Iqra University

03RD Feb 2011

CROSS CULTURAL MANAGEMENT

Managing Interdependence:
Social Responsibility and Ethics
Dr. Kashif MEHMOOD

2007-2012 KashifMehmood.com

The Social Responsibility of MNCs

Corporate social responsibility (CSR)

Profit is MNCs only goal

MNCs should anticipate and solve social needs

MNC Stakeholders

SA 8000s Proposed Global Standards

Do not use child or forced labor

Provide a safe working environment

Respect workers rights to unionize Do not regularly require more than 48-hour

work weeks Pay wages sufficient to meet workers basic needs

What is international business ethics?

The term international business ethics

refers to the business conduct or morals of MNCs in their relationships with individuals and entities.

Global Consensus or Regional Variation?

Global corporate culture
Example of regional variation: The US

focuses on following basic business obligations, Europe focuses on serving broader social aims

Three Approaches to International Morality and Ethics

Moral universalism
Ethnocentrism Ethical relativism

MNCs and Human Rights

The Sweatshop Code of Conduct
The Electronic Industry Code of Conduct

(EICC)
Social Accountability 8000 (SA8000)

Comparative Management in Focus: Doing Business in China

The attraction of doing business in

China:
Cheap labor rates A large market A growing economy

Comparative Management in Focus: Doing Business in China

The human rights challenge: Potentially rampant violations of workers rights Repression of free-speech Difficulty monitoring/correcting violations

Comparative Management in Focus: Doing Business in China

Examples of recent human rights issues

in China:
Nike Governmental crackdown on propaganda Google, Microsoft, Yahoo

International Business Ethics

The business conduct or morals of

MNCs in their relationships with individuals and entities

Ethics vary based on the cultural value

system in each country or society

A Moral Philosophy of Crosscultural Societal Ethics

Global Corruption Barometer

Business/ Private Sector 3.3 3.1

Asia Africa

Western Europe
Central & Eastern Europe

3.3
3.7

Latin America & Caribbean

USA

3.5
3.2

Limits of Ethical Standards for International Activities

The laws of economically developed countries

generally define the lowest common denominator of acceptable behavior for operations in those domestic markets. In an underdeveloped country or a developing country, it would be the actual degree of enforcement of the law that would, in practice, determine the lower limits of permissible behavior.
Laczniak and Naor

Questionable Payments
Questionable payments are business

payments that raise significant questions of appropriate moral behavior either in the host nation or in other nations. Such questions arise out of differences in laws, customs, and ethics in various countries, whether the payments in question are political payments, extortion, bribes, sales commissions, or grease money payments to expedite routine transactions.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA),

enacted in 1977, prohibits U.S. companies from making illegal payments or other gifts or political contributions to foreign government officials for the purposes of influencing them in business transactions.

Is it bribery?
Questionable Payments Paying mail carriers in Mexico to prevent them from losing mail
Paying $100 to get a computer picked up

from a rainy dock

Gift-giving to bond social ties

Legal Approaches to Bribery

Foreign Corrupt Practices Act (FCPA) Organization for Economic Co-operation

and Development convention on bribery

Three Tests of Ethical Corporate Actions

Is it legal? Does it work in the long run?
Can it be talked about?

What is the right decision?

Consult home/host country laws Consult International Codes of Conduct

for MNCs
Consult the companys code of conduct

What is the right decision?

Consult your superiors Fall back on your own moral code of

ethics

Management Focus: A CEO Speaks Out

Richards Rhoades of Architectural Stone
Emphasizes respect for cultural differences,

while not violating personal ethical standards

Business black and white Moral black and white

Foreign Subsidiaries in the US

Foreign direct investment (FDI) in the US is

often greater than US investment outward

Example: Japanese companies in the US

Managing SubsidiaryHost-Country Interdependence

Requires managers to go beyond issues of

CSR to deal with specific concerns of the MNChost-country relationship

MNCs must learn to accommodate the needs

of other organizations and countries

The Risks of Interdependence for MNCs

Nationalism
Protectionism Example: Japans tariffs Governmentalism Example: Britains privatized telephone system

Issues in Managing Environmental Interdependence

The dumping of 8000 drums of toxic waste in

Koko, Nigeria.
The export of US pesticides
Industrial ecology

Ethical Behavior and Social Responsibility Guidelines Developed by MNCs

Develop worldwide codes of ethics

Consider ethical issues in strategy

development Given major, unsolvable, ethical problems, consider withdrawal from the problem market Develop periodic ethical impact statements

Making the Right Decision

How is a manager operating abroad to know what is

the right decision when faced with questionable or unfamiliar circumstances of doing business? Here is a suggested sequence:

Consult the laws of both the home and the host countries Consult the International Codes of Conduct for MNEs (as shown in text Exhibit 2-2) Consult the companys code of ethics Consult your superiors Use your own moral code of ethics

Follow your own conscience

Managing Subsidiary-Host Country Interdependence

When managing interdependence,

international managers must go beyond general issues of social responsibility and deal with the specific concerns of the MNC subsidiary-host country relationship. Interdependence rather than independence, and cooperation rather than confrontation are at the heart of that accommodation the journey from independence to interdependence managed badly leads to dependence, and that is an unacceptable destination.

Criticisms of MNC Subsidiary Activities

MNCs raise their needed capital locally,

contributing to a rise in interest rates in host countries. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, hostcountry people do not have much control over the operations of corporations within their borders.

Criticisms of MNC Subsidiary Activities (contd.)

MNCs usually reserve the key managerial

and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel. MNCs do not adapt their technology to the conditions that exist in host countries. MNCs concentrate their R&D activities at home, restricting the transfer of modern technology and know-how to host countries.

Criticisms of MNC Subsidiary Activities (contd.)

MNCs give rise to the demand for luxury goods in

host countries at the expense of essential consumer goods. MNCs start their foreign operations by purchasing existing firms rather than developing new productive facilities in host countries. MNCs dominate major industrial sectors, thus contributing to inflation by stimulating demand for scarce resources and earning excessively high profits and fees. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.

MNC Benefits and Costs to Host Countries

(Exhibit 2-6)

Capital Market Effects

Benefits

Costs

Broader access to outside capital Foreign-exchange earnings Import substitution effects allow governments to save foreign exchange for priority projects Risk sharing

Increased competition for local scarce capital Increased interest rates as supply of local capital decreases Capital service effects of balance of payments

MNC Benefits and Costs to Host Countries

(contd.)

Technology and Production Effects

Benefits

Costs

Access to new technology and R&D developments Infrastructure development and support Export diversification

Technology is not always appropriate Plants are often for assembly and can be dismantled Government infrastructure investment is higher than expected benefits

MNC Benefits and Costs to Host Countries

(contd.)

Employment Effects

Benefits

Costs

Direct creation of new jobs Opportunities for indigenous management development Income multiplier effects on local community business

Limited skill development and creation Competition for scarce skills Low percentage of managerial jobs for local people Employment instability because of ability to move production operations freely to other countries

Recommendations for MNCs Operating in Developing Countries

(Suggested by De George)

Do no international harm. This includes respect for the integrity

of the ecosystem and consumer safety. Produce more good than harm for the host country. Contribute by their activity to the host countrys development. Respect the human rights of their employees. To the extent that local culture does not violate ethical norms, MNCs should respect the local culture and work with and not against it. Pay their fair share of taxes. Cooperate with the local government in developing and enforcing just background (infrastructure) institutions (i.e. laws, governmental regulations, unions, consumer groups) which serve as a means of social control.