TheFutur eofthe Tr ansnational Enter pr ise:

AnEvolvingGlobalRole
byPaulW.Beamish November8,2007
AdaptedfromChapter8 byChristopherBartlettandPaulBeamish

McGrawHill/Irwin Transnational Management: Text and Cases, 5e

Copyright 2008 The McGrawHill Companies, Inc. All rights reserved.

DamagedReputationofMNEs
l Isfollowingtheletterofthelawsufficientfor

thecourtofpublicopinion? l Examples
n Nike(useofchildlabour/sweatshops) n Pharmaceuticals(patentfighttopreventproduction

ofcheapAIDSdrugs)

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Globalizationor Exploitation?

Growingeconomicwealth but Reductionoftradebarriers but

Growingeconomic disparity Manyindustriesmost importanttodeveloping countriesstillclosed Absolutelevelsofpoverty stillhighinmanycountries

Lesspovertyinrapidly industrializingcountries

but

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MNEsasaModelofSuccess?
l ForeignAidhasfailedtoaddresstheworldsmost

serioussocialproblemsforthepast50years l ForeignInvestmenthasillustratedawinwinresult forbothMNEsandmembersofdevelopingsocieties l Newemergingpartnershipsbetweennational/ supranationalgovernments,NGOs,andMNEsare replacingpreviouslyadversarialrelationships

Thefasterthepoorgainwealth, thefastertheybecomeacustomer
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Four TypesofMNEs
Exploitive
Viewsdifferencesinwages, workingconditionsandlivingstandards asexploitableopportunities. Engagesinlawabiding, nonexploitive, commercialinteractions. Actsinawaythatissensitive andresponsivetotheneedsof allitsimmediatestakeholders. Commitstoleadinginitiativesto bringlifeenhancingchanges tothebroadersociety.
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Transactional

Responsive

Transformative

TheExploitiveMNE
Singlemindedfocusonmaximizingprofitsregardless ofsocialimpact Attractedtodevelopingcountriesforlowerlabor relatedcostsincludingminimumwage,hour,andage restrictions,aswellaslowersafetyrequirements, preferentialtreatmentthroughbribery,oruninformed consumers Responsetostakeholderpressuresisoftentouse indirectchannelsormovetoanotherexploitablearea AnMNEtypethatisindecline
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ExamplesofExploitiveMNEs
JordanianfactoryproducingforTarget&WalMart exploitingworkers UnitedBrandsbribingthepresidentofHonduras ITTworkingtooverthrowthedemocraticgovernment ofChile Nestlepushinginfantformulaonmothersin developingcountries UnionCarbiderefusingtobeheldaccountableforgas leakthatkilledthousands

l l

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TheTr ansactionalMNE
l Maximizingshareholderreturnistheprimary

goal,butotherstakeholderconcernsare incorporatedthatdonotconflictwiththatgoal l Adheretothespiritaswellastheletterof thelawindevelopingsocietiesdonoharm l Responsetostakeholderpressurecanbe adversarial,butisoftenconciliatoryandone ofguardedoptimism l MostpopulartypeofMNEatthepresenttime

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ExamplesofTr ansactionalMNEs
l McDonaldsandKFCabidingbythelawsbut

encouragingunhealthyeating l Nikedirectlyengaginginchildlaboror sourcingfromunethicalcompanies

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TheResponsiveMNE
l StakeholderandShareholderconcernsare

equallyimportantforlongtermsurvival l Decisionsarebasedonmoralprinciples ratherthanlegalcodes l Attempttobeproactiveratherthanreactivein dealingwithstakeholderpressuresoften incorporateconcernsduringtheplanning process l MostrapidlygrowingtypeofMNE

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ExamplesofResponsiveMNEs
l HindustanLeverchangingproductstoadapt

toruralcommunitiesinIndia l GEintroducingabasiclineofCTscannersas wellasrefurbishedmachines l Starbucksofferingincentivesforsuppliers whomeethighethicalstandards l HeinekencoveringAIDStreatmentfor employeesaswellastheirfamilies

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TheTr ansfor mativeMNE

Willingtosacrificepotentialprofitsinordertoaddress socialissuesattheircore Employeepracticesareofthehighestethical standardandareconstantregardlessoflocal standards Activelyexertingtheirowninfluenceonentire societiestobringaboutpositivechangeinpartnership withNGOsandotherstakeholders TypeofMNEgarneringagreatamountof internationalattention
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ExamplesofTr ansfor mativeMNEs

Nokiacreatingadurableyetinexpensivecellular phoneforilliterateindividualsandharshclimates Bestsellersupportforadesignschoolfortraditional artisansinIndia IKEAsourcingfromsupplierswhodonotusechild labor Pharmaceuticalcompaniesdeveloping/providing drugsirregardlessofthecustomersabilitytopay (Merck - RiverBlindnessGenzyme - Gaucher diseaseNovoNordisk - hemophilia)
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Dr iver softheCur r entMNETr ends

NGOshavesuccessfullyestablishedthemselvesas thewatchdogofMNEsgiventheinabilityofnational governments Supranationalagencies,suchastheUnitedNations haveservedasmediatorsofdialogueandvoluntary crosssectorinitiatives Corporationsthemselveshavebeguntoadopta broader,longtermperspectivetosocialissuesasa meanstoensuresustainablestreamsofincomeand maintaintheirveryexistence
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TheGlobalCompactPr inciples
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Businessesshouldsupportandrespecttheprotectionofinternationally proclaimedhumanrights. Makesurethattheyarenotcomplicitinhumanrightsabuses. Businessesshouldupholdthefreedomofassociationandtheeffective recognitionoftherighttocollectivebargaining. Theeliminationofallformsofforcedandcompulsorylabour. Theeffectiveabolitionofchildlabour. Theeliminationofdiscriminationinrespectofemploymentand occupation. Businessesshouldsupportaprecautionaryapproachtoenvironmental challenges. Undertakeinitiativestopromotegreaterenvironmentalresponsibility. Encouragethedevelopmentanddiffusionofenvironmentallyfriendly technologies. Businessesshouldworkagainstallformsofcorruption,including extortionandbribery.

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MNE/Stakeholder RelationshipsinEmer gingMar kets:ATypology

Stakeholders
Economic Employees/ Suppliers
Exploits existing localwages, working conditionsand suppliers, driving themlowerif possible.

Societal Local Communities

Acceptsno community responsibility foritssocialor environmental impact.

Political/Regulatory Govtand SupraNational Agencies/ Regulators

Seeksconcessions andsubsidies, usingbargaining powertoplay nationalinvestment boardsagainst eachother.If briberyand corruptionexist, engagesinlocal practicestowin benefits. Obeyslocallaws andregulations, butusescountry differencestogain competitive advantage.

Shareholders

Customers

NGOs

Exploitive
Views differences inwages, working conditions andliving standards asexploitable opportunities

Adoptsclassic Milton Friedman view:Itsonly legitimaterole istomaximize returnsto shareholders.

MNEStance

Sellsexisting productsand services, evenifthey have negative socialor economic Impact

Anadversary: NGOsactively workingto forcetheMNE tochangeits behavior through protests, boycotts, political activism,etc.

Transactional
Engagesin lawabiding, non exploitive, commercial interactions.

Focuson shareholder returns,but believesa pureFriedman approachis inconsistent withthelong terminterests ofits shareholders.

Treatsitas anyother market. Makes product adaptationsif theyare economically viableand canincrease marketshare.

Complieswith locallabor lawsand workplace regulations. Usescost efficientlocal sources, pressuring them onprice.

Adoptsa Hippocratic Oathapproach toward communities: (ie. Dono harm ).

Awatchdog: NGOmonitors theMNEs actions,urging orpushingitto domore.

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MNE/Stakeholder RelationshipsinEmer gingMar kets:ATypology

Stakeholders
Economic Employees/ Suppliers
Committedto caringforits employeesand developingtheir skills.Actively engageslocal sources,usingits buyerpowerto improveworking conditionsfor theiremployees. Committedto upgradingthe livesofits employees, Insideand outsidethe workplace. Bringswork standard compliantlocal suppliersinto globalsupply chainnetworks.

Societal Local Communities

Aimstoaffect positively thosewhose livesit touchesin communities inwhichit operates.

Political/Regulatory Govtand SupraNational Agencies/ Regulators

Setsitsstandardof behaviorabove minimumlocal legalrequirements. Conformstohigher International standards(e.g.Set byILOor UNESCO).

Shareholders

Customers

NGOs

Responsive
Actsinaway thatissensitive Andresponsive totheneedsof allits immediate stakeholders.

Feelsa Responsibility tobea good corporate citizen inthe environments inwhichit operates.

MNEStance

Investsin potentially significant productor service developments and/or adaptationsto meetlocal needs. Byhelpingto movepeople outofpoverty, itwillcreate stabilityand goodwill,and helpgrowthe worlds customerbase. Develops productsor servicesspeci ficallytomeet localneeds.

Anobserver: NGOmaybe neutralor partially engagedwith MNE.Limited mutualtrust.

Transformative
Commitsto leading initiativesto bringlife Enhancing changestothe broader society.

Persuades investorsof theneedfor companiesto bepartofthe solutionby bringingtheir resourcesto bearonthe rootcausesof problems.

Leadsin developing thequalityof lifeinthe broad community (eg. upgrading health, education).

Activelyraises localstandards (e.g.by transferring developedworld workplacehealth andsafety standards.) Supportschange agendaof international agencies(eg. WHOor UNESCO).

APartner: NGOworks withand supportsthe MNEworking towardsthe same objectives.

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