3.4.2 Ethical issues and MNCs Flashcards
1
Q
stakeholders
A
People that have an interest in a business
2
Q
Ethical decision making
A
Following code of practice that embody moral values → point is to do the right thing, acting with honesty and integrity and taking into all stakeholder interests
3
Q
Exploitation of labour
A
Paying employees for less of the value for what they produce → employers abuse power they have in labour markets when they are more people lookign for jobs than jobs themselves
4
Q
how do MNCs cause stakeholder conflicts in host countries
A
- Businesses aim for profit maximisation
- Shareholder model: keeping costs to minimum level; shareholder pressure can cause MNCs to cut costs that are against other stakeholder interests
- Outside home country, MNCs may hope to do things that would be deemed illegal in home country
- MNCs can threaten to take away FDI, and this can put pressure on the government, especially in developing economies where levels of internal investment are low
- Smaller countries that have revenues smaller than the MNC struggle the most
- Country can legislate to regulate but low regulation attracts MNCs and investment
- In home country, stakeholders protected by CSR standards, but in EE regulations are lower than in developed countries
- Many contract suppliers are pressured by MNCs to accept low prices by offering employees low pay
- Business may face reputation issues as a result
5
Q
when do stakeholder conflicts affect MNCs
A
- Depends if MNC is a large part in supply chain, not a customer facing firm - customer opinion does not matter
- Depends if product they produce is inelastic like oil, or if their consumers are price sensitive
- Middle class consumers could afford to boycott but not those on lower incomes
6
Q
stakeholder model and ethical business
A
- Involved ethical decision
- Considers stakeholder intersts, but ethical business goes further in using clearly defined moral values as a basis for a consistent approach, based on what is right
- Ethical business involves basing decisions on a set of clearly defined moral principles, and doing the right thing regardless of commercial interests
- Includes CSR, but a deliberate attempt to act on moral values
- CSR may be following laws, but EDM recognises the law may not protect all stakeholders and the business must set its own standards
- Business who follow EDM are rigorous and consistent with their decisions
7
Q
pay and working conditions with MNCs
A
- Trade off between standards of pay and conditions and employee morale and productivity → weighed against increased costs
- Pay and working conditions are better in developed countries
- EE have many jobs, but alot work for long hours with little pay, sometimes with hazardous working conditions
- Working for MNCs will usually mean that pay and WC will be better than local businesses but not as good as developed countries
8
Q
MNCs and environmental considerations
A
- All businesses affect the environment by activities
- May be a tradeoff between controlling such problems such as emissions and pollution and keeping costs down
- Local regulations on emissions are weaker in EE than developed world
- Facilities for waste disposal may be poorly organised
- Mining activities are damaging as they displace people who depend on income coming from farming, as they dump toxic waste there
- Some activities are unsustainable (forest clearance for palm oil production)
9
Q
MNCS and exploitation of labour
A
- In a global economy many businesses offshore part of their production process
- Contracting with local suppliers to manufacture products means they have little control over working conditions
- Contractors may be paid little for output and this will make it hard for them to pay reasonable wage, or improve working conditions of their workers
- This leads to exploitation of labour
10
Q
MNCs and child labour
A
- Found in many poor countries
- Not ethical: MNCs will say they will not allow child labour in contracts but its hard to enforce
- Alot turn a blind eye and hope they are not found out
Issues in garment manufacturing, eg Nike sweatshops in East asia
11
Q
MNCs and product marketing
A
- Product labelling and promotion should not mislead consumers or offend cultures
- Meaningful and appropriate for culture in relevant market
- Promotion may suggest consumer benefits that will not actually happen
- Developed countries: advertising standards include product labelling are regulated but this may not happen in emerging countries
- MNCs should take great care to understand their target markets and can act on their findings
12
Q
MNCs and ethical behaviour vs profitability
A
- Tradeoff between ethics and profits in short run
- Ethical behaviour will increase costs and reduce profits in short run
- Some of the most profitable countries have low ethical rankings
- Yet many high ranked ethical companies make good profits
- Ethical behaviour can enhance company reputations and increase profits, creating CA
- Cutting costs can benefit shareholders; allowing price cuts and raising real incomes
13
Q
ethical businesses with MNCs
A
- Many firms introduce ethical practices but have been found to be unethical elsewhere
- Firms high in Ethical rankings are not in the top 10 most profitable countries in the world (eg unilever, marks and spencers)
14
Q
MNCs are good
A
- Creates FDI
- Brings jobs
- Regional multiplier effect
- Skills and tech transfer
- Increased demand for local businesses/suppliers
- Increased tax revenue - government has more revenue to spend
- Export earnings
- Other MNCs may also invest in that country
- CSR policies bring benefits to host
15
Q
MNCs are bad
A
- Illegal and unethical behaviour
- Exploitation of labour, low wages, poor WC, lack of health and saftey, child labour
- Hard for govs to hold MNCs accountable to their laws, especially if country is less economically powerful (BP deepwater horizon in America vs Union Carbide in India)
- Environmental degradation and pollution
- Unsustainable prices
- Tax avoidance
- Cultural imperialism
- Local business pushed out
- Profits repatriated not put into local economy
