1. Chapter Five Globalization and Society
International Business Part Two Comparative Environmental Frameworks
Chapter Five
Globalization and Society

2. 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—ethics and bribery, the environment, pharmaceuticals, labor issues...
To examine corporate responses to globalization

3. 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

4. What MNEs Have To Offer

5. Considering the Logic of FDI
Need to consider relationship between those who make foreign investments (MNEs) and possible effects on receiving countries
Areas to consider:
Stakeholder trade-offs
In the long run, the aims of all stakeholders must be adequately met in order to survive and prosper
Argument 1
Managers are best equipped to serve the interesets of their shareholders
Argument 2
Governments should deal with social issues and externalities
Cause-and-effect relationships
FDIEmployment; however; technological developments, competitors’ actions, and governmental policies may distort the analysis.
Individual and aggregate effects
Time consuming, costly whereas the latter is far from perfect approach. (i.e. exceptional policies)

6. The Economic Impact of the MNE
Balance-of-Payments effects:
Net import effect
Negative if it results in an incease in imports to supply the production capacity or vice versa.
Net capital flow
Initial capital flows to the host country are positive; they may be negative in the long run if capital outflows exceed the value of investments
Growth and Employment effects:
Home-country losses
Create jobs abroad at the expense of jobs in the home country
Host-country gains
Transfer of capital, technology, managerial expertise, as well as creation of new jobs
Host-country lossesnext slide

7. Host Country Losses- FDI inflows may
Cream off premium resources
Drive up local costs
Displace domestic investment
i.e. Infant industries
Destroy local entrepreneurship
Disadvantage local competitors

8. Why Companies Care About Ethical Behavior
Instrumental in achieving two objectives:
To develop competitive advantage
To avoid being perceived as irresponsible

9. The Cultural Foundations of Ethical Behavior
Relativism vs. Normativism: do truths depend on the values of the groups or are there universal standards
Negotiating between evils
Respecting cultural identity

10. 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
Laws will become similar in different countries

11. Other Legal Issues Extraterritoriality Externalities:
The extension by a government of the application of its laws to the foreign operations of its domestic firms
Differences in home-and host country laws may pose challenging conflicts.
Externalities:
the by-product of activities that affect the well-being of people and/or the environment
Although not reflected in standard cost accounting practices, must be included in the determination of stakeholder value.

12. Ethics and Bribery
Bribes are payments or promises to pay cash or anything of value
Bribes used to get government contracts or to get officials to do what they should be doing anyway
Problems with bribery:
Affects performance of company & country
Erodes government authority
Damage reputations when disclosed
Increases cost of doing business

13. Where Bribes Are (and Are Not) Business as Usual

14. What’s Being Done About Corruption?
Cross-National Accords: The OECD, the International Chamber of Commerce (ICC) and the UN
Industry Initiatives
Relativism, the Rule of Law, and Responsibility

15. Ethics and the Environment
Sustainability
Global Warming and The Kyoto Protocol
National and Regional Initiatives
Company-Specific Initiatives
Washington Declaration (2007)
Post-Kyoto protocol negotiations on greenhouse emissions
Not binding
G8 (Canada, France, Germany, Italy, Japan, Russia, UK and USA) + Brazil, China, India, Mexico and SA.
Agreed on cap-and-trade (emission trading)

16. Ethical Dilemmas and the Pharmaceutical Industry
Tiered pricing and other price-related issues
WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
A mechanism for poor countries facing health crises to either produce or import generic products
R&D and the Bottom Line

17. Sources of Worker-Related Pressures in the Global Supply Chain

18. Ethical Dimensions of Labor Conditions
Adopt responsible employment practices in foreign operations
Fair wages
Child labor
Working conditions
Freedom of association
Set global ethics politices that must be complied with whenever the company operates-- Corporate Codes of Ethics