Part 1 a regional and global strategy 2

Multinational enterprise (MNE): A
company headquartered in one
country but having operations in
other countries.

Econ. Christian Suárez Molina, MAE 1

The sheer size of MNEs is an
issue
 Some have sales larger than many countrie`s
GNI.

 Some MNE executives deal directly with heads of
state


 THE INTERNATIONALIZATION PROCESS

 Internationalization: The process by which a company
enters a foreign market
 Licence: A contractual arragement in which one firm (the
licensor) provides access to some of its patents,
trademarks, or technology to another firm in exchange for a
fee or royalty
 Licensor: A company that provides access to some of its
patents, trademarks, or technology to another firm in
exchange for a fee or royalty
 Licensee: A firm given access to some of the patents,
trademarks, or technology of another firma in exchange for
a fee or royalty


 Pressure groups push to restrict MNE`S activities
at home and abroad

 The effort to create favorable investment
environments has led many countries to replace
obstacles to FDI (foreign direct investment) with
incentives for FDI


 The effort to create favorable investment
environments has led many countries to replace
obstacles to FDI with incentives for FDI.

 The growing prevalence a better understanding of
the views of the views of home and host
countries.


 Shareholders
 Employees
 Customers
 Society

Management decisions made in one country have
repercussions elsewhere


 The effects of an MNE`s activities may be
simultaneously positive for one national objective
and negative for another

 FDI may result in a win-win, win- lose, or lose –
lose situation for both countries involved.


 Companies are best at serving the interests of
shareholders, whereas governments are best
equipped to deal with social issues and
externalities.

 It is hard to determine whether MNE`s actions
cause societal conditions

 The philosophy, actions, and goals of each MNE
are unique


 One country`s surplus is another country`s deficit.

 The effect of a individual FDI may be positive or
negative

 The formula to determine effects is simple, put the
data used must be estimated and are subject to
assumptions.


 On the important side, the balance- of- payments
effect is positive if the FDI results in a substitution
for imports and negative if it results in a increase
in imports.

 On the export side, the BOP effect is positive if the
FDI results in generating exports in the host
country and negative if it produces only for the
local market and stops sports.


Initial capital flows are positive to the host
country, but the flows may be negative
over time as the FDI remits dividends or
other capital flows back to the home
country


 Positive for the host country initially and negative
for the home country

 Positive for the home country and negative to the
host country later.


 Growth and employment effects are not a
zero/sum game because MNEs may use
resources that were unemployed or
underemployed.

 Home – country labor claims that jobs are
exported through FDI.


 More optiamal use of production factors

 The use of unemployed resources

 The upgrading of resource quality


 Replace local companies
 Take the best resources
 Destroy local entrepreneurship
 Decrease local R&D undertakings

 Many actions elicit universal agreement on what is
right or wrong, but other situations are less clear.


 Ethical truths depend on the groups holding them

Normativism
 There are universal standards of behavior
that all cultures should follow
Managers need to exhibit ordinary
decency
 Principles of honesty and fairness


 Managers need to create competitive advantages
through ethical behavior and avoid being
perceived as irresponsible

 NGO are active in prodding companies to comply
with certain standards of ethical behavior

 Social responsibility requires human judgment,
which is subjective and ambiguous


 Legal justification for ethical behavior may not be
sufficient since not everything that is unethical
illegal.

 The law is a good basis for ethical behavior since
it embodies local cultural values

 As countries tackle similar ethical issues, laws will
become similar


 Bribery of public officials takes place to obtain
government contracts or to get officials to do what
they should be doing anyway

 Bribes are payments or promises to pay cash or
anything of value


 The foreign corrupt Practices Act is U.S.
legislation that makes bribery illegal. It applies to
domestic or foreign operations and to company
employees as well as their agents overseas

 International multilateral approaches to combating
bribery include the OECD, international Chamber
of commerce, and United Nations


 A zero tolerance pact against bribery was signed
by companies at the 2005 world Economic Forum

 An effective antibribery compliance program for
companies involves setting high standards,
communicating them to relevant employees,
educating employees on expected behavior, and
monitoring compliance.


 Companies that extract natural resources,
generate air or water waste, or manufacture
products, such as autos, that are polluters need
to be concerned with their environmental impact.

 Sustainability involves meeting the needs of the
present without compromising the ability of future
generations to meet their own needs, while taking

 Global warming results from the release of
greenhouse gases that rap heat in the
atmosphere rather than allowing it to escape


 The kyoto Protocol was signed in 1997 to require
countries to cut their greenhouse gas emissions to
5.2 percent below 1990 levels between 2008 and
2012. Some countries have adopted stricter
requirements, and others, such as the U.S. ,
China , and India, are not part of the compliance


 U.S. based MNEs must comply with the kyoto
Protocol in compliance countries where they may
have operations.

 System pricing for pharmaceuticals means that
companies charge a market price for products
sold in industrial


 Legalgeneric products allow countries to
purchase drugs at lower costs and comply with
drug patents, whereas illegal generic products are
fakes that may or may not be of high quality .

 Countrieswith health crises, such as African
countries suffering from AIDS, are allowed by
TRIPS to manufacture or import generic drugs

 India
is a major manufacturer of generic drugs and
is now moving to R&D of new drugs.


 Governments and private foundations are
attempting to solve the problem of developing
country access to drugs and vaccines through an
International Finance Facility for immunization
and/or advance-purchase contracts

 Major labor issues that MNEs get involves in
trough FDI or purchasing from independent
manufactures in developing countries are fair
wages child labor, working conditions, working,
hours, and freedom of association


 An estimated 250 million children between 5 and
17 years old are working, but only about 5 percent
of child labor is involved in export industries.

 Some companies avoid operating in countries
where child labor is employed, whereas others try
to establish responsible polices in those same
countries

 MNEs may not be willing to hire local workers who
want to work, long hours due to concerns about
exploitation

 Could result in legal sanctions
 Could result in consumer boycotts
 Could lower employee morale
 Could cost sales because of bad publicity


 A major component in a company`s strategy for
ethical and socially responsible behavior a code of
conduct.

Codes of conduct, involve four dimensions
 Set a global policy that must be complied with

wherever the company operates
 Communicate the code to employees, suppliers,

and subcontractors.
 Ensure that policies are carried out.
 Report results to external stakeholders


Part 1 a regional and global strategy 2

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Part 1 a regional and global strategy 2