Globalization and Society
Chapter Five
Chapter Objectives
To identify problems in evaluating the activities of multinational
enterprises (MNEs)
To evaluate the major economic effects of MNEs on home and
host countries
To understand the foundations of responsible corporate
behavior in the international sphere
To discuss some key issues in the social activities and
consequences of globalized business
To examine corporate responses to globalization
Evaluating the Impact of FDI
FDI is Foreign Direct Investment
The large size of some MNEs causes concern for some
countries
MNEs and countries need to understand the impact of FDI in
home and host countries
The effort is to create favorable investment environments has
led many countries to replace obstacles to FDI with incentives
to FDI.
Evaluating the Impact of FDI
Trade-offs Among Constituencies
To prosper and survive, a company must satisfy SHAREHOLDERS,
EMPLOYEES, CUSTOMERS AND SOCIETY.
Pressure groups lobby governments to retricts MNEs’ activities at home
and abroad.
Management decisions made in one country have repercussions
elsewhere
The effect of an MNE’s activities may be simultaneously positive for one
national objective and negative for another
FDI may result in a win-win, win-lose or lose-lose situation for both
countries involved.
What MNEs Have To Offer
The Economic Impact of the MNE
Balance of Payment Effects
One country’s surplus is another country’s deficit
FDI highlight why countries need to evaluate the effect of each
investment on their balance of payments.
On the import side, the balance-of-payments effect is positive if
the FDI results in a substitution for imports and negative if it
results in an increase in imports.
On the export side, the balance-of-payments effect is positive if
the FDI results in generating exports in the host country and
negative if it produces only for the local market and stops
exports.
The Economic Impact of the MNE
Growth and Employment Effects
Growth and employment effects are not a zero-sum game (gains must
equal losses) because MNEs may use resources that were
unemployed or underemployed.
Effects can be:
Home-country losses
Host-country gains
More optimal use of production factors
The use of unemployed resources
The upgrading of resources quality
Host-country losses
Replace local companies
Take the best resources
Destroy local entrepreneurship
Decrease local R&D undertakings
Why Companies Care About Ethical Behavior
Instrumental in achieving two objectives:
To develop competitive advantage
To avoid being perceived as irresponsible
The Cultural Foundations of Ethical Behavior
Many actions elicit universal agreement on what is right or
wrong, but other situations are less clear.
Values differ from country to country and sometimes between
employees and companies
Relativism -ethical truths depend on the groups holding them
Normativism- there are universal standards of behavior that all
cultures should follow
The Cultural Foundations of Ethical Behavior
Managers need to exhibit ordinary decency - principles of
honesty and fairness
Managers need to create competitive advantages through
ethical behavior and avoid being perceived as irresponsible
Social responsibility requires human judgment.
The Legal Foundations of Ethical Behavior
Legal justification for ethical behavior may not be sufficient
because not everything that is unethical is illegal.
The law is a good basis because it embodies local cultural
values.
As countries tackle similar ethical issues, laws will become
more similar.
Ethics and Bribery
Bribes are payments or promises to pay cash or anything of
value
Bribes are used to get government contracts or to get officials
to do what they should be doing anyway
Problems with bribery:
Affectsperformance of company & country
Erodes government authority
Damages reputations when disclosed
Increases cost of doing business
Where Bribes Are (and Are Not) Business as Usual
Ethics and the Environment
Sustainability
Companies that extract natural resources, generate air or water waste, or
manufacture products, such as autos, that are polluters need to be
concerned with their environment impact
Sustainability involves meeting the needs of the present without
compromising the ability of future generations to meet their own needs,
while taking into account what is best for the people and the environment
Global Warming
Global warming results from the release of greenhouse gases that trap
heat in the atmosphere rather than allowing it to escape
Ethical Dilemmas and the Pharmaceutical Industry
Tiered pricing for pharmaceuticals means that companies charge a
market price for products sold in industrial countries and a
discounted price for products sold in developing countries.
Legal generic products allow countries to purchase drugs at lower
costs and comply with drug patents, whereas illegal generic
products are fakes that may or may not be of high quality.
Countries with health crises, such as African countries suffering
from AIDS, are allowed by TRIPS (Trade-Related Aspects of
Intellectual Property Rights) to manufacture or import generic drugs.
India is a major manufacturer of generic drugs and is now moving to
R&D of new drugs.
Ethical Dimensions of Labor Conditions
Major labor issues that MNEs get involved in through FDI or
purchasing from independent manufacturer in developing
countries are fair wages, child labor, working hours and
freedom of association.
An estimated 250 million children between 5 and 17 years old
are working, but only about 5 percent of child labor is involved
in export industries.
Sources of Worker-Related Pressures in the Global Supply
Chain
Corporate Codes of Ethics
Companies need to act responsibly, because unethical and
irresponsible behavior
Could result in legal sanctions
Could result in consumer boycotts
Could lower employee morale
Could cost sales because of bad publicity
A major component in a company’s strategy for ethical and
socially responsible behavior is code of conduct.
Corporate Codes of Ethics
Codes of conduct, involve four dimensions:
Seta global policy that must be compiled with whatever the
company operates.
Communicate the code to employees, suppliers, and
subcontractors
Ensure the policies are carried out.
Report results to external stakeholders.
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