INTL Bs q2

Utilitarian approaches to ethics

David Hume, Jeremy Bentham, and John Stuart Mill. - Actions are desirable if they lead to the best possible balance of good consequences over bad consequences. - Best decisions are those that produce the greatest good for the greatest number of people. Cons: - Difficult to measure benefits, costs, and risks of an action. - Fails to consider justice

Corporate Social Responsibility (CSR)

Defined as a set of obligations that a corp takes to protect and enhance the society in which it operates The triple bottom Line: (3 P's) People, Planet, Prosperity The Economic Mission: Responsible for delivering the profits for their shareholders and creating value for their stakeholders Environment: Responsible for protecting the natural environment Society: Example, by donating money for social causes or by investing in health and education system in that country In certain countries, government has made regulations to mandate firms to utilize certain percentage of their profit in CSR activities (India: 2 percent)

Ethics: Environmental pollution

Developed countries have very strict environmental regulations, specially regarding dumping of toxic materials and other pollutants in air as well as water bodies These regulations either do not exist or are lax in most of the developing countries.

Mercantilism

Developed in the 16th Century Govt encouraged exports and discouraged imports to maintain trade surplus Expected to drive the wealth of nation as silver and gold would flow into the country

New trade Theory (Paul Krugman)

Economies of Scale (increase variety of good, reduce costs), First mover advantages Returns to scale (are profits consistent) New Trade Theory says that even when there is no difference between nations in terms of their resource or technology endowments, trade is beneficial. It also promotes the idea of strategic trade policy

economies of scale.

Economies of scale are unit cost reductions associated with a large scale of output.

A country limits the amount of sugar that can be imported into its country. This is an example of an import tariff.

False An import quota is a direct restriction on the quantity of some good that may be imported into a country. An import tariff is a tax levied on imports.

Ethics: Corruption

Firms may have very strong laws against bribery and corruption in their home country, but very weak in host countries. The only way they can do business in a developing country is by paying bribes to the government officials In many research articles, there has been a strong connection between corruption and low level of economic development in a country.

Ethics: Justice Theories

Focus on the attainment of a just distribution of economic goods and services (considerably fair and equitable) John Rawls argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage.

Theories of Trade - Modern Firm-Based Theories

Following WW2, the importance of MNCs was noticed. Impacted growth of Intl Trade. Researchers shifted to firm-based theories - where the unit of analysis is the firm Useful in describing intern industry trade in differentiated goods such as cars, electronics, personal care, etc. Brand name holds value and is an important component of the customers purchase decision.

Sullivan principles

GM adopted what came to be called the Sullivan principles, named after Leon Sullivan, a black Baptist minister and a member of GM's board of directors. Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws.

EPCA Arguments

Groups that want the ban to be lifted say: Not enough refineries, mostly concentrated on Gulf coast Not enough pipelines to transport oil to and from refineries Hence, crude oil keeps lying on Gulf coast The 13 ships that can transport it are booked solid for the next 20 years. • Groups that do not want the ban lifted Refineries should be able to process all sweet crude coming in and be able to supply the U.S.

Anti-dumping policies

Highly contested issue of WTO • when a foreign firm is selling goods in a fair market below either cost of production of that good or the fair market value of that product • Considered predatory in nature • Producers use profits from their home markets to subsidize prices in foreign markets with the goal of driving away indigenous competitors from the market, and later, raising prices and earning substantial profit.

Heckscher-Ohlin Theory (Factor endowments theory)

How do we decide which product a country should produce, or for which product a country will have a relative advantage? Factor endowments: Land, labor, and capital Products use different resources in different proportions • Land: Russia, USA • Labour: India, Brazil, Nigeria, Indonesia • Capital: Saudi, Kuwait, UAE

Ethics

In context of a firm - it is the behavior of mangers as they make organizational decisions

Relative Factor Endowments - Leontief paradox

Leontief tested Heckscher Ohlin theory in 1953 using the input-output data of the US economy US exports should be capital intensive, and the imports should be labor-intensive US imports were 30% more capital intensive than the US exports US was importing more capital-intensive goods, such as processed steel, bulk chemicals, etc. than it was exporting Still no clear explanation of why this paradox exists; Though US exports agricultural products a lot and the us agriculture is capital intensive and not labor intensive like the rest of the world - but does not solve the paradox completely.

Cross-Border Trade

- Dramatic growth over past 70 years in the amount of international trade. - Recent acceleration of value in traded services. - Gains from trade: countries specialize in the production (and export) of goods and services that they produce most efficiently, while importing goods and services that they cannot produce so efficiently from other nations. - Shift in policy away from free trade toward managed trade.

Import Tariffs

- Taxes levied on imports. - Specific tariffs are levied as a fixed charge for each unit of imported good. - Ad valorem tariffs are levied as a proportion of the value of an imported good. - Compound tariff: A mix of specific tariff and ad valorem tariff - Are paid by the importer.

Ethics: Corruption - Convention on Combating Bribery of Foreign Public Official in International Business Transactions

Makes bribery of foreign officials a criminal offense Some multinationals adopting a zero-tolerance policy.

Ethics: Apartheid in South Africa

Mandated segregation and prohibited blacks from managing whites. Businesses from developed countries questioned the ethics of doing business in South Africa. GM challenged this by using the "Sullivan principals" Did not obey apartheid rules in its south African operations & promoted abolition of apartheid laws.

Managing Ethical Behavior Across Borders

Many firms have written guidelines and a code of ethics - statements of accepted values and ethical standards that should guide employees of the firm & provide ethical training. This does not ensure ethical behavior, especially if leadership does not follow its own guidance

Ethics: Moral obligations of MNCs

Many people believe due to the money and power that MNC's have they should give back to society This is referred to as Corporate Social Responsibility (CSR) Counter Argument: Firms pay taxes (that may be allocated to socially responsible programs) Their only obligation is to their shareholders

Theories of Trade - Early Country-Based Theories

Older trade theories are known as Early Country based classical theories, focused mostly on individual countries. Most useful in explaining the trade patterns in inter-industry trade of commodities such as oil, sugar etc. Products where the price is the only important component when the customer buys those commodities.

Kantian ethics

People should be treated as ends and never purely as means to the ends of others People have dignity and need to be respected Contemporary moral philosophers view Kantian ethics as incomplete System has no place for moral sentiments such as sympathy or caring

Political arguments for government intervention

Protecting jobs - the most common political reason for trade restrictions - results from political pressures by unions or industries that are "threatened" by more efficient foreign producers, and have more political clout than consumers Protecting industries deemed important for national security Retaliation for unfair foreign competition Protecting consumers from "dangerous" products Furthering the goals of foreign policy Protecting the human rights of individuals in exporting countries Protecting the environment

Ethics: Corruption - Foreign Corrupt Practices Act (FCPA)

Regulates conduct of international business in the taking of bribes and other unethical actions. Amended to allow for "facilitating payments." (Bribes)

ethical employment practices

Should at least have some basic standards that safeguard the basic rights and dignity of employees working in foreign subsidiaries as well as factories of its subcontractors Audit these foreign subsidiaries and subcontractors on a regular basis to ensure the standards Taking collective actions if they see any violation of these standards

In his theory of absolute advantage, what did Adam Smith say should be the determinant of what a country imports and what it exports?

Adam Smith argued that the invisible hand of the market mechanism, rather than government policy, should determine what a country imports and what it exports. His arguments imply that such a laissez-faire stance toward trade was in the best interests of a country.

Product Life Cycle Theory (Raymond Vernon)

The pattern of trade could be explained by the three different stages that a product goes through in its life cycle: New Product Stage: Product is launched (likely mostly in the US) Maturing Product Stage: Demand Increases even further and it starts getting exported globally (other competitors emerge, prices become the main factor of competition, firms move shift production to developing nations) Standardized Product Stage The stage of the product determines: The place where it will be produced Which country will export and which ones will import Problems: Less Valid today as ethnocentric in nature 1960's US was the hub for innovation, but has shifted to other countries since then Firms use dispersed supply chains now, so products are no longer produced in a single location anymore & introduce products simultaneously in multiple markets.

Dumping is viewed as a method by which firms unload excess production in foreign markets.

True In the context of international trade, dumping is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value. Dumping is viewed as a method by which firms unload excess production in foreign markets.

Ireland produces more potatoes than any other country. This means it has an absolute advantage in potato production.

True. A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

Voluntary Export Restraints (VERs)

Type of quota Japan in 1981 signed a VER agreement with the US, and it put a limit on the number of Japanese automobiles that could be exported to the United States in a year to about 1.68 million vehicles.

ad valorem tariff

When a government is considering placing additional taxes on foreign lumber imports that are a: proportion of the value of the imported lumber. (%)

The Samuelson Critique

When a rich country does free trade with poor country, wage losses More harm than benefits Offshoring will do more harm than good by lowering wages Compared it to mass inward immigration

Hofstede's dimensions of social culture

study found that enterprises headquartered in cultures where individualism and uncertainty avoidance are strong were more likely to emphasize the importance of behaving ethically than firms headquartered in cultures where masculinity and power distance are important culture attributes. Such analysis suggests that enterprises headquartered in a country such as Russia, which scores high on masculinity and power distance measures, and where corruption is endemic, are more likely to engage in unethical behavior than enterprises headquartered in Scandinavia.

Trade: Policy instruments

tariffs, subsidies, import quotas, local content requirements, administrative policies, and antidumping duties

Absolute Advantage

Argument against Mercantilism from Adam Smith (1776) A country is wasting its limited resources in making everything, even what its not proficient at which decreases a nation's wealth A country has "Absolute Advantage" in making a product when it's the most efficient country doing so and those are the goods it should focus its efforts on making and exporting. *If each country specializes in the production of the good in which it has an absolute advantage and trades for the other, both countries gain- trade is a positive sum game

Comparative Advantage

Argument against absolute advantage Looks at relative productivity difference not the absolute difference. Nations Should specialize in goods they produce most efficiently Countries should then buy goods they produce less efficiently from other countries, even if this means buying goods that they can produce more efficiently than those countries at home. IDK HOW this one is different

Ethics: Friedman Doctrine

the only social responsibility of business is to increase profits, so long as the company stays within the rules of law

Paul Samuelson's critique looks at

what happens when a rich country enters into a free trade agreement with a poor country that rapidly improves its productivity after the introduction of a free trade regime.

tragedy of the commons

when a resource held in common by all but owned by no one (the ocean) is overused by individuals, resulting in its degradation.

Implications for Managers

• All types of trade barriers raise the cost of exporting • Many firms shift production facilities to host country • Local content requirements push multinationals to locate more production activities in a given market than they would otherwise • Even if it may lower the quality of the product or increase the production cost for these firms.

Tariffs: Pro's and Cons

• Good revenue generator for governments • Help domestic producers • Anti consumer • Lead to inefficient production of goods in a country • Encourage domestic producers to keep producing a good which can be more efficiently produced in foreign countries.

Subsidies

• Government payment to domestic producers in the form of: Tax breaks Low-interest loans Cash grants Government equity participation in the company• Reduces the cost of production Increases the competitiveness against low-cost imports .....and in exports • Generated from our taxes • Common in agriculture and automobile industry• For e.g., during 2008 crisis ($45 billion subsidies were given to automobile sector alone) • Encourage over-production of subsidized goods that results in inefficiency

Ethics: cultural relativism

ethics are a reflection of culture

strategic trade policy

government should use subsidies to support promising firms that are active in newly emerging industries.

Ethics: Righteous Moralist

home-country standards of ethics should be followed in foreign countries Typically associated with managers from developed nations. Criticized for its proponents going too far.

Ethics: Naïve immoralist

if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

naive immoralist

if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

Porter's Diamond Of Competitive Advantage

1. Factor endowments - a nation's position in factors of production necessary to compete in a given industry (Can be raw resources/location or skilled labor/infrastructure etc) 2. Demand Conditions - the nature of home demand for the industries product/service - Influences the development of capabilities - customers can pressure firms to be competitive 3. Relating and supporting industries - the presence or absence of supplier industries and related industries that are internationally competitive. - can spill over and contribute to other industries - successful industries tend to be grouped in clusters in countries 4. Firm strategy, structure, and rivalry - the conditions governing how companies are created, organized, and managed, and the nature of the domestic rivalry - different management ideologies affect the development of national competitive advantage - vigorous domestic rivalry creates pressures to innovate, to improve quality, to reduce costs, and to invest in upgrading advanced features

Energy Policy and Conservation Act (EPCA)

1975 - President Gerald Ford Since Americans have become so dependent on foreign oil, "we should export less to conserve what we do have in the ground" Exceptions: Oil through Trans-Alaskan pipeline Crude from Alaska's Cook Inlet Heavy or viscous oil from some California fields •• To help persuade the oil and gas companies to find alternative fuels.• The act specifies that alternative fuel is anything not derived from petroleum.

Free trade refers to a situation in which

a government does not attempt to influence through quotas or tariffs what its citizens can buy from another country, or what they can produce and sell to another country.

a subsidy

a government payment to a domestic producer. Subsidies take many forms, including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. q12. Suppose the United States wants to encourage the production of tree nuts by domestic producers.

The Foreign Corrupt Practices Act was amended in order to

allow for "facilitating payments."

General Agreement on Tariffs and Trade (GATT)

an international treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO

Sullivan Principles

non-segregation, equal employment practices, equal pay, employee education, support for black management, and social programs to improve employees quality of life

lobbyist from New York argues that the U.S. government needs to protect the U.S. aerospace industry from foreign competition. She argues that aerospace technology is so important for national security that it would be dangerous to rely primarily on foreign producers for them. This is an example of ______ argument for government intervention.

political Countries sometimes argue that it is necessary to protect certain industries because they are important for national security. Defense-related industries often get this kind of attention (e.g., aerospace, advanced electronics, and semiconductors). Although not as common as it used to be, this political argument is still made. When the Trump administration announced tariffs on imports of foreign steel and aluminum on March 1, 2018, national security issues were cited as a primary justification.

Ethical dilemmas

situations where none of the existing options or alternatives seems ethically acceptable, because it's very difficult for managers in these situations to determine what is right and what is wrong.

Economic Arguments for Government Intervention

• Infant industry argument (Alexander Hamilton, 1791) Developing countries' manufacturing firms are often late in the game as compared to mature firms of the developed nations Also, usually the industries which are selected for protection are chosen by political motives Still, this infant industry argument is very popular and has been used extensively by developing countries for the past 50 years WTO has respected those policies WTO usually decides the duration for which a country can declare an industry infant and apply protectionist policies. Second one is strategic trade policy argument which was put forth by new trade theory. First-mover advantages can be important to success

Administrative Policies

• Informal trade barriers • Non-tariff instruments • They make it difficult for imports to enter the country • Decrease the number of choices for consumers • Include product and testing standards • Restricted access to distribution channels

Quotas

• Numerical restriction on the quantity of some goods imported into a country over a period of time • Tariff Rate Quota: Hybrid of quota and tariff - There is a quota up to a certain level, if you want to import more than the limit, there will be a very high tariff.

Tariff

• On both imports and exports (?) • The goods which are in transit from one country to another - known as transited tariffs • Most common type is import tariff

local content requirement

• Requirement that a fraction of the good should be produced domestically • Foreign companies have to shift some of their production in the host country • Advantage? • Buy America Act • Requires government agencies to buy American products • Unless imports are significantly cheaper than the American products • The taxpayers are footing the bill

The Alternative Fuel Act of 1988 (amendments to EPCA)

• To help persuade the oil and gas companies to find alternative fuels. • The act specifies that alternative fuel is anything not derived from petroleum.