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Chapter 01 - Globalization and International Linkages

Chapter 1: Globalization and International Linkages


Learning Objectives and Chapter Summary
1. ASSESS the implications of globalization for countries, industries, firms and communities. Globalizationthe process of increased integration among countriescontinues at an accelerated pace. More and more companiesincluding those from developing countriesare going global, creating opportunities and challenges for the global economy and international management. Globalization has become controversial in some quarters due to perceptions that the distributions of benefits are uneven and due to global distribution of economic activities as illustrated by offshoring. There have emerged sharp critics of globalization from academics, NGOs, and the developing world, yet the pace of globalization and integration continues unabated. 2. REVIEW the major trends in global and regional integration. Economic integration is most pronounced in the triad of North America, Europe, and the Pacific Rim. The North American Free Trade Agreement (NAFTA) is turning the region into one giant market. In South America, there is an increasing amount of intercountry trade, sparked by Mercosur and the Andean Pact nations. Additionally, trade agreements such as the Central American Free Trade Agreement (CAFTA) and others are linking countries of the Western Hemisphere together. In Europe, the expansion of the original countries of the European Union (EU) is creating a larger and more diverse union, with dramatic transformation of Central and Eastern European countries such as the Czech Republic, Poland, and Hungary. Asia is another major regional power, as reflected in the rapid growth shown not only by Japan, but also the economies of China, India, and other emerging markets. Countries in Africa and the Middle East continue to face complex problems but still hold economic promise in the future. Emerging markets in all regions present both opportunities and challenges for international managers.

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EXAMINE the changing balance of global economic power and trade and investment flows among countries. Different growth rates are shifting demographics are dramatically altering the distribution of economic power around the world. Notably, Chinas rapid growth will make it the largest economic power in the world by mid-century, if not before. India will be the most populous country in the world, and other emerging markets will also become important players. International trade and investment have been increasing dramatically over the years. Major multinational corporations (MNCs) have holdings throughout the world, from North America to Europe to the Pacific Rim to Africa. Some of these holdings are a result of direct investment; others are partnership arrangements with local firms. Small firms also are finding that they must seek out international markets to survive in the future. MNCs from emerging markets are growing rapidly and expanding their global reach. The internationalization of nearly all business has arrived.

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ANALYZE the major economic systems and recent developments among countries that reflect those systems. Different economic systems characterize different countries and regions. These systems, which include market, command, and mixed economies, are represented in different nations and have changed as economic conditions have evolved.

Chapter Outline with Lecture Notes and Teaching Tips Introduction


1) International management is the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments. 2) The world of international management is changing rapidly, and one primary reason is because increased foreign investment and trade are bringing managers from one country into ongoing contact with those in others. 3) A multinational corporation is a firm that has operations in more than one country, international sales, and a nationality mix of managers and owners. Teaching Tip: The trend towards investing in international markets has not gone unnoticed at many premier universities around the world. An organization called the Network of International Business Schools {http://www.nibsnet.net/Default.aspx} Keywords international business schools (2010) provides a forum for schools with international business programs to discuss their curriculums. Consider visiting this website, and providing your students some examples of how colleges and universities are integrating the realities of globalization into their business school curriculums.

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Globalization and Internationalization


Globalization, AntiGlobalization, and Global Pressures 1) Globalization is the process of social, political, economic, cultural, and technological integration among countries around the world. 2) Outsourcing is the subcontracting or contracting out of activities to endogenous organizations that had previously been performed by the firm. 3) Advantages of globalization include: lower prices, greater availability of goods, better jobs, and access to technology. 4) Offshoring is the process by which companies undertake some activities at offshore location instead of in their country or origin. 5) Disadvantages of globalization include: the off-shoring of jobs to low-wage countries, growing trade deficits, slow wage growth, a lack of responsiveness to the economic effects of the process, and the potential for a race to the bottom in which companies and countries place downward pressure on wages and working conditions. Global and Regional Integration 1) World Trade Organization (WTO) the global organization of countries that oversees rules and regulations for international trade and investment. Various rounds of negotiations took place under the General Agreement on Tariffs and Trade (GATT): a) The December 1999 Battle in Seattle: protesters and developing countries who felt their views were not considered disrupted the meeting. b) The November 2001 Development Round in Doha, Qatar: recognized the needs of and impact on developing countries, but initiated little progress. c) The September 2003 meeting in Cancun: 20+ developing countries, led by Brazil and India, attempted to press developed countries to reduce barriers to agricultural imports. Teaching Tip: The WTO website {http://www.wto.org} provides a wide range of current information about the WTO. Teaching Tip: The GATT Agreement is available online in Adobe Acrobat format at {http://docsonline.wto.org}. 2) North American Free Trade Agreement (NAFTA) - A free trade agreement between the United States, Canada, and Mexico that has removed most barriers to trade and investment. Teaching Tip: FAS Online supplies a large amount of information dealing with the NAFTA. The site is available at {http://ffas.usda.gov/info/factsheets/NAFTA.asp} (2010).

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3) The Free Trade Agreement of the Americas (FTAA) a proposed free-trade agreement among the 34 democratically governed countries of the Western Hemisphere. 4) The European Union (EU) - a unified market that in 2003 consisted of 15 nations including Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Holland, Ireland, Italy, Luxembourg, Portugal, Spain, and Sweden. Ten countries: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined in 2004, and Romania and Bulgaria joined in 2007. The EU is better integrated as a single market than either NAFTA or the allied Asian countries. Teaching Tip: The EU maintains an excellent website at {http://www.europa.eu/}. 5) Japan - although Japan has experienced economic problems for about ten years, it continues to be one of the primary economic force in the Pacific Rim. Japan recently has invested relatively more in its own backyard than in any other part of the world. Teaching Tip: As a way of demonstrating to your students how "global" the world has become, consider showing them Yahoo Japan, which is the Yahoo search engine written in Japanese {http://www.yahoo.co.jp/} or Facebooks Japanese site {http://jajp.facebook.com/}. 6) Central and Eastern Europe, Russia, and the other republics of the former Soviet Union these countries are still transitioning to market economies. 7) Latin America - economic activity in Latin America continues to be volatile. Despite the continuing political and economic setbacks these countries periodically experience, export growth continue in Brazil, Chile, and Mexico. The CAFTA agreement between the U.S. and Central American countries presents new opportunities for trade, investment, services, and working conditions in the region. Teaching Tip: Many Latin American countries are using the Internet to promote themselves. The website for Chile, which is available at {http://www.chileinfo.com}, is an excellent example. The Shifting Balance of Economic Power in the Global Economy 1) Economic integration and the rigid growth of emerging markets are creating a shifting international economic landscape. a) Foreign direct investment (FDI) is the term used to indicate the amount invested in property, plant, and equipment in another country.

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Teaching Tip: New York Times supplies a web page with current world business articles. This site can be found at {http://www.nytimes.com/pages/business/worldbusiness/index.html} b) Global trade and investment continues to grow at a healthy rate, outpacing domestic growth in most countries. c) The United States is projected to remain the worlds largest economy as measure by GDP and market exchange rates. 2) International trade and investment patterns the global recession had a significant effect on global trade and investment flows (see Tables 1-8, 1-9, and 1-10 in the text). a) In 2009, merchandise exports dropped 23% to $12.15 trillion, and commercial services exports fell 13% to $3.31 trillion. b) EU Countries EU trade among members also declined in 2009. Exports and imports between EU members were down over 20%. c) Foreign investment and trade do not rely exclusively on MNCs exporting or setting up operations locally. In some cases, it is far easier to buy a domestic firm. Teaching Tip: International trade is not without controversy. Many labor groups, in countries all over the world, fear that imports cost domestic workers their jobs and threaten their national sovereignty. Proponents of international trade argue that imports provide consumers more choices and cost savings, and actually create domestic employment because consumers can take the money that they save by buying imports and purchase more domestically produced products. It is appropriate to point out these two sides of the issue to your students. Many websites are dedicated to the debate surrounding these issues. An example is the site at {http://www.uswa.org}. The site is sponsored by the United Steelworkers of America, and support's labor's point of view.

Global Economic Systems


1) The evolution of global economies has resulted in three main systems: a market economy, a command economy, and a mixed economy. Market Economy 1) Market economy exists when private enterprise reserves the right to own property and monitor the production and distribution of goods and services while the state simply supports competition and efficient practices.

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Command Economy 1) Command economy comparable to a monopoly in the sense that the organization, in this case the government, has explicit control over the price and supply of a good or service. Mixed Economy 1) Mixed economy a combination of a market and command economy. While some aspects of this system include private ownership and the freedom and flexibility of the law of demand, other sectors are subject to government planning.

Economic Performance and Issues of Major Regions


Established Economies 1) North America: constitutes one of the three largest trading blocs in the world. The combined purchasing power of the United States, Canada, and Mexico is more than $12 trillion. 2) The United States - U.S. MNCs have holdings throughout the world. At the same time, foreign MNCs are finding the United States to be a lucrative market for expansion. Teaching Tip: Until a person has traveled internationally, it is hard to imagine what familiar American products look after they have been modified for overseas markets. Against this backdrop, an entertaining website to show your students is entitled "The Coca Cola Bottles of the World" {http://www.coca-cola.com}. The site shows what Coke bottles look like in at least a dozen foreign countries, and also explains how the bottles have been modified to fit local bottling and labeling requirements. Some of the countries featured include: Netherlands, Taiwan, Australia, Germany, Venezuela, and Hong Kong. Several Pepsi bottles from around the world are also included. 3) Canada - Canada is the United States' largest trading partner, a position it has held for many years. The United States also has considerable FDI in Canada, more than in any other country except the United Kingdom.

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4) Mexico - By the early 1990s, Mexico had recovered from its economic problems of the previous decade and become the strongest economy in Latin America. In 1994, Mexico became part of NAFTA, and it appeared to be on the verge of becoming the major economic power in Latin America. Because of NAFTA, Mexican businesses are finding themselves able to take advantage of the U.S. market by replacing goods that were previously purchased from Asia. a) Maquiladora a factory, the majority of which are located in Mexican border towns, that imports materials and equipment on a duty- and tariff-free basis for assembly or manufacturing and re-export. Teaching Tip: An excellent chart of the advantages of doing business in Mexico is available at {http://www.calpacifico.com/mexicoadvantajes.htm}. The site is maintained by Cal Pacifico, a company that specializes in helping American firms establish manufacturing operations in Mexico. The chart reports that the average production worker compensation in Mexico in 2004, including benefits, was $2.50 per hour. This compares with $23.17 in the U.S., $21.90 in Japan, and $32.53 in Germany. Some students may raise ethical issues when looking at these numbers. Is it ethical for an American firm to pay Mexican workers only $2.50 per hour, even though that is the going rate in Mexico? 5) The EU: the ultimate objective of the EU is to eliminate all trade barriers among member countries. a) This economic community eventually will have common custom duties as well as unified industrial and commercial policies regarding countries outside of the union. b) The challenge for the future for the EU is to absorb their Eastern neighbors, the former communist block countries. c) In 2009 and 2010, the stability of the EU was threatened when several members including Greece, Portugal, Spain, and Ireland teetered on the brink of financial collapse forcing a rescue package led by Germany and France. 6) Japan: during the 1970s and 1980s, Japan's economic success had been without precedent. In contrast, throughout the 1990s, the Japanese economy has endured a serious recession. a) Ministry of Trade and Industry (MITI) - a Japanese government agency that identifies and ranks national commercial pursuits and guides the distribution of national resources to meet these goals. Teaching Tip: to learn more about MITI go to {http://www.meti.go.jp/english/}. b) Keiretsus - an organizational arrangement in Japan in which a large group of vertically integrated companies bound together by cross-ownership, interlocking directorships, and social ties provide goods and services to end users.

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Emerging Economies 1) Central and Eastern Europe: Russias economy continues to grow as poverty declines and the middle class expands. Direct investment in Russia, along with its membership in the International Monetary Fund (IMF), is helping to raise GDP and decrease inflation, offsetting the hyperinflation created from the initial attempt to transition to a market-based economy. Teaching Tip: Current information about Russia can be obtained on a daily basis via Russia Today, a service of the European Internet Network. The site is available at {http://www.russia.com}. 2) Other countries including Hungary, Poland, and the Czech Republic are also growing and attracting foreign investment. Albania is also beginning to make progress as a market economy. 3) China: Chinas GDP has remained strong, maintaining 12 percent growth in 2007, and 11.5 percent in 2009 despite the global recession. In the first quarter of 2010, GDP grew at a blistering 11.7 percent, raising concerns that the Chinese government had provided to much liquidity during the recession. a) Trade relations between China and developed countries and regions, such as the United States, and the EU, remain tense, and in 2010, China faced intense pressure from the global community to revalue its currency. 4) Other Emerging Markets of Asia: In addition to Japan and China, there are four other widely recognized economic powerhouses in Asia (see also Tables 1-12 and 1-13 in the text). a) South Korea In South Korea, the major conglomerate, called chaebols, are very large, family-held Korean conglomerates that have considerable political and economic power. b) Hong Kong - Bordering southeast China and now part of the PRC (People's Republic of China), Hong Kong has been the headquarters for some of the most successful multinational operations is Asia. c) Singapore - Singapore is a major success story. Its solid foundation leaves only the question of how to continue expanding in the face of increasing international competition. d) Taiwan Despite being hit hard by the economic downturn, Taiwan continues to grow steadily, and is now dominated by high tech industries. e) Other countries in Southeast Asia including Thailand, Malaysia, Indonesia, and Vietnam are also showing string economic growth trends. The relatively large populations and inexpensive labor forces in these countries are attractive to international investors.

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5) India: With a population of about 1 billion and growing. India has traditionally had more than its share of political and economic problems. Nonetheless, for a number of reasons, India is attractive to multinationals, and especially to U.S. and British firms. Developing Economies on the Verge 1) South America: Countries in South America have experienced difficult economic problems over the years. Although most have tried to implement economic reforms reducing their debt, periodic economic instability and the emergence of populist leaders have had an impact on the attractiveness of countries in the region. a. Brazils economy has evolved into a flourishing system. Through 2009, GDP continued to rise, inflation decreased, and employment increased. b. Chiles market-based economic growth has fluctuated between 3 and 6 percent over the last decade, creating uncertainty in its future. Despite this, Chile attracts a lot of foreign investment. c. Argentina has one of the strongest economies overall with abundant natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base; however it has suffered the recurring economic problems of inflation, external debt, capital flight, and budget deficits. d. Another major development in South America is the growth of intercountry trade, spurred by the progress toward free market policies. 2) Middle East and Central Asia: Because most industrial nations rely, at least to some degree, on imported oil, an understanding of this part of the world is important to the study of international management. 3) Africa: Even though they have considerable natural resources, on the whole African nations remain very poor and underdeveloped, and international trade is not a major source of income. Economic growth in the region is expected to strengthen in 2010 and 2011 (see Table 1-11 in the text).

Chapter 2: The Political, Legal, and Technological Environment


Learning Objectives and Chapter Summary
1. INTRODUCE the basic political systems that characterize regions and countries around the world and offer brief examples of each and their implications for international management. The global political environment can be understood via an appreciation of ideologies and political systems. Ideologies, including individualism and collectivism, reflect underlying tendencies in society. Political systems, including democracy and totalitarianism, incorporate the ideologies into political structures. There are fewer and fewer purely collectivist or socialist societies, although

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totalitarianism still exists in several countries and regions. Many countries are experiencing transitions from more socialist to democratic systems, reflecting related trends discussed in Chapter 1 toward more market-oriented economic systems. 2. PRESENT an overview of the legal and regulatory environment in which MNCs operate worldwide, and highlight differences in approach to different legal and regulatory issues in different jurisdictions. The current legal and regulatory environment is both complex and confusing. There are many different laws and regulations to which MNCs doing business internationally must conform, and each nation is unique. Also, MNCs must abide by the laws of their own country. For example, U.S. MNCs must obey the rules set down by the Foreign Corrupt Practices Act. Privatization and regulation also affect the legal and regulatory environment in a specific country. 3. REVIEW key technological developments including the growth of e-commerce, and discuss their impact on MNCs now and in the future. The technological environment is changing quickly and is having a major impact on international business. This will continue in the future. For example, digitization, higher-speed telecommunication, and advancements in biotechnology offer developing countries new opportunities to leapfrog into the 21st century. New markets are being created for high-tech MNCs that are eager to provide telecommunications service. Technological developments also impact both the nature and the structure toward a more high-tech, knowledge-based economy. MNCs that understand and take advantage of this high-tech environment should prosper, but they must also keep up, or move ahead, to survive.

Chapter Outline with Lecture Notes and Teaching Tips Ideologies


Individualism 1) Individualism adopters of individualism adhere to the philosophy that people should be free to pursue economic and political endeavors without constraint. This means that government interest should not solely influence individual behavior. Collectivism 1) Collectivism the political philosophy that views the needs or goals of society as a whole as more important than individual desires.

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Socialism 1) Socialism a moderate form of collectivism in which there is government ownership of institutions, and profit is not the ultimate goal. a) Communism is an extreme form of socialist thought which was realized through violent revolution and committed to the idea of a worldwide communist state. b) Social democracy is a social movement that achieved its goals through nonviolent revolution.

Political Environment
1) The domestic and international political environment has a major impact on MNCs. As government policies change, MNCs must adjust their strategies and practices to accommodate the new perspectives and actual requirements. Moreover, in a growing number of geographic regions and countries, governments appear to be less stable; therefore, these areas carry more risk than they have in the past. Teaching Tip: The U.S. State Department produces a series of annual "Country Reports" to acquaint American businesses with other countries. Each report contains nine sections: (1) Key Economic Indicators; (2) General Policy Framework; (3) Exchange Rate Policies; (4) Structural Policies; (5) Debt Management Policies; (6) Significant Barriers to U.S. Exports and Investments; (7) Export Subsidies Policies; (8) Protection of U.S. Intellectual Property; and (9) Worker Rights. The site is available at {http://www.state.gov/www/issues/economic/trade_reports/99_toc.html}.

Political Systems
1) Democracy a political system in which the government is controlled by the citizens either directly or through elections. A democratic society cannot exist without at least a two-party system. 2) Totalitarianism a political system in which there is only one representative party which exhibits control over every facet of political and human life. Power is often maintained by suppression and opposition.

Legal and Regulatory Environment


1) There are four foundations on which laws are based around the world. a) Islamic Law - This is law derived from interpretation of the Qur'an and the teachings of the Prophet Mohammed. It is found in most Islamic countries in the Middle East and Central Asia. b) Socialist Law - This law comes from the Marxist socialist system and continues to influence regulations in former communist countries.

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c) Common Law - This comes from English law, and is the foundation of the legal system in the United States, Canada, England, Australia, New Zealand, and other nations. d) Civil or Code Law - This law is derived from Roman law and is found in the non-Islamic and nonsocialist countries such as France, some countries in Latin America, and even Louisiana in the United States. Basic Principles of International Law 1) Sovereignty and Sovereign Immunity - The principle of sovereignty holds that governments have the right to rule themselves as they see fit. 2) International Jurisdiction - International law provides for three types of jurisdictional principles: i) Nationality Principle ii) Territoriality Principle iii) Protective Principle 3) Doctrine of Comity The doctrine of comity holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens. 4) Act of State Doctrine - Under the act of state doctrine, all acts of other governments are considered to be valid by U.S. courts, even though such acts are inappropriate in the United States. 5) Treatment and Rights of Aliens - Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct. 6) Forum for Hearing and Settling Disputes - This is a principle of U.S. justice as it applies to international law.

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Examples of Legal and Regulatory Issues 1) Financial Services Regulation The global financial crisis of 2008-2010 prompted regulators around the world to establish new regulations designed to reduce the risk of associated with certain types of financial instruments. 2) Foreign Corrupt Practices Act The Foreign Corrupt Practices Act makes it illegal to influence foreign officials through personal payment of political contributions. Teaching Tip: The U.S. Department of Justice maintains an updated website on the Foreign Corrupt Practices Act, including a lay persons simplified interpretation of the Act. The website is {http://www.usdoj.gov/criminal/fraud/fcpa/}. 3) Bureaucratization - Very restrictive foreign bureaucracies are one of the biggest problems facing MNCs. Table 2-1 in the text ranks the overall ease of doing business in countries around the world. 4) Privatization - Another example of the changing international regulatory environment is the current move toward privatization by an increasing number of countries. Regulation of Trade and Investment 1) The regulation of international trade and investment is another area in which individual countries use their legal and regulatory policies to affect the international management environment. The rapid increase in trade and investment has raised concerns among countries that others are not engaging in fair trade, based on the fundamental principles of international trade as specified in the WTO and other trade and investment agreements.

Technological Environment and Global Shifts in Production


1) Technological advancements not only connect the world at lightning speed but also aid in the increased quality of products, information gathering, and R&D. Trends in Technology, Communication, and Innovation 1) The innovation of the microprocessor is the foundation for most technological and computing advances in the world today. Biotechnology 1) Biotechnology is the integration of science and technology to create agricultural or medical products through industrial use and manipulation of living organisms.

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E-Business 1) As the Internet becomes increasingly common, it is having a dramatic effect on international commerce. Internet penetration rates for major world regions are shown in Table 2-2 in the text. Teaching Tip: An interesting website to show your students is the Internet Traffic Report {http://www.internettrafficreport.com/}. This site monitors the flow of Internet traffic around the world. It then displays a value between zero and 100 for different regions of the world. Higher values indicate faster and more reliable connections. Telecommunications 1) The most obvious dimension of the technological environment facing international management today is telecommunications. Developing countries are especially interested in attracting telecommunications firms. Technological Advancements, Outsourcing, and Offshoring 1) As MNCs use advanced technology to help them communicate, produce, and deliver their goods and services internationally, they face a new challenge: how technology will affect the nature and number of their employees. Key Terms Act of state doctrine Biotechnology Civil or code law Collectivism Common Law Democracy Doctrine of comity Foreign Corrupt Practices Act (FCPA) Individualism Islamic law Nationality principle Principle of sovereignty Protective principle Socialism Socialist law Territoriality principle Totalitarianism

Chapter 3: Ethics and Social Responsibility


Learning Objectives and Chapter Summary

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1.

EXAMINE ethics in international management and some of the major ethical issues and problems confronting MNCs in selected countries. Ethics is the study of morality and standards of conduct. It is important in the study of international management because ethical behavior often varies from one country to another. Ethics manifests in the ways societies and companies address issues such as employment conditions, human rights, and corruption. A danger in international management is the ethical relativism trapWhen in Rome, do as the Romans do.

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DISCUSS some of the pressures on and action being taken by selected industrialized countries and companies to be more socially responsive and environmentally to world problems. During the years ahead, multinationals likely will become more concerned about being socially responsible. NGOs are forcing the issue. Countries are passing laws to regulate ethical practices and governance rules for MNCs. MNCs are being more proactive (often because they realize it makes good business sense) in making social contributions in the regions in which they operate and in developing codes of conduct to govern ethics and social responsibility. One area in which companies have been especially active is pursing strategies that blend environmental sustainability in business objectives.

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EXPLAIN some of the initiatives to bring greater accountability to corporate conduct and limit the impacts of corruption around the world. MNCsin conjunction with government and NGOsare also contributing to international development assistance and working to ensure that corporate governance practices are sound and efficient.

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Chapter Outline with Lecture Notes and Teaching Tips Ethics and Social Responsibility
1) The ethical behavior of business and broader social responsibilities of corporations have become major issues in the United States and all countries around the world. Ethical scandals and questionable business practices have received considerable media attention and aroused the public's concern about ethics in international business and attention to the social impact of business operations. Ethics and Social Responsibility in International Management 1) Ethics is the study of morality and standards of conduct. Teaching Tip: The Institute for Global Ethics is an independent, nonprofit organization dedicated to elevating public awareness and promoting the discussion of ethics in a global context. The site provides links to a variety of ethics related material and is available at {http://www.globalethics.org/}. Another excellent site is the Carnegie Council on Ethics and International Affairs at {http://www.cceia.org/}. Ethics Theories and Philosophy 1) There are a range of ethical theories and approaches around the world. a) Kantian philosophical traditions argue that individuals and organizations have responsibilities based on a core set of moral principles that go beyond those of narrow self interest. b) Aristotelian virtue ethics focus on core, individual behaviors and actions and how they express and form individual character. c) Utilitarianism favors the greatest good for the greatest number of people under a given set of constraints. d) Eastern philosophy views the individual as part of rather than separate from nature. Teaching Tip: There is a fascinating web site dealing with global business ethics at {http://www.globalethics.org}. One of the ongoing features of the site is a set of "ethical dilemmas" that companies face in conducting business both domestically and overseas. This site is well worth a visit to obtain interesting material for classroom discussion. Human Rights 1) Human rights issues often come into question when dealing with MNCs as there is currently no universally adopted standard. a) Womens rights can be considered a subset of human rights as women continue to strive for equality in the workplace. While the number of women in the workplace has increased substantially worldwide, most are still experiencing the effects of a glass

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ceiling, meaning that it is difficult, if not impossible, to reach the upper management positions. b) Japan may have more troubles than any other countries, but the glass ceiling is pervasive throughout the world. Today, women earn less than men for the same job in the United States, though a lot of progress has been made in this regard. c) France, Germany, and Great Britain have seen an increase in the number of women not only in the workforce but also in management positions. Labor, Employment and Business Practices 1) Political, economic, and cultural differences emphasize how difficult it is to establish a universal foundation of employment practices. It does not make much sense to standardize compensation packages within an MNC that spans both developed and undeveloped nations. a) China continues to attract criticism for its questionable labor practices that include long work weeks, low pay, and the use of child labor. The suicide of several Chinese factory workers in 2010 brought renewed attention to the problems. Environmental Protection and Development 1) Conservation of natural resources is another area of ethics and social responsibility in which countries around the world differ widely in terms of their values and approach. 2) The Environmental Kuznets Curve (EKC) hypothesizes that the relationship between per capital income and the use of natural resources and/or emission of wastes increase with income.

Globalization and Ethical Obligations of MNCs


1) How much responsibility do MNCs have in changing these practices? a) One reason phenomenon in response to globalization has been to offshore not just lowcost labor-intensive practices, but to transfer a large percentage of current employees of all types to foreign locations. Reconciling Ethical Differences across Cultures 1) Most MNCs try to adhere to a code of ethical conduct while doing business around the world, but make some adjustments to respond to local norms and values. 2) The Integrative Social Contracts Theory (ISCT) attempts to navigate a moral position that does not force decision makers to engage exclusively in relativism versus absolutism.

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Corporate Social Responsibility and Sustainability 1) Corporate social responsibility (CSR) can be defined as the actions of a firm to benefit society beyond the requirements of the law and the direct interests of the firm. a) Nongovernmental organizations (NGOs) are private, not-for-profit organizations that seek to serve societys interests by focusing on social, political and economic issues such as poverty, social justice, education, health, and the environment. 2) Civil Society, NGOs, MNCs, and Ethical Balance: The emergence of organizational civil society and NGOs has dramatically altered the business environment globally and the role of MNCs within it. 3) Response to Social Obligations: Agreements and codes of conduct are established for MNCs to maintain a minimum level of social and environmental standards, both locally and globally. Examples include the UN Global Compact, Global Reporting Initiative, and ISO14000. These approaches ay also contribute to rising standards in the developing world through the transfer of best practices to local firms. a) Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries obtain better trading conditions and promote sustainability. 4) Sustainability: In the boardroom, the term sustainability may first be associated with financial investments or the hope of steadily increasing profits, but for a growing number of companies, this term means the same to them as it does to an environmental conservationist. Corporate Governance 1) Corporate governance the system by which business corporations are directed and controlled. Corruption 1) Government corruption is a pervasive element in the international business environment. Recently publicized scandals in Russia, China, Pakistan, Lesotho, South Africa, Costa Rica, Egypt, and elsewhere underscore the extent of corruption globally, especially in the developing world. a) The Foreign Corrupt Practices Act (FCPA) The FCPA makes it illegal for U.S. companies and their managers to attempt to influence foreign officials through personal payments or political contributions. b) Organization for Economic Cooperation and Development (OECD) This marked a victory for the United States, which outlawed foreign bribery two decades previously but had not been persuade other countries to follow its lead. Teaching Tip: Transparency International is a nonprofit organization, based in Berlin, Germany, that monitors business corruption worldwide. The site is particularly

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interesting because it provides a European point of view in regard to business ethics. The site is available at {http://www.transparency.de/}. You can also explore the Transparency International at {http://www.transparency.org/}. International Assistance 1) Recently identified top priorities for development assistance include diseases, malnutrition, subsidies and trade, sanitation and water, government, migration, and climate (see Table 3-2 in the text). Key Terms Corporate governance Corporate and social responsibility (CSR) Ethics Fair trade Nongovernmental organizations (NGOs) Sustainability

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