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

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

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

What MNEs Have To Offer

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)

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

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

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

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

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.

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

Where Bribes Are (and Are Not) Business as Usual

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

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)

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

Sources of Worker-Related Pressures in the Global Supply Chain

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