CHP 20

Slide 21.
Chapter 21
Corporate ethics
and the natural environment
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 21.2
Corporate Ethics
and the Natural Environment
• Objectives
• Introduction
• Developing effective strategies
• International business research frameworks
• The five partners business network framework
• Coping with changing environments
• The trade and investment framework
• Environment and MNEs.
Slide 21.3
Objectives
• Examine how these changing developments will
create both challenges and opportunities for
MNEs over the next decade.
• Explain why research will continue to be of critical
importance to the field of international business.
• Examine three frameworks in which MNEs can
cope with their changing political and economic
environments.
• Relate the importance of the NGOs and ethical
issues to the strategies of multinational
enterprises.
Slide 21.4
Introduction
• MNEs are finding that one of the major
challenges they face is to develop effective
strategies for coping with changing environments.
– The international microcomputer chip industry is a
good example.
 During the 1980s the Japanese dominated this
industry, pushing out many US and European
competitors to gain the majority of the world market.
In the early 1990s US firms counterattacked and
regained the lead. Strategic countermoves can
cause successful firms to be dislodged by
competitors.
Slide 21.5
Introduction (Continued)
• We focus on the issue of corporate strategy and
environmental regulations in relation to the
familiar FSA/CSA matrix.
– Essentially environmental regulations, and other
societal pressures on the firm, can be regarded as
CSAs.
– The firm can turn such regulations into an FSA in
cell 3 of the FSA/CSA matrix.
Slide 21.6
Developing effective strategies
Slide 21.7
Developing effective strategies

• Going where the action is
– Successful MNEs have operations in the home
countries of their major triad competitors.
 Some markets develop faster than others.
 There is experience and knowledge to be learned in
other markets.
 MNEs establish a home base for each major product
line.
– “Centers for Excellence”.
• Developing new business networks with
governments, suppliers, customers and
competitors.
Slide 21.8
International business
research frameworks
Slide 21.9
Theories of international business

• In some cases theories are first constructed and
then tested.
• Other theories are tested for the purpose of
reconfirming earlier findings.
– This research is also important because it
generates new hypotheses for testing.
Slide 21.10
Practical applications of the theory

• Why do some firms do better than others?
– Strategic fit: a strategic management concept,
which holds that an organization must align its
resources in such a way as to mesh effectively with
the environment.
– Today, however, successful MNEs must do much
more than attempt to attain a strategic fit.
 The basic strategic concepts of the past, once

widely accepted, must be reconsidered and
sometimes reformulated.
Slide 21.11
The five partners business

network framework
Slide 21.12
Forging new business networks

• New strategies based on trust and reciprocal
support are replacing the old business–client
relationship in which MNEs sought to dictate the
terms and conditions of sales and services.
• A flagship firm: A MNE which has taken on the

strategic leadership of a business network
consisting of four other partners: key suppliers,
key customers, selected competitors and the non-
business infrastructure.
Slide 21.13
Partners of new business networks

• Suppliers: Small group of reliable, efficient and
highly responsive firms with the increased amount
of responsibility.
• Customers: Sellers interact more directly with

their customers.
– There is a direct link between the flagship firm and
its most important customers, whereas traditional
relations are maintained with some distributors to
serve the firm’s less important customers.
Slide 21.14
Partners of new business networks

(Continued)
• Competitors: Network arrangements are being
created in the form of JVs, technology transfers
and marketing sharing agreements.
• Non-business organizations: Unions, universities,

research institutions and government.
 Notice how these relationships go beyond

commercial transactions and involve network
linkages to a wide variety of other groups.
Slide 21.15
Figure 21.1 Network linkage and the changing shape of international distribution
systems
Source: Joseph R. D’Cruz, Alan Rugman, “Business Networks for International Competitiveness” (BQA92402) Ivey Business Journal, Spring 1992, Issue (ex. Winter 1990),
p. 101–107 © 1992 Ivey Management Services. One time permission to reproduce granted by Ivey Management Services June 2009
Slide 21.16
Figure 21.2 Network linkages for successful MNEs

Source: © Alan Rugman and Joseph R. D’Cruz, 2000. Reprinted from Multinationals as Flagship Firms: Regional Business Networks by Alan M. Rugman and Joseph R. D’Cruz (2000)
by permission of Oxford University Press
Slide 21.17
Coping with changing environments
Slide 21.18
Coping with changing

environment
• Political environment:
– international trade regulation, barriers and
negotiations
– political risk
– consolidation of the world’s trade agreements
• Economic environment:
– new goods and services
– innovation and technology
– changing MNE strategy
• Business-to-business (B2B).
Slide 21.19
The trade and investment framework
Slide 21.20
The trade and investment framework

• The vertical axis denominates economic
integration.
• The horizontal axis reflects the political
sovereignty of nation states.
– The left side column shows low political sovereignty
in the form of national treatment.
– With national treatment, discrimination against
foreign investors is not permitted.
Slide 21.21
Figure 21.3 FDI and NAFTA
Slide 21.22
NAFTA’s matrix
• Quadrant 1: Business sectors where there is high
economic integration and low political
sovereignty.
• Quadrant 2: Business sectors with low economic
integration and low political sovereignty.
• Quadrant 3: Business sectors with combined
high levels of economic integration and political
sovereignty. They are Exempted from national
treatment despite the efficiencies that would result
from the application of national treatment.
• Quadrant 4: Business sectors that are typically
local and are exempted from national treatment.
Slide 21.23
Figure 21.4 NAFTA and the EU
Slide 21.24
EU matrix
• The two extra quadrants in the extreme left
column capture the concept of an even lower
level of political sovereignty, reciprocity.
• Quadrant A: Manufacturing, business services,
banking and mutual funds, securities, insurance,
transportation, broadcasting, tourism and
information services.
• There are harmonization laws regulating company
behavior, including mergers and acquisitions,
trademarks and copyrights, cross-border mergers
and accounting operations across borders.
• Opening of public procurement.
Slide 21.25
Environment and MNEs
Slide 21.26
Environment and MNEs

• The civil society is a group of individuals,
organizations and institutions that act outside the
government and the market to advance a diverse
set of interests, including opposition to global
business.
Ex) Non-governmental organizations (NGOs)
• The issue of globalization has opened up a gulf

between civil society and international business.
Slide 21.27
Non-governmental organizations
(NGOs)
• “Mobilizer” NGOs criticize the global trade and
investment regime and believe that the major
international institutions promoting free trade
should be eliminated.
• “Technical” NGOs are relative insiders, willing to

work with the mainstream international institutions
in order to reduce perceived ineffectiveness or
inequity in policy making.
Slide 21.28
World Trade Organization (WTO)

• The WTO is an understaffed bureaucracy with
little political impact.
– It is consistently moving toward trade liberalization.
– It is unable to eliminate the protectionist policies in
some sectors put in place by many of its members.
• The WTO is forced to focus much energy and

expertise on resolving bilateral trade disputes.
Slide 21.29
Figure 21.5 Different perceptions of the WTO
Slide 21.30
Different perceptions of the WTO

• The WTO’s institutional reality is largely that of
quadrant 1.
• The anti-global movement has been successful in

creating an image of the WTO as in quadrant 4.
• The technical NGOs’ perspective is usually

positioned in quadrant 2.
• The dominated picture suggested by the

stakeholers hurt by free trade and investment is
positioned in quadrant 3.
Slide 21.31
Institutional alternatives
for trade and investment
• Tariff cuts have allowed shallow integration
across many manufacturing sectors.
– Today’s agenda, with major implications for MNEs
engaged in FDI, is one of deep integration.
• Two parameters critically determine the future

options for further trade and investment
liberalization.
– The choice between shallow or deeper integration
– The choice between bilateral (or regional) and
multilateral negotiations
Slide 21.32
Figure 21.6 Institutional alternatives for trade and investment
Slide 21.33
Institutional alternatives
for trade and investment (Continued)
• Quadrant 1: The old, highly successful GATT
process of tariffs cuts and shallow integration.
• Quadrant 2: The old regional trade agreements with
tariff cuts.
• Quadrant 3: The new agenda of the WTO in terms of
deep integration, including investment liberalization.
• Quadrant 4: The new type of regional trade
agreements, such as NAFTA (FDI, services & IPR).
 NGOs need to understand that anti-global rhetoric is
leading to regional integration and bilateral
agreements, as a politically more feasible – but
ultimately less efficient – alternative to global
integration. This does not benefit the objectives of
civil society.

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Slide 21.

Developing effective strategies

Developing effective strategies

Theories of international business

Practical applications of the theory

 The basic strategic concepts of the past, once

The five partners business

Forging new business networks

• A flagship firm: A MNE which has taken on the

Partners of new business networks

• Customers: Sellers interact more directly with

Partners of new business networks

• Non-business organizations: Unions, universities,

 Notice how these relationships go beyond

Figure 21.2 Network linkages for successful MNEs

Coping with changing environments

Coping with changing

The trade and investment framework

The trade and investment framework

Figure 21.3 FDI and NAFTA

Figure 21.4 NAFTA and the EU

Environment and MNEs

Environment and MNEs

Ex) Non-governmental organizations (NGOs)

• The issue of globalization has opened up a gulf

• “Technical” NGOs are relative insiders, willing to

World Trade Organization (WTO)

• The WTO is forced to focus much energy and

Figure 21.5 Different perceptions of the WTO

Different perceptions of the WTO

• The anti-global movement has been successful in

• The technical NGOs’ perspective is usually

• The dominated picture suggested by the

• Two parameters critically determine the future

Figure 21.6 Institutional alternatives for trade and investment

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