2012

INTERNATIONAL BUSINESS ENVIRONMENT CASE STUDY REPORT-4

Anglo American PLC in South Africa
Submitted by, Sonali 1225111253 Bharati-122511207 Niharika -1225111239 Narendra -1225111237 Kishore-1225111223 Group - C

GITAM UNIVERSITY GITAM INSTITUTE OF MANAGEMENT 2/25/2012

Case study: 1. Introduction :

MNE (Multinational enterprise) is a company with worldwide approach to markets and production or one with operation in more than one country. FDI (Foreign Direct Investment) is a form of investment that gives the investor a controlling interest in a foreign company. Anglo African Corporation of South Africa founded in 1917 is a MNE headquartered in LONDON. Anglo American PLC is a mining conglomerate operating in 61 countries to produce gold, platinum, forest products etc. Anglo American controls over 25% of all shares on the South African stock market.

Evaluating the impact of FDI: FDI can be positive for the share-holder wealth of MNEs especially in the case of liberalization and structural reform though the effect of individual FDI may be positive or negative. MNEs offer mainly in five sectors. They are: INVESTMENT: Links to local companies Increased productivity Improve efficiency Capital formation

HUMAN RESOURCES: Training Employment Managerial skills TECHNOLOGY: R&D Industrial upgrading

 New capital equipment TRADE: Export expansion Lower cost imports ENVIRONMENT: Access to clean technology Pollution abatement skill Companywide standards All these factors must be studied by the home country while investing in the host country.

2. Economic impact of the MNE:

MNEs may affect many facets of a countrys economy. It may be due to balance of payments, growth employment objectives and so forth. FDI can be positive for the shareholder wealth of the MNEs, especially in the emerging economy undergoing market liberalization and structural reform. The effect of an individual FDI can be positive or negative. Growth and employment effect: Growth and employment effects are not zero-sum game because MNEs may use resources that were employed or unemployed. Anglo American Company holds 25% of South American market share with interests of about 1300 South American companies. Anglo American employs 80000 employees in its main operation and 44,000 at its regional subsidiaries. Home country lossesIn 2007, 23% of the companys South American workers got infected with increased of 2% over levels in 2001. Host country lossesThe company got affected by the HIV-positive workers which had risen to an average of 21% across all the operation which was increasing at a rate of 2% annually. The company was spending around $7 million annually to combat AIDS-related illness.

 As per the company estimation it was spending $4000 per employee per year which was quite expensive especially when compared with the wages and benefits gained.

3. The Foundations of ethical behavior: Firstly we must understand the reason why
companies focus on ethical behavior. High standards of ethical behavior translate into company policy. There are two objectives that can be achieved by company policy: 1. To develop competitive advantage 2. To avoid being perceived as irresponsible In 2002 Anglo American made a landmark decision to provide free antiretroviral therapy to its HIV infected employees. It was met with mixed reactions. Cultural foundations of the ethical behavior: Relativism It holds that ethical truths depend on the values of the groups propounding and practicing them and that outside intervention is unethical. When we apply this to our case we find that a similar attitude is projected by the employees and workers of Anglo American PLC wherein five years into the program, nearly one third of the workers had dropped out of the treatment regime. The company continued to struggle with non adherence. By 2006 10.5 per cent of workers had dropped out due to inability or unwillingness to adhere to the regimen. Moreover many of those who had agreed to participate initially were confused by rumors and assumed they could stop using condoms once they started the drugs which exacerbated the situation. Normativism - It holds that non intervention is unethical. Global firms are always struggling to implement their own ethical principles in foreign business environments. This is the approach followed by the Anglo American PLC in South Africa. Legally, Anglo American PLC has faced stiff opposition and hurdles from the South African government. Because the law embodies a countrys moral principles, it is a guide for proper conduct. Over the course of two years the government has diverted only 0.6 percent of the national budget to the HIV/AIDS crisis and has even resisted the wide distribution of drugs on the grounds that they are too expensive and difficult to implement. Here the South African government has failed to follow the law ethically.

The legal foundations of ethical behavior: The country legal system is the fundamental institution that creates a comprehensive legal network to regulate social interaction. Its purpose is to stabilize political and social environments as well as to ensure a fair, safe and efficient business environment.

The south African legal system is also helping the Anglo American PLC Company to do the things in an ethical manner ensuring safety towards their employees, efficient business as the more the people get infected the lesser would be the output. So they are taking the measures to increase the efficiency. The business is also fair enough thats the reason why they are sustaining in the market for around 95 years. Legal justification of ethical behavior may not be sufficient because not everything that is unethical is illegal. The law is the good basis for ethical behavior because it embodies local cultural values. As countries tackle similar ethical issues, law will become more similar. Since, it is doing business in various other countries. The problems may vary from country to country. So they are operating depending on the cultural, political and socio- economic problems.

4. Ethics and the environment: .

Companies that extract natural resources, generate air or water waste, or manufacture products such as autos that generate pollution need to be concerned with their environmental impact. In this case too they are extracting minerals from the soil which might cause some damage to the environment as well as the society. But the people are least concerned as they are generating employment opportunities and inducing many programs that will eradicate the AIDS from their country. Sustainability: 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 the people and the environment. Businesses that impact the environment establish policies for responsible behavior towards the environment. Anglo-American was one of the first corporations to develop a comprehensive strategy to combat the ravages of the disease on its workforce and the repercussions for its operations. Global warming: Global warming results from the release of greenhouse gases that trap heat in the atmosphere rather than allowing them to escape.

 Kyoto protocol- An extension of the UN framework Convention on climate change of 1994 commits signatory countries to reducing greenhouse gas emissions to 5.2% below 1990 levels between 2008 and 2012. National and regional initiatives: UN-based MNE adopted the protocol to reduce emissions or buy credits from companies that have reduced emissions below target levels. They are forced to reconcile their global strategies. They conducting the program consisted of prevention initiatives aimed at education and awareness, financial and skill-related training to alleviate poverty and a survey system. Anglo-American PLC has to bear the losses in productivity, high levels of absenteeism, the constant retraining of replacement workers, hospitalization and death benefits. Company specific initiatives:

Companies are changing the way they do business, whether or not theyre bound by Protocol standards. The ethical approach urges companies to go beyond the law to do whatever is necessary and economically feasible to reduce greenhouse gas emissions. The South-African government recently launched a National Strategic Plan for combating HIV/AIDS, which includes the aggressive goal of cutting the number of HIV infections in half by 2011. 5.

Ethical dilemmas and business practices:

Ethical dilemmas and business practices refers to the socially responsible behavior of an organization. They might be industry specific or sometimes it deals with cross industries, issues relate to the labor conditions in the developing countries. In this case also there are some ethical dilemmas that the Anglo American PLC company is facing, which relates to whether to continue with the like programs like ART and other prevention initiative programs with the organization as they were been criticized by the governments and the companies which are existing around South Africa. As they are causing them also to initiate such kind of programs which is an extra burden to them. Ethical dimensions of labor conditions:

There are two major challenges MNEs facing today. They are: Globalized supply chain The working conditions of the foreign workers There is a separate legal system to look after all these practices of the organization. i.e Ethical Trading Initiative (ETI), a British based organization that focuses on ethical practices of the MNEs. There are various pressures for the ethical behavior from the various sources. They are: Consumers Individual investors Media Trade unions Governments Corporate investors NGOs

The major labor issues might be due to the fair wages, child labor, working conditions, working hours and freedom of association. All these are been perfectly implemented by the Anglo American PLC company. So, these are not at all a problem regarding the plc company. The problem of the child labor: As from the text we can see that there are around 250 million children between 5 and 17 years old are working, but only about 5% of them are working in the export industries. So, considering this we can say that there are the Anglo American PLC company is not using the child labor even though they are available. What MNEs can do and cant do? MNEs may not be willing to hire the workers locally who are interested in working for long hours in order to get the benefit from the wages. So, instead of doing the work on their own, they can simply assign the work to sub contractors. In this manner Anglo American PLC Company can save lot of money and can keep that money in the various social welfare activities. At present there are around 25,000 contract workers working for the company.

Corporate code of ethics: How should a company behave?

MNEs do in fact face several pressures to act responsibly. They arent all applied with the same consistency, nor do they all carry the same weight. However the companies must acknowledge all of them and try to respond to them. There are two main factors affecting the code of ethics. They are: Motivations for corporate responsibility Developing a code of conduct. Motivations for corporate responsibility: Companies need to act responsibly because unethical and irresponsible behavior may cause some affects. They are: Could result in legal sanctions: The government may impose certain restrictions if they act unethical. Could result in consumer boycotts: The consumer wont prefer to purchase the product of the unethical acting company. Could lower employee morale: The employee wont contribute to the best of him if the organization acts unethical. Could cost sales because of bad publicity: The sales will also affect the business if they act unethical.

All these factors are been not affecting the business of the Anglo American PLC in south Africa as they are been performing ethically in all the aspects and not only that they are the first person who initiated the programs to eradicate the in around the country with the proper measures. Developing a code of conduct: A major component of most companies strategies for ethically and socially responsible behavior is code of conduct. In the case of the international business they must take two prospective of code of conduct. External code of conduct Internal code of conduct

External code of conduct is a set of guidelines, recommendations and rules issued by the entities within society with the intent to affect the behavior of the international business within society in order to enhance corporate responsibility. Internal code of conduct refers to the acts towards the employees and Anglo American PLC Company had a perfect code of conduct externally as well as internally. Hence they are playing a key role in the betterment of the society. What makes good internal code of conduct? We can see internal code of conduct in four different dimensions. They are: Setting a global policy that must be complied with wherever the company operates: In this case Anglo American PLC is perfect. Since they are operating in 70 other countries they must adapt according to the country. In doing this they are been implementing different programs to the victims of the AIDS. Communicating the code to employees, suppliers, and subcontractors: . The programs which they are implementing is also been conveyed to the employees, subcontractors. Ensuring that policies are carried out: They are having many policies for the development of the employees and society. They must ensure that they should be carried down irrespective of the critics. Reporting results to external stakeholders: The must also ensure that the results must be shown to their stakeholders.