chapter 5 and 6

identify the major areas of social responsibility for international business

*Organizational stakeholders* - those people and organizations that are directly affected by the practices of an organization and that have a stake in its performance. Most companies that strive to be responsible to their stakeholders concentrate first and foremost on three main groups: customers, employees, and investors. *the natural environment* - Many laws regulate the disposal of waste materials. In many instances, companies themselves have become more socially responsible in their release of pollutants and general treatment of the environment. Still, companies need to develop economically feasible ways to avoid contributing to acid rain and global warming; to avoid depleting the ozone layer; and to develop alternative methods of handling sewage, hazardous wastes, and ordinary garbage. *General social welfare* - Some people believe that in addition to treating their stakeholders and the environment responsibly, business organizations also should promote the general welfare of society. Examples include making contributions to charities, philanthropic organizations, and not-for-profit foundations and associations; supporting museums, symphonies, and public radio and television; and taking a role in improving public health and education. Some people also believe that organizations should act even more broadly to correct the political and/or social inequities that exist in the world.

Differences between Comparative and Absolute Advantage

- Absolute versus relative productivity differences - Comparative advantage incorporates the concept of opportunity cost -- Value of what is given up to get the good

disadvantage of mercantilism

- Confuses the acquisition of treasure with the acquisition of wealth - Weakens the country because it robs individuals of the ability to: -- Trade freely -- Benefit from voluntary exchanges - Forces countries to produce products it would otherwise not in order to minimize imports

Global Strategic Rivalry Theory

- Firms struggle to develop sustainable competitive advantage - Advantage provides ability to dominate global marketplace - Focus: strategic decisions firms use to compete internationally *ADVANTAGES* : - Owning intellectual property rights - Investing in research and development - Achieving economies of scale or scope - Exploiting the experience curve

what are the four general approaches a firm can take with regard to social responsibility?

- Obstructionist : - Defensive : - Accommodative : - Proactive :

Comparative Advantage with Money

- One is better off specializing in what one does relatively best - Produce and export those goods and services one is relatively best able to produce - Buy other goods and services from people who are better at producing them

what are the primary sources of the competitive advantages used by firms to compete in international markets?

- Owning intellectual property rights - Investing in research and development - Achieving economies of scale or scope - Exploiting the experience curve

new product

- a firm develops and introduces an innovative product, such as a photocopier or a personal computer, in response to a perceived need in the domestic market. - Because the product is new, the innovating firm is uncertain whether a profitable market for the product exists. The firm's marketing executives must closely monitor customer reactions to ensure that the new product satisfies consumer needs. - Further, because the market size also is uncertain, the firm usually will minimize its investment in manufacturing capacity for the product. Most output initially is sold in the domestic market, and export sales are limited.

maturing product

- demand for the product expands dramatically as consumers recognize its value. - The innovating firm builds new factories to expand its capacity and satisfy domestic and foreign demand for the product. Domestic and foreign competitors begin to emerge, lured by the prospect of lucrative earnings.

distinguish between ethical and unethical behavior

ethical behavior usually refers to behavior that conforms to generally accepted social norms. they are discussed in the contest of how organizations treat their employees, how employees treat their organizations, and how employees and their organizations treat other economic agents Unethical behavior, then, is behavior that does not conform to generally accepted social norms.

Economies of Scale

the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

what could also influence someone ethics view?

Individuals may be able to rationalize behaviors based on circumstances.

Standardized product

- the market for the product stabilizes. The product becomes more of a commodity, and firms are pressured to lower their manufacturing costs as much as possible by shifting production to facilities in countries with low labor costs. - As a result, the product begins to be imported into the innovating firm's home market (by either the firm or its competitors). In some cases, imports may result in the complete elimination of domestic production.

mercantilism

A country's wealth is measured by its holdings of gold and silver and should be to enlarge holdings of gold and silver by Promoting exports and Discouraging imports -- enable country to expand its borders -- export-oriented manufacturers benefited from policies (tax-break and subsidies) that encourage exports -- domestic manufacturers were protected from imports

Accommodative

A firm that adopts an accommodative stance meets its legal and ethical requirements but will also go beyond these requirements in selected cases. Such firms voluntarily agree to participate in social programs, but solicitors have to convince the organization that the programs are worthy of their support. Some firms will match contributions made by their employees to selected charitable causes. VodaPhone, an African telecommunications company, for example, sponsors a youth cricket league in Pretoria, South Africa.

absolute advantage

Adam Smith - Invisible Hand - proposed free trade between nations would enlarge wealth of countries - Export those goods and services for which a country is more productive than other countries - Import those goods and services for which other countries are more productive than the home country - states that a nation should produce those goods and services that it can produce more cheaply than other countries

comparative advantage

David Ricardo Produce and export those goods and services for which it is relatively more productive than other countries Import those goods and services for which other countries are relatively more productive than the home country

Economies of Scope

Economies of scope are conceptually similar to economies of scale. Whereas economies of scale for a firm primarily refers to reductions in the average cost (cost per unit) associated with increasing the scale of production for a single product type, economies of scope refers to lowering the average cost for a firm in producing two or more products.

what role does culture play in the formation of ethics ?

Ethical values are strongly affected by national cultures and customs. People from the same cultural contexts are likely to hold similar beliefs as to what constitutes ethical and unethical behavior. Members of one culture may view a behavior as unethical, while members of another may view that same behavior as perfectly reasonable. For example, a group of middle-class residents of Brazil will generally agree with one another as to whether a behavior such as stealing from an employer is ethical or unethical.

country similarity theory

Explains the phenomenon of intraindustry trade (as opposed to interindustry trade) which is Trade between two countries of goods produced by the same industry - Japan exports Toyotas to Germany - Germany exports BMWs to Japan suggests that international trade in manufactured goods is caused by similarities of preferences among consumers in countries at the same stage of economic development - proposed that when firms began to export, they realize that the best markets are in countries where consumer preferences are similar to those in their domestic market - suggests that most trade in manufactured goods should be between countries with similar per capita income

Internalization Theory

FDI is more likely to occur when transaction costs with a second firm are high. Transaction costs are costs associated with negotiating, monitoring, and enforcing a contract.

what are the three parts of dunning's electic thoery

FDI reflects both international business activity and business activity internal to the firm. Three conditions for FDI: Ownership advantage Location advantage Internalization advantage

explain the impact of the product life cycle on international trade and international investment

International Product Life Cycle - describe the evolution of marketing strategies as a product matures by Raymond Vernon Stages : New product Maturing product Standardized product

what are the country-based trade theories

Mercantilism Absolute Advantage Comparative Advantage Comparative Advantage with Money

Proactive

The highest degree of social responsibility that a firm can exhibit is the proactive stance. Firms that adopt this approach take to heart the arguments in favor of social responsibility. They view themselves as citizens in a society and proactively seek opportunities to contribute. An excellent example of a proactive stance is the Ronald McDonald House program undertaken by McDonald's Corp. These houses, located close to major medical centers, can be used by families for minimal cost while their sick children are receiving medical treatment nearby.

portfolio investment vs foreign direct investment

Portfolio investments - represent passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor. Foreign direct investment (FDI) - acquisition of foreign assets for the purpose of controlling them. U.S. government statisticians define FDI as "ownership or control of 10 percent or more of an enterprise's voting securities or the equivalent interest in an unincorporated business." FDI may take many forms, including purchase of existing assets in a foreign country, new investment in property, plant, and equipment, and participation in a joint venture with a local partner.

firm-based theory

The firm-based theories developed after World War II due to the growing importance of multinational corporations, the inability of the country-based theories to explain the growth of intraindustry trade - are useful in describing patterns of trade in differentiated goods—those such as automobiles, consumer electronics, and personal care products, for which brand name is an important component of the customer's purchase decision. -- Country Similarity Theory -- Product Life-Cycle Theory -- Global Strategic Rivalry Theory -- Porter's National Competitive Advantage

Defensive

The organization will do everything that is required of it legally but nothing more. Managers in organizations that take a defensive stance insist that their job is to generate profits. Tobacco companies such as Philip Morris take this position in their marketing efforts. In the United States, they are legally required to include warnings to smokers on their products and to limit their advertising to prescribed media. Domestically, they follow these rules to the letter of the law but use stronger marketing methods in countries that have no such rules.

obstructionist

Usually do as little as possible to address social or environmental problems. When they cross the ethical or legal line that separates acceptable from unacceptable practices, their typical response is to deny or avoid accepting responsibility for their actions. For example, a few years ago, top managers in several foreign affiliates of Astra, a Swedish firm, were accused of a host of improprieties ranging from sexual harassment to the diversion of company resources for personal use. When these problems first began to surface, top officials in Sweden denied any wrongdoing before they even bothered to conduct an investigation.

what is ethics ?

an individual's personal beliefs about whether a decision, behavior, or action is right or wrong.

define the *foreign corrupt practice act*

passed by the US congress in 1977, prohibits US firms form paying or offering to pay bribes to any foreign government officials so that they may influence the officials' actions or policies in order to gain or retain business. it does not disallow routine payments to government officials in order to expedite normal commercial transactions.

what are the four elements of porter's diamond of national competitive advantage ?

proposes the sucess in an industry is a function of four characteristics: - Factor Condition - country's endowment of factors of production affects its ability to compete internationally. (Land (natural resources), labor, capital (machinery and equipment) and entrepreneurship) - Demand Conditions - existence of a large, sophisticated domestic consumer base often stimulates the development and distribution of innovative products as firms struggle for dominance in their domestic markets. - Related and Supporting Industries - The emergence of an industry often stimulates the development of local suppliers eager to meet that industry's production, marketing, and distribution needs. An industry located close to its suppliers will enjoy better communication and the exchange of cost-saving ideas and inventions with those suppliers. Competition among these input suppliers leads to lower prices, higher-quality products, and technological innovations in the input market, in turn reinforcing the industry's competitive advantage in world markets. - Firm Strategy, Structure, and Rivalry - The domestic environment in which firms compete shapes their ability to compete in international markets. To survive, firms facing vigorous competition domestically must continuously strive to reduce costs, boost product quality, raise productivity, and develop innovative products. Many of the investments they have made to succeed in the domestic market are transferable to international markets at low cost.

what is social responsibility ? what is the difference between ethics and social responsibility ?

set of obligations an organization undertakes to protect and enhance the society in which it functions. whereas ethics relates to individual employees, social responsibility relates to the organization itself towards their stakeholders, natural environment and general social welfare

what is a whistle-blower?

the disclosure by an employee of illegal or unethical conduct on the pat of others within the organization. how an organization responds shapes the internal attitudes towards ethics and social responsibility.

how useful are country-based theories in explaining international trade?

useful for describing trade in commodities - standardize, undifferentiated goods such as oil, sugar or lumber that are typically bought on the basis of price rather than brand name.

code of ethics

written statements of the values and ethical standards that guide the firms' actions. - a multinational must make a decision as to whether to establish one overarching code for all of its units around the globe or whether it should tailor each code to its local context