The International Business System,

Globalization, & Multinational Corp.s

&
Global Issues and
International Obligations

Issues Related to Globalization

How to address the unequal distribution of wealth.
How to deal with the fact that national systems of
free enterprise are situated in a framework of their
particular national legal, political, & social system.
There is no comparable international framework for
international business.

How to ensure that both capital and labor can move

freely a necessary component of capitalism.
Assuming ethics is important in international
business, whose ethics should business follow?
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The Globalization of Business

Although the internationalization &
globalization of business is not a
new idea, globalization in its current
meaning is of fairly recent vintage.
Internationalization focused on
MNCs insofar as they operated
in a number of countries.
Globalization involves the notion that
firms not only operate in a variety of
countries but they functionally divide
their activities in different countries.
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The Role of the WTO in Global Bus.

The central role of the WTO in global business is
undisputed, but it is not without controversy or
complaint. The major complaints are basically that:
1. Conditions of trade are unfair to less developed nations,
2. The trade which has developed is actually detrimental to
the development of LDCs and is in fact exploitation, and,
3. The WTO process is undemocratic & lacks transparency.

Multinational Corporations & Ethics

Multinationals operate extensively in more than one
country, & there is no effective way to prevent firms
from forming cartels & controlling prices & production.
The main criticisms of MNCs in the developing world:
MNCs operate immorally in LDCs by exploiting workers,
exploiting natural resources, and reaping exorbitant profits;
MNCs compete unfairly in the LDCs, to the detriment of
the host countries; and
MNCs are a major cause of the impoverishment of the
LDCs and of the unrest found there.

Each of the charges has some basis in fact & history.

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Multinationals and Exploitation

Multinational corporations operate in LDCs for a
variety of reasons.
They seek cheap labor, available resources, tax shelters
& relief, & markets.

In such circumstances, the opportunities for

exploitation are numerous.

MNCs & Less Developed Countries1/3

The charge that MNCs compete unfairly in the LDCs
has two major components.
MNCs are able to operate on especially favorable and
uncompetitive terms.
MNCs do not carry their fair share of social development,
cost which imposes greater burdens on local industries.

The charges that MNCs use advanced technology, are

more productive, & undercut local firms are in part true.

Income

MNCs & Less Developed Countries2/3

The charge that developed countries caused LDC
impoverishment & unrest rests partly on these ideas:
Colonialization contributed to the impoverishment of LDCs.
LDCs are also impoverished in a comparative sense.
Poverty is not only an absolute condition; it is also relative.
Improvements in LDCs caused by developed country
involvement is partly responsible for LDC impoverishment:
Increase in life expectancy has contributed to population growth,
which poses problems that lead to increasing poverty & starvation.

Several MNCs have directly helped produce starvation in

some countries. The typical scenario is this:
An MNC goes into a country and buys up large portions of the
productive land. It then grows cash crops for export, whereas,
before, local farmers grew food for local consumption.

MNCs & Less Developed Countries3/3

The abuses by MNCs in LDCs need not, and
should not, be denied, ignored, or excused.
But even taken at their worst, and as a whole, they
do not establish the case that the Western freeenterprise system rests on the exploitation of LDCs.
The US, because of its size, wealth, and global
importance, intervenes in the economy of many
nations even if it does nothing to them directly.

Ethical Guidelines for MNCs1/2

The most striking structural difference between the
Western & international business system is the lack
of background institutions on the international level.
Which include laws & accepted practices, moral norms, &
social demands, to control or guide international business.

The situation is doubly bad with respect to LDCs,

which tend to have inadequate background
institutions internally as well.
This situation makes possible many great abuses.

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Ethical Guidelines for MNCs2/2

The following norms, or rules, could eliminate many
of the abuses in LDCs:
1. The moral minimum, is to do no intentional direct harm.
This applies to actions of all people, corp.s, & countries.
2. If the multinationals activity is to be morally justified, it
must benefit the host country.
3. To respect the human rights of the workers, consumers,
and all others in the host country.
4. To promote development of just background institutions
internally in the country as well as internationally.
5. Multinationals should respect the laws of a host country,
as well its culture and local values, providing these do
not violate human rights or impose immoral laws.
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Multinationals & Human Rights

The UN Universal Declaration on Human Rights is a
widely accepted starting point to establish the
obligations of multinationals regarding human rights.
The multinational has the obligation to respect the
human rights of all those with whom it has contact.
Its employees, suppliers, customers, the people in
communities who are affected by its actions, and so on.

MNCs must be regulated in the use of contractors or

suppliers or engaging in partnerships / joint ventures.
The multinationals must take into account the level of
operation in countries whose governments engage in
egregious violations of human rights.
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International Codes1/3
The best starting point in the further development of
international business standards is self-regulation
within the guidelines & standards that already exist.
UN Global Compact with business was proposed by
the UN secretary-general in January 1999.
It challenges business to work with other companies, UN
agencies, & nongovernmental organizations (NGOs) to
support & implement ten basic principles in the Compact.
The basic principles deal with respecting human rights,
labor standards, protecting the environment, and
eliminating corruption.

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International Codes2/3
The UN Global Compact

Human Rights

1 Support protection of internationally proclaimed human rights;

2 Do not comply with others in human rights abuses.

Labour Standards
3
4
5
6

Uphold the freedom of association;

http://www.unglobalcompact.org/Ab
outTheGC/TheTenPrinciples
Eliminate forced labour;
Abolish child labour; and
Eliminate discrimination in employment.

Environment
7 Support precautionary approach to environmental challenges;
8 Promote greater environmental responsibility; and
9 Encourage development of environmentally friendly tech.

Anti-Corruption
10 Work against all forms of corruption, extortion and bribery.

International Codes3/3
The ILO is a specialized agency of the UN that has
set up principles governing labor standards.
The Caux Principles were launched in 1995.
These principles emerged from a series of dialogues among
a group of European, Japanese, & North American firms.
The principles are rooted in two basic principles:
The Japanese principle of working together for a common good;
The Western notion of the dignity & value of each human as an end
& not simply as a means to be used by others.

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Cross-Cultural Judgments
A cross-cultural judgment concerns practices,
institutions, general systems, or theories other than
those of ones culture, society, or system.
These judgments are the product of a countrys own
point of view or concept of justice inasmuch as it is
impossible to adopt all points of view at once or to
make judgments from no point of view.
Different systems can be just, and justice does not
require that all countries adopt equal views of justice,
changing their political, social, and economic systems
to match or suit those of the any other country.
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Cross-Cultural Negotiation
Negotiation and compromise are ingredients in the
notion of transactional international justice.
Negotiation in business sounds political and therefore
many treat it as having little to do with justice.
Nonetheless, negotiation is morally justifiable and
is often the proper procedure to follow.

To say a transaction or practice is just if all those

importantly affected by it freely agree to it as just is to
characterize justice by a procedure rather than by a
specific outcome determined by substantive principles.

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International Justice
Exchange and trade are dominant forms of
interaction on the international level, and
transactional justice governs such activities.
It requires that equals be exchanged for equals
and that those who enter into a transaction enter
freely, with each seeking to secure its own good.

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Global Issues & International Obligations

Famine, Malnutrition & Obligation1/3
There is a difference between a country suffering from a
temporary famine due to an unusual / devastating drought
& a country whose people suffer from chronic malnutrition.
Nation-states are not moral beings. The international
arena is not one of total anarchy because there is
cooperation & some agreed-upon rules of interaction.
And although all peoples of the earth form a moral human
community, the nations of the world form an ambiguous
moral community.
Although each of us has the obligation to help people in dire need,
governments come and go and national boundaries change.

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Famine, Malnutrition & Obligation2/3

Multinational corporations have increased
obligations because of their international activity.
It is more closely tied to foreign peoples & nations than
are businesses that operate only in one nation.

Multinationals are citizens of more than one

country and hence have obligations to the people of
all the countries in which they operate.
The general principles of morality will require
different specific actions by particular corporations
in particular countries.
But the obligations of these corporations directly involved
in a foreign country are greater to that country than are
the obligations of corporations not so involved.
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Famine, Malnutrition & Obligation3/3

MNCs have the following moral obligations:
The obligation to pay their fair share of taxes in each
country is clear.
The obligation not to harm is also clear.
Agricultural multinationals have the obligation not to
contribute to starvation and malnutrition by buying up
farmland for export crops with no concern for the effect of
this action on the local population.

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Property & World resource allocation

Resources can be categorized in several ways.
1. In one category we can place natural resources:
air, water, minerals, land, and trees.
2. Natural but developed resources: cultivated fruits and
vegetables, domesticated animals and their products (milk,
meat, wool, eggs, and so on).
3. In a third category we can place manufactured goods,
4. Social, non-manufactured goods: knowledge, technology,
organization, talents, skills, & even language.

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The Status Quo View of Resources

The world is divided into countries, each of which
makes territorial claims.
Each of the countries has within it a government
and an economic order.
The status quo view resists any claims by resourcepoor countries on the resources of other countries .

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The Universal-Ownership View

Resources belong to everyone
and each person (or nation) has
a right to their use, and no one
has a right to exclude anyone
else from their use.
Each person (or nation) has the
equal right to appropriate & use
(and in the process, consume)
the resource in question.
Garrett Hardins Tragedy of the
commons aside.
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The Right to Universal Access

According to proponents of this right, riches of the
earth should be used for the benefit of all.
The moral concern of most people is related to the
standard of living of those in a country, or in the world.
All nations have the right to develop and not be
prevented by other nations from doing so.
Developing nations have the right to receive from
nations that have them the wealth and resources that
the first country needs in order to develop as it wishes.
All nations have the right to the knowledge
(technological, scientific, social, & organizational)
necessary for development.
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Oil & Natural Resource Depletion1/2

The Morally Justifiable Use of Oil
Since people in industrialized countries are dependent for
their well-being on a continuing supply of oil, it would
cause serious harm & so be morally improper, for oil
producers to suddenly stop producing & selling oil.
The price for oil is determined by the market, just as the
price for other goods is determined.
But when oil becomes very expensive, those who depend on it and
cannot afford it must be taken care of by others.

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Oil & Natural Resource Depletion2/2

The Needs of Future Generations
There is a moral obligation to preserve
oil for future generations.

The Needs of Developing Countries

Each person has an equal right of
access to the oil that he or she needs.

Sustainable Development
Development must meet the needs of the present
without compromising the ability of future generations
to meet their own needs.

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Case Analysis

CASE ANALYSIS

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