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C H A P T E R 2 2
Corporate ethics and the natural environment
Chapter objectives
2. Explain why research will continue to be of critical importance to the field of international
business.
4. Relate the importance of the NGOs and ethical issues to the strategies of multinational
enterprises.
Chapter summary
1. There will be an increase in the amount of international business research that is being
2. Multinationals, as flagship firms, are beginning to develop new business network
3. The two environments that will present the greatest challenges for multinational enterprises
(MNEs) in the future are the political and the economic. The rising tide of protectionism
4. The principle of national treatment reduces political sovereignty, although some sectors are
exempted in North American Free Trade Agreement (NAFTA), the Free Trade Area of the
5. The interaction between MNEs and nongovernmental organizations (NGOs) is complex but
can be better understood by constructing an analytical framework.
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Chapter outline
Introduction
Developing effective strategies
Going where the action is
International business research frameworks
Theories of international business
Practical applications of the theory
Coping with changing environments
Political environment
Economic environment
The trade and investment framework
Lecture outline
A. Introduction
1. The MNEs are finding that one of the major challenges they face is to develop effective
strategies for coping with changing environments. The international microcomputer
2. We focus on the issue of corporate strategy and environmental regulations in relation to
the familiar firm and country factors in the firm-specific advantages (FSA)country
specific advantages (CSA) matrix of Chapter 2. Essentially, environmental regulations,
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
and other societal pressures on the firm, can be regarded as CSAs. Also, the firm can
turn such regulations into an FSA in cell 3 of the FSACSA matrix. Another way of
B. Developing effective strategies
1. One strategy that is proving increasingly important is the need to go international in
order to keep up with the competition. Successful MNEs have operations in the home
countries of their major competitors, both to monitor the competition as well as to
C. International business research frameworks
1. In the future, greater attention will be given to strategy research that is designed to
explain why some firms do better than others and how these strategies are changing. For
example, during the 1970s traditional international business strategy gave strong
D. The five partners business network framework
1. Increasingly, the relationship of successful MNEs with their suppliers, customers and
2. The current trend is toward reducing the number of suppliers to a small group of
3. Network linkages now involve changing the focus of the relationship from one in which
4. Network arrangements are also being created between international competitors in the
form of joint ventures, technology transfers and market sharing agreements such as a
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
E. Coping with changing environments
1. The international environment of the future will continue to be one of rapid change, and
2. The political environment affects MNE activities in many ways. For example, all major
triad groups have trade barriers designed to limit the sale of foreign goods in their
3. The ability of US firms to penetrate foreign markets will also be influenced by US
government policies. The Clinton administration was more vigorous than its
predecessor in pushing for open markets in Asia. Its formulation of a US government
trade policy toward Japan and Southeast Asia includes guidelines for negotiations for
4. A related issue is political risk. Many small countries are now embracing free-market
5. The economic environment of the future will be replete with opportunities for MNEs.
6. Major MNEs that are finding themselves unable to compete in the ever-changing
7. The largest number of business-to-business (B2B) relationships would be between
F. The trade and investment framework
1. The tendency toward international trade liberalization has been exemplified by two
recent developments, namely, the NAFTA of 1993 and the deeper integration of the EU.
Figure 22.3 classifies the different industries in the countries affected by trade
liberalization in NAFTA. Quadrant 1 refers to business sectors where there is high
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
2. Figure 22.4 shows the more complex EU matrix. The two extra quadrants in the
extreme left column capture the concept of an even lower level of political sovereignty,
reciprocity. The EU 1992 measures and subsequent deepening programs of political,
social and economic integration aim at quadrant A in everything but select sectors, such
G. Environment and MNEs
1. Mobilizer NGOs criticize the global trade and investment regime, and believe that the
major international institutions promoting free trade, such as the World Trade
2. The WTO is an understaffed bureaucracy with little political impact. The secretariat to
the General Agreement on Tariffs and Trade (GATT) has successfully acted on behalf
3. Unfortunately, the WTO also embodies several asymmetric elements: on the one hand,
it is consistently moving toward trade liberalization, but on the other, it is unable to
4. Figure 22.5 contrasts the various perceived roles and outcomes of the WTO. The
institutional reality is largely that of quadrant 1, while the antiglobal movement has
5. Two parameters critically determine the future options for further trade and investment
liberalization the choice between bilateral or regional and multilateral negotiations
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6. Figure 22.7 categorizes MNE responses to civil society criticisms. Quadrant 2 reflects
the outdated perspective on MNEs, paradoxically adopted by most mobilizers. They
view MNEs as profit maximizers, who will systematically refuse a constructive dialog
7. NGOs, especially the technical ones, need to understand that antiglobal rhetoric is
Answers to review and discussion questions
1. Why is theory testing of value to the field of international business research? What can
be learned from such information?
The field of international business is heavily based on theories. For instance, a common theory
of international business is that local managers are more capable of dealing with the local
2. In addition to theory testing, how is international business research of value to both
scholars and practitioners? In your answer, give an example of how each group can
benefit from such research.
International business research allows international business scholars and practitioners to gather
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3. In what ways are MNEs developing new business networks? Give two examples and
then explain why these developments are likely to help the companies maintain their
competitive strengths.
4. How is the political environment likely to change during the future? Give one example
and relate its significance to multinationals.
5. How is the economic environment likely to change in the future? Give one example
and relate its significance for multinationals.
The economic environment is likely to provide more opportunities for MNEs. An example is
6. How does NAFTA differ from the EU?
7. Why are NGOs opposed to MNEs? What should MNEs do?
First of all, not all NGOs are opposed to MNEs. In fact, business groups often create NGOs,
which they finance as members, to lobby their interests or to gather industry-wide data. Other
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Answers to real cases
Dell: B2C
1. What is meant by B2C? How does Dell achieve B2C?
2. Why is Dell so successful in China?
3. Is B2C a viable strategy in the mature, competitive computer industry of today?
Maersk Group
1. Who are the major competitors of Maersk?
2. To what extent and to whom does Maersk act as a key supplier?
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3. What is the key competitive advantage (firm-specific advantage) of Maersk?
Maersk possesses multiple key firm-specific advantages (FSAs) leading to the groups strong
competitive advantage. First, they include a variety of physical facilities and port infrastructure