BADM 218 EXAM 2
Justice Theories
Impartially and the veil of ignorance.
The Friedman Doctrine
Nobel Prize winning economist's Milton Friedman's classic position on business ethics is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law. He rejects the idea that businesses should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business.
Ad valorem tariff
a % of imported goods value
Dumping
selling goods in an overseas market • At below their production costs or • Below "fair market value"
Ethical Dilemmas
situations in which none of the available alternatives seems ethically acceptable
Economic Arguments for Intervention
• Infant industry protection • Strategic trade policy
Retaliation
Government intervention in trade can be used as part of a "get tough" policy to open foreign markets. By taking, or threatening to take, specific actions, other countries may remove trade barriers. But when threatened governments do not back down, tensions can escalate and new trade barriers may be enacted
Trends in FDI & the Direction of FDI
Historically, most FDI has been directed at the developed nations of the world
Leadership
If a firms leaders fail to act in an ethical manner, other employees may not act ethically
Individual industries and jobs protected
The most common political reason for trade restrictions is "protecting jobs and industries
The Radical View
The radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see MNEs as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.
Environmental Pollution: The tragedy of the commons
The 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
Limitations of Exporting
an exporting strategy can be limited by transportation costs and trade barriers
Location-specific advantages
arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own
The naïve immoralist
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 • Actions are ethically justified if everyone else is doing the same thing
The righteous moralist
claims that a multinational's home country standards of ethics are the appropriate ones for companies to follow in foreign countries
Pressures for local responsiveness
consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs/requirements
Impartially and the veil of ignorance
everyone is imagined to be ignorant of all his or her particular characteristics
The Product Life Cycle
firms undertake FDI at particular stages in the life cycle of a product they have pioneered
Specific tariff
fixed charge for each good imported
Strategic Choice
four basic strategies to compete in the international environment -Multidomestic MNC(localization)
Rights Theories
human beings have fundamental rights and privileges that transcend national boundaries and culture -Form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component
The Free Market View
international production should be distributed among countries according to the theory of comparative advantage
Cultural relativism
is the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate -"when in Rome, do as the Romans do"
The flow of FDI
the amount of FDI undertaken over a given time period ➢ Outflows of FDI are the flows of FDI out of a country ➢ Inflows of FDI are the flows of FDI into a country
Utilitarian approach
the moral worth of actions or practices is determined by their consequences -Actions have multiple consequences, some good, some not -Actions are desirable if they lead to the best possible balance of good consequences over bad consequences
The stock of FDI
the total accumulated value of foreign-owned assets at a given time
Multipoint competition
when two or more enterprises encounter each other in different regional markets, national markets, or industries
Political Arguments for Intervention
•National security •Retaliation •Consumer protection (health, safety) •Furthering foreign policy objectives
Societal Culture
Ethical policies differ by country
Administrative policies
Bureaucratic rules that make it difficult for imports to enter a country
Personal Ethics
Business ethics reflect personal ethics
Ethical issues in International business
-Emplyment Practices -Human Rights -Environmental Pollution -Corruption -Moral Obligations
Domestic politics
-Governments often do not act in the national interest when they intervene -Politically important groups influence them
Problems with the Utilitarian approach
-Measuring the benefits, costs, and risks of a course of action -Fails to consider justice
Taxes levied on imports (also sometimes on exports)
-Specific tariff -Ad valorem tariff
Instruments of Trade Policy
-Tariffs -Subsidies -Import quotas -Voluntary export restraints -Local content requirements -Administrative policies -Anti-dumping policies
Expatriates may face pressure to violate their personal ethics because
-They are away from their ordinary social context and supporting culture -They are psychologically and geographically distant from the parent company
Acquisitions are attractive because:
-They are quicker to execute than greenfield investments -It is easier and less risky for a firm to acquire desired assets than build them from the ground up -Firms believe they can increase the efficiency of an acquired unit by transferring capital, technology, or management skills
Import Quotas And Voluntary Export Restraints
-Who gains and who loses -Quota rent
Limitations of licensing
1. Licensing could result in a firm's giving away valuable technological know-how to a potential foreign competitor 2. Licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability 3. Licensing may be difficult if the firm's competitive advantage is not amendable to it
Local Content Requirements
A local content requirement demands that some specific fraction of a good be produced domestically
Unrealistic Performance Expectations
Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior
National Security
Protecting industries because they are important for national security is another argument for trade restrictions.
Decision Making Processes
Studies show that business people may behave unethically because they fail to ask the relevant question—is this decision or action ethical?
Corruption
The Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes to foreign government officials in order to gain business.
Organizational Culture
Unethical behavior may exist in firms with an organization culture (the values and norms that are shared among employees of an organization) that does not emphasize business ethics
FDI has grown more rapidly than world trade and world output because:
➢ Firms still fear protectionist policies ➢ The shift toward democratic political institutions and free market economies encourages FDI ➢ Globalization is prompting firms to ensure they have a significant presence in many regions of the world
Pressures for Cost Reductions
➢ In industries producing commodity type products that fill universal needs - needs that exist when the tastes and preferences of consumers in different nations are similar if not identical ➢ When major competitors are based in low cost locations ➢ Where there is persistent excess capacity ➢ Where consumers are powerful and face low switching costs