IBUS 300 Concept Check 3
Straw men approaches to business ethics
Friedman doctrine Cultural Relativism Righteous Moralist Naive Immoralist
Friedman Doctrine
the only social responsibility of business is to increase profits, so long as the company stays within the rules of law
Organizational Culture
the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization
Stock of FDI
the total accumulated value of foreign-owned assets at a given time
The most common ethical issues in business involve:
-employment practices -environmental regulations -moral obligations of MNEs -corruption
What can firms do to ensure ethical employment practices
-establish acceptable minimum standards that safeguard basic rights and dignity of employees -audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the standards -take corrective action as necessary
disadvantages of turnkey projects
-firm that enters has no long-term interest in foreign country -might create a competitor -could lose control of process technology
Exporting is attractive because
-it is relatively low cost -firms may achieve experience curve economies
advantages of wholly owned subsidiaries
-protection of technology, -ability to engage in global strategic coordination -ability to realize location and experience economies
global market opportunities
1) Decide which market to enter 2) Screen countries to identify target markets 3) Identify candidate countries by assessing each based on -Size and Growth rate - Market Intensity - Country's receptivity to imports - Economic freedoms and Country Risk
FDI is more profitable than licensing when:
1) when the firm has valuable know-how that cannot be adequately protected by a licensing contract 2) when the firm needs tight control over a foreign entity to maximize its market share and earnings 3) when a firm's skills and know-how are not amenable to licensing
Two forms of FDI
1. A greenfield investment - the establishment of a wholly new operation in a foreign country 2. Acquisition or merging with an existing firm in the foreign country
Barriers to International Communication
1. Cultural barriers 2. Source and country of origin effects 3. Noise levels
Universal Declaration of Human Rights
A 1946 United Nations covenant binding signatory nations to the observance of specified rights. (4) 1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work, and to protection against unemployment 2. Everyone, without any discrimination, has right to equal pay for equal work 3. Everyone who works has right to just and favorable remuneration ensuring for himself and family an existence worthy of human dignity and supplemented, if necessary, by other social protections 4. Everyone has the right to form and join trade unions for the protection of his interests
Exclusive Distribution Channel
A distribution channel that outsiders find difficult to access.
Pull Strategy
A marketing strategy emphasizing mass media advertising as opposed to personal selling. Tend to be emphasized for: -consumer goods -when distribution channels are long -when sufficient print and media are available to carry the marketing message
Push strategy
A marketing strategy emphasizing personal selling rather than mass media advertising Tends to be emphasized for: -industrial products or complex new products -when distribution channels are short -when few print or media are available
Turnkey Projects
A project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational.
Franchising Agreement
A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business
Country of Origin
A subset of source effects, the extent to which the place of manufacturing influences product evaluations
Advantages of Joint Ventures
Access to local partner's knowledge Sharing development costs and risks Politically acceptable
ethnocentric approach (Standardized)
Adopt the domestic marketing mix for global markets
location-specific advantages
Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management know-how).
Promotion
Advertising Personal Selling Sales Promotion
experience curve pricing
Aggressive pricing designed to increase volume and help the firm realize experience curve economies.
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
An OECD convention that establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures to make this effective
Oligopoly
An industry composed of a limited number of large firms
Eclectic Paradigm
Argument that combining location-specific assets or resources endowments and the firm's own unique assets often requires FD; It requires the firm to establish production facilities where those foreign assets or resource endowments are located
Marketing Mix
Choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets.
Pioneering Costs
Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.
Polycentric Approach (customized)
Customize the firm's marketing mix for each market
Place (Distribution)
Direct Marketing Direct Exporting Using an intermediary FDI
First Mover Disadvantages
Disadvantages associated with entering a foreign market before other international businesses.
Greenfield Investment
Establishing a new operation in a foreign country (start from scratch) ex. HP's plant in China
Non-Equity Modes of Entry
Exports and contractual agreements -less costly -potential for gradual organizational learning
offshore production
FDI undertaken to serve the home market
Acquisition
Firm acquires another company in a foreign market ex. Burger King and Tim Hortons
Inflows of FDI
Flow of foreign direct investment into a country
Outflows of FDI
Flow of foreign direct investment out of a country
Cultural Relativism
Host country standards should be followed
Born Global Strategy
If you wait too long, miss the window of opportunity
Equity Modes of Entry
JVs and Wholly owned Subsidiaries -demonstrate strategic commitment to certain markets, local customers and suppliers -Deters potential entrants
Managers face uncertainty on many fronts --
Lack of Market knowledge Lack of international experience Perceptions of risk in dealing with foreign business partners
Licensing Agreement
Licensor grants licensee access to intangible property for royalty fee ex. Hello Kitty
Advantages of Licensing/Franchising
Lower costs (vs. FDI) Less transportation costs Share resources from licensee/franchisee Lower production costs (vs. export)
Internationalization Theory
Marketing imperfection approach to foreign direct investment
Disadvantages of Licensing/Franchising
May lose control of IP May lose control of product/service quality May create potential competitor Not realizing full benefit of sales (vs. FDI)
Sullivan Principles (GM)
Named after Leon Sullivan -Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled 1) company should not obey the apartheid laws in its own ops 2) Company should do everything within its power to promote the abolition of apartheid laws
Build-operate-transfer (BOT) agreement
Nonequity mode used to build a longer term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm (similar to turnkey)
Multipoint Pricing
Occurs when a pricing strategy in one market may have an impact on a rival's pricing strategy in another market.
first-mover advantage
Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage
Righteous Moralist
One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries
Why do managers behave unethically?
Personal ethics Societal culture Leadership Unrealistic performance goals Organization culture Decision-Making Process
U.S. Foreign Corrupt Practices Act (FCPA)
Prohibits American companies from making illicit payments to foreign officials in order to obtain or keep business
Types of Contractual Agreements and Alliances
R&D Turnkey Build-operate-transfer (BOT) Licensing/Franchising
Standardized Marketing Mix Advantages
Reduces marketing costs Facilitates centralized control of marketing Promotes efficiency in R&D Results in economies of scale—production Reflects globalization trends Country of origin effect
Customized Marketing Mix Advantages
Reflects different conditions of product use Acknowledges local legal differences Accounts for differences in buyer behavior patterns Accounts for other differences in markets
Formal and Informal barriers to entering foreign markets
Registration Licensing Taxation Reporting inspections
Most likely countries to offer bribes
Russia China Mexico Indonesia
The "Stages Model": Expansion as a process of Organizational Learning
Stage 1: Home Market only Stage 2: Indirect Export Stage 3: Direct Export Stage 4: Foreign Production
Geocentric Approach (standardized)
Standardize a global marketing mix for global market
Pricing Policies
Standardized Pricing: Walmart Differential Pricing: Toys R Us
Standardized vs Customized Products
Standardized: same product design across all international markets ex. Industrial products Customized: product localized for each international market ex. consumer products have a tendency to be customized
Flow of FDI
The amount of FDI undertaken over given time period
Channel Length
The number of intermediaries that a product has to go through before it reaches the final consumer.
advantages of turnkey projects
Useful when FDI is limited by host-government regulations Can be less risky than conventional FDI in countries where longer-term investment can expose firm to political/economic risks
Rapid internationalization can be successful if:
Venture capital is present Strong ownership "O" advantages can be exploited First mover advantages exist
Just Distribution
a distribution of goods and services that is considered fair and equitable
Principle Accumulative Attraction
When competing or complimentary businesses locate near each other
Rights Theorists
a 20th century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures
Ethical Strategy
a course of action that does not violate a company's business ethics
Concentrated Retail System
a few retailers supply most of the market
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Fragmented Retail System
a retail system in which there are many retailers, no one of which has a major share of the market
intermarket segmentation
a segment of customers that spans multiple countries, transcending national borders
Ethical Dilemma
a situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even illegal
Business Ethics
accepted principles of right or wrong governing the conduct of business people
Joint Venture
an agreement between two or more companies to share a business project ex. SBUX/Tata in India
Multipoint Competition
arises when two or more enterprises encounter each other in different regional markets, national markets, or industries
Country of Origin Effect
consumers' general perceptions of quality for products made in a given country
Timing of Entry
entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves
Marketing Mix Approaches
ethnocentric approach polycentric approach geocentric approach
Speed Money
facilitating payments made to expedite routine government action
wholly owned subsidiary
foreign subsidiary that is totally owned and controlled by an organization
Basic Human Rights
freedom of speech freedom of assembly freedom of movement
Righteous Moralist
home country ethics should always be followed
Market Segmentation
identifying groups of consumers whose purchasing behavior differs from others in important ways
Market Imperfections
imperfections in the operation of the market mechanism
Current Account
in the balance of payments, records transactions involving the export or import of goods and services
Product Design Considerations
infrastructure needs culture legal requirements religious customs economic development level
Disadvantages of Joint Ventures
lack of control over technology inability to engage in global strategic coordination inability to realize location and experience economies
Exporting is unattractive when
lower-cost manufacturing locations exist transport costs are high tariff barriers are high foreign agents fail to work in the exporter's best interest
Disadvantages of wholly owned subsidiaries
most costly method of serving a foreign market
balance of payments accounts
national accounts that track both payments to and receipts from foreigners
Tragedy of the Commons
occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation
Naive Immoralist
one who asserts that 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
R&D
outsourcing agreements in R&D between firms
Gatekeepers
people or corporations who control access to information, licenses and registration, costs of ops
Social Responsibility
refers to the idea that managers should consider the social consequences of economic actions when making business decisions
Predatory Pricing
selling a product below cost to drive competitors out of the market
Cultural Relativism
the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate
Kantian Ethics
the belief that people should be treated as ends and never as means to the ends of others
Strategic Pricing
the concept containing the three aspects: predatory pricing, multipoint pricing, and experience curve pricing
Channel Quality
the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses
Noise
the number of other messages competing for a potential consumer's attention
Utilitarian Approaches to Ethics
these hold that the moral worth of actions or practices is determined by their consequences
Source Effects
when the receiver of the message evaluates the message based on the status or image of the sender