Globalization and Society

Chapter Objectives

To identify problems in evaluating the activities of MNEs To evaluate the major economic impacts of MNEs on home and host countries To establish the foundations for responsible behavior To discuss some key issues of globalization and society To examine corporate responses to globalization

What is Globalization?
Globalization is the process of international integration of products, technologies, human resources, capital, information and culture. As Globalization progresses, economics social and political of different countries more freely interacts with one another and adapt to promote further interaction.

Multinational Enterprises (MNEs)

A corporation or an enterprise

that manage production or deliver services in more than one country.

Home Countries Host Countries

Characteristics of MNEs
Responsiveness to environment forces. Drawing on a common pool of resources, including assets, patents, trademarks, information, and human resources. Affiliates that linked by a common strategic vision.

Firms become multinational for a number of reasons:

a desire to protect themselves from the risks and uncertainties of the domestic business cycle a growing world for goods and services a response to increased foreign competition a desire to reduce cost a desire to overcome tariff barriers a desire to take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a license government

Trade-offs among Constituencies

Stakeholders - the collection of constituencies that an organization must satisfy to survive in the long run, include:

shareholders employees customers suppliers society

In the long run, the aims of all stakeholders must be adequately met or none will be attained.

Resources and Possible Contributions of MNEs

Foreign Direct Investment (FDI)

is any form of investment that a

interest in enterprises which function outside of the domestic territory of the investor.
Inward foreign direct investments Outward foreign direct investments

Benefits of Foreign Direct Investment

helps in the economic development of the particular country where the investment is being made also permits the transfer of technologies assists in the promotion of the competition develop the human capital resources and helps in the creation of new jobs bring in advanced technology and opportunity to explore newer markets

Cultural Foundations of Ethical Corporate Behavior

Cultural relativism is the view that all beliefs,
customs, and ethics are relative to the individual within his own social context. - moral relativism - situational relativism - cognitive relativism Cultural normativism holds that there are universal standards of behavior that everyone should follow; thus, non-intervention in local violations of global standards is clearly unethical.

Non-Governmental Organizations (NGOs)

are generally considered to be not-forprofit groups or associations, whether local or international, acting outside political institutions a legally constituted organization created by natural or legal persons that operates independently from any government

The Effects of NGOs and Multilateral Agreements on Corporate Behavior

Non-governmental organizations
(NGOs) actively monitor and publicize corporate practices in order to:

educate managers about the environmental and economic consequences of corporate operations and practices increase shareholder value

Legal Foundations of Ethical Corporate Behavior

Ethics teaches that people have a
responsibility to do what is right and to avoid doing what is wrong. measured in the sense that individuals and organizations must seek justification for their behavior, and that justification is a function of both cultural values and legal principles.

The appropriateness of behavior can be

The Insufficiency of the Legal Argument

Everything that is legal is not necessarily

ethical. The law is slow to develop in emerging areas of concern. The law is often based on moral concepts that cannot be separated from legal concepts. The law may need to be tested by the courts. The law is inefficient in terms of achieving ethical behavior at a minimum cost.

Pressures for Ethical Behavior of Companies on Issues Related to Workers in the Global Supply Chain

Corporate Codes of Ethics

In creating its code of corporate conduct a firm should: set global policies that must be complied with

wherever the firm operates communicate the code to all employees within the organization, and to all suppliers, subcontractors, and customers ensure that its policies are carried out in all instances report results to its stakeholders

Implications/Conclusions
While FDI is a major source of capital and
expertise, it is also a center of controversy regarding its costs and benefits to home and host countries and other stakeholders. Major challenges facing MNEs include the globalization of the supply chain, human rights, employment practices, environmental protection, and consistent standards of ethical conduct.

Whereas the legal approach to responsible behavior says that firms can operate according to local laws, the ethical approach says that firms should do whatever is necessary and economically feasible to maximize stakeholder value. Management is charged with maximizing the long-term value of the assets of the shareholders, but it is the role of government to deal with the externalities associated with corporate behavior.

MARY ROSE VIRTUCIO

2010