MULTI-NATIONAL CORPORATION
negative instrument for restraining competition
 Corporation that manages production or
delivers services in more than one country
 International Labor Organization has defined
MNC as a corporation that has its management
headquarters in one country, known as the
home country and operates in several other
countries known as host country.
 Examples: Shell, Nike and Cisco
Four Categories of MNC’s
1. Multinational- decentralized firm with a strong home
country presence.
2. Global- centralized firm that acquires cost advantage
through centralized production wherever cheaper
resources are available.
3. International- firm that builds on the parent firm’s
technology or Board of Directors.
4. Transnational- firm that combines the previous three
approaches.
 East India Company- first modern MNC
Market Imperfection
 The use of the market for coordinating the
behavior of agents located in different countries
is less efficient than coordinating them by a
multinational enterprise as an institution.
 The additional costs caused by the entrance in
foreign markets are of less interest for the local
enterprise.
 The existence of MNC’s is reasoned by the
structural market imperfections for final
products.
 The firm can maximize their joint income by a
merger or acquisition, which will lower the
competition in the shared market.
 Consolidation is often established by
acquisition, merger or the vertical integration of
the potential licensee into overseas
manufacturing that makes it easy for the MNC’s
to enforce price discrimination schemes in
various countries.
 The emergence of multinational firms is a
between firms of different nations.
 Market imperfections had been structural and
caused by the deviations from perfect
competition in the final product markets. In
addition, the control of propriety technology
and distribution system, scale economies,
privileged access to inputs and product
differentiation. In the absence of these factors,
the market is efficient.
 Market imperfections are inherent conditions in
markets and MNC’s are institutions that try to
bypass these imperfection. The imperfections in
market are natural as the neoclassical
assumptions like full knowledge and
enforcement don’t exist in real markets.
International power
a. Tax Competition
- Lower taxes are imposed to encourage
foreign investors.
- to compete, countries and regional political
districts sometimes offer incentives to MNC’s
such as tax breaks, pledges of government
assistance or improve infrastructure or lax
environmental and labor standards
enforcement.
b. Market withdrawal
- Multinationals have a significant impact on
government policy, primarily through the threat
of market withdrawal.
- When companies are faced with the option of
losing a core competitive technological
advantage or withdrawing from a national
market, they may choose to make their
intellectual property public in an effort to gain
technology for local entrepreneurs.
c. Lobbying
- is directed at a range of business concerns,
from tariff structures to environmental
regulations.
d. Patents
- a writing securing for a term of years the
exclusive right to make, use, or sell an invention
e. Government powers
- in addition to efforts by the multinational
corporations to affect governments, there is
much government action intended to affect
corporate behavior.
Criticisms about Multinational Corporation
 The rapid rise of MNC’s has been a topic of
concern among intellectual activist and
laypersons that have seen it as threat of such
basic civil rights as privacy.
 MNC’s create false needs in consumers.
 MNC’s uses labor-saving devices that increase
employment in the countries where they
manufacture.
 MNC’s has been accused of increasing the gap
between nations and of misusing and
misallocating scarce resources
 MNC’s exploits the labor markets of the other
countries.
 Some MNC’s pay inadequate wages
 Some MNC’s pay higher wages than local
employers
 MNC’s have been accused of paying a low price
for the rights to remove minerals and other
natural resources for a much higher price and
only a small fraction of the ultimate sale price of
such resources come back to benefit the
country of origin
 MNC’s can borrow money using up all capital
resources so that little is left for the local firms
 MNC’ are also accused of not carrying an
appropriate share of the cost of social
development
 Business for social responsibility
 It tracks emerging issues and trends
 It provides information on corporate leadership
and beat practices, conducts educational
workshops and training and assist in developing
practical business ethics tools.
Micro-Multinational
- Enabled by internet based communication tools
Code of Conduct
- Refers to companies policy statements that define
ethical standards for their conduct.
Formats of Code of Conducts
 Compliance Codes- outlined required employee
or company actions in terms of ethical behavior
 Corporate Credos- explain a company’s
accountability to its stakeholders
 Management Philosophy Statements- are more
general outlines of expected company actions
relative to ethical guidelines.
Global Business Ethics
- Branch of Philosophy that seeks to address questions
about morality- that is about concepts such as good and
bad, right and wrong, justice and virtue.
Three Perspectives on Business Ethics
- The program distinguishes between three different
perspectives on business ethics:
 Normative perspective- asks what corporations
ought to do, what responsibilities do
corporations have and to whom
 Instrumental perspective- studies what
responsibilities are profitable and in interest of
firms to pursue and how firms can be given
incentives to fulfill their responsibilities
 Descriptive perspective- asks what firms
actually do in the area of business ethics
Impact of Ethics on Global Business
Ethics and Management Practices
-Ethics impacts various aspects of management and
operations, including human resources, marketing,
research and development and the corporate
mission
Ethics and Corruption
-Corruption is giving or obtaining advantage
through means which are illegitimate, immoral,
and/or inconsistent with one’s duty or the rights to
others
  Gift giving in the global business world is used
to establish or pay respect to a relationship
 Bribery is more commonly considered the
practice in which an individual would benefit
with little or no benefit to the company
Corporate Social Responsibility
 the corporate conscience, citizenship, social
performance, or sustainable responsible
business and is a form of corporate self-
regulation integrated into a business model
 CSR policy functions as a built-in, self-regulating
mechanism whereby business monitors and
ensures its active compliance with the spirit of
the law, ethical standards and international
norms.
Ethical Issues in Global Business
a. Bribes-relatively large amounts of money given
for the purpose of influencing officials to make
decisions or take actions that otherwise might
not take
b. Grease payments- money given for the purpose
of getting minor officials to do what they are
supposed to be doing
c. Sweatshop or Sweat factory- a negatively
connoted term for any working environment
considered to be unacceptably difficult or
dangerous. It is a shop or factory in which
employees work for long hours at low wages
and under unhealthy conditions
Other Ethical Issues
 marketing and safety practice
 Gender discrimination
 Employee harassment
 Minority community participation
 Sourcing of materials
 Quality of inputs in production
 Forced labor
 Violation of worker’s rights
 Inadequate wage
FOREIGN CORRUPT PRACTICES ACT
 Enacted in 1977
 It is United States federal law that prohibits
companies from paying bribes to foreign
political figures and government officials for the
purpose of obtaining business
Two main provisions:
1. Accounting Provision- it addresses
accounting transparency requirements under
the Securities Exchange Act of 1934
2. Anti-Bribery Provisions- it concerns bribery
of foreign officials which is enforced by the US
Department of Justice
PERSONS SUBJECT TO FCPA
1. Issuers- includes any US or foreign corporations that
has a class of securities registered or that is required to
file reports under the Securities and Exchange Act of
1934
2. Domestic Concerns- any individual who is a citizen,
national or resident of the United States and any
corporation and other business entity organized under
the laws of United States or of any individual US State,
or having its principal place of business in the US
3. Any person- covers both enterprises and individuals
4. Foreign Nationals and Business- they are only liable
for acts that promote a corrupt payment within the US.
They are not liable for acts committed outside the US.
5. Third Parties and Agents- they are liable under the
same conditions as the issuer, domestic concern or
foreign national or business they are acting on behalf of.
ECONOMIC GLOBALIZATION
- the increasing economic interdependence of national
economies across the world through a rapid increase in
cross-border movement of goods, service, technology
and capital
Economic Globalization comprises the
globalization of:
- Production, Markets, Competition, Technology,
Corporations and Industries
POSITIVE EFFECTS OF ECONOMIC GLOBLIZATION
 There is global market for companies to trade
their products and a wider range of options for
people to choose from among the products of
different nations
 There is a sound flow of money and thus, a
decrease in the currency of the difference
 there is an increase in production sector
 competition keeps prices relatively low and as
result, inflation is likely to occur
 the focus is diverted and segregated among all
the nations
 Communication among the countries is on the
rise, which allows for a better understanding
and broader vision
 There is interchange of cultures as well as
communication increases among the countries
 Ecological imbalance is meted out
 Acceleration in growth
 Helps in decreasing poverty around the world
 Narrows the gap between the rich and the poor
Negative effects of economic globalization
 Jobs are being outsourced to Asian countries
because the cost of labor in the Asian countries
is low as compared to other countries causing
the Europeans to lose their jobs.
 Companies are as opening their counterparts in
other countries that results in transferring the
quality of their product to other countries,
thereby increasing the chances of depreciation
in terms of quality
 It is the cause for the invasion of communicable
disease and social degeneration in countries.
 Advantaged countries continue to control the
economic agenda.
GLOBALIZATION
- increasing the interdependence, connectivity and
integration on a global level with respect to the social,
cultural, political, technological, economic and
ecological levels.
Scholte provides 5 broad sets of definition:
a. Globalization as internationalization
-the “global” in globalization is viewed as simply
as another adjective to describe the cross-
border relations between countries. It describes
growth in international exchange and
interdependence.
b. Globalization as liberalization-removing
government imposed restrictions on
movements between countries.
c. Globalization as westernization or
modernization
-the social structures of modernity are spread
the world over, destroying cultures and local
self-determination in the process.
d. Globalization as universalization
- process of spreading ideas and experience to
people at all corners of the earth so that
aspirations and experience around the world
become harmonized
e. Globalization as deterritorialization
- the process of the reconfiguration of
geography, so that the social space is no longer
wholly mapped in terms of territorial places,
territorial distances and territorial borders.
 Contemporary Globalization manifests itself in
various ways, three of which are of particular
relevance to policy markets.
a. Globalization of economy
- the world economy globalizes as national
economies integrate into the international
economy through trade, foreign direct
investment, short-term capital flows, and
international movement of workers and
people in general and flows of technology.
b. b. Globalization of knowledge
- as economies open up, more people
become involved in the process of
knowledge integration and deepening of
non-market connections, including flows of
information, culture, ideology and
technology.
c. Globalization of Governance
- globalization places stress on existing
 patterns of global governance with the
shrinking of both time and space, the
expanding role of non-state actors and
increasingly complex inter-state
interactions
Advantages of Globalization
 Goods and people are transported with more
easiness and speed
 The possibility of war between countries
decreases
 Free trade between countries increases
 Global mass media connects all the people in
the world
 Culture barriers are reduced
 There is propagation of democratic ideals
 The interdependence of the nation states
increases
 The liquidity of capital increases developed
countries can invest in developing ones
 The flexibility of corporations to operate across
borders increases
 The communication between the individuals
and corporations in the world increases
 Environmental protection in developed
countries increases
EFFECTS OF GLOBALIZATION
 Enhancement in the information flow between
geographically remote locations
 The global common market has a freedom of
exchange of goods and capital
 There is a broad access to a range of goods for
consumer and companies
 Worldwide production market emerge
 Free circulation of people of different nations
leads to social benefits
 Global environment problems like cross
boundary pollution, over fishing on oceans,
climate change are solved by discussions
 More transborder data flow using
communication satellites, the internet, wireless
telephones and the like
 Corporate, national and sub-national borrowers
have a better access to external finance
 Multiculturalism spreads
 International travel and tourism increases
 Enhancements of worldwide fads and pop
culture
 Local consumer products are exported to other
countries
 Immigration among countries increases
 Cross culture contacts grow and cultural
diffusion takes place
 Increase in the desire to use foreign ideas and
products
 Free trade zones are formed
 Transportation costs are reduced
 Subsidies for local businesses decreased
 Capital controls reduced
 There is a supranational recognition of
intellectual property
FREE TRADE
 A policy by which a government does not
discriminate against imports or interfere with
exports by applying tariffs (to imports) or
subsidies (to exports) or quotas.
 Unrestricted international exchange of goods
Advantages of free trade
 Increased production and efficiency
 Consumers satisfaction
 Free trade has the merit that it prevents the
establishment of injurious monopolies
 Foreign exchange gains and decreased poverty
 Employment and economic growth
 Increased growth
Disadvantages of free trade
 Leads to over dependence upon other countries
 Pointed out that under system of free trade, the
economically backward country remains always
at a disadvantage with the economically
advanced country
 The import of injurious and harmful goods
cannot be hindered
 The home industries cannot be protected
 International specialization leads to an
unbalanced economy of the country