Global Firm & Interna0onal Management

Samira Dias dos Reis

1st session 2nd session

Apr 13th Introduc7on to the 2nd part of the course

Management in a Global Environment - Expatriates

Apr 20th Case discussion: Silvio Napoli at Schindler India (Groups 1 & 2)

Global corporate social responsibility

Apr 27th Case discussion: MaLel (Groups 3 & 4)

New Strategies in the New Landscape

May 4th Exercise: Disney 2013 Mul7na7onal Companies from Developed & Emerging Markets.

May 11th Case discussion: Tata Motors (Group 5 & 6)

Next Markets: Middle East and Africa

May 18th Case discussion: General Electrics expansion in the Middle East (Group 7)

Managing Global Opera7ons

Industry Prole Presenta0ons

May 19 from 16:00 to 19:00.

Exam June 1st

Main references:

Book: Helen Deresky Interna7onal Management Managing Across Borders and Cultures. 2011.

Papers: Manuela Weber. 2008. The business case for corporate social responsibility: A company-level measurement approach for CSR. European Management Journal.

Spar & Mure 2003. The Power of Ac7vism.

The Economist

2nd assignment: Groups 3 & 4

MaLel: Group 3 (30 minutes): Introduce the toy industry. Main compe7tors, entry mode, global versus local companies, strategy and

organiza7on models.

Introduce the MaLels organiza7on model and explain the nature of the product quality problem. Explain MaLels strategy.

Use the SWOT analysis to analyze MaLel. If you were in charge of the recall, what would be your plan? Explain

the problems and challenges in recalls and provide possible solu7ons.

+ 1 News Ar7cle + 1 Scien7c Paper

MaLel: Group 4 (30 minutes): What challenges do toy companies face in managing oshoring? Use CAGE to analyze the distance between U.S. and China. (U.S. perspec*ve)

What are the poten7al benets and costs to host countries in this industry? (China perspec*ve).

What can MaLel do to enhance product quality? How could toy companies and suppliers; and toy companies and

compe7tors collaborate to solve the problems and challenges in this industry?

+ 1 News Ar7cle + 1 Scien7c Paper

Managing Interdependence Social Responsibility and Ethics

Ethics and Social Responsibility

Ethics deals with decisions and interac0ons on an individual level.

Social responsibility is broader in scope, tend to aect more people and reect a general stance taken by a company or a number of decision makers.

Corporate ac7vity should be mo7vated in part by a concern for the welfare of non-owners, and by an underlying commitment to basic principles such as integrity, fairness and respect for persons (Donaldson, 2005).

Issues of social responsibility

Poverty Lack of equal opportunity around the world

Environment

Consumer concerns

Employee safety and welfare.

Issues of Corporate Social Responsibility (CSR)

Forced Labor (The Economist 2015)

Nearly 21 million people are subject to forced labor around the world today. Of these, 17.2 million live in the developing countries of Asia, Africa, and La7n America.

Women and girls make up about 55 percent, or 11.4 million, of the worlds forced labor vic7ms.

Goods from 58 countries are produced by slave or forced labor. Many countries did not pass an7-tracking laws un7l aker the

United Na7ons passed the UN Protocol to Prevent, Suppress and Punish Tracking in Persons, Especially Women and Children, in 2000. These countries include China, which passed an0- tracking legisla0on as late as 2011, Russia in 2008, and Peru in 2007.

Pollu7on and diseases

Dumping Over 8,000 drums of waste in Koko, Nigeria Weaker regula0ons in developing countries Lack of technology to minimize the deleterious eects of these substance

Pes7cides The United States exports about 200 million pounds of pes0cides each year that are prohibited or restricted in U.S.

Consequences for local producers

Coca-Cola in India Accused of pumng thousands of farmers out of work by draining the water that feeds their wells, and poisoning the land with waste sludge that the company claims is fer7liser. The Guardian(2003).

Del Monte in Kenya. Growing pineapples in the rich coastal lands of Kenya provides earnings to the country

but poor Kenyans living in the region experience adverse eects because less land is available for subsistence agriculture to support them.

External and Internal Forces driving CSR prac7ces

The Power of Ac7vism

Example: NIKE Founded in 1972 Mass produc7on, contract suppliers. Low-cost shoes and high-cost marke7ng campaigns

Problems began to appear in 1991, when labor ac7vist Je Ballinger produced a report for the Asian-American Free Labor Associa7on (AAFLI) on working condi7ons and wage levels at Indonesian factories.

The Power of Ac7vism

Following a one country, one company strategy, Ballinger suspected that he could capitalize on Nikes brand name to drive public outrage about labor condi7ons in overseas factories.

In 1992, he published an ar7cle in Harpers magazine, famously comparing Michael Jordans Nike endorsement contract to an Indonesian factory workers pay stub and no7ng that it would take the worker 44,492 years to earn Jordans pay.

Shortly aker the Harpers piece, Nikes hometown newspaper, the Portland Oregonian, ran lengthy ar7cles cri7cizing the rms opera7ons in Indonesia.

Protestors appeared at the 1992 Barcelona Olympics, decrying Nikes exploita7on of factory workers.

Nikes response in 1992

Were about sports, not manufacturing

Nike adopted a Code of Conduct that addressed labor issues such as safety standards, environmental regula7on, and worker insurance.

The Power of Ac7vism

In 1993, Ballinger founded Press for Change, an NGO dedicated to raising awareness of labor condi7ons and wages in Nikes overseas plants.

A wave of media aLen7on soon followed, with harsh cri7cism of the companys prac7ces appearing on major U.S. television networks and in na0onal publica0ons such as The New Republic, The New York Times, Rolling Stone, and The Los Angeles Times.

Life magazine published a photo of a 12- year old Pakistani boy s7tching Nike soccer balls.

Ac7vists con7nued to pressure Nike throughout 1997, launching rallies and chan7ng Just Dont Do It at Niketown retail store openings across the country.

Nikes response Early in 1997, the rm hired Andrew Young, the civil rights leader and

former mayor of Atlanta, to evaluate its overseas opera7ons. With authority to go anywhere, see anything, and talk with anybody, Young gave Nike a generally favorable report, which the rm was quick to publicize.

The ac7vists responded by aLacking once again, contending that Young had neglected the wage issue, relied on Nike translators, and spent only ten days with workers in a few factories.

In 1998, the CEO admiaed that the Nike product has become synonymous with slave wages, forced over7me, and arbitrary abuse. He subsequently announced a number of reforms, including raising the minimum ages of sneaker and apparel workers to 18 and 16, respec7vely, adop0ng U.S. clean air regula0ons in all of its factories, expanding monitoring and educa0onal programs.

What are the main reasons that make the rms follow or not the rules?

Complexity: Number of business around the world Number of countries Nike, for example, has contracted with more than 700 shops and has oces located in 45 countries outside the United States. Minimum wage viola7on, poor working condi7ons, child labor, abuse from supervisors.

BBC documentary about 6 girls working 7 days a week, 16 hours a day in a Cambodian factory used by Nike. In 2001.

Corporate social responsibility is evolving,

and becoming a liale less aky

May 19th 2012 | From the print edi7on

Michael Porter and the late C.K. Prahalad have lent their support to the movement. Most of the world's big companies have en7re divisions devoted to it. And CSR is evolving.

Gone are the days when it was mainly about managing corporate reputa7onsor greenwashing, to its cri7cs. It is now more about business fundamentals, such as how products are designed and how supply chains are managed.

Corporate social responsibility is evolving,

and becoming a liale less aky

May 19th 2012 | From the print edi7on

The propor7on of managers who say they think that sustainability is a key to compe77ve success has risen from 55% in 2010 to 67% in 2011, according to an annual survey of 4,000 managers in 113 countries by the MIT Sloan Management Review and the Boston Consul7ng Group.

Companies have been busy crea7ng chief sustainability ocers, founding sustainability units and employing sustainability consultancies

Sustainability: lean produc7on and 7ght supply-chain management.

How to make decisions in the interna7onal context?

At the organiza7on and the individual level

Global Consensus vs Regional Varia7on

Moral universalism address the need for a moral standard that is accepted by all cultures (Bowie, 1987).

Ethnocentric applies the morality used in the home country regardless of the host countrys system of ethics .

Ethical rela0vism adopts the local moral code of whatever country in which it is opera7ng.

Codes of Conduct

Social Accountability (SA 8000) Avon, Toys R Us 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 sucient to meet workers basic needs

Ethics in Global Management - Bribery

Ques7onable payments are payments that raise signicant ques7ons of appropriate moral behavior either in the host country or in other na7ons.

Foreign Corrupt Prac7ces Act (FCPA) 1977.

Organiza7on for Economic Coopera7on and Development Conven7on on Bribery 1997.

Making the Right Decision

Consult the laws of both the home and host countries Interna7onal Codes of Conduct for MNEs

Companys code of ethics (if there is one)

Consult your superiors

Your own moral code of ethics

At the organiza7on and the industry level

MNCs opera7ng in developing countries:

Respect for the integrity of the ecosystem and consumer safety Produce more good than harm for the host country Contribute by their ac7vity to the host countrys development Respect the human rights of their employees To the extent that local nature does not violate ethical norms,

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) ins7tu7ons (laws, unions..)

Corporate social responsibility is evolving,

and becoming a liale less aky May 19th 2012

Sharing. CSR types have been trying to persuade companies to rethink their rela7ons with compe7tors and suppliers. Companies are learning to collaborate with rivals in areas where they do not have a direct conict of interest. Starbucks invites rivals to a regular coee cup summit at the Massachuseas Ins0tute of Technology, which focuses on reducing the environmental impact of disposable coee cups. Nike has shared its Materials Sustainability Index with members of the Sustainable Apparel Coali0on, whose members account for 30% of the global market for clothes and footwear.

CSR Impact Model

upon a cross-industry quantitative empirical investiga-tion Steger (2006, 426433) identified similar value driv-ers including cost decreases; revenue increases; brandvalue and reputation; maintaining the license to operate;and employee attraction and satisfaction.

Systematizing the benefits from current research, busi-ness benefits from CSR can be classified into monetary andnon-monetary benefits. Monetary benefits in the under-standing of this paper include direct financial effects as wellas benefits that do not directly lead to cash flows but cannevertheless be measured in monetary terms. One exampleis an increase in brand value due to CSR. If analyzed from afinancial perspective, brand value reflects the financial va-lue of a brand to a company (see e.g., Gerpott & Thomas2004; Naderer 2005). A direct financial effect is realizedwhen the brand is sold. However, if the brand is retainedan increase in brand value still represents a monetary ben-efit as it indicates an improvement of the market value ofthe brand measurable in monetary terms, which can be real-ized once the brand is sold. Brand value can also be ana-lyzed from a behavioral perspective, which focuses onunderstanding customer behavior by evaluating customerpreferences, attitudes, or loyalty (see e.g., Gerpott & Tho-mas 2004). From this perspective, customer attraction andretention are often measured non-monetarily representingnon-monetary benefits. In this paper, non-monetarybenefits refer to benefits that are not directly measuredin monetary terms but nevertheless influence companycompetitiveness and the financial success of a company.Companies can assess non-monetary benefits using quanti-tative indicators e.g., changes in repurchase rates or qual-itative indicators e.g., evaluating customer attitudes.Non-monetary benefits can thus further be systematizedwith regard to the nature of indicators to measure therespective benefits, which can be quantitative orqualitative.

From this discussion, a CSR impact model can be derivedthat reflects the main clusters of CSR business benefits fromcurrent research systematizing the benefits according totheir nature and the nature of possible indicators as shownin Figure 1.

As the discussion showed CSR can result in monetary aswell non-monetary business benefits that can influence a

companys competitiveness and its economic success.Monetary benefits include revenue increases, cost de-creases, risk reduction, and increases in brand value if mea-sured from a financial perspective.

Non-monetary benefits that can mainly be measuredqualitatively include an improved access to capital andsecuring a companys license to operate or its right to ex-ist. The license to operate is based on societal accep-tance (see Schrader et al. 2005, 20) and can mainly besecured by maintaining good stakeholder relations (see sim-ilarly Thorpe & Prakash-Mani 2003, 20f.). While equallyimportant to monetary impacts, improved stakeholder rela-tions are often not measurable in quantitative terms. Non-monetary qualitative benefits can also lead to monetary ben-efits in the future so that interrelations between the individ-ual fields in the model exist. For example, the improvedpossibilities for capital access represent a qualitative impactif referring to improved relations to investors without actualcapital provisions. If eventually leading to new capital thisbenefit can lead to cost decreases (e.g., financing costs) re-flected as a monetary benefit in the model.

Non-monetary benefits that can also be measured usingquantitative indicators include further effects on customerattraction and retention, reputation, and employee recruit-ment, motivation and retention. Although these benefits canalso be assessed qualitatively, quantitative indicators can bemeasured such as repurchase rates, reputation indices, orfluctuation rates so that these benefits are classified hereas non-monetary benefits with possible quantitative indica-tors. Again, these non-monetary impacts can lead to mone-tary benefits. For example, increased employee motivationcan increase productivity and eventually result in cost sav-ings. The same is true for effects on employee recruitmentor retention, which can lead to reduced personnel marketingcosts. These further effects are included as monetary costsavings in the model. However, as such effects are often dif-ficult to measure in monetary terms and occur with a timelag, these effects are also included as non-monetary benefitsin the model to ensure adequate monitoring.

Although research on the relation between CSR andfinancial performance and on CSR benefits suggests thatthere are strong arguments for a business case for CSR, noapproach exists that allows companies to evaluate specific

CSR Competi-tiveness

Revenue increases Cost decreases Risk reduction Increase in brand

value

Improved customerattraction, retention

Improved reputation Improved employee

recruitment,motivation, retention

Improved access tocapital

Secured license tooperate

QuantitativeQualitativeNature ofindicators

Non-monetary

Monetary

Nature of benefits

Economicsuccess

Business benefits from CSR

CSRCSR Competi-tivenessCompeti-tiveness

Revenue increases Cost decreases Risk reduction Increase in brand

value

Improved customerattraction, retention

Improved reputation Improved employee

recruitment,motivation, retention

Improved access tocapital

Secured license tooperate

QuantitativeQualitativeNature ofindicators

Non-monetary

Monetary

Nature of benefits

EconomicsuccessEconomicsuccess

Business benefits from CSRBusiness benefits from CSR

Figure 1 CSR Impact Model.

250 M. Weber

Weber, M. EMJ 2008

Risks for MNCs and the Host country perspec7ve

Risks for MNCs

Na0onalism Public opinion is rallied in favor of na0onal goals and against foreign inuences

Protec0onism The host ins7tutes a par7al or complete closing of borders to withstand compe77ve foreign products, using tari and nontari barriers

Governmentalism The government uses its policy-semng role to favor na0onal interests, rather than relying on market forces.

Poten7al Benets and Costs to Host Countries: Capital Market Eects

Benets

Broader access to outside capital

Economic growth

Import subs7tu7on eects allow governments to save foreign exchange for priority projects

Costs

Risk sharing

Increased compe77on for local scarce capital

Increased interest rates as supply of local capital decreases

Poten7al Benets and Costs to Host Countries: Technology and Produc7on Eects

Benets

Access to new technology and R&D developments

Employee training in new technology

Infrastructure development and support

Export diversica7on

Introduc7on of new management techniques

Costs

Technology is not always appropriate

Plants are oken for assembly only and can be dismantled

Government infrastructure investment is higher than expected benets

Increased pollu7on

Poten7al Benets and Costs to Host Countries: Employment Eects

Benets

Direct crea7on of new jobs

Introduc7on of more humane employment standards

Opportuni7es for management development

Costs

Limited skill development and crea7on

Compe77on for scarce skills

Low percentage of managerial jobs for local people

Employment instability because of ability to move produc7on opera7ons freely to other countries

Bargaining power

Subsidiaries

Large scale

Worldwide economies

Strategic exibility

Control over the technology

Host Countries

Control of raw materials

Control of market access

Rules regarding the role of the private enterprise

Opera7on of the state-owned rms

Regula7on, taxes