1. CHAPTER FIVE
GLOBALIZATION AND SOCIETY
OBJECTIVES
• To identify problems in evaluating the activities of MNEs
• To evaluate the major economic impacts of MNEs on home and host countries
• To establish the foundations for responsible behavior
• To discuss some key issues of globalization and society—ethics and bribery,
the environment, pharmaceuticals, and labor issues
• To examine corporate responses to globalization
CHAPTER OVERVIEW
Globalization has become a major socioeconomic force and topic of debate in the twenty-first
century. While Chapter One examines the forces and criticisms associated with the
globalization process, Chapter Five focuses upon the impact of foreign direct investment
on home and host countries. Following an explanation of the balance-of-payments
effects of FDI, a series of ethical issues concerning the social responsibilities of MNEs is
explored. The cultural and legal foundations of ethical behavior are examined, and the
challenges of global warming, pharmaceutical sales, and child labor are highlighted. The
chapter concludes with a brief discussion of the need for corporate codes of ethics.
CHAPTER OUTLINE
OPENING CASE: ENVIRONMENTAL CHALLENGES
FOR NEWMONT MINING IN INDONESIA
[See Map 5.1.]
This case illustrates the effects of the changing and conflicting attitudes of the national
and local Indonesian governments toward foreign direct investment. Headquartered in
Denver, Colorado, Newmont Mining is the second largest producer of gold worldwide.
Nonetheless, Newmont has decided to close one of its two Indonesian mining operations,
Minahasa Raya on the island of Sulawesi. As Indonesia evolved politically, Newmont
faced an uncertain political and increasingly aggressive legal landscape. Local groups
and courts demanded major investments in social responsibility programs. Further,
Newmont was challenged in its Minihasa Raya operations by the activities of illegal
miners, environmental protests regarding its waste disposal methods, decreasing gold
reserves at the site, and a significant decline in the price of gold. Following a local
campaign against the company that triggered a $550 million dollar lawsuit, a police
investigation, the detention of company officials, and extensive international media
coverage, Newmont determined that it could no longer continue to operate the mine.
Will Newmont’s mine at Batu Hijau on Sumbawa suffer the same fate? What can
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2. Newmont do to effectively manage the environmental pressures it now faces in other
countries as well?
TEACHING TIPS: Carefully review the PowerPoint slides for Chapter Five, as
well as the opening case regarding Newmont Mining, which is cited throughout
the chapter. In addition, review the corresponding video clip, “Global Business
and Ethics” [12:07].
I. INTRODUCTION
Multinational enterprises (MNEs) have their greatest impact on countries when they
engage in foreign direct investment (FDI) via wholly-owned subsidiaries and/or
joint ventures. Although not all MNEs are huge, the sheer size of some troubles their
critics. Further, their global orientation causes many to believe that MNEs are
insensitive to national (local) concerns. Depending upon their particular
perspectives, pressure groups in both home and host countries continue to urge their
governments to devise policies that either encourage or restrict MNE activities. [See
Fig. 5.1.]
II. EVALUATING THE IMPACT OF FDI
FDI has come to be seen as a major contributor to economic growth and
development by bringing capital, technology, management expertise, jobs, and
wealth to host countries. However, FDI is not without controversy. Over time the
structure of FDI has shifted toward services and away from many extractive and
other industries. Many countries that opened their markets have experienced
economic and social disruptions as MNE investments have constrained or eliminated
domestic competitors. At the same time many firms made large foreign investments
that have seriously underperformed. As MNEs continue to allocate resources across
a variety of countries in their quests to optimize performance, governments will, in
turn, enact policies that reflect their own interpretations of the relative benefits and
costs of FDI.
A. Trade-offs Among Constituencies
To survive and prosper, companies must satisfy a variety of stakeholders, i.e.,
shareholders, employees, customers, suppliers, and society. Depending upon
the objectives of different constituencies, FDI can result in win-win, win-lose,
or lose-lose (positive, neutral, negative) outcomes. Advocates of corporate
social responsibility (CSR) believe that capitalism fails to serve the public
interest and that managers of companies must thus be pressured to act
responsibly. Others argue that managers are best equipped to serve the
interests of their shareholders and that governments should deal with social
issues and externalities whenever private sector benefits and costs differ
significantly from public sector benefits and costs.
B. Cause-Effect Relationships
Just because two factors (such an in increase in both FDI and employment)
move in similar directions, it does not necessarily mean that they are causally
related and interdependent. Technological developments, competitors’ actions,
47

3. and government policies are just three of the many intervening variables that can
distort the analysis of cause and effect.
C. Individual and Aggregate Effects
Evaluating MNEs and their activities on an individual basis can be both time-consuming
and costly. On the other hand, applying the same policies and
control mechanisms to one and all is a far from perfect approach, especially if
policies are based on exceptions, and not the general rule.
D. Potential Contributions of MNEs
The sheer scale of many MNEs means they have assets that can contribute to a
wide range of national objectives. In addition to controlling a large portion of
the world’s capital and accounting for a majority of the world’s exports, MNEs
are also important producers and organizers of technology. [See Fig. 5.2.]
III. ECONOMIC IMPACT OF THE MNE
The investments and operations of MNEs may affect national balance-of-payments,
economic growth, and employment objectives in ways that are positive, neutral, or
negative for both home and host countries.
A. Balance-of-Payments Effects
Although foreign direct investment involves both capital and earnings inflows
and outflows, many people fear (irrationally) that the net balance-of-payments
effects will necessarily be negative.
1. Place in the Economic System. If a country runs a trade deficit, it
must compensate for that deficit by (a) reducing its capital reserves, (b)
attracting an influx of capital via the receipt of foreign direct investment,
(c) the purchase of public or private debt by foreign governments or
individuals, or (d) the receipt of unilateral transfers (e.g., foreign aid).
Ultimately, one country’s trade surplus is another country’s deficit.
2. Effect of Individual FDI. The effect on the host country of a single
foreign direct investment may be positive, neutral, or negative. When FDI
results in import substitution, i.e., when products that were formerly
imported by a country are subsequently produced within that country, its
foreign exchange reserves should increase.
The formula for calculating the balance-of-payments effects is:
B = (m – m1) + (x – x1) + (c – c1)
where B = balance-of-payments effect
m = import displacement
m1 = import stimulus
x = export stimulus
x1 = export reduction
c = capital inflow for other than import and export payments
c1 = capital outflow for other than import and export
payments
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4. Although the equation is straightforward, determining the value of
each variable is difficult because the data used must be estimated and are
subject to assumptions. The net import effect (m – m1) is positive for the
host country if the FDI results in the substitution of local production for
imported products and is negative if it results in an increase in imports to
supply the new productive capacity. (The marginal propensity to import
reflects the fraction of a change in imports due to a change in income, i.e.,
the portion of increased income spent on imports.) The net export effect
(x – x1) is particularly controversial because underlying assumptions are
widely debated. That said, the effect is positive for the host country if the
FDI results in the generation of exports but negative if it results in a decline.
(FDI may also stimulate home country exports of complementary products
to the host country.) Net capital flows (c – c1) are difficult to assess
because of the time lag between an outward flow of investment funds and
the subsequent inward flow of remitted earnings from that investment.
Although initial capital flows to the host country are positive, they may be
negative in the long run if capital outflows eventually exceed the value of
the investment. Finally, indirect effects such as those derived from the
transfer of technology and managerial skills are difficult to measure but
may be critical to the development of the economic efficiency of the host
country.
3. Aggregate Assumptions and Responses. Generally, FDI is initially
favorable to the host country and unfavorable to the home country, but this
effect may reverse over time if aggregate repatriated profits exceed the
value of the initial investment. Thus, governments must learn to maximize
the benefits while minimizing the long-term adverse effects of FDI flows.
B. Growth and Employment Effects
In contrast to the balance-of-payments effects, the effects of FDI on economic
growth and employment should not be a zero-sum game because MNEs may use
resources that were either underemployed or unemployed. The argument that
both home and host countries can gain from FDI rests on two assumptions:
(i) resources are not fully employed and (ii) capital and technology cannot be
easily transferred from one activity to another.
1. Home Country Losses. As manufacturers seek lower-cost foreign
production sites, home countries claim that FDI outflows create jobs abroad
at the expense of jobs in the home country.
2. Host Country Gains. Host countries gain through the transfer of capital,
technology, and managerial expertise, as well as the creation of new jobs.
3. Host Country Losses. Critics argue that FDI inflows often displace
domestic investment and drive up local labor costs. They claim that MNEs
have access to lower-cost funds than local competitors do and that MNEs
can spend more on promotion activities. In addition, while it is true that
MNEs often source inputs locally, critics claim that they also destroy local
entrepreneurship. Further, as MNEs gain valuable knowledge in their
foreign operations that can be shared across their entire organizations, critics
fear that local firms subsequently suffer a competitive disadvantage.
49

5. IV. FOUNDATIONS OF ETHICAL BEHAVIOR
Whether they engage in trade, licensing, or foreign direct investment, MNEs must
act responsibly. However, because ethical behavior is rooted in both cultural and
legal traditions that vary from one country to another, dilemmas often arise.
A. Cultural Foundations for Ethical Behavior
Beliefs may vary because of different family and religious teachings, different
laws and social pressures, different observations, experiences, and perceptions,
and even different economic circumstances. Within a country an individual’s
values may differ from his/her employer’s policies, which may differ from
prevalent societal norms or laws. At the international level, cultural complexity
increases geometrically. While many actions elicit universal agreement on what
is clearly right and wrong, others are less clear. Cultural relativism holds that
ethical truths depend upon the groups subscribing to them; thus, intervention in
local issues and traditions by outsiders is clearly unethical. On the other hand,
cultural normativism holds that there are universal standards of behavior that
everyone should follow; thus, non-intervention in local violations of global
standards is clearly unethical.
Many argue that managers the world over must exhibit ordinary
decency, i.e., principles of honesty and fairness. In addition, they argue that
MNEs are obligated to set good examples that can serve as the standards for
responsible behavior. From a competitive standpoint, it is argued that
responsible acts create strategic and financial success because they lead to trust,
which in turn leads to commitment. The Interfaith Center on Corporate
Responsibility (ICCR) is but one of many nongovernmental organizations
(NGOs) that actively monitor and publicize corporate practices. Such efforts
are designed to educate firms about the environmental and economic
consequences of their operations and practices, on the one hand, and to increase
shareholder value on the other. In addition, many multilateral agreements exist
that can aid in ethical decision-making; they deal primarily with employment
practices, consumer and environ-mental protection, political activity, and human
rights in the workplace. Still, no set of workable corporate guidelines is
universally accepted and observed.
B. Legal Foundations for Ethical Behavior
Ethics teaches that people have a responsibility to do what is right and to avoid
doing what is wrong. The appropriateness of behavior can be measured in the
sense that individuals and organizations must seek justification for their
behavior, and that justification is a function of both cultural values (many of
which are universal) and legal principles. However, legal justification for
ethical behavior is not sufficient because: (i) everything that is legal is not
necessarily ethical, (ii) the law is slow to develop in emerging areas of concern,
(iii) the law is often based on moral concepts that cannot be separated from legal
concepts, (iv) the law may need to be tested by the courts, and (v) the law is not
efficient in terms of achieving ethical behavior at a minimum cost. Nonetheless,
the law does serve as a useful basis for examining ethical behavior because it
embodies cultural values. The law provides a basic guide for proper conduct,
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6. which when followed, establishes a good precedent. Further, the law puts
everyone on an equal footing and should reflect careful and wide-ranging
deliberations.
In addition to the fact that laws vary among countries, strong home-country
governments may attempt to extend their legal influence to foreign countries.
Extraterritoriality refers to the extension by a government of the application of
its laws to the foreign operations of its domestic firms. In cases of health and
safety regulations, differences may not be insurmountable, but in other
instances, home- and host-country laws clearly conflict. Civil law nations tend
to have a large body of law dealing with business operations, but common law
nations rely more on precedent than statutory regulations. Externalities refer to
the by-products of activities that affect the well-being of people and/or the
environment. Although externalities are not reflected in standard cost ac-counting
practices, they must be included in the calculation of stakeholder value.
V. ETHICS AND BRIBERY
Bribery consists of payments, or promises to pay cash or something else of value, to
public officials and/or other people of influence. It affects the performance of
countries and companies alike. Anecdotal information indicates that in recent
decades, questionable payments by MNEs to government officials have been
prevalent in both industrial and developing countries. High levels of corruption tend
to correlate with lower rates of economic growth, as well as lower levels of per
capita income. Corruption may also erode the legitimacy of a government. Both the
legal definition of a bribe and the likelihood of paying brides abroad vary by
nationality. [See Fig. 5.4.]
The U.S. Foreign Corrupt Practices Act of 1997 outlaws the payment of bribes
by U.S. firms to foreign officials, political parties, party officials, or party
candidates; applies to firms registered in the United States and to any foreign firms
that are quoted on any U.S. stock exchange; and was extended to include bribery by
foreign firms operating in U.S. territory in 1998. (While the law seems to be a useful
deterrent, an apparent inconsistency permits payments to foreign officials to expedite
their compliance with the law, but not to other officials.) Federal government
guidelines for establishing an effective antibribery compliance program involve
setting high standards, communicating those standards to relevant employees,
educating employees regarding their expected behavior, and monitoring compliance.
Multilateral efforts to confront bribery are numerous. They include:
Transparency International’s Business Principles for Countering Bribery (2003); the
OECD Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions (1997); the antibribery provisions of the revised
OECD Guidelines for Multinationals; the International Chamber of Commerce (ICC)
Rules of Combat to Combat Extortion and Bribery (1999); and the UN Convention
Against Corruption (2003). In addition, Transparency International assists citizens
in setting up national chapters to fight local corruption. It also regularly compiles an
international Corruption Perceptions Index (CPI) based on surveys of business
people, risk analysts, journalists, and the general public. [See Table 5.1.] Further,
the Partnering Against Corruption Initiative brought together nearly fifty
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7. construction- and natural resource-based multinational enterprises at the 2005 World
Economic Forum to sign a zero-tolerance pact against corruption.
POINT—COUNTERPOINT: Is Bribery Ever Justified?
POINT: Many argue in favor of paying bribes in countries where bribes are
legally and culturally acceptable and even expected. Firms that must adhere to
antibribery laws, such as those of the United States, often find themselves at such
a serious competitive disadvantage they are effectively excluded from operating
in certain countries at all. If such exclusions then result in the acquisition of
inferior products, technology, and operations by clients in those countries, all
parties lose. Finally, when governments offer foreign aid to countries in exchange
for political concessions, they exhibit a double standard if they forbid their own
firms to do likewise.
COUNTERPOINT: Others argue that bribery is unethical, regardless of the
country where a firm does business. The making of anything other than
“facilitation payments” to directly responsible officials upsets the concept of open
and fair competition. Holding other countries’ policies toward bribery as the
benchmark for one’s own actions is seen as faulty logic. The end does not justify
the means. Bribery increases the cost of doing business and thus the price of
delivered products. Further, bribery not only encourages other acts of corruption,
but it results in unclear standards of behavior. Thus, it is crucial that a firm
adhere to the same code of conduct throughout the world.
VI. ETHICAL BEHAVIOR AND ENVIRONMENTAL ISSUES
Environmental damage can occur from the extraction of resources, some of which
are renewable, but some are not, and the contamination of the environment via
production processes and the use of pollution-causing products. Sustainability
means 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
society and for the environment. The issue of global warming, the Kyoto Protocol,
and the potential impact of the Protocol on corporate behavior all serve to illustrate
the challenges associated with responsible societal behavior.
A. Global Warming
Global warming results from the release of greenhouse gases that trap heat in
the atmosphere, rather than allowing the heat to escape. At the heart of the
international treaty known as the Kyoto Protocol, signed in 1997, is the theory
that if global warming is not controlled and reduced, the rising temperature of
the earth will result in catastrophic events. The Protocol, which is an extension
of the UN Framework Convention on Climate Change, obligates signatory
countries to reduce their greenhouse gas emissions to 5.2 percent below 1990
levels between 2008 and 2012. While the European Union has made the
decision to set a target of an 8 percent reduction below 1990 emission levels
52

8. (and countries such as Germany have established even higher goals), the United
States, China, and India are not parties to the agreement, even though they
generate a significant portion of the world’s greenhouse gases. Foreign firms
operating in countries that have adopted the Kyoto Protocol are required to meet
or exceed the same standards as local companies, regardless of the standards of
their home countries. (Firms that are not in compliance with local standards
may be able to buy credits from companies whose emissions are actually below
the target levels.) While the legal approach to responsible behavior says that
firms can operate according to local laws, the ethical approach says that firms
should do whatever is necessary and economically feasible to reduce greenhouse
gas emissions to the lowest possible levels.
DOES GEOGRAPHY MATTER?
The Amazon
The Amazon rain forest, most of which lies in Brazil, covers an area the size of
Western Europe. It comprises one-third of the world’s remaining tropical forests
and is home to 30 percent of the world’s plant and animal species. The Brazilian
rain forest is seriously threatened because of both legal and illegal logging and
burning operations. Environ-mentalists from within and outside of Brazil argue
that the rain forest is a global resource, but many Brazilians claim that it is theirs
to control and use. Historically, the Brazilian government has been hesitant to
take any action that might curtail economic growth. However, following the 2005
killing of an elderly nun who was trying to protect the rain forest, the government
has agreed to crack down on clearly illegal activities and to try to slow the
destruction on other fronts as well.
VII. ETHICAL DILEMMAS AND PHARMACEUTICAL SALES
How can pharmaceutical MNEs such as GlaxoSmithKline generate sufficient
revenues to create new products, their major source of competitive advantage, while
being responsive to the very real health problems of developing countries? Most
research-based pharmaceutical firms sell products at high prices so long as those
products are covered by patents. Many firms also used tiered pricing schemes
whereby consumers in industrial countries pay market prices for products, but
consumers in developing countries pay lower (subsidized) prices. Legal generic
products comply with patents while allowing for the purchase of drugs at lower
costs; unauthorized (illegal) generic drugs may or may not be reliable. The WTO
Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) provides a
mechanism for poor countries facing health crises (such as AIDS in Africa) to either
produce or import generic products. Governments and private foundations enable
countries to issues bonds to generate the funds needed to purchase vaccines via the
International Finance Facility for Immunization. In addition, governments are
pressured to reduce tariffs and other barriers that disadvantage their own people.
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9. VIII. ETHICAL DIMENSIONS OF LABOR CONDITIONS
A major challenge facing MNEs is the globalization of the supply chain and the
working conditions of laborers. Pressures from external stakeholders to adopt
responsible employment practices in overseas operations are extensive. Some of
the many international labor issues that companies, governments, trade unions, and
nongovernmental organizations must deal with include: fair wages, child labor,
working conditions, working hours, and freedom of association. These issues are
especially critical in retail, clothing, footwear, and agricultural industries, where so
many MNEs outsource production to independent firms in foreign countries. [See
Fig. 5.6.] The Ethical Trading Initiative Base Code focuses upon the employment
practices of MNEs by getting them to first adopt ethical employment policies and
then monitor compliance with their foreign suppliers. [See Table 5.2.]
The use of child labor is a particularly sensitive issue. According to the UN’s
International Labor Organization (ILO), more than 250 million children between the
ages of 5 and 17 are working worldwide; nearly three-quarters of those are young
children or are working in ways that endanger their health or well-being because of
hazards, sexual exploitation, trafficking, and/or debt bondage. Those who argue in
favor of child labor claim that in many instances, children are better suited to
perform certain tasks than adults, and that if the children were not employed, they
would in fact be worse off. While some firms simply avoid operating in countries
where child labor is used, others try to establish responsible operating policies in
those locales. Often, however, it is difficult for MNEs to hire and/or retain local
workers; even though the working conditions and wages that MNEs offer may be
higher, the number of hours they allow their employees to work may be lower.
IX. CORPORATE CODES OF ETHICS
Firms need to act responsibly for at least four reasons. First, unethical and/or
irresponsible behavior could result in legal sanctions, especially in the areas of
bribery and product safety. Second, such behavior could also result in consumer
boycotts, even though the effectiveness of such actions is unclear. Third, unethical
behavior can lower employee morale. Fourth, the cost to firms of bad publicity can
be enormous. A major component of a company’s strategy to realize ethical and
socially responsible behavior across the entirety of its organization is a corporate
code of conduct. External codes provide guidelines, recommendations, and rules
that are issued by entities within society in order to enhance corporate responsibility,
but they are somewhat inconsistent across organizations.
In creating its own code of corporate ethics a firm should: set global policies that
must be complied with wherever the company operates; communicate the code to all
employees within the organization and to all suppliers, subcontractors, and
customers; ensure that its policies are carried out in all instances; and report results
to its stakeholders. Generally, codes of conduct address such areas as employment
practices, human rights, standards of ethical conduct, and care of the environment.
In addition to the efforts made by firms themselves to ensure compliance, they may
also choose to use NGOs such as the Fair Labor Association or global audit firms,
such as KPMG, to help monitor their practices. While management is charged with
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10. maximizing the long-term value of the assets of the shareholders, it is the role of
government to deal with the externalities associated with corporate behavior.
LOOKING TO THE FUTURE:
Will FDI Be Welcome and Will Foreign Investors Act More
Responsibly
as the Twenty-First Century Progresses?
In all likelihood, governments will continue to compete for larger shares of the
benefits from the activities of MNEs. In the short term, most will probably work
to create more favorable business environments for foreign investors because
investment inflows can aid with trade deficit problems as well as foster economic
development and growth. In the longer term, however, FDI may be less welcome
because attitudes tend to vary according to economic conditions. If, in the future,
people perceive themselves to be economically disadvantaged, even if only in a
relative sense, they may, at least to some degree, blame FDI for their socio-economic
distress and thus lean toward the restriction of foreign investment
activities.
CLOSING CASE: Anglo American in South Africa
Anglo American PLC is a mining conglomerate that operates in 61 countries via
eight key businesses. Founded in 1917 as the Anglo American Corp. of South
Africa and now headquartered in London, Anglo American is the largest producer
of gold in the world. With a South African workforce of more than 90,000
employees in its primary operations and another 44,000 spread across its
subsidiaries, the firm is one of the largest in the region. Heavily affected by the
HIV/AIDS epidemic, Anglo American was one of the first companies to establish
a proactive, comprehensive strategy to combat the raging effects of the disease on
its workforce and production systems. Along with many other MNEs, Anglo
American also joined the Global Business Council on HIV/AIDS, an organization
that focuses on (a) alleviating the effects of AIDS throughout the world and (b)
protecting the rights of infected workers. In response to the failure of its AIDS
prevention policy, the company announced in 2001 that it would be running a
feasibility study to determine whether it would make antiretroviral treatments
available to its workforce. (The prevalence of HIV-positive workers had risen to
an average of 21 percent across all of its operations and was increasing by nearly
2 percent annually.) However, just a year after the announcement, Anglo
American decided to abandon the study, citing the risk and the expenses involved
as being too great and numerous other factors as being too difficult to manage.
However, the company insisted that it had not completely abandoned the idea of a
pilot study and expressed hopes that a more reasonable arrangement could be
made involving the entire industry and the South African government.
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11. 56

12. Questions
1. What choices does the government of South Africa have in the face of the HIV/AIDS
epidemic? What do you think it should do?
South Africa suffers one of the highest rates of HIV infection in the world—
approximately 5.3 million cases in a population of 45 million people. Each day
another 1,500 South African people are infected with the virus. Despite the dire
threat posed by the epidemic, the South African government has proved to be one of
the least committed to effective intervention. It has diverted little of its budget to
dealing with the crisis and has been very resistant to the widespread distribution of
antiretroviral drugs on the grounds that such action would be far too expensive and
difficult to do effectively. However, the government needs to confront the crisis! It
should begin with the development of a health care system and infrastructure adequate
to deal with the sheer number of people in need of care. The government should also
seek to partner with international aid agencies, other international organizations, and the
private sector, including pharmaceutical firms, to develop a feasible, comprehensive
strategy. [Note: student responses to the latter part of the question will vary, given
their individual beliefs regarding the role of government in society.]
2. Why did Anglo American halt its pilot study on the feasibility of providing
antiretroviral therapy to its employees? Do you agree with the decision? What
recommendation would you give the company concerning its HIV/AIDS policy?
Anglo American claimed that the risk and the expenses associated with the study were
too great. In contrast, however, by 1991 Coca-Cola was providing free anti-retroviral
drug therapy to 1,500 AIDS-infected employees in Africa, and De Beers (in which
Anglo American has a 45 percent stake) was paying 90 percent of the costs of the
treatment for its AIDS-infected employees and their spouses. Given that the company
expressed hopes that a more reasonable arrangement could be made involving the entire
industry and the government, it appears that Anglo American is attempting to shift at
least part of the responsibility for solving the crisis to the government and to other
stakeholders. [Again, student responses will vary, given their individual beliefs
regarding the role of the private sector in society.]
3. What role do the pharmaceutical companies play in the HIV/AIDS epidemic in
South Africa? What would you recommend to a pharmaceutical company that
produced HIV/AIDS drugs?
The pharmaceutical companies have a unique role to play in the HIV/AIDS epidemic in
South Africa and throughout the world because they are the source of the drugs with
which to combat this plague. However, the enormity of the epidemic is truly daunting.
Given the sheer number of people in need, on the one hand, and the utter lack of
resources, on the other, one could easily conclude that there is relatively little that can
be done to alleviate the suffering and stop the spread of the disease. Still in all, the
pharmaceutical companies can seek to partner with aid agencies, international
organizations, governments, and the private sector in their search for acceptable and
effective solutions. Pharmaceutical firms will most surely be concerned about the issue
of patent protection and generic drugs, as well as the prospect of tiered pricing and
57

13. significantly lower profit margins. Governments, other members of the private sector,
and other stakeholders will all need to be mindful of the tremendous costs and risks that
are borne by pharmaceutical firms. Further, given the extent and the seriousness of the
problem, a lack of commitment on the part of any stakeholder will be a serious setback
in the march toward a community solution.
WEB CONNECTION
Teaching Tip: Visit www.prenhall.com/daniels for additional information and links
relating to the topics presented in Chapter Five. Be sure to refer your students to the
online study guide, as well as the Internet exercises for Chapter Five.
_________________________
CHAPTER TERMINOLOGY:
globalization, p.164
multinational enterprise (MNE),
p.164
foreign direct investment (FDI),
p.164
wholly-owned subsidiary, p. 164
joint venture, p.164
stakeholders, p.166
corporate social responsibility
(CSR), p.166
balance of payments (BOP), p.167
trade deficit, p.168
trade surplus, p.168
import substitution, p.168
net import effect, p.168
marginal propensity to import,
p.169
net export effect, p.169
net capital flows, p.169
relativism, p.172
normativism, p.172
ordinary decency, p.172
nongovernmental organizations
(NGOs), p.172
extraterritoriality, p.174
externalities, p.174
bribery, p.175
Business Principles for Countering,
Bribery, p.176
in Int’l Bus. Transactions,
p.176
International Chamber of
Commerce (ICC), p.176
Rules of Combat to Combat
Extortion and Bribery, p.176
Corruption Perceptions Index CPI),
p.177
Partnering Against Corruption
Initiative, p.178
sustainability, p.180
global warming, p.180
Kyoto Protocol, p.180
UN Framework Convention on
Climate Change, p.181
tiered pricing, p.183
generic products, p.184
International Finance Facility for
Immunization, p.184
_________________________
ADDITIONAL EXERCISES: Global and Societal Challenges
Exercise 5.1. Ask students if they believe that it is better for a country to
encourage (a) international trade activities or (b) inward foreign direct investment.
Then have them discuss the impact of foreign direct investment upon the
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14. international trade activities of the triad nations (West Europe, Japan, Canada, and
the United States) as compared to the impact upon the BRICs (Brazil, Russia, India,
and China). Finally, repeat the first question regarding their general beliefs. If
positions have changed, explore why.
Exercise 5.2. Choose two to five countries that are economically diverse. Then
lead the class in a comparative discussion of the impact of foreign direct investment
upon those countries. What MNEs are headquartered in or have subsidiaries based
in those countries? Conclude by asking the students to discuss the societal effects of
foreign direct investment upon those and possibly other countries.
Exercise 5.3. During the late 1980s and throughout the 1990s, China was
routinely cited by various governments and NGOs for human rights violations that
included torture, beatings, imprisonment, and even the executions of political
dissidents. At the same time, inflows of foreign direct investment into China from
firms headquartered in democratic societies in West Europe, North America, and
Japan were increasing at record rates. Ask the students to debate this phenomenon
from an ethical perspective. Do they believe that China is a special case, and if so,
why?
Exercise 5.4. Multinational enterprises such as Newmont Mining are increasingly
subject to demands from both national and local governments to implement
comprehensive social programs, engage in improved labor relations, and meet
increasingly rigorous environmental regulations. Ask the students to explore the
strategic options they feel are available to a firm such as Newmont Mining in
Indonesia that has extensive property and capital assets at risk. Suggest they
consider both proactive and reactive alternatives.
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