school theory holds that the negotiated
terms for a foreign investor’s operations depend on how much the investor and
host country need each other’s assets. If either a
company or a country has assets that the other strongly desires and if there
are few or no alternatives for acquiring them, negotiated concessions may be
very one-sided. The bargaining relationship between companies and governments depends
very much on whether the parties see agreements as zero-sum or positive-sum
gains. In a zero-sum gain situation, relationships may conflict because the
parties think they lose by making any concessions. In a positive-sum gain
situation, the relationship may be seen as a partnership of cooperation and
interdependence. Generally, companies prefer to establish investments in highly
developed countries because those countries offer large markets and a high
degree of political stability. Countries such as the
(moderate, page 350)
49. What are the main sources of bargaining strength for companies when negotiating with foreign governments?
a. Technology—For example, governments have allowed IBM 100% ownership of operations in a number of countries because of the local need for its unique technology. However, they have refused other companies the same ownership. The French government also approved IBM’s minority stake in state-owned Groupe Bull because of the company’s specialized technology.
b. Marketing expertise—For example, Coca-Cola apparently has been able to gain local consumer allies who believe its differentiated products are superior.
c. Ability to export output from the foreign investment, especially when exports go to other entities controlled by the parent company. These investments earn foreign exchange for the country that might otherwise not be forthcoming.
d. Product diversity—Governments will allow more foreign ownership when a company provides greater product diversity, probably because a variety of products can save foreign exchange through import substitution.
(easy, page 351)
50. How do joint company activities alter the bargaining strength between companies and foreign governments?
Preventing extreme dependence on foreign companies often prompts countries to encourage their own manufacturers to consolidate operations. Officials have granted governmental assistance for R&D and given preference to their own companies in awarding governmental contracts. Sometimes, two or more companies from different countries invest jointly abroad, not so much to strengthen the initial negotiating terms as to improve their positions in later negotiations. Investing a smaller amount in a given locality permits each company to invest in more countries, thereby reducing the impact of loss in one. Further, in the event of conflict, a host government may be more hesitant to deal simultaneously with more than one home government.
(moderate, page 351)
51. In a short essay, discuss negotiation in international business citing specific examples supporting the theory of acceptance zones in your answer.
Negotiations are means by which a company may initiate, carry on, or terminate operations in a foreign country. The negotiation process often leads to multitiered bargaining: An MNE may need to reach an agreement with a local company to purchase an interest in it, sell technology or products to it, or loan money to it. That agreement must sometimes be presented to a host-country agency that may approve, disapprove, or propose entirely new terms.
There are zones of acceptance and nonacceptance for the proposals presented. If the acceptance zones overlap, an agreement is possible. If zones have no overlap, positive negotiations are not possible. For example, if GM insisted on 51% ownership of an Indian facility but would accepts up to 100% and the Indian government or partner insisted on 51% local ownership but would accept up to 75%, there would be no overlap of acceptance zones in which to negotiate. However, if Ford insisted on a “significant” interest in an Indian facility (say, 25%) but would take as much as it could get and the Indian government or partner required 51% local ownership and wanted to maximize it, there would be a wide zone acceptable to both parties—for instance—25–49% for Ford’s ownership. The final agreement would depend on each party’s negotiating ability and strengths and on the other concessions that each made in the process.
(difficult, page 353)
52. In a short essay, list at least five problems concessions might bring.
a. companies may face more domestic labor problems because of claims that they are exporting jobs to gain access to cheaper labor
b. the foreign facility may be accused of dumping because of the subsidies given by the host government
c. it may be more difficult to evaluate management performance in the subsidized operation because much of the profits may be due to the incentives, rather than to management performance
d. there is always a risk that promises will be broken
e. foreign-exchange deposits to cover the cost of imports and foreign-exchange payments on loans and dividends
f. limits on payments to the parent for services it provides to its host-country subsidiary
g. requirements to create a certain number of jobs or amount of exports
h. provisions to reduce the amount of equity held in subsidiaries
i. maximum prices on goods sold
j. limits on the use of expatriate personnel and on old or reconditioned equipment
k. control of prices on goods the MNE imports or exports to the host-country subsidiary
l. demands to enter into joint ventures
(moderate, page 355)
53. In a short essay, list the performance requirements aimed at helping host countries reach economic and noneconomic objectives.
The performance requirements aimed at helping host countries reach economic and noneconomic objectives, such as favorable balance of payments, growth, high employment, and local control over important decisions include:
a. foreign-exchange deposits to cover the cost of imports and foreign-exchange payments on loans and dividends
b. limits on payments to the parent for services it provides to its host-country subsidiary
c. requirements to create a certain number of jobs or amount of exports
d. provisions to reduce the amount of equity held in subsidiaries
e. maximum prices on goods sold
f. minimum levels of local input into products manufactured
g. limits on the use of expatriate personnel and on old or reconditioned equipment
h. control of prices on goods the MNE imports or exports to the host-country subsidiary
i. demands to enter into joint ventures
(moderate, page 355)
54. In a short essay, discuss the behavioral characteristics affecting negotiations citing specific cultural areas that lead to possible misunderstanding.
In international negotiations, misunderstandings are a strong possibility because of cultural differences as well as possible language differences. Many of the problems with international negotiations stem from cultural differences that lead to misunderstandings and mistrust. For instance:
a. Individual negotiators from some countries are more likely to have the power to make decisions than their counterparts from some other countries, in part because of differences between individualist and collectivist societies. Negotiators who have the power to make decisions may lose confidence when those counterparts must reach a group decision or keep checking with their head office.
b. Negotiators from low-context cultures want to get to the heart of the matter quickly. Negotiators from high-context cultures want to spend time developing rapport and trust before addressing business details.
c. Negotiators from pragmatist cultures attempt to separate the issues into small categories (getting closure on items in a linear fashion); negotiators from idealistic cultures view negotiations more holistically.
d. Negotiators from cultures with high trust are less prone to want to cover every possible contingency in a contract than negotiators from cultures with low trust.
e. Negotiators from monochromic cultures will want to give their undivided attention to one issue at a time. However, negotiators from polychronic cultures feel uncomfortable if they do not simultaneously take care of other business affairs.
f. Negotiators from cultures that place a high importance on punctuality and schedules are more prone to set deadlines and then make concessions at the last minute to meet the schedules than negotiators from cultures that place less importance on punctuality and schedules. Further, they may underestimate the importance their counterparts place on the negotiations if their counterparts arrive late and don’t stick to schedules.
(difficult, page 356)
55. In a short essay, discuss a company’s best bargaining position when investing in a foreign country citing various tactics a company could use to improve its bargaining position in a foreign country.
Generally, a company’s best bargaining position exists before it makes an investment in a foreign country. Once a company transfers capital and technology abroad and trains local nationals to direct operations, the parent company is needed much less than before. Further, the company now has assets that are not easily moved to more favorable locales. The result is that the host country may be in a better position to extract additional concessions from the company. However, a company that is responsive to the local economy’s changing needs and desires can maintain or even improve its bargaining position by offering additional resources the host country needs. One tactic is to promise to bring in or withhold the latest technology developed abroad. Another tactic is to use plant expansion or export markets as bargaining weapons. In addition, a company and country may exchange benefits, such as a company’s ceding part of its ownership to local interests in exchange for guarantees on remission of its earnings. A host government also may restrain from pushing too hard on companies once they are operating for fear this will make the country less attractive to other companies with which the government would like to do business.
(moderate, page 357)
56. In a short essay, discuss how role-playing helps companies prepare for negotiations and include in your answer a discussion of the “home field” advantage.
Role-playing is a valuable technique for projects requiring approval by a foreign government or agreement with a foreign company. By practicing their own roles and those of the counterpart negotiators—and by researching the country’s culture and history to determine attitudes toward foreign companies—negotiators may be much better able to anticipate responses and plan their own actions. Role-playing presupposes that the company knows who will be negotiating for the other side. Commonly, MNEs use a team approach so that people with the necessary range of functional responsibilities take part in the decision-making. It is also common to use people at different organizational levels at different points in the negotiations. One factor not easily simulated is the stress of being away from family and co-workers for an extended period. Because of this factor, the location of negotiations may give one side or the other an advantage in bargaining. Negotiating in the “home field” gives managers an advantage because they can go home at night, eat familiar food, not have to explain travel expenses to superiors, and more easily take care of other business at the office.
(moderate, page 359)
57. In a short essay, discuss the use of bilateral agreements in asset protection citing specific examples of companies and agencies that are used to protect assets.
To improve foreign-investment climates for their MNEs, many industrial countries established bilateral treaties with other countries. Although these agreements differ in detail, they generally provide home-country insurance to investors to cover losses from expropriation, political violence, governmental contract cancellation, and currency control, and to exporters for losses from nonpayment in a convertible currency. For example, the United States offers policies for small companies through the Small Business Administration and for companies in general through the Overseas Private Investment Corporation (OPIC) and Eximbank. Coverage also is available through private insurers, international agencies such as the World Bank’s Multilateral Investment Guarantee Agency, and some host-country governments. The home country, by approving an insurance contract, agrees to settle investors’ losses on a government-to-government basis. Other types of bilateral agreements include treaties of friendship, commerce, and navigation as well as prevention of double taxation.
(moderate, page 359)
58. What is the dependencia theory?
The dependencia theory holds that developing countries have practically no power in their dealings with MNEs. This theory contends that forceful, will-run MNEs systematically erode the bargaining power of host countries. When the host country tries to challenge the MNE, the latter calls upon the support of their home governments and local elites to protect their privileged positions. Although home-country governments are less prone to provide military intervention, they sometimes use other means to support MNEs, such as trade pressures, aid, and influence with international lending agencies.
(moderate, page 359)
59. In a short essay, discuss the multinational agreements of intellectual property rights (IPRs) citing specific developments in each area of property rights.
a. Intellectual property rights covers both industrial property, such as inventions and distinctive identifications of companies and products, and artistic property, such as books, recordings, films, and computer programs—Companies with substantial intangible assets want protection through enforceable patents, trademarks, and copyrights so that they may gain all the sales and profits because they created the property in the first place. Critics, however, argue that protection costs society dearly through high monopoly prices. Countries differ substantially in their protection of IPRs, through laws and their enforcement. Generally, developing countries offer less protection.
b. Patents—The first major attempt to achieve cross-national cooperation in the protection of patents, trademarks, and other property rights was the Paris Convention, initiated in 1883. This Convention gave rise to the International Bureau for the Protection of Industrial Property Rights. The three most important contemporary cross-national patent agreements are the Patent Cooperation Treaty (PCT) of the World Intellectual Property Organization (WIPO), the European Patent Convention (EPC), and the European Economic Community (EEC) Patent Convention. The PCT and EPC allow companies to make a uniform patent search and application, which they can use to apply for patents in all signatory countries Patent-infringement battles are both costly and complex and may take years to settle. Companies usually change their patents from country to country to meet local needs, and patent infringement is often hard to prove.
c. Trademarks—Companies may spend millions of dollars to develop brand names. If a trademark does not protect a brand name, then other companies may produce under the same brand name. Even if a brand name has a trademark, it may become generic because it takes on the name of a product rather than a brand. It then enters the public domain. One development in cross-national cooperation for trademark protection is the Trademark Registration Treaty, commonly known as the Vienna Convention. According to the Vienna Convention, a company has three years after it registers a trademark internationally before it has to use it.
d. Copyrights—Most large publishing and recording companies have extensive interests in foreign competitive markets. Without international copyright laws, a foreign producer could copy a book, software, CD, or tape and then distribute it at cut-rate prices in the country in which it was first produced. The Universal Copyright Convention (UCC) and the Berne Convention, the major cross-national agreements, honor the copyright laws of their signatory countries.
(difficult, page 361)