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8/11/2019 Managing Interdependence: Social Responsibility and Ethics ch02
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Prentice Hall 2003 Chapter 2 1
Managing Interdependence: Social
Responsibility and Ethics
Chapter 2
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Prentice Hall 2003 Chapter 2 2
Chapter 2 - Overview
The Social Responsibility of MNCs
Ethics in Global Management
Managing Interdependence
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Prentice Hall 2003 Chapter 2 3
MNC Stakeholders(Exhibit 2-2)
Home Country
Owners
Customers
Employees
UnionsSuppliers
Distributors
Strategic allies
Community
Economy
Government
Society in General
(global interdependence/
standard of living)
Global environment and ecology
Sustainable resources
Population standard of living
Host Country
Economy
Employees
Community
Host governmentConsumers
Strategic allies
Suppliers
Distributors
MNC
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Prentice Hall 2003 Chapter 2 4
SA 8000s Proposed Global Standards
Do not use child or forced labor
Provide a safe working environment
Respect workers rights to unionize
Do not regularly require more than 48-hour work
weeks
Pay wages sufficient to meet workers basicneeds
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Prentice Hall 2003 Chapter 2 5
What is international business ethics?
The term international business ethics refers to
the business conduct or morals of MNCs in their
relationships with individuals and entities.
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Prentice Hall 2003 Chapter 2 6
The 2001 Corruption Perceptions Index( top 24 countries from Exhibit 2-4)
Country Rank Country CPI Score
1 Finland 9.9
2 Denmark 9.5
3 New Zealand 9.4
4 Iceland 9.2
Singapore 9.2
6 Sweden 9.0
7 Canada 8.9
8 Netherlands 8.8
9 Luxembourg 8.7
10 Norway 8.611 Australia 8.5
12 Switzerland 8.4
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Prentice Hall 2003 Chapter 2 7
The 2001 Corruption Perceptions Index
(contd.)
Country Rank Country CPI Score
13 United Kingdom 8.3
14 Hong Kong 7.9
15 Austria 7.8
16 Israel 7.6USA 7.6
18 Chile 7.5
Ireland 7.5
20 Germany 7.4
21 Japan 7.122 Spain 7.0
23 France 6.7
24 Belgium 6.6
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Prentice Hall 2003 Chapter 2 8
Limits of Ethical Standards for International
Activities
The laws of economically developed countries generally
define the lowest common denominator of acceptable
behavior for operations in those domestic markets. In an
underdeveloped country or a developing country, it would
be the actual degree of enforcementof the law that
would, in practice, determine the lower limits of
permissible behavior.
Laczniak and Naor
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Prentice Hall 2003 Chapter 2 9
Questionable Payments
Questionable paymentsare business payments
that raise significant questions of appropriate
moral behavior either in the host nation or inother nations. Such questions arise out of
differences in laws, customs, and ethics in
various countries, whether the payments in
question are political payments, extortion, bribes,sales commissions, or grease money
payments to expedite routine transactions.
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Prentice Hall 2003 Chapter 2 10
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA),
enacted in 1977, prohibits U.S. companies from
making illegal payments or other gifts or politicalcontributions to foreign government officials for
the purposes of influencing them in business
transactions.
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Prentice Hall 2003 Chapter 2 12
Ethical Behavior and Social Responsibility
Guidelines Developed by MNCs
Develop worldwide codes of ethics
Consider ethical issues in strategy development
Given major, unsolvable, ethical problems,consider withdrawal from the problem market
Develop periodic ethical impact statements
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Prentice Hall 2003 Chapter 2 13
Making the Right Decision
How is a manager operating abroad to know what is the
right decision when faced with questionable or
unfamiliar circumstances of doing business? Here is a
suggested sequence: Consult the laws of both the home and the host countries
Consult the International Codes of Conduct for MNEs (as shown in text
Exhibit 2-2)
Consult the companys code of ethics
Consult your superiors
Use your own moral code of ethics
Follow your own conscience
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Prentice Hall 2003 Chapter 2 14
Managing Subsidiary-Host Country
Interdependence
When managing interdependence, internationalmanagers must go beyond general issues of socialresponsibility and deal with the specific concernsof the MNC subsidiary-host country relationship.
Interdependence rather than independence, andcooperation rather than confrontation are at theheart of that accommodation the journey fromindependence to interdependence managed badlyleads to dependence, and that is an unacceptabledestination.
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Prentice Hall 2003 Chapter 2 15
Criticisms of MNC Subsidiary Activities
MNCs raise their needed capital locally,
contributing to a rise in interest rates in host
countries. The majority (sometimes even 100 percent) of
the stock of most subsidiaries is owned by the
parent company. Consequently, host-country
people do not have much control over theoperations of corporations within their borders.
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Prentice Hall 2003 Chapter 2 16
Criticisms of MNC Subsidiary Activities
(contd.)
MNCs usually reserve the key managerial and
technical positions for expatriates. As a result,
they do not contribute to the development ofhost-country personnel.
MNCs do not adapt their technology to the
conditions that exist in host countries.
MNCs concentrate their R&D activities at home,
restricting the transfer of modern technology and
know-how to host countries.
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Prentice Hall 2003 Chapter 2 17
Criticisms of MNC Subsidiary Activities
(contd.)
MNCs give rise to the demand for luxury goods in hostcountries at the expense of essential consumer goods.
MNCs start their foreign operations by purchasing
existing firms rather than developing new productivefacilities in host countries.
MNCs dominate major industrial sectors, thuscontributing to inflation by stimulating demand for scarceresources and earning excessively high profits and fees.
MNCs are not accountable to their host nations but onlyrespond to home-country governments; they are notconcerned with host-country plans for development.
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Prentice Hall 2003 Chapter 2 18
MNC Benefits and Costs to Host Countries(Exhibit 2-6)
Capital Market Effects
Benefits Broader access to outside
capital
Foreign-exchange earnings
Import substitution effects
allow governments to save
foreign exchange for priority
projects
Risk sharing
Costs Increased competition for
local scarce capital
Increased interest rates assupply of local capital
decreases
Capital service effects of
balance of payments
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Prentice Hall 2003 Chapter 2 19
MNC Benefits and Costs to Host Countries(contd.)
Technology and Production Effects
Benefits Access to new technology and
R&D developments
Infrastructure developmentand support
Export diversification
Costs Technology is not always
appropriate
Plants are often for assemblyand can be dismantled
Government infrastructure
investment is higher than
expected benefits
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Prentice Hall 2003 Chapter 2 20
MNC Benefits and Costs to Host Countries(contd.)
Employment Effects
Benefits Direct creation of new jobs
Opportunities for indigenous
management development Income multiplier effects on
local community business
Costs Limited skill development and
creation
Competition for scarce skills Low percentage of managerial
jobs for local people
Employment instability
because of ability to move
production operations freelyto other countries
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Prentice Hall 2003 Chapter 2 21
Recommendations for MNCs Operating in
Developing Countries(Suggested by De George)
Do no international harm. This includes respect for the integrity of
the ecosystem and consumer safety.
Produce more good than harm for the host country.
Contribute by their activity to the host countrys development. Respect the human rights of their employees.
To the extent that local culture does not violate ethical norms, MNCs
should respect the local culture and work with and not against it.
Pay their fair share of taxes.
Cooperate with the local government in developing and enforcing
just background (infrastructure) institutions (i.e. laws, governmental
regulations, unions, consumer groups) which serve as a means of
social control.