Copyright © 2011 Pearson Education Part Two Comparative Environmental Frameworks 5-1 International Business Environments and Operations Global Edition

Copyright © 2011 Pearson Education 5-2 Chapter Five Globalization and Society

Copyright © 2011 Pearson Education 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 5-3

Copyright © 2011 Pearson Education 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 5-4

Copyright © 2011 Pearson Education 5-5

Copyright © 2011 Pearson Education Need to consider relationship between those who make foreign investments (MNEs) and possible effects on receiving countries Areas to consider: Stakeholder trade-offs Cause-and-effect relationships Individual and aggregate effects 5-6

Copyright © 2011 Pearson Education Balance-of-Payments effects: Net import effect (m - m1) Net capital flow (c - c1) Growth and Employment effects: Home-country losses (see next slide) Host-country gains (see next slide) Host-country losses (see next slide) Balance of Payments, B = (m - m1) + (x - x1) + (c - c1) m = import displacement, m1 = import stimulus x = export stimulus, x1 = export reduction c = capital inflow (Without export and import payment) c1 = Capital outflow (Without export and import payment) 5-7

Copyright © 2011 Pearson Education Growth and Employment effects: Home-country losses - Jobs are exported through FDI Host-country gains - Most optimal use of production factors - The use of unemployed resources - The upgrading of resource quality Host-country losses - Replace local companies - Take the best resources - Destroy local entrepreneurship - Decrease local R&D undertakings 5-8

Copyright © 2011 Pearson Education Instrumental in achieving two objectives: To develop competitive advantage To avoid being perceived as irresponsible 5-9

Copyright © 2011 Pearson Education Relativism vs. Normativism: do truths depend on the values of the groups or are there universal standards 5-10

Copyright © 2011 Pearson Education 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. 5-11

Copyright © 2011 Pearson Education 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: Affects performance of company & country Erodes government authority Damages reputations when disclosed Increases cost of doing business 5-12

Copyright © 2011 Pearson Education 5-13

Copyright © 2011 Pearson Education Cross-National Accords: The OECD (Organization of Economic Co-operation and Development), the ICC (International Chamber of Commerce), and the UN The U.S. Foreign Corrupt Properties Act Industry Initiatives Relativism, the Rule of Law, and Responsibility 5-14

Copyright © 2011 Pearson Education Sustainability Global Warming and The Kyoto Protocol The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCC), aimed at fighting Global Warming National and Regional Initiatives Company-Specific Initiatives 5-15

Copyright © 2011 Pearson Education The Amazon rain forest accounts for 1/3 of the world’s remaining tropical forest Kyoto Protocol proposes reforestation to reduce greenhouse emissions Major Challenge: protect global environment while preserving Brazil’s sovereignty over resources 5-16

Copyright © 2011 Pearson Education Ethical Trading Initiative (see next slide) The Problem of Child Labor What MNEs Can and Can’t Do. - Ex. IKEA in India 5-17

Copyright © 2011 Pearson Education Ethical Trading Initiative Employment is freely chosen Freedom of Association Working conditions are safe and hygienic Child labor shall not be used Living wages are paid Working hours are not excessive No discrimination is practiced Regular employment is provided No harsh or inhuman treatment is allowed 5-18

Copyright © 2011 Pearson Education 5-19

Copyright © 2011 Pearson Education Motivations for Corporate Responsibility Developing a Good Code of Conduct 5-20