International Business 2018

Philippe Debroux
debroux@soka.ac.jp

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 Outline of the course
- International business and globalization: optimizing
resources and penetrating markets

- International structure and strategy

- International entry modes: trade and investment

- International location: globalization and local

responsiveness

- International HRM strategy

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- International marketing strategy

- International technology-related strategy

- Multinational corporation , morals, human

rights and the environment

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 The global driving forces
- Fast growing power and economic strength of new
economies outside of the Western world and
Japan: China, India, Brazil, African countries

- Accelerating speed of technological change

- Ageing population around the world

- Lower barriers to both communications and trade

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- Growing weight of services in trade and investment

- Revolution in manufacturing process

- Emergence of new organizational structures

- Growing importance of the ESG criteria in business

strategy: Environment/Social/Governance

- Uncertainty in business world governance

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 Outcome of globalization
1. Hyper-globalization: Emergence of an era of the borderless
global marketplace with:

‘ the global economy is inhabited by powerless nation-states

and homeless corporations. As the powers of sovereign
states wither, those of multinational corporations (MNC) wax.
As national cultures become little more than consumer
preferences, so companies become ever more cosmopolitan
in their corporate cultures ‘

Gray 1998

• It should lead to a “ global civilization “ 9

 2. Transformational view: intensive
and extensive globalization;
reconstituted and restructured nation-
states; complex set of processes
characterized by both integration and
fragmentation

• Local differences, with deep social and

cultural roots, will always create and
maintain economic, social and political
tensions
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• The world system is characterized by a single division of
labor within which there are multiple cultural, political and
economic systems

• The relationship of these parts to each other comprises

the world socio-economic system

• All countries are part of the world economic system and

cannot opt out of it

• The process of global convergence cannot be denied but

many differences still exist among the various subsystems

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 Driver one: the forces of liberalism
Gradual loosening of the state control on the economy since the 1980s: deregulation
and privatization

The much larger role of multinational companies (enterprise/corporation) MNC/MNE

making investments outside of their home base: Unilever/Nestle > IBM, Ford,
General Motors > Toyota, Sony > Hyundai, Samsung > Tata, Haier, Lenovo >
Embraer, Cemex, Zenith Bank: diversification of origin away from the Western world

• Trade and investment liberalization: from GATT to WTO; advent of regional blocks;
rise of bilateral agreements

• Financial liberalization: advent of global ownership; changing role of IMF and World
Bank

• HRM liberalization: optimizing of global talents

• Advent of global marketing: globalization and local responsiveness

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• International trade is growing faster than the
world output: almost every year since World
War II, world trade has grown more rapidly than
world production

• About 40% of world production is sold outside

the country of origin, as opposed to about 7% in
1950

• Restrictions on imports have been decreasing,

and foreign ownership of assets as a % of world
production has been increasing 13
 The Rise of foreign direct investment
(FDI) in international Business

• At the heart of globalization is FDI: companies aim to play

a direct role in management as a productive unit

• A company, its factories and the products it manufactures

are not necessarily the products of its home nation

• During the last 20 years FDI in service industries increased

dramatically in fields such as retail (multi and single brand
players), finance, insurance, entertainment and food

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• FDI is an investment in a business by an investor
from another country for which the foreign investor
has full control or a degree of control giving a
significant say in management

• The OECD defines control as owning 10% or more of

business

• A multinational corporation/enterprise (MNC/MNE)

may make a direct investment by creating a new
foreign company in starting alone from scratch
(greenfield investment), or with other company (ies)
(joint Venture) from any origin, or by the acquisition of
a foreign firm
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• FDI has to be differentiated from
portfolio investment. FDI aims to
undertake business activities in
manufacturing or service Industry

• Portfolio investment aims to make profit

through dividend and/or capital gain on
the capital market

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• Foreign direct investments inflows
increased 6 times since 1986 whereas
world exports increased less than one and
a half times

• Most internationally well known brands of

products are global products: firms from
many countries participate in their
production process: a ‘German’ car can be
manufactured in South Carolina and a
‘Japanese’ car in the United Kingdom
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• In a number of cases such as most Apple
products and Nike trainers, the entire
product marketed by a company in its brand
name is sourced from firms in other
countries

• The concept of national origin of many

complex products has ceased to have any
real meaning in the global economy

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Globalization, production and development

• International economic integration has

facilitated the emergence of global
manufacturing systems in which different
parts of the production process are located
in different parts of the world

• Mass production methods have to some

extent given way to more flexible production
methods
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 Mazda MX-Miata
• Designed in California

• Prototype created in the United Kingdom

• Assembled in the US and in Mexico

• Using electronics components invented in New

Jersey and fabricated in Tokyo

• Financed from Tokyo and New York

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• International trade and FDI are not performed anymore only
by large companies: a fast growing number of Small and
Medium Sized Enterprises (SME) are actively undergoing
international activities

• Moreover, FDI are increasingly performed by firms from the

developing world: mostly from Asian countries (China, India)
but also from Latin America (Brazil, Mexico)

• Tata, Mital, Haier, Lenovo, Huawei, Geely, Enbraer, Cemex,

GasProm, etc, are not only big players in international trade
but they also become significant investors

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• The developing world share of world exports of
manufactured goods has jumped more than 400%
in the last 25 years

• In 2016, advanced countries accounted for 44% of

world GDP with 13% of the world population;
developing countries accounted for 42% of world
GDP with 83% of the world population

• In 2025, it is estimated that developing countries

will account for about 65 % of the world GDP

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• Multinational corporations (MNC) are increasingly
interested in a number of developing countries: their
income and population are rapidly rising – of the 1 billion
people added to the world population between 2000 and
2017, only 2.8% are in the high income economies

• In the following 50 years growth in emerging markets is

bound to outperform that in the developed world

• The proportion of FDI into developing countries increased

from 12 to 21% of the total during the last 25 years

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 Positive aspects of globalization
- Building factories and assembly operations:
bring jobs, skills, income, and technology;
raise the standard of living in investment
regions; provide consumers everywhere with
lower-priced goods

- Globalization enables countries to develop

comparative advantages: specialize in
producing and exporting goods and services
that they can produce more efficiently and to
trade for goods they are not so skilled at
producing
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• Both advanced and developing countries benefit from
increased competition: greater economies of scale and better
allocation of resources lead to high rate of return for all
players

• Reduce poverty in developing countries: emergence of a

highly educated middle class in developing countries

• Billions of new consumers in the developing world will

markedly increase demand for exports from the developed
world

• In the last 10 years, exports from high-income to low-and

middle-income countries have more than doubled

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 Pessimistic Point of View

• Growing social and economic inequalities inside

countries and among them, both in developed and
developing countries leads to structural social and
political instability

• The current economic paradigm is unsustainable and

leads to the destruction of local and, eventually,
global eco-systems

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• Companies from the advanced world hold 90% of
all technology and products patents

• The share of goods exports from advanced

countries is much larger than that of developing
countries and the gap is even much larger in
service exports, especially the high value-added
services

• Moreover, in the case of FDI located in developing

countries the largest share of the added value
remains in developed countries

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• Moreover, the fact is that the integration in
the world economy of the large majority of
the developing world remains insufficient

• The gap between the third tier countries

(mainly located in Africa and Asia) and the
rest of the world is growing so much that it
is becoming more difficult to move-up to
the semi-periphery, lest to be part one day
of the core of the world economy

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• It is possible for many countries to have high
productivity, advanced technology, and low wages

• Therefore, free trade with developing countries is

considered by many in developed countries as a
recipe for mass unemployment, huge wage
inequalities, and a massive migration of firms to
low-wage countries

• Developing countries create inequities by

destroying the wealth of developed countries

• Critics say that only large multinational companies

take advantage of globalization
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 Case of a Barbie doll made in China and
sold $ 49.99 in the USA:

• Chinese worker received $1.30

• The doll is exported for $ 15.30 from China

• The remaining $ 29 is spent in the USA for

advertising, internet sites, transporters and
distributors of the doll 36
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• Nation-states competing with each other belong
to the core, periphery and semi-periphery

• Core countries have high capital accumulation,

control advanced technology and provide the
home base for most MNCs

• Peripheral countries have a much lower level of

development, their capital accumulation is
limited, their income distribution is unequal.
They are ruled by small elites and over-reliant
on natural resources
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• Semi-peripherical countries are countries hat do
not fully qualify for core status but are more
powerful than the periphery: it includes countries
such as Brazil, Mexico and the Asian NICs

• By engaging in the world system and through a

mix of public and private policies, countries can
move up the development ladder: South-Korea,
Taiwan and Singapore moved from the semi-
periphery to the core during the last 20 years

• But those three countries remain exceptions

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• Some ‘emerging’ countries such as Brazil,
Mexico, India, Russia, Indonesia had
achieved relatively high growth during the first
decade of this century: however their
economic, political and social environment
remain fragile and unstable as it still relies on
export of natural resources and low value-
added products

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• The same can be said of some African
countries and South-American countries such
as Ghana, Uganda, South-Africa, Peru,
Venezuela, Paraguay and others

• Growth patterns are unbalanced, and

deficiencies remain in state and corporate
governance

• There is still no real ‘decoupling’, i,e., the

developing world remains largely dependent
on the developed one in terms of resources
and markets
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• The People’s Republic of China (PRC),
despite numerous current shortcomings is the
only real case of a large developing country
that has been able to create an industrial,
business and legal environment that could
lead to full-fledged development in the long-
term

• Danger exists that the other emerging

countries remain trapped at middle and
middle-upper level, and reveal unable to
become full-fledged developed countries

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• Globalization has been more beneficial for
developed countries that have high-value
products to sell

• Conversely, poorer countries only trading

cheap primary commodities have been left
behind

• With globalization, inequality has increased

both between countries and within countries
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Globalization seems to have favored developed
countries but there is also a strong dissatisfaction
in those countries: advanced technology means
that jobs may shift from workers in rich countries to
cheap, educated labour in economically
developing countries

• Polish computer engineer: $300/month

• Rumanian computer engineer: $200/month
• Indian computer engineer: $150/month
• US computer engineer: $5000/month
• German computer engineer: $6000/month
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 Hourly Cost of a production worker in
2012

• Germany $28
• Japan $19
• Hong Kong $ 5
• Mexico $ 1.75
• PRC $ 0.9
• Sri Lanka $ 0.4

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• MNC have been given a free hand: they can
shift their operations from one country to
another that offers cheaper labor, less
stringent laws, or lower taxes

• So, they can play one country off against

another and escape whatever social controls
any country might try to impose

• The result is a ‘race to the bottom’: a global

decline in labor, environmental, and wage
standards

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Driver two: the spread of international
governance and regulation

The creation of a stronger multilateral organization, the WTO,

goes alongside with the reinforcement of regional
organizations: EU, ASEAN, NAFTA, AFTA, MERCOSUR ----
Regional Comprehensive Economic Partnership (RCEP) ?,
Trans Pacific Partnership (TPP) ? Trans Atlantic Partnership ?

International public organizations: World Bank, International

Monetary Fund, International Labour Organisation (ILO)

Regional Investment Banks: Asian Development Bank (ADB),

Pan-American Development Bank,….Asian Infrastructure
Investment Bank (AIIB)

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Growing privatization of international governance:

- NGOs contribution to the work of international institutions

and to the scrutiny of private sector schemes: Amnesty
International, Oxfam, Christian Aid – advocacy-type NGO;
field-oriented NGOs

- Private sector involvement in regulating the international

business environment
ISO standards: quality, environment…social responsibility
Corporate and industrial codes of conduct
World Business Council for Sustainable Development
Rating agencies: FT4Good, Global Reporting Initiative
(GRI), Moodys, Standard and Poors, etc
 Rationality of regionalism
Growing recognition that effective integration involves more
than the reduction of tariffs and other conventional barriers
to trade

---> new non-tariff barriers have worked to fragment

markets

Shift from closed to open regionalism: agreements are

based on export-led models

---> states want to benefit from trade creation, economies

of scale, product differentiation and efficiency gains:
agreements seek to encourage foreign direct investment
between participants
Emergence of trade and investment
agreements including developed and
developing countries

---> NAFTA and APEC – RCEP and TPP

---> acceptance as EU members of ‘semi-

developed countries’ such as Bulgaria,
Rumania, and transitional economies
such as Hungary, Poland, Slovakia, etc
• Regional economic integration can be both
negative and positive: negative in that it can
lead to trade diversion and positive in that it can
lead to trade creation

• Regionalization is a logical response to

globalization: a truly globalized economy is not
practical politically and economically

---> So, regionalization is the ‘second best’

solution: it can be a building block for deeper
global integration but the best solution would be
to have a WTO operating effectively
 Drivers pushing towards regional strategies

• Convergence of customer needs and tastes

• Customers and channels that purchase on a multi-country basis:

regional supply chains and regional retailers

• Emergence of regionally transferable marketing strategy

• Integration of regional trade policy, norms and standards and

business regulation

• Development of regional network of of exchange of organizational

capabilities: technology, services (including IT), logistics

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 The Evolution and scope of Contemporary International
Institutions

• The United Nations (UN) was concerned with the preservation of

peace and security but it has taken on a number of economic and
business-related functions

• The International Monetary Fund (IMF) and the World Bank were
created at the 1944 Bretton-Woods Conference: the IMF was originally
designed to oversee international financial markets and the World
Bank to assist with reconstruction

• The General Agreement on Tariff and Trade (GATT) was a transitory

organization that was succeeded by the World Trade Organization
(WTO) in 1995 with the objective of trade and investment liberalization
 The United Nations

• The UN plays a significant role in fostering international

cooperation in international economic, social, cultural and
humanitarian problems and in promoting respect for human
rights and freedoms

• Its activities have implications in international business,

both in terms of helping to create a safe, stable and
favourable environment for business and development and
more directly in terms of initiatives like the Global Compact
and the UNDP (United Nations Development Programmes)
and UNEP (United Nations Environmental Programmes)
 The International Monetary Fund

• Main objectives: promotion of international

monetary cooperation; facilitation of the balanced
growth of international trade; the promotion of
exchange rate stability; assistance in the
establishment of a multilateral system of
payments and making resources available to
members encountering balance of payments
difficulties

---> responsible for ensuring the stability of the

international finance system
• The IMF has had to reform and adapt to
changes in the world’s economic and monetary
systems: international integration of financial
markets and more intense linkages among
economies

----> crisis can spread more easily and largely

than before

• IMF has increasingly played a role in

development as its membership has expanded
to poor countries
 The World Bank

• Since the 1980s, the WB has become

involved in macro-economic stabilization and
debt rescheduling in developing countries ---
> overlapping with the IMF

• Its most important task has become poverty

reduction
• The World Bank Group consists of 5
institutions:

1. The International Bank for

Reconstruction and Development (IBRD):
main role is providing loans and
development assistance to middle-income
countries and creditworthy poorer countries

2. The International Development

Association: provide long-term loans at 0
interest to the poorest developing countries
• 3. The International Finance Corporation (IFC):
promote sustainable private sector development
in developing countries. It is the largest
multilateral source of loan and equity financing
for private sector projects in the developing
world

• 4. The Multilateral Investment Guarantee

Agency (MIGA): promote FDI in emerging
countries

• 5. International Centre for the Settlement of

Investment Disputes: provide facilities for the
conciliation and arbitration of disputes between
member countries and investors
 The World Trade Organization

• Objectives: reduction of tariffs and other barriers to

trade and the elimination of discriminatory treatment of
international commerce

• Membership expansion: WTO rules cover now over

90% of the world’s trade

• Agenda expansion: shift from tariff barriers reduction

to non-tariff barriers; and shift to regulating away
differences in domestic policies that may cause
discrimination vis-à-vis foreign producers: labour
standards - environmental policy
• Obligations: As part of the obligation in
being a member of the WTO, member
states have to commit themselves to comply
with all the obligations of GATT

• Strengthened disputes settlements: all

decisions are enforceable
Major Principles of the WTO Agreements
• 1. The Most Favored nation Principle: members
shall not discriminate against a member vis-à-vis
another member with regard to treatment relating
to tariffs, import regulations or any other matters
which have some bearing on international trade

• The National Treatment Principle: a member shall

give the enterprises of another member no less
favorable treatment with regard to taxes and other
regulations affecting international trade than any
other member
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• 3. Prohibition of Export/Import Restrictions: a
member shall not impose an export/or import
restriction

• Some exceptions are recognized for

safeguards (in the case of specific industries in
specific countries) or for the purpose of
providing human, animal and plant health, and
conserving natural resources

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 The Dispute Settlement Process

• The WTO provides for an elaborate dispute settlement

procedure: the Dispute Settlement Understanding (DSU)

• All disputes that arise in connection with any of the WTO

agreements must be referred to the DSB

• If negotiation between the parties fail, one party can

request the DSB to establish an independent panel to
examine the dispute and the panel must come up with a
decision within 6 or 9 months; the losing party can appeal
to the decision but if the first decision is confirmed in
appeal (by the Appellate Body) is becomes binding

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 The TRIM Agreement
• The Agreement on Trade-related Investment Measures
(TRIM) is related to a set of rules with regard to trade
measures in connection with FDI: for example the practice
of local-content requirement is covered by the TRIM

• Obligation imposed on the investor to buy local part,

components, raw material from local suppliers

• Temporary exceptions can be given to developing

countries

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 The TRIPS Agreement
• The Agreement on Trade-Related
Aspects of Intellectual Property Rights
(TRIP) is a key element of international
business

• Technology is one key causal factor in

economic development

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• Advanced countries tell that insufficient
protection of IP rights distorts trade: minimum
standard and enforcement process are the
prerequisite of international trade – copyrights,
geographical indications of Origin, patents

• Developing countries tell that it is wrong to

introduce discussions with regards to
standards for protecting IP: they only benefit to
companies from advanced countries and
perpetuate the domination of technology by
advanced countries
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 Driver three: finance and capital spread

• Liberalization of financial transactions

• Wider range of financial products

• Higher complexity of international financial

markets: hedge funds, private equity funds

---> Weakening of the links between

currencies and the nation state 73
74
Driver four: the diffusion of information
and communication technology

Transportation and telecommunications

Instantaneous transfer of data and information anywhere

Development of network for the management of

multinational corporations (MNC) but also of all other
organizations such as NGOs

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 The Manufacturing Revolution

• Increasing importance of technology and

information systems in the new industrial system

• Recognition of a variety of consumer markets, in

which choice, quality and product differentiation
are important

• Decentralization of management structures

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• Fragmentation of industrial complexes into
smaller production units capable of flexible
specialization

• Shifting geographical centres of industries,

with more localized clusters of firms

• Organizational flexibility and decentralized

management structures within the firm,
recognizing the need for flexibility in the
assigning and carrying out the tasks by
management and workers

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• Technology should be described as :
‘systematic knowledge for the manufacture of
a product, for the application of a process or
for the rendering of a service’

‘Technology includes not only knowledge or

methods that are necessary to carry on or to
improve the existing production or distribution
of goods and services, but also
entrepreneurial expertise and professional
know-how’

UNCTAD
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• The latter two elements are most often the essential
competitive advantage possessed by the technology
owner. The MNCs are often in a particular
advantageous position in this regard

• Considerable time lags used to be observed between

countries in respect of introduction or absorption of
technologies

• Technology is an issue of leapfrogging and technology

transfers (TT)

• The time lag between countries in the adoption and

diffusion of technologies has greatly diminished in
many industries
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• Companies in advanced countries considered the
developing countries as a market for their obsolete
technology

• Today technology is more easily transferred to

developing countries where sophisticated production
can be combined with relatively low wages

• The ease which technology can accompany capital

across borders is breaking the links between high
productivity, high technology and high wages

• It allows developing countries to produce and export

(also increasingly consume themselves) high tech
products
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• It has a positive effect on creation of a skill basis but
the availability of higher levels of technology all over
the world is putting pressure on the wages and
employment of low-skilled workers

• As it goes alongside with increasingly tight

restrictions in the rich countries in the immigration of
unskilled labor it may create huge social and political
problems

• The collapse of space, time and borders may be

creating a global village, but not everyone can be a
citizen. The global professional elite, including the
elite coming from developing countries, face low
borders but it is not the case of the billions of others
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• This latter point and the difference in the environment
may lead to what is called technology
appropriateness and technology adaptation

• It may be natural factors, climatic/weather condition,

soil conditions; availability of energy and labor force;
differences in income and education levels, scale of
operation, and demand and customers
characteristics

• The concept of appropriate technology often implies

intermediate technology, i.e., a a technology that
combines the elements of traditional technology with
the elements of modern technology

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• The sophisticated capital-intensive technologies in
use in the developed countries are not acceptable in
some sectors in several of the developing countries

• If they want to penetrate the developing markets and

produce there MNCs companies have to develop
equipments that can be utilized by a labor force
having a lower level of education

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• They have also to ask their R&D departments to
make what is called ‘innovation backward’, i.e.,
develop products that are less technologically
sophisticated but fit better in term of use and price
with the market needs: crank-operated cash register
or computer, wash machines with less functions,
ultra-low cost cars

• The search for technological appropriateness (for

example to develop the BOP markets) can also leads
to important technological breakthrough: new
materials, new ingredients, more efficient production
process

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 Technology Transfers (TT)

• There are two forms of TT, internalized and

externalized

• Internalized TT refer to investment associated TT,

where control resides with the technology transferor,
the transferor, normally, holding the majority or full
equity ownership

• Externalized forms refer to all other forms, such as

joint ventures with local control, licensing, strategic
alliances and subcontracting
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• In internalized TT, the transferor has a significant and
continuing financial stake in the success of the
affiliate, allows it to use its brand names and to have
access to its global technology and marketing
networks, exercises control over the affiliate’s
investment, technology and sales decision, and sees
the affiliate as an integral part of its global strategy

• Externalized forms lack one or all of these features,

with impact on the TT process

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 Driver five: social and cultural convergence

• Convergence is a precondition for globalization

• Growing recognition of common symbols and

experiences: global mindset and global
marketing

• Convergence only possible if no clash with

more profoundly held cultural beliefs specific to
a particular place or groupings, such as religion
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• Theodore Levitt argument:

Cultures and national societal tastes are not fixed:

they are subject to continuous changes, with
technology driving consumers towards the same
common goals – alleviation of life’s burdens and the
expansion of discretionary time and spending power

Cultural preferences follow two paths: they eventually

lose their relevance to economic decision-making, or
they diffuse to other groups and become the basis of
global trends

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• This is true for commodities and high-tech products
but also for ‘high touch’ goods and services, i.e.,
referring to items where personal interactions among
individuals remain critical, either at the moment of
purchase or later, during consumption or usage

• Examples: certain ethnic foods (Pizza, Chinese food,

Sushi, Hamburger, Pita, Tacos), music (Jazz, Pop
music), product brands (soft drinks such as Coca
Cola or Pepsi Cola, McDonald, Levi Jeans)

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 Driver 6 Emergence of global consumer

• Creation of global products that can be sold throughout the

world on the basis of global marketing and advertising
campaigns

• Increase viability and desirability of developing international

production systems and value chains: potential gains in scale
economies and utilization of different comparative advantages

• Delivering of high-quality, dependable goods at low cost

• According to Levitt, high quality and low cost are not mutually
exclusive: they represent complementary goals achievable
through innovation and efficiency 90
• Scale economies translate into lower prices, which
are a powerful draw for consumers everywhere

• It is possible to compete globally and tap the demand

for high quality, reliable, aggressively priced goods

• No market is safe anymore from global competition

• However, Levitt’s perspective on the substance of

scale economies appears too simplistic nowadays

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• Increasing the scale by ‘going global’ does not
necessarily decrease the marginal cost per unit: the
minimum efficient size may represent only a small
part of the world market

• There may also be large difference in potential scale

economies in the different value chain activities, with
both upstream and downstream activities providing
high potential for scale economies

92
• But the assertion that technology force convergence
and global commonality is not always correct

• In more and more industries technology has allowed

the customization of services and products, through
CAD/CAM and logistics: so, traditional scale
economies is much less relevant  ‘mass
customization’ mixing economies of scale, scope and
speed

• Large scale production of standardized goods is not

always cheaper than smaller-scale production
batches: this very fact is changing the rules of global
competition in many industries – the barriers of entry
may be much lower than before in many industries
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 Driver 7: evolution of the relationship
between business and society

• What (if any) is the social responsibility of

companies in society ?

• What should be their relationships with the

key stakeholders, at home and abroad ?

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 Corporate responsibility to shareholders or to
stakeholders ?

• Are companies exclusively responsible to their

shareholders and therefore their only objective is
to make profits for them ?

….or are companies responsible for all

stakeholders - not just shareholders but also
employees, customers, suppliers, the ecological
environment and the community in general ?

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 “PR”

Partners
Unions
CSR COST/ BENEFIT
ANALYSIS

Suppliers

“CSR is a box THE CSR

looking for things DEFINITION
to put in it” THE BOX FOR EACH
Mark Eadie of ORGANISATION
Environmental CANNOT BE
Resources Management DEFINED
China International
Business, July 2005
WITHOUT
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CONTEXT
Pyramid of CSR

98
 The Concept of CSR
• Corporate Social Responsibility can be
defined as a concept whereby companies
voluntarily decide to respect and protect
the interests of a broad range of
stakeholders and to contribute to a cleaner
environment and a better society through
active interaction with all

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• Performance of companies should be evaluated
according to what was called ‘the triple bottom
line’ according to which companies should focus
not only on the economic value they add

• But also on the environmental and social value

they add and/or destroy

• Thus, CSR is associated to the concept of

‘sustainable development’: development that
meets the needs of the present without
compromising the ability of future generations to
meet their own needs
100
 “TRIPLE BOTTOM LINE”

FINANCIAL ENVIRONMENTAL SOCIAL

TRANSPARENCY
ACCOUNTABILITY
RESPONSIBILITY

101

md:feb01
 MANAGEMENT BURDEN

MOST
DIFFICULT
Society and GUESSWORK
the world
Business
environment Judgment
Employee &
Customer Guidelines
Relations
Business Rules and
planning guidelines
Daily
Business RULES
102
EASIEST
 No universal guidelines

• CSR definitions are broad guidelines as to

what the company should have in mind
when making a decision

• Depending on the performance of the

company, the priorities will be different

• The content of CSR are not the same in

different economies and socio-political
systems
103
 Cultural Foundations for Ethical Behavior
• Some actions elicit almost universal agreement on what is
right or wrong: but managers face many situations that are
less clear

• Our beliefs about what is right and wrong based on family

and religious teaching, the laws and social pressures of our
societies, our experiences, and our own economic
circumstances: our debates with people who hold opposing
viewpoints tend to be emotional

• Moreover, our own values on given issues may differ from

our employers’ policies, and any of those values may differ
from the prevalent societal norms and laws
104
• Relativism or particularism affirms that ethical
truths depend on the groups holding them, making
intervention by outsiders unethical

“When in Rome, do as the Romans do”

• Universalism holds that there are universal

standards of behavior based on people’s own
values that all cultures should follow

“Non-intervention when you face an unethical

behavior is unethical itself”
105
• Managers struggle with implementing what they
consider to be an universal set of truths versus
adapting to local conditions because every place is
different and needs to be treated differently

• A company face pressure to comply with a country’s

norm:

* Laws that permit or even require certain practices

* Competitive advantages for rivals who adapt to local

norms

*Accusations of meddling in local affairs if the

company tries to impose its home-country practices
106
• But, companies can face pressure not to
comply:

* Company’s own ethical values

* Home-country government

* NGOs threatening to boycott the products

107
 PIG
ENZYMES!!

BLOWOUT!!
SEXUAL
HARASSMENT !

FATWA!!
108
md:apr01
 FreeTibet will file a shareholder
resolution at BP’s AGM calling
for sale of BP’s stake

BP holds 2.2%
Share in
A CONTROVERSIAL Petrochina
PIPELINE
FreeTibet objects on political
social, and
environmental grounds
BP’s strategy is to develop its
China base through its share-
holding in PetroChina. By its
LANCHOW intervention, FreeTibet can
SEBEI frustrate BP’s plans. PetroChina
Tibet is listed on the New York stock
exchange – if BP sells its interest
PetroChina share price is expected
to suffer. 109
md:feb01
 Primary Stakeholders

Consumers National
Politicians

Local MULTI NGOs

Companies NATIONALS Donors
Consultants

Local Local
Communities Politicians

md:nov00
Environmentalist Employees
 NGOs and Anti-Globalization
“Pay for health in
developing countries”

Governments Developed World Public

“Give us better drugs
“Reduce Prices at Home”
for everything

Shareholders Pharmaceutical Medical Profession

“We want profits” Companies “Give us new drugs”

Developing Countries
“Please HELP!!”
md:aug01
111
 Changing approaches to development

• The Washington Consensus based on free market neo-liberal

principles: macro-economic stabilization, supply-side policies
such as privatization and markets liberalization are key
factors of development

• But growing awareness that free markets are not sufficient to

deliver development, eradicate poverty and provide equal
income distribution

• Even the best economic policies would fail without fair legal
systems, not corrupted bureaucracies and political systems,
and transparent regulations
112
• The development of health, education and
welfare policies in poverty eradication is
crucial

• Moreover, policies have to be designed so

that they respect the structural and cultural
realities of individual countries

• There is a growing concern for sustainable

development in both developed and
developing countries
113
• What are the obligations of MNC to displaced
workers in their home countries ?

• Do MNC have an obligation to try to improve

the labor, environmental, and wage
standards of the various countries in which
they locate ?

• Do they have any obligation to refrain from

exploiting workers in other countries, or
should they simply look forward lowering their
labor costs by whatever means ?

114
• MNC also sometimes transfer technologies or products
into developing countries that are not ready to assimilate
them: toxic pesticides sold to farmers who are neither
knowledgeable about nor able to protect themselves
against the injuries the products can inflict on their health

• They have also sold useless or dangerous products to

consumers who do not have a good understanding
enough of the products

• Do MNC have any obligations to ensure that the users of

the technologies and products can protect themselves
against the risks they may pose and appreciate rationally
their need of the products ?

115
• MNC sometimes covertly engage in
practices that violate the norms and
standards that we should respect: use of
forced and child labor, bribery

• How should MNC behave when operating

in different cultures ? Should MNC go
along with the norms of whatever country
they happen to be in ? Are there any
universal moral standards that all MNC
should follow no matter where they
operate, such as universal human rights ?
116