Business And Its Environment 7th Edition by Baron – Test Bank

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Business And Its Environment 7th Edition by Baron – Test Bank
SAMPLE QUESTIONS

 

Chapter Two:

Integrated Strategy

 

True/False Questions:

 

1)    A business strategy serves as a firm’s navigational guide in its market and nonmarket environments.

Answer: True

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

2)    A firm that decides to enter a country that has open markets relies primarily on a nonmarket strategy.

Answer: False

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

3)    A firm that decides to enter a country that has erected trade barriers requires only a simple market strategy.

Answer: False

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

4)    Opportunities can be controlled by government at one extreme and markets at the other extreme.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

5)    Nonmarket strategies are more important when opportunities are controlled by markets.

Answer: False

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

6)    Government exercises relatively little control over pharmaceutical firms and their activities.

Answer: False

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

7)    Opportunities can be controlled by actions such as protests, boycotts, and public criticism.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

8)    The more intense is private politics, the more important is the nonmarket strategy.

Answer: True

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

9)    Issues such as the environment, sustainability, human rights, privacy, health, and safety seldom attract private politics but are the subject of public politics.

Answer: False

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

10)  When a firm chooses a market strategy and a nonmarket strategy, the strategies compete with the strategies of other participants in the market.

Answer: True

Page reference: 32

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

11)  Nonmarket strategy is essential because in its absence competitors in the nonmarket environment will influence the outcome of issues and shape the rules of the game to their advantage.

Answer: True

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

12)  If a firm addresses the nonmarket issue in the legislative stage, the firm has more flexibility and its range of alternatives is wider.

Answer: False

Page reference: 33

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

13)  Nonmarket strategies serve the objective of superior performance by developing and sustaining the competitive advantage required to take advantage of market opportunities.

Answer: False

Page reference: 34

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

14)  A synergy is present between market and nonmarket strategies if a nonmarket action increases the return from a market action.

Answer: True

Page reference: 36

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

15)  Nonmarket positioning should be a conscious choice rather than dictated by a firm’s market positioning or by those in its environment.

Answer: True

Page reference: 38

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

16)  The pharmaceutical companies tend to seek visibility rather than covering their activities through an association or other means.

Answer: False

Page reference: 40

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

17)  Positioning in political space affects the opportunity to participate effectively in lawmaking and rule-making processes.

Answer: True

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

18)  Positioning in legal space affects not only the liabilities to which a company is exposed but also a company’s market and nonmarket strategies.

Answer: True

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

19)  Expertise in dealing with the news media is a market asset.

Answer: False

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

20)  The value of a nonmarket capability depends on the effectiveness of a firm’s allies in addressing nonmarket issues.

Answer: True

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

21)  The framework for analysis of nonmarket issues includes the screening of generated alternatives, the analysis of those alternatives, and the choice of a strategy.

Answer: True

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

22)  Moral motivations are analyzed in the screening phase of analysis.

Answer: False

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes:

 

23)  Granted rights are to be used to screen out alternatives in the analysis stage, whereas claimed rights are to be evaluated in the screening stage.

Answer: False

Page reference: 44

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

24)  The responsibility for addressing nonmarket issues should reside with operating managers and not with a separate staff unit.

Answer: True

Page reference: 46

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

25)  The nonmarket environment is often more complex than the market environment, because public institutions are complex and a larger set of interests participate.

Answer: True

Page reference: 46

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

Multiple Choice Questions:

 

26)  A market strategy is ________

  1. a concerted pattern of actions taken in the market environment to create value by improving the firm’s economic performance
  2. a concerted pattern of actions taken in the nonmarket environment to create value by improving the overall performance of a firm
  3. an elaborate and systematic plan of actions to achieve successful market capitalization
  4. usually never used by firms that decide to enter a country that has open markets or trade barriers

Answer: A

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

27)  A firm that decides to enter a country that has open markets relies primarily on ________.

  1. a nonmarket strategy
  2. a market strategy
  3. a communist economic strategy
  4. a mercantile strategy

Answer: B

Page reference: 30

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

28)  Opportunities can be controlled by ________ at one extreme and ________ at the other extreme.

  1. competitors; customers
  2. customers; suppliers
  3. government; markets
  4. markets; buyers

Answer: C

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

29)  Governments often exercise considerable control over which of the following industries?

  1. consumer electronics
  2. software
  3. local telecommunications
  4. automobile

Answer: C

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

30)  Which of the following industries has the least government control?

  1. Local communications service
  2. Biotechnology
  3. Automobile
  4. Consumer electronics

Answer: D

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

31)  In the United States, the regulation of telecommunications is being replaced by ________.

  1. nationalization
  2. market competition
  3. monopolization
  4. privatization

Answer: B

Page reference: 31

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

32) Which of the following characterizes nonmarket strategies?

  1. They are less important when opportunities are controlled by government.
  2. They are important when opportunities are controlled by markets.
  3. They are less important when protests, boycotts, and public criticism are more intense.
  4. They are decreasingly important due to issues such as privacy and protection of IP.

Answer: B

Page reference: 31

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

33)  Which of the following issues is most often the subject of private politics?

  1. intellectual property protection
  2. privacy
  3. liability reform
  4. antitrust laws

Answer: B

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

34) Which of the following issues is most often the subject of public politics?

  1. environmental laws
  2. human rights
  3. health and safety
  4. copyright laws

Answer: D

Page reference: 32

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

35)  Which of the following is the first stage of the nonmarket issue life cycle?

  1. issue identification
  2. interest group formation
  3. legislation
  4. administration

Answer: A

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

36)  The nonmarket strategies focus on adaptation to change during which of the following stages in the nonmarket issue life cycle?

  1. interest group formation
  2. legislation
  3. administration
  4. enforcement

Answer: B

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

37) Which of the following is the final stage of the nonmarket issue life cycle?

  1. interest group formation
  2. legislation
  3. administration
  4. enforcement

Answer: D

Page reference: 33

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

38) Which of the following is an example of a global market strategy?

  1. universal ethics principles
  2. intellectual property rights enforcement
  3. tax policy
  4. pharmaceuticals approval

Answer: A

Page reference: 33

Difficulty: Moderate

AACSB: Ethical Reasoning

Learning Outcomes:

 

39) The most effective means of integrating market and nonmarket strategies is ________.

  1. to incorporate nonmarket strategy formulation into the process of developing a market strategy
  2. to incorporate market strategy formulation into the process of developing a nonmarket strategy
  3. to incorporate both into the business strategy process
  4. to view both as separate strategies unified by the goal of profit maximization

Answer: C

Page reference: 37

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

40)  Which of the following is true of nonmarket positioning?

  1. a) It should be dictated by a firm’s market positioning or by those in its environment.
  2. b) It provides a platform on which both market and nonmarket strategies can be constructed.
  3. c) It is not influenced by the firm’s market strategy.
  4. d) It should neither be a conscious nor a strategic choice.

Answer: B

Page reference: 38

Difficulty: Moderate

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

41)  ________ is determined by the diverse interests, viewpoints, and preferences of the individuals in a society.

  1. a) Ethnic diversity
  2. b) Corporate social responsibility
  3. c) Public sentiment
  4. d) Public relations

Answer: C

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

42) Lawmaking and rulemaking take place in ________, where the formal rules of the game are made.

  1. a) political space
  2. b) legal space
  3. c) social place
  4. d) the space of public sentiment

Answer: A

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

43) In legal space, ________ provide the most important protection for intellectual property for many industries.

  1. a) trademarks
  2. b) patents
  3. c) copyright laws
  4. d) logos

Answer: B

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

44) What space had Microsoft largely ignored, relying instead on its aggressive approach to markets?

  1. a) legal
  2. b) public sentiment
  3. c) political
  4. d) commercial

Answer: A

Page reference: 41

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

45) Positioning is often perilous. Which of the following companies had been lobbied heavily to increase its commitment to its own causes?

  1. a) Xerox
  2. b) GM
  3. c) Microsoft
  4. d) Starbucks

Answer: D

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

46) Firms deploy nonmarket capabilities to ________.

  1. a) beat the competition
  2. b) create new markets
  3. c) test new strategies
  4. d) add value

Answer: D

Page reference: 42

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

47) Alternatives that are contrary to the law or company policy are eliminated in the ________ stage of the framework for the analysis of nonmarket issues.

  1. analysis
  2. choice
  3. enforcement
  4. screening

Answer: D

Page reference: 43

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

48) Which of the following stages in the framework for the analysis of nonmarket issues is based on the methods of economics, political science, and other social sciences and focuses on predicting the actions of interests and the consequences of alternative strategies?

  1. identification
  2. analysis
  3. choice
  4. screening

Answer: B

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

49) The evaluations of ethics claims and the application of normative principles occur in which stage of the framework for the analysis of nonmarket issues?

  1. screening
  2. identification
  3. analysis
  4. choice

Answer: D

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

50) According to Wartick and Rude, who, among the following, must be involved for successful issues management?

  1. competitors
  2. government
  3. suppliers
  4. top management

Answer: D

Page reference: 44

Difficulty: Easy

AACSB:

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

Essay and Review Questions:

 

  • Describe market and nonmarket strategies. Explain the significance of a nonmarket strategy.

Answer: A business strategy has both market and nonmarket components. A market strategy is a concerted pattern of actions taken in the market environment to create value by improving the economic performance of a firm. A nonmarket strategy is a concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance. A firm that decides to enter a country that has open markets relies primarily on a market strategy. A firm that decides to enter a country that has erected trade barriers needs a nonmarket strategy in addition to a market strategy. An effective business strategy integrates these two components and tailors them to the firm’s market and nonmarket environments as well as to its capabilities. Market and nonmarket strategies focus on the pursuit of opportunity and advantage in the face of market and nonmarket competition with the objective of achieving superior performance.

The importance of a nonmarket strategy is related to the control of a firm’s opportunities. Opportunities can be controlled by government at one extreme and markets at the other extreme. Nonmarket strategies are more important the more opportunities are controlled by government and are less important, but often still important, when opportunities are controlled by markets. In some industries, such as consumer electronics and computer software, government exercises relatively little control over firms and their activities. In contrast, government exercises considerable control over pharmaceuticals and local telecommunications services. The automobile industry is somewhere in between. One important role of nonmarket strategy is to unlock opportunities controlled by government, as illustrated by the strategies of firms to deregulate the telecommunications industry. Another important role of nonmarket strategy is to avoid the control of opportunities by government, as in the case of self-regulation by companies on Internet privacy protection. In addition to government and markets, two other factors affect opportunities. First, opportunities can be controlled by private politics, which includes actions such as protests, boycotts, and public criticism by activist, advocacy, and interest groups, as well as public sentiment regarding business. The more intense is private politics, the more important is nonmarket strategy. Second, opportunities can be affected by moral concerns, which can require restraint.

Page reference: 30-32

Difficulty: Moderate

AACSB: Analytic Skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

 

52)  Bartlett and Ghoshal characterized market strategies as multidomestic, international, and global. Compare and contrast between the three types.

Answer: Bartlett and Ghoshal characterize market strategies as multidomestic (multinational), international, and global. A global market strategy is one in which “products and strategies are developed to exploit an integrated unitary world market.” Global market strategies often focus on achieving cost advantages through global-scale operations, as exemplified by Honda’s early strategy of selling the same motorcycles in all the markets it entered. In the nonmarket environment, examples of global strategies are (1) working for free trade globally, (2) applying universal ethics principles, and (3) implementing the same environmental standards in all countries.

An international strategy centers on transferring the parent company’s expertise to foreign markets. eBay, for example, took its online auction service to other countries, with mixed success. International strategies are specific applications of distinctive competences in other countries.

For many nonmarket issues, a global or international nonmarket strategy may not be successful because strategies must take into account the institutions in whose context the issues are addressed, the organization of interests, and other country-specific factors. Many nonmarket issues have a strong domestic component, so nonmarket strategies are more likely than market strategies to be multidomestic when issues, institutions, and interests differ across countries.

The success of a multidomestic strategy requires issue-specific action plans tailored to the institutions and the organization of interests in individual countries. Examples of nonmarket issues that require a multidomestic approach include tax policy, antitrust policy, safety regulation, pharmaceuticals approval, intellectual property rights enforcement, and environmental regulation. Although there are common principles, such as information provision as the key to effective lobbying, that underlie the strategies used to address these issues, differences in the institutions across countries typically require country-specific strategies.

Page reference: 33-34

Difficulty: Moderate

AACSB: Dynamics of the Global Economy

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

 

53)  Describe the different approaches to integrate market and nonmarket strategies.

Answer: One approach to developing an integrated strategy is to incorporate nonmarket strategy formulation into the process of developing a market strategy. For example, regulation pertaining to who may provide services, as in telecommunications, could be incorporated into the analysis of the rivalry among incumbent firms and potential new entrants. The drawback to this approach is that the institutions in which regulatory policies are established are quite different from markets, so the nature of the analysis is different. Moreover, in markets only the parties that transact play a role, whereas in nonmarket institutions, a wide range of interests are enfranchised to participate.

Market and nonmarket strategies could also be viewed as separate. Just as market analysis focuses on competitive forces, nonmarket analysis can focus on assessing threats (such as those arising from government, interest groups, and activist pressures) and on unlocking market opportunities. Viewing nonmarket issues as a separate force, however, risks missing the interrelationships between market and nonmarket issues and the complementarities between strategies to address those issues.

The most effective means of integrating market and nonmarket strategies is to incorporate both into the business strategy process. That is, market and nonmarket strategies should be chosen together in addressing forces in the market and nonmarket environments.

The nonmarket strategy component then focuses on specific nonmarket issues that affect market threats and opportunities and on nonmarket actions as complements to market actions.

For some companies such as those in the pharmaceutical industry, integrated market and nonmarket strategies are a conscious part of everyday management. For other companies

Strategy formulation is periodic but nevertheless when market strategies must be developed, nonmarket strategies should be developed at the same time.

Page reference: 37

Difficulty: Moderate

AACSB: Analytic skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

54)  Explain, with examples, the nonmarket positioning that takes place in public sentiment, political and legal spaces.

Answer: Nonmarket positioning takes place in three interrelated spaces: public sentiment, political (lawmaking and rule making), and legal (enforcement of existing laws and regulation).

Public sentiment is determined by the diverse interests, viewpoints, and preferences of the individuals in a society. Public sentiment toward a company or industry can affect the public’s response to a company’s actions and whether social pressure is directed at the company. Favorable public sentiment can not only allow a company to avoid nonmarket issues, but also affect its reception in the market place. Chrysler and General Motors had to be bailed out by the government, whereas Ford avoided bankruptcy during the financial crisis and recession. Some car buyers favored Ford, and the company had more credibility with the public and government.

Lawmaking and rule making take place in political space, where the formal rules of the game are made. Positioning in political space can affect the opportunity to participate effectively in lawmaking and rule-making processes. Because of the importance of nonmarket issues to the profitability of the industry, the pharmaceutical industry has developed a position of strength in political space. The industry has positioned itself by building relationships with members of Congress and the executive branch. This positioned the industry well for the politics and negotiations over health care reform in 2009 and 2010. Major pharmaceutical companies were invited to the bargaining table, and the reforms were favorable to the industry, leading it to support the health care reform legislation. In contrast, the generic pharmaceutical companies were not invited to the bargaining table.

Positioning in legal space affects not only the liabilities to which a company is exposed but also a company’s market and nonmarket strategies. eBay’s positioning as an ISP provides protection in the United States under the CDA, but it also means that the company is limited in its ability to provide content on its Web site. In legal space, patents provide the most important protection for intellectual property for many industries, and perhaps nowhere are patents more important than in the pharmaceutical industry. The pharmaceutical industry regularly seeks stronger patent protection and was successful in obtaining a 6-month patent extension for approved drugs that were subsequently tested for use by children.

Page reference: 41

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Identify the steps of the strategic management process and describe common organizational and business strategies

 

55) Illustrate, with examples, the framework for the analysis of nonmarket issues.

Answer: Nonmarket issues are typically complex and require conceptual frameworks to guide analysis and strategy formulation. In this framework the unit of analysis is the nonmarket issue. The initial step involves generating strategy alternatives. Managers must exercise creativity in generating alternatives beyond those that immediately suggest themselves. For example, to spur the use of mobile devices, Google proposed opening the C-band of the radio spectrum and the white spaces of the television for the development of open networks for mobile devices. As an alternative to higher fuel economy standards, General Motors advocated a tax on carbon fuels as a means of addressing the global climate change issue.

Once alternatives have been identified, they can be evaluated in three stages—screening, analysis, and choice. In the screening stage, alternatives that are contrary to the law, widely shared ethics principles, or a well-evaluated company policy are eliminated.

In the case of the automobile industry, an alternative involving noncompliance with mandatory NHTSA safety standards would be screened out. Several automobile companies, however, have routinely paid a fine, as provided for by law, for not meeting fuel economy standards.

The alternatives that remain after the screening stage are then analyzed to predict their likely consequences. The analysis stage is based on the methods of economics, political science, and other social sciences and focuses on predicting the actions of interests and the consequences of alternative strategies. For example, pharmaceutical companies had to predict how strong the opposition to their direct-to-consumer advertising in the broadcast media might be. Prediction focuses on interests, institutions and their officeholders, and information and takes into account the likely actions of the other interested parties. The analysis stage also considers moral motivations of nonmarket behavior and how others evaluate the firm’s actions.

The alternatives are evaluated and a choice made in the third stage. On issues that do not involve significant moral concerns, choice is based on the interests of the firm and its stakeholders. The objective is typically value creation, taking into account the impact of alternatives on stakeholders who are important to sustainable performance. If the issue involves significant moral concerns, normative principles pertaining to well-being, rights, and justice are to be applied.

In the nonmarket environment, moral claims about rights are frequently made. Some rights are “granted” in the sense that the government or moral consensus has both established them and clearly assigned the associated duty to respect them. When the duty has not been clearly assigned or the right itself has not been established by government or through moral consensus, the right is said to be “claimed.” Granted rights are to be used to screen out alternatives in the first stage, whereas claimed rights are to be evaluated in the choice stage.

Page reference: 43-44

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcomes: Identify the fundamental concepts and issues of international business and management

Chapter Four:

Private Politics and Social Pressure

 

 

True/False Questions:

1)         The success of private politics is independent of public support.

Answer: False

Page reference: 74

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

2)         Since the general public sentiment favors righteousness, private politics does not need to implement strategies to influence the outcome of an issue.

Answer: False

Page reference: 74

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

3)         Activists and interest groups use threat of legislation and regulation strategies.

Answer: False

Page reference: 74

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

4)         Private politics can be motivated by self-interest and broader concerns.

Answer: True

Page reference: 75

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

5)         Nonmarket issues are addressed largely in the shadow of public institution.

Answer: True

Page reference: 75

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

6)         Direct pressure and boycotts are examples of private nonmarket actions.

Answer: True

Page reference: 77

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

7)         A company’s susceptibility to private politics is independent of its lines of business.

Answer: False

Page reference: 78

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

8)         The performance of firms or its policies remain unaffected by boycotts and campaigns.

Answer: False

Page reference: 79

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

9)         Companies operating in developing countries are susceptible to private politics because groups in developed countries closely monitor operations in these countries.

Answer: True

Page reference: 81

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

10)       The effectiveness of private politics social pressure is independent of the extent to which companies accept social responsibilities.

Answer: False

Page reference: 81

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

11)       Activists and interest groups implement confrontational strategies to influence the behavior of economic agents.

Answer: True

Page reference: 81

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

12)       Activists using cooperative private politics organize corporate and market campaigns to advance issues on their agendas.

Answer: False

Page reference: 81

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

13)       A company that manufactures products with high switching costs is susceptible to private politics.

Answer: False

Page reference: 81

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

14)       Even though activists groups have access to the media, public institutions, and the general public they do not have any standing before the courts to sue a firm.

Answer: False

Page reference: 85

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

15)       Use of secondary sources, such as, policy studies or scientific investigations to call attention to an issue restricts the social pressure of activists.

Answer: False

Page reference: 85

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

16)       An important component of a private politics campaign is the selection of a target.

Answer: True

Page reference: 86

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

17)       Activists target individuals in both their personal and professional roles.

Answer: True

Page reference: 86

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

18)       As long as the management of the company is cooperative, it does not need to assess the demands of the activists group or the public.

Answer: False

Page reference: 87

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

19)       One of the keys to managing an activist environment is to understand the broader public support of their agenda.

Answer: True

Page reference: 87

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

20)       A potentially vulnerable company will face confrontational private politics irrespective of the amount of self-regulation.

Answer: False

Page reference: 88

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

21)       Identifying relevant interest groups and activist organizations in a company’s market and nonmarket areas is an important part of addressing an activist environment.

Answer: True

Page reference: 87

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

22)       Cooperative private politics is beneficial to a potentially vulnerable company.

Answer: True

Page reference: 88

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

23)       Unless challenged by an activist group or NGO, specific issues of concern in a company can be reserved for later.

Answer: False

Page reference: 88

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

24)       In a private politics campaign, negotiation with activists is involuntary.

Answer: False

Page reference: 89

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

25)       A simple agreement accepting the issues is usually sufficient where the stakes are high and monitoring of the firm’s actions is difficult.

Answer: False

Page reference: 89

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment


Multiple Choice Questions:

26)       Private politics focuses on ________.

  1. a) changing the behavior of the government through regulation and legislation
  2. b) changing the behavior of private economic agents through social pressure
  3. c) changing the behavior of private economic agents through government action
  4. d) changing the behavior of the state through economic policy

Answer: B

Page reference: 74

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

27)       FreeWorld is a non-profit campaigning organization that has discovered that Shine4Ever Corp. is dealing in conflict diamonds—diamonds from the coasts of Liberia that originate from areas controlled by forces that fund anti-government operations. After several demonstrations, boycotts, and advertising campaigns by FreeWorld, Shine4Ever agrees to an external certification process to ensure that the diamonds are “clean”. This social pressure is a result of ________.

  1. a) private politics
  2. b) business intelligence
  3. c) market demand
  4. d) competitive analysis

Answer: A

Page reference: 74

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

28)       Which of the following statements is true of private politics?

  1. a) It is not motivated by self-interest or broader concerns.
  2. b) It implements strategies to apply legislation through government action.
  3. c) It implements strategies to affect the public sentiment.
  4. d) It is independent of public support.

Answer: C

Page reference: 74

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

29)       In which of the following ways does private politics shape the nonmarket environment?

  1. a) It attempts to influence public policy through Congress.
  2. b) It informs the management of a corporation about relevant social issues.
  3. c) It organizes labor unions by delivering votes.
  4. d) It enables corporations to make donations to candidates for Federal offices.

Answer: B

Page reference: 75

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

30)       Which of the following is an important function of private politics?

  1. a) It regulates the market dynamics for a specific industry.
  2. b) It initiates and passes legislation in Congress.
  3. c) It endorses a firm’s brand reputation.
  4. d) It mobilizes people to work for causes.

Answer: D

Page reference: 76

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

31)       A group of activists organize a campaign to constrain the sale of a well-known brand of clothing because of worker rights issues in its Vietnamese branch. Which of the following strategies is applicable to the situation?

  1. a) confrontational public politics
  2. b) confrontational private politics
  3. c) cooperative private politics
  4. d) public nonmarket action

Answer: B

Page reference: 76

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

32)       The ________ of a firm determines the scope of the social pressure the firm could face.

  1. a) brand reputation
  2. b) line of business
  3. c) stock price
  4. d) product switching costs

Answer: B

Page reference: 78

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

33)       Which of the following companies is least susceptible to private politics?

  1. a) ReleeF, a pharmaceutical company that manufactures generic drugs
  2. b) Bluetip, a petroleum exploration and production company
  3. c) MoreSay, a multinational clothing company based in California with the manufacturing done in Vietnamese sweatshops
  4. d) WeGroom Group, that designs and builds houses in developing countries because of the advantages of low-cost labor

Answer: A

Page reference: 81

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

34)       Which of the following is an example of cooperative engagement in private politics?

  1. a) Advertisement campaign by an NGO that shows a company official melting polar ice.
  2. b) An NGO uses lobby correspondents for their global-warming propaganda.
  3. c) An NGO pressures consumers to switch to a different brand of gas due to the company’s high emission level.
  4. d) An NGO appoints a group to provide external legitimacy to a company’s environmental practice.

Answer: D

Page reference: 82

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

35)       An NGO with expertise in environmental practices assists a company to design and implement an external legitimate policy. This is an example of ________.

  1. a) cooperative private politics
  2. b) cooperative public politics
  3. c) public nonmarket action
  4. d) market competition analysis

Answer: A

Page reference: 82

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

36)       Certification to provide external legitimacy ________.

  1. a) increases the vulnerability of a brand’s reputation
  2. b) improves the public standing of a firm
  3. c) increases social pressure on a firm
  4. d) attracts more confrontational activists to the firms’ policies

Answer: B

Page reference: 82

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

37)       Cooperative private politics ________.

  1. a) increases the vulnerability of a brand
  2. b) attracts more confrontational activists to the firms’ policies
  3. c) increases social pressure on a firm
  4. d) improves the public standing of a firm

Answer: D

Page reference: 82

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

38)       Which of the following can a company do to make it less attractive to a confrontational activist?

  1. a) adopt an external certification from an NGO
  2. b) neglect required practices
  3. c) adopt a nontransparent policy
  4. d) adopt internal certification

Answer: A

Page reference: 82

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

39)       Which of the following statements describes the relationship between confrontational and cooperative private politics?

  1. a) cooperative private politics does not affect confrontational private politics
  2. b) cooperative private politics is independent of the threat of confrontational private politics
  3. c) confrontational private politics creates a demand for cooperative private politics
  4. d) confrontational private politics does not provide the adequate threat because of which cooperative private politics is preferred by companies

Answer: C

Page reference: 83

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

40)       Which of the following statements is NOT true of activist groups?

  1. a) They alert a corporation to issues about which it is unaware.
  2. b) They can affect the organization of interests by forming watchdog and advocacy groups.
  3. c) They are often appointed to a firm’s board of directors.
  4. d) They provide information to the public as well as public office holders.

Answer: C

Page reference: 84

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

41)       What are the two basic strategies of activists?

  1. a) putting direct pressure on firms and working through public institutions
  2. b) putting indirect pressure on firms and direct pressure on government
  3. c) putting little pressure on firms and lots of indirect pressure on government
  4. d) putting pressure on firm boards of directors and working with public entities

Answer: A

Page reference: 84

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

42)       In terms of an activists’ generic strategy, what is a low-cost method of getting information out to the public that they want to be distributed?

  1. a) use the news media
  2. b) use television spots
  3. c) use nationwide lobbying of legislatures
  4. d) file a lawsuit

Answer: A

Page reference: 84

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

43)       Which of the following statements describes the trust gap in private politics?

  1. a) negative information provided by a firm can have more impact on an issue than that provided by an NGO
  2. b) negative information provided by an NGO can have more impact on an issue than that provided by a firm
  3. c) negative information provided by an NGO does not affect a firm due to the lack of trust gap
  4. d) negative information provided by an NGO does not provide the adequate threat as firms are more trustworthy

Answer: C

Page reference: 85

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

44)       Which of the following represents a centralized activity used by activists to apply pressure on firms?

  1. a) Activists arrange a campaign led by labor unions to lower emission rates for workers’ safety.
  2. b) Activists pressure firms to lower emission rates after reading annual list of companies’ emission rates.
  3. c) Activists send emails to spread information about the increasing emission rates of companies.
  4. d) Activists form an online community that shares relevant information on emission rates and signs petitions.

Answer: A

Page reference: 85

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

45)       Which of the following is applicable to private politics strategy to put pressure on a company and its reputation?

  1. a) It avoids using policy studies.
  2. b) It attempts to pass legislation through government action.
  3. c) It questions the board of directors directly.
  4. d) It uses shareholder rights by questioning at annual meetings.

Answer: D

Page reference: 85

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

46)       Which of the following describes an activist group’s first-mover advantage?

  1. a) frames an issue by identifying its societal significance
  2. b) stages protests and demonstrations
  3. c) uses low-cost source of information
  4. d) uses social media to coordinate activities

Answer: A

Page reference: 87

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

47)       Which of the following is the first step in addressing social pressure from activist groups?

  1. a) understand the broader public support for activist group’s agenda
  2. b) identify relevant interest groups and activist organizations in a company’s market and nonmarket environments
  3. c) assess how the media is likely to cover and treat the issue
  4. d) partner with activist groups

Answer: D

Page reference: 87

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

48)       Which of the following is the last step in addressing social pressure from activist groups?

  1. a) understand the broader public support for activist group’s agenda
  2. b) identify relevant interest groups and activist organizations in a company’s market and nonmarket environments
  3. c) challenge the activists
  4. d) assess how the media is likely to cover and treat the

Answer: C

Page reference: 90

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

49)       Which of the following should a company follow when challenging activists?

  1. a) avoid explanations to employees
  2. b) file a lawsuit if the company can bear the social pressure
  3. c) avoid negotiation
  4. d) challenge the group after evaluating the issue

Answer: B

Page reference: 90

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

50)       Which of the following should a company follow when opposing an activist campaign?

  1. a) invest in reputation management
  2. b) file a lawsuit
  3. c) develop an alternative organization
  4. d) develop a corporate campaign

Answer: A

Page reference: 90

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

Essay and Review Questions:

 

51)       Write an essay on the positive and less than positive roles played by activist groups. Give specific examples of each of these roles. Use Greenpeace International as your focus of analysis.

Answer: Activist groups play an important role in the nonmarket environment and therefore, choose different nonmarket strategies to raise issues and generate pressure. They play a positive role in— alerting the management of a company to issues of concern to the public, mobilizing people to work toward important causes, exerting social pressure to change institutions, and finally, providing information to the public and government officials that influences public and private politics.

However, the strategies used by activist groups to attract the interest of the public and the media can have a less than positive effect on a company’s image. Moreover, these strategies may require breaking the law of a country along with privacy of information. Activists often use “naming and shaming.” The objective of shaming is to harm the target firm by damaging its brand, its reputation, or the morale of its employees. Confrontational tactics used to organize corporate and market campaigns can generate considerable public attention and this frequent scrutiny by the media can harm a company’s public image and brand reputation. Information provided in the media by activist groups is intended to both harm the target and create a degree of common knowledge and informal coordination among members of the public to mitigate a free-rider problem; that is, eliciting participation by the public.

These positive and less than positive roles played by activist groups can be understood through the case of Greenpeace, Shell and Brent Spar. Brent Spar was an offshore petroleum facility owned by Royal Dutch/Shell Group of companies and Greenpeace is the world’s largest environmental group that was founded in 1971. With branches all over the world, a wide network of volunteers, and modern equipment as well as full-time staff, Greenpeace was quick to raise the issue of the legitimate disposal of Brent Spar. They attracted the German public’s attention to deep-sea disposal issue and with high media coverage threatened Shell with loss of customers in Germany— arguing that 85 percent of German motorists would participate in a boycott. In addition to this, Greenpeace activists managed to get on Brent Spar, off the shore of Greenland. After much action in public and in German parliament, the NGO finally managed to alter Shell’s decision to dispose Brent-Spar in the sea.

However, it was later revealed that Greenpeace’s campaign might have been based on incorrect facts about deep sea disposal. Also, estimates of oil sledge remaining on Brent Spar mentioned by Greenpeace were incorrect—for which they apologized. This case portrays the different roles played by an activist group. In addition to the positive role of an activist group in changing a company’s agenda toward a more socially responsible one, confrontational tactics used by such groups can have a harmful effect on a company’s image and brand reputation, if not done responsibly.

Page reference: 90-94

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

52)       Why do activists play an important role in the nonmarket environment?

Answer: Activists play an important role in the nonmarket environment because they can (1) alert management to issues of concern to the public, (2) affect the organization of interests, (3) lead to changes in institutions, and (4) provide information to the public and government officials.

Page reference: 81

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

53)       Describe four factors that affect the effectiveness of private politics social pressure.

Answer: The effectiveness of private politics social pressure depends on a variety of factors, four of which are identified here. The first is the social value achieved by causing a potential target to change its practices, as in the mitigation of a negative externality or improvement in the working conditions in suppliers’ factories in developing countries. The second is how tough the potential target is, where toughness depends on the cost of changing its practices. The third is how vulnerable a potential target is, where vulnerability can depend on brand equity or reputation that could be harmed by a campaign. The fourth is the extent to which potential targets take into account the social value of a change in their practices when making their decisions; that is, the extent to which they accept social responsibilities.

Page reference: 81

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

54)       Firms need to develop approaches to address social pressure from activist groups. Discuss.

Answer: In dealing with activist organizations, firms take a number of approaches. Some ignore the issues and the activists in the hope that their interest will wane or that they will fail to generate broader support. First, a company must assess its positioning and any possible private politics challenges to that position. This assessment begins by answering the question of what is demanded of the firm by the activists and, more importantly, by the public. The next step is to assess vulnerability to a private politics campaign. This involves assessing not only the firm’s own vulnerability but also the vulnerability of those in its value chain. It is also important to assess the extent of public support for the activists’ agendas. This depends on the issue as well as the public. If a company is potentially vulnerable, the next step is to consider whether it is possible to forestall a possible campaign through self-regulation, by working with cooperative NGOs, or by making public commitments to new policies. Interacting with a cooperative NGO can provide benefits, particularly when the group has expertise. When a firm is challenged by an activist group or NGO, the specific issues of concern must be evaluated. Often the issues generated by activists and interest groups are early in their life cycles, and thus firms have an opportunity to affect their progress. The next step involves identifying other potentially interested parties and assessing how likely they are to become active on the issue. In the case of a boycott, the firm must assess whether customers and the public are likely to be aware of the issue and sympathetic to the position of the activists.

Determining the most effective strategy requires understanding the nature and strength of the activists, the concerns that motivate them, the likelihood of media coverage, the likely support for the issue among consumers and the public, how much harm the activist could cause, how central the issue is to their agenda, and whether they are led by professionals or amateurs. Professionals are more difficult to co-opt, but they may be more practical as well. With limited resources, activists and interest groups must determine which issues to address, and they may abandon an issue that appears to be unwinnable or requires too much of their available resources. When confronted with private nonmarket action, a natural reaction is to be defensive. A better response is to evaluate the claims and demands made by the activists and determine whether they have merit. If the interactions with an activist group reach the point of bargaining over the resolution of the issue, a firm must assess the benefits and costs of alternative resolutions. It is also important to determine how an agreement will be monitored and how misunderstandings that might subsequently develop will be resolved. A firm must also assess whether its competitors will follow suit or whether the playing field will become uneven. Many firms prefer that the playing field be level with their competitors adopting the same policies for dealing with the issue. In cases where the stakes are high and monitoring of the firm’s actions is difficult, the parties may require more than a simple agreement. The demands made in a campaign often are unreasonable or too costly to meet, and firms resist or fight back. Some firms decide that they will agree to disagree with the activist and bear whatever pressure the activist can muster. Most firms, however, prefer to negotiate rather than become engaged in a protracted confrontation that could attract the attention of the media, the public, and government officials.

Page reference: 87-90

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Discuss the role of ethics and social responsibility in management

 

55)       Write a short note on confrontational private politics.

Answer: Confrontational campaigns typically focus on a social issue such as the emissions of toxic substances in a particular region, workers’ rights in factories in developing countries supplying developed countries, the rights of indigenous peoples in mining areas, animal rights, conflict minerals, rainforest conservation, or predatory lending. The lines of business of a firm determine the scope of the social pressure the firm could face. A mining company may face social pressure over conflict minerals, rainforest conservation, the rights of indigenous peoples, and toxic emissions.

Activists organize corporate and market campaigns to advance the issues on their agendas, and a frequent component of a campaign is a boycott. Some boycotts are more symbolic than real, but many attract media and public attention. There is considerable debate over the effect of boycotts on a firm. However, most firms are concerned about the possibility of a boycott not only because of possible lost sales but also because the public attention, frequently under the scrutiny of the media, could harm their brands as well as their reputations and public images.

The effectiveness of private politics social pressure depends on a variety of factors, four of which are identified here. The first is the social value achieved by causing a potential target to change its practices, as in the mitigation of a negative externality or improvement in the working conditions in suppliers’ factories in developing countries. The second is how tough the potential target is, where toughness depends on the cost of changing its practices. The third is how vulnerable a potential target is, where vulnerability can depend on brand equity or reputation that could be harmed by a campaign. The fourth is the extent to which potential targets take into account the social value of a change in their practices when making their decisions; that is, the extent to which they accept social responsibilities. The objective of confrontation is to shine the spotlight of public attention on a firm with the hope that social pressure will be generated and cause the firm to change its practices.

Page reference: 78-81

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

Chapter Seven:

Nonmarket Strategies for Government Arenas

 

 

True/False Questions:

 

1)         Strategy formulation in the nonmarket environment is similar to its counterpart in the market environment.

Answer: False

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

2)         Nonmarket issues attract a fewer set of participants than those involved in markets.

Answer: False

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

3)         In nonmarket competition, society can neither control the nonmarket power exercised by firms nor require the disclosure of nonmarket actions.

Answer: False

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

4)         From a pluralist perspective, public interest is identified by the interests of individuals and groups in the context of political institutions.

Answer: True

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

5)         Firms do not have the right to participate in political processes because of the particular interests they represent.

Answer: False

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

6)         Firms have the right to form and participate in coalitions and associations to conduct nonmarket activity.

Answer: True

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

7)         The nonmarket power of business is controlled because it is naturally divided.

Answer: True

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

8)         The nonmarket activities of business and other interest groups are not monitored.

Answer: False

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

9)         A waste disposal company misrepresents information on ground water toxicity level to the residents near its plant. This is a form of manipulation in business nonmarket activity.

Answer: True

Page reference: 165

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

10)       The formulation of nonmarket strategies is the responsibility of the society intervening in such issues.

Answer: False

Page reference: 166

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

11)       Although nonmarket strategies focus on the initial institutional arena, the subsequent delegation to administrative or regulatory agencies is a public process.

Answer: False

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

12)       In a nonmarket analysis, motivation and the nature of the politics are important factors to the development of effective strategies.

Answer: True

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

13)       A firm injured by unfair foreign competition can file a petition for relief under the U.S. trade law.

Answer: True

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

14)       When there is competition among interests, as in the case of interest group politics, the effectiveness of a strategy is independent of the strategies that others are pursuing on the issue.

Answer: False

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

15)       The nonmarket strategies available to firms are the same as those available to other interest groups but its appropriateness and effectiveness can differ.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

16)       Cost pressure and information demand are primary nonmarket assets for firms and interest groups for strategy formulation.

Answer: False

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

17)       Constituency connection, campaign contributions, or a reputation for providing reliable information are nonmarket assets.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

18)       The reputation of a firm and its top management is an important nonmarket asset.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

19)       When an industry seeks to defeat legislation, a unified position is most effective.

Answer: False

Page reference: 169

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

20)       Rent chain can be mobilized only on issues inside governmental institutions.

Answer: False

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

21)       Firms need to develop contingent strategies as nonmarket competition on an issue is limited to a single institutional arena.

Answer: True

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

22)       Implementation of nonmarket strategies pertains to the selection of specific actions and the assignment of tasks to organizational units and individual managers.

Answer: False

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

23)       Vote recruiting is a majority-building strategy.

Answer: True

Page reference: 174

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

24)       In politically responsive institutions success depends more on the provision of technical information.

Answer: False

Page reference: 180

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

25)       In client politics, firms prefer to adopt a high-profile strategy that includes public advocacy to counter the opposition.

Answer: False

Page reference: 181

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 


Multiple Choice Questions:

 

26)       Strategy formulation in the nonmarket environment ________.

  1. a) does not require collective action
  2. b) attracts a broader set of participants than those involved in markets
  3. c) implements important components in private
  4. d) resolves issues through voluntary agreements

Answer: B

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

27)       A car manufacturing firm is deliberately neglecting state environmental laws. Which of the following responses from the society is applicable here?

  1. a) society may control the exercise of market power through regulation
  2. b) society may rely on market forces to develop substitute products
  3. c) society cannot require disclosure of nonmarket actions
  4. d) society can rely on countervailing influences from opposing interests to mitigate business nonmarket power

Answer: D

Page reference: 163

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

28)       ________ Amendment protects the right of corporations to make expenditures and participate in political competitions on a state ballot proposition.

  1. a) First
  2. b) Second
  3. c) Tenth
  4. d) Sixteenth

Answer: A

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

29)       ________ keep a check on business nonmarket power.

  1. a) Activist groups
  2. b) Management of firms
  3. c) Human resource departments
  4. d) Employees

Answer: A

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

30)       Corporate participation in political activities ________.

  1. a) can give voice to people whose interests might otherwise be unrepresented
  2. b) always leads to over-representation of interests
  3. c) does not advance public interest
  4. d) cannot be aligned with the interests of activist groups

Answer: A

Page reference: 164

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

31)       Collective nonmarket action, such as joint lobbying to influence government ________.

  1. a) violates antitrust laws
  2. b) is considered as manipulation
  3. c) cannot be associated with corporations
  4. d) does not violate antitrust laws

Answer: D

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

32)       Which of the following statements is true of nonmarket activities of businesses from the perspective of the public?

  1. a) Businesses misrepresent information that play on ignorance and biases.
  2. b) Businesses do not have too much power to make a change in the society.
  3. c) Businesses do not exploit institutional features.
  4. d) Business goals are always congruent with public interests.

Answer: A

Page reference: 165

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

33)       In terms of business nonmarket action, ________ can take two basic forms: one involves misrepresentation and the other involves exploiting institutional features.

  1. a) nonmarket analysis
  2. b) lobbying
  3. c) manipulation
  4. d) strategy formulation

Answer: C

Page reference: 165

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

34)       The responsibility for formulating nonmarket strategies ultimately rests with ________.

  1. a) taxpayers
  2. b) management
  3. c) public institutions
  4. d) interest groups

Answer: B

Page reference: 166

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

35)       The approach to nonmarket strategy formulation ________.

  1. a) requires the delegation of administrative responsibility to an agency or a regulatory commission
  2. b) addresses nonmarket issues of a firm directly in public institutions
  3. c) does not require nonmarket strategies to focus on initial institutional arena as there is no competition between different interests of a firm
  4. d) resolves nonmarket issues by voluntary agreements and thus, does not need strategy formulation

Answer: A

Page reference: 166

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

36)       Nonmarket analysis involves ________.

  1. a) assessing the industry cost structure
  2. b) analyzing the financial statements of the firm
  3. c) identifying distribution channels
  4. d) assessing institutional characteristics

Answer: D

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

37)       Nonmarket strategies are the link between ________.

  1. a) institutions and institutional officeholders
  2. b) objectives and the specific actions taken to achieve them
  3. c) motivations and incentives of an issue
  4. d) the demand for and supply of nonmarket action

Answer: B

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

38)       Which of the following statements is applicable to the approach to nonmarket strategy formulation in interest group politics?

  1. a) Strategies should increase the benefits to those with aligned interests and reduce their costs of taking nonmarket action.
  2. b) Strategies should increase the opposing side’s incentives to take nonmarket action.
  3. c) It is a linear process and does not involve taking into account other interests.
  4. d) Nonmarket strategies for firms are often more wider than the set of strategies used by other interests.

Answer: A

Page reference: 168

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

39)       Which of the following reflects a firm’s nonmarket assets?

  1. a) switching costs
  2. b) customer loyalty
  3. c) reputation of the top management
  4. d) investment in mutual funds

Answer: C

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

40)       The underlying principle of the rent chain is that ________.

  1. a) the greater the rents affected by a nonmarket issue, the lower are the incentives to take nonmarket action to obtain or protect those rents
  2. b) the lower the rents affected by a nonmarket issue, the greater are the incentives to take nonmarket action to obtain or protect those rents
  3. c) the rents affected by a nonmarket issue are independent of the incentives to take nonmarket action to obtain those rents
  4. d) the greater the rents affected by a nonmarket issue, the greater are the incentives to take nonmarket action to obtain or protect those rents

Answer: D

Page reference: 169

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

41)       A rent chain ________.

  1. a) does not help generate nonmarket action through constituency connection.
  2. b) gives a firm the right or the opportunity to participate in public processes.
  3. c) can be mobilized only on issues in the government institutions.
  4. d) does not include stakeholders irrespective of whether they benefit from their interactions with the firm.

Answer: B

Page reference: 170

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

42)       Which of the following is applicable to the implementation of nonmarket strategies?

  1. a) hiring a firm to assess industry cost structure
  2. b) assigning employees to analyze the financial statements of the firm
  3. c) hiring candidates to handle a new project
  4. d) designating a manager to engage in lobbying

Answer: D

Page reference: 170

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

43)       Which of the following represents strategy formulation in a nonmarket issue?

  1. a) A firm hires a law firm to provide advice on energy subsidies and emission taxes.
  2. b) A firm designates a manager to engage in lobbying for energy subsidies in Washington.
  3. c) A firm identifies that the energy subsidy and emission tax issue will be pursued with the state government and then at the national level.
  4. d) A firm forms an ad hoc coalition with S. companies that require energy subsidies.

Answer: C

Page reference: 170

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

44)       Which of the following represents strategy implementation in a nonmarket issue for a tire manufacturer?

  1. a) It hires a law firm to provide advice on emission taxes and subsidies on industrial waste disposal.
  2. b) It analyzes and concludes that other manufacturing companies have similar interests.
  3. c) It decides to obtain access to members of the Congress by hiring former government officials for lobbying.
  4. d) It identifies that petitions can be filed under the sections of S. manufacturing laws.

Answer: A

Page reference: 170

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

45)       Generic nonmarket representation strategies are based on ________.

  1. a) developing the needed votes in a legislature to enact or defeat a bill
  2. b) the consequences of alternatives for constituents of government officeholders
  3. c) providing information to government officeholders
  4. d) analyzing industrial costs structures

Answer: B

Page reference: 172

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

46)       Which of the following is applicable to agenda-setting in nonmarket strategies?

  1. a) It focuses first on recruiting the agenda setter and then on building support for the alternative on the agenda.
  2. b) It is suitable for a relatively open legislative process that does not require vote recruiting.
  3. c) It focuses first on building support for the alternative on the agenda and then on recruiting an agenda setter.
  4. d) It is most effective in interest group politics.

Answer: A

Page reference: 177

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

47)       Which of the following is a necessary condition for an informational strategy to be effective?

  1. a) favorable information must be provided to the legislator
  2. b) government officeholders are more informed than the interest group
  3. c) interest group is more informed about the issue than are the government officeholders
  4. d) the public holds superior information about an issue than the interest group.

Answer: B

Page reference: 178

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

48)       Strategies involving the provision of political information are ________.

  1. a) not used for regulatory and administrative agencies
  2. b) independent of the political responsiveness of institutions
  3. c) are associated with less politically responsive institutions
  4. d) often used in conjunction with representation strategies

Answer: D

Page reference: 178

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

49)       In public politics, nonmarket strategies are ultimately directed at ________.

  1. a) government officeholders
  2. b) customers
  3. c) stakeholders
  4. d) interest groups

Answer: A

Page reference: 179

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

50)       Low-profile nonmarket strategies are most suitable for ________.

  1. a) interest group
  2. b) majoritarian politics
  3. c) client politics
  4. d) entrepreneurial politics

Answer: C

Page reference: 182

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment


Essay and Review Questions:

 

51)       Highlight the differences between strategy formulation in the nonmarket environment and in the market environment.

Answer: Strategy formulation in the nonmarket environment differs in a number of ways from its counterpart in the market environment. First, nonmarket issues attract a broader set of participants than those involved in markets. Second, important components of nonmarket strategies are implemented in public view, which requires sensitivity to the concerns of that broader set of participants. Third, the logic of collective and individual nonmarket action is different from the logic of market action. Fourth, in the nonmarket environment issues are not resolved by voluntary agreements as in markets but in most cases by government institutions with the power to set and enforce the rules of the game. In their strategy formulation and implementation, companies and other interests must ensure that their strategies are not only effective but also responsible. In the framework for the analysis of nonmarket issues, nonmarket strategies must be evaluated for responsibility in both the screening and the choice stages.

Page reference: 162

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

52)       Nonmarket activities of business support political alternatives that may be contrary to public interest. Discuss.

Answer: The nonmarket activities of businesses are subject to considerable criticism. A firm must exercise judgment, and at times restraint, to ensure that nonmarket strategies are responsible and do not exceed the limits of public acceptability.

One such criticism of nonmarket action by business is that it can be contrary to the public interest. What is in the public interest, however, is often the subject of fundamental disagreement. For example, the antidumping laws that impose duties on imported goods sold at lower prices than in the exporting country are viewed by economists as harmful to consumers and the economy. Yet, antidumping laws have been in place for over 80 years in the United States, have been adopted by most countries, and are allowed by the World Trade Organization agreements. Firms, labor unions, interest groups, and governments use the antidumping laws against foreign imports, even though that may be contrary to some conceptions of the public interest. From a pluralist perspective, the public interest is identified by the interests of individuals and groups in the context of political institutions. The public interest thus can be advanced by business participation, since the interests of firms are ultimately the interests of those who have a stake in their performance, including shareholders, employees, retirees, customers, suppliers, and the communities in which they operate.

The Supreme Court has ruled that collective nonmarket action, such as joint lobbying to influence government, does not violate antitrust laws against collusion because the First Amendment grants the right to petition government. Firms thus have the right to form and participate in coalitions and associations to conduct nonmarket activity.

Page reference: 163

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

53)       What are the two basic forms of manipulation in business nonmarket activity?

Answer: Manipulation can take two basic forms. One involves misrepresentation or activities that play on ignorance, fear, or biases. The second form involves exploiting institutional features. Nonmarket strategies with these characteristics must be evaluated in the screening stage, while misrepresentation should be rejected, exploiting institutional features should be still be responsible.

Page reference: 163

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

54)       What are the components of nonmarket analysis?

Answer: Nonmarket analysis forms the basis for effective strategies. Nonmarket analysis includes the following components:

  • Assessing the characteristics of the issue and where it is in its life cycle
  • Identifying the interests affected by the issue
  • Assessing motivations and incentives
  • Analyzing the likely demand for and supply of nonmarket action
  • Assessing the nature of the politics of the issue
  • Identifying the institutional arenas in which the issue will be addressed
  • Assessing institutional characteristics
  • Identifying the relevant institutional officeholders and their constituent and policy interests

Page reference: 167

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

55)       Informational strategy is a key component of lobbying. Discuss.

Answer: The strategic provision of information is the principal component of lobbying, testimony in legislative or regulatory proceedings, and public advocacy. Information enables officeholders to better serve their constituents and pursue their policy interests. Interest groups thus employ informational strategies in an attempt to influence outcomes. Informational strategies typically involve providing information favorable to the firm or interest group. To implement an informational strategy through lobbying, an interest group may invest in obtaining access to legislators or administrative officials. Influence thus often has two stages. The first involves obtaining access, and the second involves the strategic provision of information. In public processes such as those of many regulatory agencies, interests have due process rights to participate in the process and provide information. In legislative institutions, however, access to a pivotal legislator is not guaranteed and may have to be developed. A firm s rent chain can provide access through the constituency connection.

Lobbying involves the strategic provision of two types of information—technical and political. Technical information pertains to the likely consequences of alternatives. Political information pertains to the effects of alternatives on the constituents of officeholders. Political information is often provided in conjunction with representation and majority building strategies. Both technical and political information may be provided strategically—advocating the outcome sought by the interest. This may involve the strategic advocacy of a position, the choice of methodologies that generate data and conclusions favorable to an interest, or the emphasis on favorable, and de-emphasis on unfavorable, information. Some informational strategies are counteractive— that is, they are undertaken to counter the information provided by an opposing interest.

Page reference: 178

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

Chapter Thirteen:

The Investor’s Perspective: Renewable Energy

 

True/False Questions:

 

1)         Depending extensively on government subsidies for solar power is not free from risks.

Answer: True

Page reference: 358

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

2)         Nonmarket risks can arise from private politics, including consumer reactions, activist and NGO challenges, and changes in public sentiment.

Answer: True

Page reference: 359

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

3)         Wind power differed from solar power in that blades and tower sections were less expensive to ship than were solar panels.

Answer: False

Page reference: 360

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

4)         Subsidization was economically disadvantageous because it increased the nation’s dependence on imported fuels.

Answer: False

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

5)         Subsidization of renewable power deters producers from realizing economies of scale.

Answer: False

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

6)         Demand-side subsidies are provided to power producers.

Answer: False

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

7)         Indirect subsidies such as high feed-in tariffs were funded by higher prices to consumers of electricity.

Answer: True

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

8)         High feed-in tariffs and RPS were more likely to be victims of the budget process.

Answer: False

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

9)         Rents from demand-side subsidization were earned by power producers and the producers of power generation inputs, such as solar panels.

Answer: False

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

10)       The direct costs of subsidies such as grants and loan guaranties are the corresponding government budget expenditures and liabilities.

Answer: True

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

11)       Subsidization in the form of high feed-in tariffs raises electricity prices.

Answer: True

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

12)       The demand-side subsidies decreased the supply of renewable power and increased the negative externalities from emissions.

Answer: False

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

13)       Supply-side subsidies were less likely to create U.S. jobs, since they were not restricted to companies producing in the United States.

Answer: False

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

14)       Renewable energy production was dependent on subsidies because it was not cost competitive.

Answer: True

Page reference: 363

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

15)       Many smart grid applications were driven more by opportunities for efficiency than by government support.

Answer: True

Page reference: 363

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

16)       Solar power producers and their suppliers were well organized.

Answer: True

Page reference: 368

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

17)       In the short run, the subsidies increased the budget deficit.

Answer: True

Page reference: 368

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

18)       The challenge to the subsidies for renewable power and solar power in particular came from entrepreneurial politics.

Answer: True

Page reference: 368

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

19)       Chinese manufacturers with conventional photovoltaic technology set the cost standard for the renewable energy industry.

Answer: True

Page reference: 370

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

20)       The size of the Chinese economy implies that resources cannot be readily mobilized by the government in the domestic capital and factor input markets.

Answer: False

Page reference: 370

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

21)       The Chinese government views renewable energy as an attractive industry for growth.

Answer: True

Page reference: 370

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

22)       The U.S. government provided subsidization on both the demand and supply sides of the market for renewable power.

Answer: True

Page reference: 372

Difficulty: Easy

AACSB:

Learning Outcome: Summary

 

23)       Supply-side subsidization did not face market risks, whereas subsidization through high feed-in tariffs was subject to high budget pressures.

Answer: False

Page reference: 372

Difficulty: Easy

AACSB:

Learning Outcome: Summary

 

24)       The principal risk to subsidization through high feed-in tariffs was from business customers forced to pay higher prices for electricity.

Answer: True

Page reference: 372

Difficulty: Easy

AACSB:

Learning Outcome: Summary

 

25)       The nonmarket risk to demand-side subsidization stemmed both from government budget concerns and imported solar panels that hindered achieving the political objective of creating jobs.

Answer: True

Page reference: 372

Difficulty: Easy

AACSB:

Learning Outcome: Summary

 

Multiple Choice Questions:

 

26)       Which of the following challenges did American renewable energy companies face in 2011?

  1. a) heavy taxation by a debt-ridden government
  2. b) diminishing competition in the market
  3. c) innovation and technological change
  4. d) public ignorance over environmental issues

Answer: C

Page reference: 358

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

27)       Why were the loan guarantee and cash option awarded to wind power producers jeopardized?

  1. a) State public utility regulatory agencies were barred by law from determining wind energy prices.
  2. b) The huge federal budget deficit required measures to reduce expenditure.
  3. c) State public utility regulatory agencies gave a negligible premium for wind power.
  4. d) The price of natural gas fell considerably.

Answer: B

Page reference: 358

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

28)       The growing market share of Chinese wind tower and turbine producers generated complaints that ________.

  1. a) the quality of material used for producing wind towers and turbines by American companies was inferior and resulted in loss of market share
  2. b) the subsidies provided to S. wind power companies were being used to purchase equipment from abroad rather than to create jobs in the United States
  3. c) importing turbines from China violated the terms and conditions of trade set down by the International Trade Centre
  4. d) the subsidies provided to S. wind power companies were fairly inadequate compared to that provided to Chinese companies by the Chinese government

Answer: B

Page reference: 359

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

29)       Critics of the American Recovery and Reinvestment Act were of the opinion that ________.

  1. a) the government provided companies with low-cost loans from government

supported banks

  1. b) the Department of Energy did not administer the loan guaranties based on applications by companies
  2. c) the subsidies offered by the government were fairly inadequate
  3. d) the government was trying to pick winners rather than allowing the market to determine the winners

Answer: D

Page reference: 360

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

30)       Solar power plants in California faced nonmarket opposition because ________.

  1. a) political lobbies encouraged the use of coal and natural gas
  2. b) most solar power plants failed to meet the specified safety regulations and standards
  3. c) of protests from environmentalists who claimed that such projects posed a veritable threat to the wildlife of the region
  4. d) the government failed to communicate the benefits of renewable energy to people residing in the region

Answer: C

Page reference: 360

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

31)       Which of the following is an economic advantage of the subsidization of renewable power?

  1. a) Subsidization decreases dependence on imported fuels.
  2. b) Subsidization renders the adverse effects of traditional energy sources harmless.
  3. c) Subsidies for renewable power plants do not affect states with budget deficits.
  4. d) Subsidies for renewable power plants increase the tax revenue of the country substantially.

Answer: A

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

32)       Demand-side subsidies include ________.

  1. a) tax credits for households to install solar panels on rooftops
  2. b) electric utilities for smart grid infrastructure
  3. b) high feed-in tariffs for power producers
  4. c) loan guarantees to solar panel producers

Answer: A

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

33)       Supply-side subsidies include ________.

  1. a) tax credits for households to install solar panels on rooftops
  2. b) tax credits for businesses to purchase electric cars
  3. c) high feed-in tariffs for power producers
  4. d) grants for households to purchase electric cars

Answer: C

Page reference: 361

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

34)       Which of the following is true with regard to the costs of subsidization?

  1. a) Subsidization in the form of high feed-in tariffs lowers electricity prices.
  2. b) S. consumers had benefited from the cost-efficient location of production in China even though it meant the loss of high-paying jobs in the United States.
  3. c) The demand-side subsidies increased the negative externalities from emissions.
  4. d) Renewable energy production such as solar and wind power was cost competitive and hence was not dependent on subsidies.

Answer: B

Page reference: 362

Difficulty: Easy

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

35)       China took the lead in the production of solar panels primarily because ________.

  1. a) labor costs in China were very low relative to that in Europe and the United States
  2. b) the domestic demand for solar panels fell sharply
  3. c) the price of pure silicon rose dramatically as supply caught up with demand
  4. d) demand-side subsidization was not implemented in the United States

Answer: A

Page reference: 372

Difficulty: Easy

AACSB:

Learning Outcome: Summary

 

Essay and Review Questions:

 

36)       Analyze the economic and political rationales behind subsidization.

Answer: The economic rationales for the subsidization of renewable power are three fold. First, subsidization provides environmental improvements by displacing carbon-based power generated from coal or natural gas. Second, subsidization provides security benefits to the extent that it reduced the dependence on imported fuels. Third, the subsidies could enable producers to realize economies of scale that would reduce costs and allow output to expand. The first and second rationales are based on positive externalities, whereas the third is intended to achieve cost efficiencies and increased output.

The political rationales for the subsidization of renewable power had two aspects to them. First, the positive externalities for the environment and security benefitted constituents, although those benefits were often difficult to observe.

Second, subsidization generated pork, since the recipients of the subsidies and their suppliers earned rents from the economic activity stimulated by the subsidization.

Demand-side rents were earned by installation companies and their employees,

power producers and their employees, and suppliers. Rents from supply-side subsidization were earned by power producers and the producers of power generation inputs, such as solar panels. The U.S. government regularly cited the number of jobs created in the solar panel production and installation industries. An associated political rationale was that subsidies built interest group support for continued subsidization in a manner that the dispersed environmental and security benefits typically could not build.

Demand-side subsidies differed from supply-side subsidies in a way important for nonmarket risk analysis. The additional demand generated by demand-side subsidization could be satisfied by production located in the United States or overseas. The first political rationale thus was satisfied because the higher demand generated positive environmental externalities. The second political

rationale of creating jobs, however, could only be realized by production located in the United States. Supply-side subsidization more directly served the second political rationale.

Page reference: 361

Page reference: 362

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

37)       Write a short note on the costs of subsidization.

Answer: The direct costs of subsidies such as grants and loan guaranties are the corresponding government budget expenditures and liabilities. Those expenditures ultimately require higher taxes, which distort economic activity, resulting in inefficiencies. Subsidization in the form of high feed-in tariffs raises electricity prices, which also distorts economic activity. Higher costs to businesses reduce their competitiveness, which reduces employment. Higher electricity prices also were regressive, harming low-income households more than high-income ones. U.S. consumers had benefited from the cost-efficient location of production in China and other low-cost countries, even though it meant the loss of high-paying jobs in the United States.

Direct grants required annual appropriations by a legislature whose members faced elections. High feed-in tariffs were authorized by legislatures but once authorized remained in place. The tariffs required no appropriations and were set by regulators who in most states were appointed rather than elected.

The cost of the high feed-in tariffs was paid by electricity customers through higher prices, and households were poorly organized to deliver political action to reduce the cost. Moreover, many consumers were happy to pay higher prices to support renewable power.

Commercial and business customers, however, were better organized and motivated by competitiveness considerations. These customers posed a threat to high feed-in tariffs. Although renewable energy production such as solar and wind power was not cost competitive and hence was dependent on subsidies, many smart grid applications were driven more by opportunities for efficiency than by government support.

Page reference: 362

Page reference: 363

Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

 

38)       What are the factors that enabled China to assume market leadership in the solar panel market? What were the market signals for solar panels in Europe and the United States?

Answer: The market for solar panels is global, and firms in many countries are capable of producing the panels. Photovoltaic solar cells are based on a technology similar to that used to produce semiconductors, and most semiconductors are produced in East Asia with some production in Europe and the United States. Chinese manufacturers with conventional photovoltaic technology set the cost standard for the industry. Moreover, China maintained a lower dollar–yuan exchange rate than if the market were allowed to set the rate, although China had allowed the exchange rate to rise somewhat in 2010.

Another factor in China’s favor was its government. The Chinese government is authoritarian and can act quickly and decisively. The size of the Chinese economy also means that resources can be readily mobilized by government in the domestic capital and factor input markets. The Chinese government views renewable energy as an attractive industry for growth and also for dealing with China’s substantial pollution problems and its high-energy usage. That the Chinese government would provide incentives for renewable energy companies, and even generous subsidies, was not surprising.

The market for solar panels in Europe and the United States slowed to a crawl in 2010, while the market in China grew at a rapid pace. Although the short-term prospects in the Unites States were modest, the longer-term prospects were substantial. Analysts anticipated a fivefold increase in the market for solar panels and related technologies over the next 5 years. For instance, General Electric, which was a major supplier of wind turbines, decided to become a major supplier of solar panels as part of its renewable energy strategy.

In April 2011, GE announced that it would build a solar panel plant with a capacity of 400 megawatts, making it the largest plant in the United States. GE’s announcement followed its acquisition of PrimeStar Solar, which according to the Department of Energy produced the highest efficiency thin-film solar panels. The long-run prospects for solar panels anticipated by GE were soon after confirmed as Total SA of France, the world’s sixth largest oil company, bought 60 percent of SunPower for $1.37 billion, representing a 40 percent premium above the company’s share price.

The actions by GE and Total represented good and bad news for other solar panel producers. The good news was that two huge companies were optimistic about the growth of the solar panel market in the United States and worldwide. The bad news was that solar power start-ups now faced two more large competitors with deep pockets and access to alternative technologies.

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Difficulty: Moderate

AACSB:

Learning Outcome: Identify the fundamental concepts and issues of international business and management

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