International Business Trade CHAPTER 4
Ethics, Corporate
Social Responsibility,
Sustainability and
Governance in
International Business
04.
IMPROVING THE LIVES
OF BANGLADESHI
GARMENTS
FACTORY WORKERS
Country’s most significant running
industry for the following contributions:
One of the top garment exporters - 4.8%
Accounting 75% of its total export revenue
Open job opportunity
Social mobility
Urbanization
Women Empowerment - (women in labor)
Bangladesh Garment This results to:
Industry (Buyer-driven
Value Chain)
Constant pressure in
Manufacturers
Labor-intensive
To gain production efficiency
Production
To achieve low-cost advantage
Non-specialized
Health and safety issues
Low Fixed Cost
Accidents
Canceled purchase orders
ETHICAL BEHAVIOR
AND ITS
IMPORTANCE IN
INTERNATIONAL
BUSINESS
Four Key Components
ETHICAL BEHAVIOR
ETHICAL BEHAVIOR
ETHICAL BEHAVIOR is about doing the
right things for the company, the
employees, the community, the
government, and the natural
environment.
Component 01 \\ Ethics
ETHICS Moral principles and
Values that govern the
ETHICS behavior of people,
ETHICS firms, and governments,
regarding right and
ETHICS wrong.
12.
Component 01 \\ Corporate Social Responsibility
Refers to operating a
CSR business in a manner
that meets or exceeds
CSR the ethical, legal, and
CSR commercial
expectations of
customers,
CSR shareholders,
employees, and the
12.
communities.
Component 01 \\ Sustainability
SUSTAINABILITY Means meeting
SUSTAINABILITY humanity’s needs today
without harming the
ability of future
SUSTAINABILITY generations to meet
their needs.
SUSTAINABILITY
12.
Component 01 \\ Corporate Governance
CORPORATE Is the system of
GOVERNANCE procedures and
processes by which
CORPORATE corporations are
managed, directed, and
GOVERNANCE controlled.
12.
ETHICS
CORPORATE CSR
GOVERNANCE
SUSTAINA-
BILITY
VALUE OF ETHICAL
BEHAVIOR
Reasons:
It is simply the right thing to do.
It is often prescribed within laws and regulations. Violating laws
and regulations has obvious legal consequences.
Customers, governments, and the news media demand ethical
behavior. Firms that commit ethical blunders attract unwanted
attention from opinion leaders.
Ethical behavior is good business, leading to enhanced
corporate image and selling prospects.
UNETHICAL
BEHAVIOR
Causes:
Top management sets goals and incentives aimed at promoting
good outcomes that instead encourage bad behaviors.
Employees overlook unethical behavior in others because of
peer pressure or self-interest.
Managers tolerate lower ethical standards in value-chain
activities suppliers or third-party firms perform.
Unethical practices are allowed to accumulate in the firm slowly
overtime.
Bad means are justified by good ends.
ETHICAL STANDARDS AND
DILEMMAS AROUND THE WORLD
China - counterfeiters.
Africa - bribes.
US - Unfair compensation.
Finland and Sweden -
children advertising.
a predicament
concerning major
conflicts among
different interests
ETHICAL when determining the
most appropriate
DILLEMA course of action is
confounded by a set of
solutions that are
equally justifiable and
often equally imperfect.
12.
Relativism
and
Normativism
RELATIVISM the belief that ethical
truths are not absolute
but differ from group to
RELATIVISM group
12.
the belief that ethical
NORMATIVISM behavioral standards
are universal, and firms
and individuals should
NORMATIVISM seek to uphold them
consistently around the
world
12.
Ethical Challenges
in International Business
Unethical Management
Corruption Bribery
Practices
Harmful Global Illicit Products and Intellectual Property
Sourcing Marketing Infringement
ETHICAL CHALLENGES
the practice of obtaining
Corruption power, personal gain, or
influence through illegitimate
means and usually occurs at
others’ expense
How is Corruption Encountered in
International Business?
Bribery - occurs when a person offers or gives another person a gift, cash, or
favor to act dishonestly in exchange for personal gain
Embezzlement - theft or misuse of funds typically placed in one’s care or
belonging to one’s employer
Fraud - involves wrongfully deceiving a person or other party to give up asset
or cash
Extortion and blackmail - involves threats of harm against another person or
party unless payment is received or some other demand is met
Money laundering - the concealment of the origins of funds obtained
through illegal means
Assessing Corruption Worldwide
Transparency International surveys business executives every year
(180 countries)
The result is the Corruption Perceptions Index which scores
countries from 1 to 100.
CORRUPTION PERCEPTIONS INDEX (2022)
ETHICAL CHALLENGES
occurs when a person offers or
Bribery gives another person a gift,
cash, or favor to act
dishonestly in exchange for
personal gain
Unethical Management
Practices
Harmful
Global Sourcing
Harmful Global Sourcing
Illicit Products
and
Marketing
Illicit Products and Marketing
Intellectual Property
Infringement
Intellectual Property Rights
Copyright Trademark Patent
Intellectual Property Infringement
Piracy Counterfeiting
Piracy and counterfeiting hurt the
world economy in various ways:
International Trade
Direct Investment
Company performance
Innovation
Tax Revenues
Criminal Activity
The natural environment
Natural Prosperity and wellbeing
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
refers to operating a business in a manner that meets or exceeds the
ethical, legal, and commercial expectations of customers, shareholders,
employees, and the communities where the firm does business.
SETTINGS
OF CORPORATE
SOCIAL
RESPONSIBILITY
SETTINGS
focuses on the firm's employees
Workplace and implies thoughtful approach
to diversity, recruitment, salary,
CSR safety, health, and working
conditions
SETTINGS
Marketplace
emphasizes company
interactions with customers,
CSR competitors, suppliers, and
distributors
SETTINGS
Environmental
refers to the firm's activities to
minimize or eliminate the creation
CSR of pollutants as well as efforts to
improve the natural environment
SETTINGS
Community accounts for the firm's activities
aimed at benefiting the
CSR community and society
SUSTAINABILITY
SUSTAINABILITY
implies the development and execution of company practices that avoid
harming the ability of future generations to meet their needs.
WHO ARE THE
ENDORSES OF SUSTAINABILITY?
ECONOMIC ENVIRONMENTALISTS HUMAN RIGHTS
DEVELOPMENT EXPERTS ACTIVISTS
SUSTAINABLE
BUSINESS PRACTICES
Beneficial agricultural processes
Water conservation
Air quality protection
Reduced energy and fuel consumption
Increased use of solar and development energy
Improved work process
TYPES OF
SUSTAINABILITY
INTERESTS
TYPES
Economic refers to the firm’s economic
impact on the localities where
Interests it does business
TYPES
Social refers to how the firm performs
relative to societies and social
Interests justice, often termed in hiring
TYPES
Environmental
refer to the extent of the firm’s
contribution to preserving
Interests environmental quality, commonly
known as environmental impact
MNE ROLE IN
SUSTAINABILITY
Leading firms view sustainability as an
opportunity for resources efficiency,
cost effectiveness, reduced waste, and
increased competitive advantage.
SUSTAINABLE COMPANIES
THE ROLE OF
CORPORATE
GOVERNANCE
Leading companies implement corporate
governance by creating (a) a set of values that
serve as a guide for employees; and b) a set of
ground rules for guiding behavior, which include
criteria for acceptable decision-making, used by
all employees.
The values and ground rules should be
established in the firm's Code of Ethics
and Code of Conduct documents.
Embracing Ethical Behavior
1. Build internal and external capabilities to enhance the firm's contribution
to the local community and global environment.
2. Ensure that diverse voices are heard by creating organizational structures
that employ managers and workers from around the world.
3. Develop global ethical standards and objectives that are communicated
and implemented across the firm worldwide.
4. Train managers in global ethical principles and integrate these into
managerial responsibilities.
5. Develop closer relations with foreign stakeholders to understand their
needs better and jointly work toward solutions.
ETHICAL STANDARD
APPROACHES FOR
CORPORATE
GOVERNACE
UTILITARIAN APPROACH
Provides the most good or the least harm.
Produces the greatest balance of good
over harm. (to customers, employees,
shareholders, the community, and the
natural environment)
RIGHTS APPROACH
Protects and respects the moral rights of
everyone involved.
Based on the belief that, regardless of how
you deal with an ethical dilemma, human
dignity must be preserved.
FAIRNESS APPROACH
Treats everyone equally and fairly.
VIRTUE APPROACH
Emphasizes virtues that provide for the full
development of our humanity.
COMMON GOOD APPROACH
Emphasizes the welfare of the entire
community or nation.
Asks what action contributes most to the
quality of life of all affected people.
International Chamber of Commerce
United Nations
Organisation for Economic
Co-operation and Development
(OECD)
United Nations Global Compact
Global Reporting Initiative
GOING DEEP,
WIDE, AND LOCAL
institutionalizing
GOING appropriate behavior in
the organization’s
DEEP culture so it becomes
part and parcel of
strategy
12.
continues effort to
GOING understand how CSR
and sustainability
WIDE affect every aspect of
the firm’s operations
worldwide
12.
GOING requires the firm to
examine its global
LOCAL operations to identify
and improve local
issues
12.
BENEFITS OF
CORPORATE
GOVERNACE
Benefits of Corporate Governance
Increased employee commitment
Increased customer loyalty and sales
Improved reputation and brand image
Reduced likelihood of government intervention
Reduced business costs
Improved financial performance
FRAMEWORK FOR
MAKING ETHICAL
DECISIONS
FRAMEWORK FOR MAKING ETHICAL DECISIONS
01.
IDENTIFY THE
PROBLEM.
FRAMEWORK FOR MAKING ETHICAL DECISIONS
02.
EXAMINE THE
FACTS.
FRAMEWORK FOR MAKING ETHICAL DECISIONS
03.
CREATE
ALTERNATIVES.
FRAMEWORK FOR MAKING ETHICAL DECISIONS
04.
IMPLEMENT THE
COURSE OF
ACTION.
FRAMEWORK FOR MAKING ETHICAL DECISIONS
05.
EVALUATE
RESULTS.
International Business Trade CHAPTER 5
THEORIES OF
INTERNATIONAL
TRADE AND
INVESTMENT
05.
TAOBAO’S RISE
Top 10 most visited websites
500M members
daily consumers of 60M
Gross M: exceeded 1 trillion yuan
Founder: Ma Yun or Jack Ma
Alibaba Group on May 10, 2003
Taobao’s Competitive
Advantages
1. Location - China
2. The economies of scope
3. Scale
4. Networking
5. Alibaba’s Good relations with
Chinese government
Comparative Competitive
Advantage Advantage
how a business refers to a company's
lowers costs to gain ability to outperform
leverage against its its competitors.
competitors.
“Country-specific “Firm-specific
advantage” advantage’’
WHY
DO NATIONS
TRADE?
MERCANTILISM The belief that national
prosperity is the result
MERCANTILISM of a positive balance of
trade, achieved by
MERCANTILISM maximizing exports and
minimizing imports
MERCANTILISM
FREE TRADE
Relative absence of restrictions
to the flow of goods and
services between nations.
Free Trade produces the following outcomes:
Consumers and firms can more readily buy the
products they want.
Imported products may be cheaper than domestically
produced products.
Lower-cost imports reduce expenses.
Lower-cost imports help consumer save money
Unrestricted international trade increase overall
prosperity of poor countries.
ABSOLUTE
ADVANTAGE The idea that a country
PRINCIPLE benefits by producing
only those products it
ABSOLUTE can produce using
fewer resources.
ADVANTAGE
PRINCIPLE
COMPARATIVE
ADVANTAGE It may be beneficial for
two countries to trade
PRINCIPLE with each other as long
as one is relatively
COMPARATIVE more efficient at
producing a product
ADVANTAGE needed by the other.
PRINCIPLE
FACTOR
PROPORTIONS an economic theory
that explains
THEORY AND international trade
based on differences in
THE LEONTIEF factor endowments
between countries.
PARADOX
INTERNATIONAL
PRODUCT LIFE trade was growing
CYCLE THEORY fastest among
industrialized countries
with similar factors of
INTERNATIONAL production.
PRODUCT LIFE
CYCLE THEORY
NEW TRADE an economic theory
THEORY that explains
international trade
based on differences in
NEW TRADE factor endowments
THEORY between countries.
HOW CAN NATIONS
ENHANCE THEIR
COMPETITIVE
ADVANTAGE?
COMPETITIVE
ADVANTAGE
OF THE NATIONS
Innovation
Michael Porter Productivity
COMPETITIVE
ADVANTAGE
OF THE NATIONS
The Competitive The Global
Advantage of Nations Innovation 1000
COMPONENTS OF NATIONAL
COMPETITIVENESS
Comparative Advantage Competitive Advantage
Location-specific advantages arises Firm-specific advantage, or ownership-
from an abundance in a country of: specific advantage, arises from an
abundance in a firm of:
1. Valuable Natural Resources
2. Arable or Buildable Land 1. Specific Knowledge
3. Strategic Location 2. Specific Capabilities
4. Favorable Climate 3. Certain Types of Skills
5. Low-cost Labor 4. Superior Strategies
6. Skilled Labor 5. Strong Networks
7. Inexpensive Capital 6. Other Assets
National Competitiveness
Innovation
Michael Porter Productivity
COMPETITIVE
ADVANTAGE
OF THE NATIONS
The Competitive The Global
Advantage of Nations Innovation 1000
DETERMINANTS OF
NATIONAL
COMPETITIVENESS
DEMAND
CONDITIONS nature of home-market
demand for specific
products and services.
DEMAND
CONDITIONS
FIRM nature of domestic
STRATEGY, rivalry and conditions in
a nation that
determines how firms
STRUCTURE, AND are created, organized,
RIVALRY and managed.
nation’s resources such
FACTOR as labor, natural
CONDITIONS resources, and
advanced factors such
as capital, technology,
FACTOR entrepreneurship,
CONDITIONS advanced work force
skills, and know-how.
RELATED AND presence of clusters of
SUPPORTING suppliers, competitors,
and skilled workforce.
INDUSTRIES
a concentration of
businesses, suppliers,
INDUSTRIAL and supporting firms in
the same industry
CLUSTER located at a particular
geographic location,
INDUSTRIAL characterized by a
critical mass of human
CLUSTER talent, capital, or other
factor endowments.
MICHAEL integrates country-based
PORTER’S theories with firm-based
theories to determine national
DIAMOND competitiveness.
MODEL
MICHAEL PORTER’S DIAMOND MODEL
NATIONAL INDUSTRIAL POLICY
is a proactive economic development plan a government launches to build
or strengthen a particular industry, often implemented in collaboration with
the private sector.
FEATURES
OF NATIONAL INDUSTRIAL POLICIES
Tax incentives
Monetary and fiscal policies
Educational systems
Infrastructure
Legal and regulatory systems
WHY AND HOW DO
FIRMS
INTERNATIONALIZE?
INTERNATIONALIZATION
PROCESS OF THE FIRM
Internationalization process model was developed by scholars in the
1970s to describe how companies expand abroad.
STAGES IN THE INTERNATIONALIZATION
PROCESS OF THE FIRM
01 02 03 04 05
DOMESTIC PRE-EXPORT EXPERIMENTAL ACTIVE COMMITTED
FOCUS STAGE INVOLVEMENT INVOLVEMENT INVOLVEMENT
BORN GLOBAL FIRMS
These are innovative start-ups that initiate international business
soon after their founding.
TWO MAIN REASONS WHY BORN GLOBAL
FIRMS HAVE EMERGED IN LARGE NUMBERS:
Globalization has made doing international business easier
than ever before.
Advances in communication and transportation technologies
have reduced the costs of operating internationally.
The born global phenomenon has given
rise to a new academic field,
INTERNATIONAL ENTREPRENEURSHIP.
HOW CAN
INTERNATIONALIZING
FIRMS GAIN AND
SUSTAIN COMPETITIVE
ADVANTAGE?
FDI-BASED EXPLANATIONS
emphasized FDI is the preferred entry strategy of
MNEs
FDI STOCK
refers to the total value of assets that MNEs invest
abroad
THREE ALTERNATIVE
THEORIES OF HOW
FIRMS CAN USE FDI TO
GAIN AND SUSTAIN
COMPETITIVE
ADVANTAGE
THEORY KEY CHARACTERISTICS BENEFITS
The firm controls one or more
The firm can operate foreign
resources, or offers relatively unique
Monopolistic subsidiaries more profitably than the
products and services that provide it
Advantage Theory local firms that compete in their own
a degree of monopoly power relative
markets.
to foreign markets and competitors.
Minimizes the disadvantages of
relying on intermediaries,
collaborators, or other external
The firm acquires and retains one or
Internatlization partners
more value-chain activities within
Theory Ensures greater control
the firm.
Reduces the risk that knowledge
and proprietor assets will be lost
to competitors
THEORY KEY CHARACTERISTICS BENEFITS
Ownership-specific advantages: The
firm owns knowledge, skills,
capabilities, processes or physical Provides various advantages
assets relative to competitors,
Location-specific advantages: including the ability to own,
Dunning’s Electric
Factors in individual countries provide control, and optimize value
Paradigm
specific benefits chain activities performed at
Internalization advantages: The firm the most beneficial locations
benefits from internalizing foreign worldwide.
manufacturing, distribution, or other
value chain activities
Non-FDI-Based
Explanations
International Collaborative
Ventures
Equity-based Non-equity-based
joint ventures joint ventures
Non-FDI-Based Explanations
Network and
Relational Assets
Non-FDI-Based Explanations
Non-FDI-Based Explanations
INTERNATIONAL BUSINESS AND TRADE GROUP 1`
Thank You for
Listening.
Mickaellah Constante
G1
Loreigne Anne Espineli
Dynee Rose Ferma
Kimberly Labrador
Ma. Jarien Mojica
Fraize Justinne Tayamora