Chapter 5-Globalization and Society Essay Questions 1. Which stakeholders must companies satisfy?

Why is this process more difficult for companies operating abroad? Answer Stakeholders include stockholders, employees, customers, and society at large. In the short term, the aims of these groups conflict. Stockholders want additional sales and increased productivity, which result in higher profits and larger returns going to them. Employees want additional compensation. Customers want lower prices. And society at large would like to see increased corporate taxes or corporate involvement in social functions. In the long term, all of these aims must be achieved adequately, or none will be attained at all because each stakeholder group is powerful enough to cause the company's demise. Management must be aware of these various interests but serve them unevenly at any given period. At one time, gains may go to consumers; at another, to stockholders. Making necessary trade-offs is difficult enough in the domestic environment. However, abroad, where corporate managers are not so familiar with customs and power groups, the problem of choosing the best alternative is compoundedparticularly if dominant interests differ among countries.

2. What factors make it difficult to evaluate whether the overall effects of FDI are sufficiently positive? Answer MNEs may affect countries' balance-of-payments, growth, and employment objectives. Under different scenarios, these effects may be positive or negative for either host or home countries. a) Home-country gains----Countries want capital inflows because they allow them to increase their imports. However, because FDI brings both capital inflows and outflows, countries worry that the balance-of-payments effect may be negative. Unlike balance-ofpayments effects, the effects of MNEs on growth and employment are not necessarily a zero-sum game among countries. The argument that both the home and the host countries may gain from FDI assumes that resources are not necessarily fully employed and that capital and technology cannot be easily transferred from use in one industry to another. b) Home-country lossesThe United States is the home country for the largest amounts of foreign licensing and direct investment. Therefore, its policies understandably invite criticism. One of its critics is organized labor, which argues that foreign production often displaces what would otherwise be U.S. production. Critics also cite many examples of highly advanced technology that has been at least partially developed through governmental contracts and then transferred abroad. In fact, some

MNEs are moving their most advanced technologies abroad and in some cases producing abroad before they do so in the United States. c) Host-country gainsMost observers agree that an inflow of investment from MNEs can initiate greater local development through the employment of unused labor and other resources. A company will want to move resources such as capital and technology abroad when the potential return is highespecially in an area where they are in short supply. Most observers also agree that an inflow of investment from MNEs can initiate an upgrading of resources by educating local personnel to use equipment, technology, and modern production methods. d) Host-country lossesSo me critics have claimed that there are examples of MNEs making investments that domestic companies otherwise would have undertaken. The result may be the displacement of local entrepreneurs and entrepreneurial drive. Or they may bid up prices by competing with local companies for labor and other resources. Critics also contend that FDI destroys local entrepreneurial drive, which has an important effect on development. Another argument is that investors learn abroad by observing foreign companies closely. This may give them earlier access to technology abroad that they may copy in their home countries. Critics also say that MNEs absorb local capital, either by borrowing locally or by receiving investment incentives.

3. D i s c u s s t h e d i f f e r e n c e b e t w e e n r e l a t i vi s m a n d n o r m a t i v i s m. Answer a) Relativism affirms that ethical truths depend on the groups holding them. This makes intervention by outsiders unethical. The idea of relativism can be expressed by the statement "When in Rome, do as the Romans do." b) Normativism holds that there are universal standards of behavior (based on people's own values) that all cultures should follow, making nonintervention unethical. Managers thus struggle with implementing a "universal" set of truths versus adapting to local conditions on the assumption that every place is different and should be treated differently.

4. Explain why the argument that "anything that is legal is ethical" is insufficient. Answer a) The law is not appropriate for regulating all business activity because not everything that is unethical is illegal. b) The law is slow to develop in emerging areas of concern. Laws take time to be legislated and tested in courts. Further, they cannot anticipate all future ethical dilemmas; basically, they are a reaction to issues that have already surfaced. c) The law often is based on moral concepts that are not precisely defined and that cannot be separated from legal concepts. Moral concepts must be considered along with legal ones. d) The law is often in need of testing by the courts. This is especially true of case law, in which the courts establish precedent. e) The law is not very efficient. Efficiency in this case implies achieving ethical behavior at a very low cost, and it would be impossible to solve every ethical behavioral problem with a law. 5. I n a s h o r t e s s a y , e x p l a i n t h e i d e a o f e x t r a t e r r i t o r i a l i t y . Answer Extraterritoriality takes place when governments apply their laws to the foreign operations of their domestic companies. Generally, though, host countries abhor any weakening of their sovereignty over local business practices. MNEs fear that home-country and host-country laws will conflict, because settlement inevitably must be between governments, with companies caught in the middle. Laws need not be in complete conflict to trigger charges of extraterritoriality. Home-country laws that require companies to remit earnings or pay taxes at home on foreign earnings certainly have affected companies' foreign expansion and host governments' control over such expansion. Although extra territoriality may result from legal differences between any two countries, and often does, the United States has been criticized the most for attempting to control what U.S. companies do abroad. 6. What types of payments are legal and illegal under the Foreign Corrupt Practices Act (FCPA) of the United States? Answer Payments to officials to expedite their compliance with the law are legal (officially called facilitation payments but sometimes referred to as speed money or grease money), but payments to other officials who are not directly responsible for carrying out the law are not. Specifically, a 1988 amendment to the FCPA excluded facilitation payments from its definition of bribery. Facilitation payments take many forms. For example, payment to a customs official to clear legitimate merchandise is legal whereas a payment to a government minister to influence the customs official is illegal. The FCPA allows the former payment because governmental officials in many countries delay compliance of laws indefinitely until they do receive payments, even though such payments may be illegal in those countries.

7. Why are there controversies concerning the Foreign Corrupt Practices Act (FCPA) of the United States? Answer The United States has acted against domestic firms' foreign investments when there has been concern about possible harm to U.S. consumers. At various times, the U.S. government has: a) Delayed U.S. companies from acquiring facilities in foreign countriesfor example, Gillette's purchase of Braun in Germany was held up because Braun made electric shavers, and the acquisition would reduce the number of competitors in the shaving market. b) Prevented U.S. companies from acquiring facilities in the United States that were owned by a company they were taking over abroadfor example, Gillette's purchase of a division of Sweden's Stora Kopparbergs Bergslags could not include that division's subsidiary, U.S. Wilkinson Sword because it would increase Gillette's share of the razor blade market. c) Forced U.S. companies to sell their interests in foreign operationsfor example, Alcoa's spin-off of Alcan because Alcan could then compete against Alcoa. d) Restricted entry of goods produced by foreign countries in which U.S. companies participatedfor example, Swiss watches and parts. e) Pressured foreign companies to allow U.S. firms to make foreign sales using technology acquired from themfor example, the British company Pilkington licenses float-glass technology to U.S. companies with the stipulation that the output could be sold only in the United States. 8. Discuss the ethical dimensions and pressures related to labor issues that MNEs face. Answer The many labor issues that companies must deal with include fair wages, child labor, working conditions, working hours, and freedom of association. These issues are especially critical in retail, clothing, footwear, and agriculture where MNEs outsource production to independent companies abroad, usually in developing countries. Child labor is a highly publicized issue. The challenge for MNEs is that they work in an environment with different cultural, legal, and political rules than what they are used to in their home countries. Two arguments used for hiring children as laborers are: (1) Children are better suited than adults to perform certain tasks and (2) If the children were not employed, they would be worse off. MNEs often face pressure to leave countries that do not have the same labor policies as their home country; however, this is short-sighted because MNEs may be able to improve the working conditions for the laborers in their own firms. Some companies avoid operating in countries that support child labor, while others try to establish responsible policies in those countries. Either way, MNEs cannot solve all the problems of child labor.

9. W h a t m o t i v a t i o n s d o c o m p a n i e s h a v e t o a c t r e s p o n s i b l y ? Answer a) Unethical and irresponsible behavior could result in legal sanctions, especially in the areas of bribery and product safety. b) Unethical and irresponsible behavior could also result in consumer boycotts, although there is little evidence of the effectiveness of consumer boycotts in effecting change. c) Unethical behavior can affect employee morale. Good behavior can positively influence both the workers in the developing countries as well as those in corporate headquarters back home who are proud of their company's behavior. d) Companies never know when bad publicity is going to cost them sales. 10. W h a t a r e t h e f o u r d i m e n s i o n s o f a s u c c e s s f u l c o d e o f c o n d u c t ? Answer a) Set a global policy that must be complied with wherever the company operates. b) Communicate the code to employees, suppliers, and subcontractors. c) E n s u r e t h a t p o l i c i e s a r e c a r r i e d o u t . d) R e p o r t r e s u l t s t o e x t e r n a l s t a k e h o l d e r s .