Week 03 - CH 05 - 230922

Dr.
Mohamed Matar
Chapters 5 & 6
Country Country
A B
Owners
Shareholders Employees
Owners
Society Customers
Community Stakeholders Employees
Government Suppliers
Creditors
• The greater the “distance” from one’s home country, the more complicated it is to do
business.
• Distance can be described in many different ways, but one way to identify it is the
acronym CAGE: cultural (also known as psychic distance), administrative (such as
political and institutional policies), geographic, and economic.
• To prosper a company must satisfy different groups of stakeholders, including

shareholders, employees, customers, suppliers, and society at large. This adds a layer of
complexity that gets even more complicated in the case of MNEs.
The basic equation for analyzing the effect of FDI on a host
country’s balance of payments:
B = (m - m1) + (x - x1) + (c - c1)
Where
B = balance-of-payments effect
m = import displacement
m1 = import stimulus
x = export stimulus
x1 = export reduction
c = capital inflow for other than import and export payment
c1 = capital outflow for other than import and export
payment
• The balance-of-payments is positive if the FDI results in a
substitution for imports and negative if it results in an
increase in imports.
• The balance-of-payments effects in terms of capital flows

for FDI are usually:
1. positive for the host country initially and negative for
the home country and
2. negative for the host country and positive for the
home country later.
There are three levels of moral development:
3
• Level 1, the preconventional level, where children
learn what is right and wrong but don’t necessarily
2
understand why their behavior is right or wrong.
• Level 2, the conventional level, where we learn role

conformity, first from our peers (including parents), 1
then from societal laws. (In business, this relates to a

company’s home country code of conduct).
• Level 3, the postconventional, autonomous, or

principled level, where individuals internalize moral
behavior, not because they are afraid of sanctions,
but because they truly believe such behavior is
right.
Because ethical behavior is rooted in both cultural and
legal traditions that vary from one country to another,
dilemmas often arise.
There are multiple approaches to the analysis,

including:
• Teleological approach: decisions are based upon

the consequences of the action,
• Utilitarianism: an action is deemed right if it
produces the greatest amount of good for the
greater number of people
• Deontological approach: moral judgments are

made independent of consequences.
• Why do companies care about ethical behavior?
• To develop competitive advantage
• To avoid being perceived as irresponsible
Beliefs may vary because of different family and
religious teachings, different laws and social pressures,
different observations, experiences, and perceptions,
and even different economic circumstances.
Relativism holds that ethical truths depend upon the

groups subscribing to them; thus, intervention in local
issues and traditions by outsiders is clearly unethical.
Normativism holds that there are universal standards

of behavior that everyone should follow; thus,
nonintervention in local violations of global standards
is clearly unethical.
Proponents of legal-justification state that there are
several good reasons for complying with it: (i) the law
provides a basic guide for proper conduct, (ii) the law
provides a clearly defined set of rules, and when followed
they establish a good precedent, (iii) the law contains
enforceable rules that apply to everyone, and (iv) the law
reflects careful and wide-ranging discussions.
Opponents of legal justification feel that it is not

sufficient because: (i) everything that is legal is not
necessarily ethical, (ii) the law is slow to develop in
emerging areas of concern, (iii) the law is often based on
moral concepts that cannot be separated from legal
concepts, (iv) the law may need to be tested by the courts,
and (v) the law is not efficient in terms of achieving ethical
behavior at a minimum cost.
• Bribery is one facet of corruption.
• The determinants of corruption include
cultural, legal, and political forces.
• Bribery consists of payments, or
promises to pay cash or something else
of value, to public officials and/or other
people of influence.
• It affects the performance of countries
and companies alike. Anecdotal
information indicates that in recent
decades, questionable payments by
MNEs to government officials have
been prevalent in both industrial and
developing countries.
• High levels of corruption tend to
correlate with lower rates of economic
growth as well as lower levels of per
capita income.
• Corruption may also erode the

legitimacy of a government.
• Both the legal definition of a bribe and

the likelihood of paying bribes abroad
vary by nationality.
• Efforts to slow corruption in international business
practices can be seen at the global, regional, and national
levels.
• Multilateral efforts to confront bribery include the
accords established by OECD, the ICC (International
Chamber of Commerce), and the UNCAC (United Nations
Convention Against Corruption).
• The EU does not have specific anticorruption legislation,
but it encourages member nations to adopt high
standards and follow them.
• The Foreign Corrupt Practices Act (FCPA) is an example of
the national approach. The FCPA outlaws bribery by U.S.
firms no matter where they do business.
• Another major legislative effort in the United States is the
Sarbanes–Oxley Act (SOX). SOX toughened standards with
regard to corporate governance, financial disclosure, and
oversight of accounting and auditing practices.
• Sustainability means meeting the needs of the present without
compromising the ability of future generations to meet their own
needs while taking into account what is best for society and for the
environment.
• Paris Agreement on Climate Change 2015
• 187 countries agreed to keep the increase in the global average
temperature to 2°C above pre-industrial levels and try to achieve 1.5°C.
The countries also agreed to try to shoot for a target of zero net GHG
emissions by the second half of the century.
• (Obama, Trump, and Biden policies)
• Once again, legal vs. ethical!
• A major challenge facing MNEs today is the labor
conditions of foreign workers, whether in their own
offshore operations or their outsourced supply
chains.
• They are especially critical in retail, clothing,

footwear, electronics, and agriculture—industries in
which MNEs typically outsource huge portions of
production to independent companies abroad.
• Should MNEs accept full responsibility for the unethical behavior of their employees?
• Watch on the story on YouTube https://youtu.be/Y5TvFY7xRDM
• Firms need to act responsibly for at least four reasons:
1. Unethical and/or irresponsible behavior could result in legal headaches, especially in the
areas of financial mismanagement and product safety.
2. Such behavior could also result in consumer action (e.g., boycotts), even though the
effectiveness of such actions is unclear.
3. Unethical behavior can lower employee morale.
4. The cost to firms of bad publicity can be enormous.
• Codes of conduct involve four dimensions:

• Setting a global policy that must be complied with wherever the company operates,
• Communicating the code to employees, suppliers, and subcontractors,
• Ensuring that policies are carried out,
• Reporting results to external stakeholders
Example of CarbonClick
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Dr.

Community Stakeholders Employees

• To prosper a company must satisfy different groups of stakeholders, including

B = (m - m1) + (x - x1) + (c - c1)

• The balance-of-payments effects in terms of capital flows

• Level 2, the conventional level, where we learn role

then from societal laws. (In business, this relates to a

• Level 3, the postconventional, autonomous, or

There are multiple approaches to the analysis,

• Teleological approach: decisions are based upon

• Deontological approach: moral judgments are

Relativism holds that ethical truths depend upon the

Normativism holds that there are universal standards

Opponents of legal justification feel that it is not

• Corruption may also erode the

• Both the legal definition of a bribe and

• They are especially critical in retail, clothing,

• Codes of conduct involve four dimensions:

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