Managing Interdependence: Social Responsibility and Ethics ch02

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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Chapter 2 - Overview

The Social Responsibility of MNCs

Ethics in Global Management

Managing Interdependence


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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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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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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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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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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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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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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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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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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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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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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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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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(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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(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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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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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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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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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.

Documents

Managing Interdependence: Social Responsibility and Ethics ch02