Preview: Ranim Helwani - The Future of the Transnational, An Evolving Global Role

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Global  Business  –  2014  –  Ranim  Helwani  

 
 

Chapter  8  –  The  Future  of  the  Transnational  –  An  evolving  global  role  
 
à  With  expansion  of  MNEs  more  and  more  the  question  comes  up  about  what  responsibilities  
comw  with  the  power  that  they  have  accumulated.  
à  MNEs  have  advanced  the  progress  of  many  large  nation-­‐states  as  their  economic  and  social  
infrastructure  benefited  from  the  value  created  through  cross-­‐border  trade  and  investment.  
à  However,  MNEs  do  not  have  lifted  all  boats;  in  the  poorest  countries  it  appeared  only  to  be  
lifting  the  already  rich    à  unequal  distribution  of  benefits  
 
à  In  the  poorest  countries,  the  reputation  of  MNEs  from  the  world’s  developed  countries  was  
shaky  at  the  start  of  the  21st  century.  Many  activities  like  providing  bad  working  conditions,  low  
salaries,  child  labor,  etc.  led  many  to  ask  what  additional  constraints  and  controls  needed  to  be  
placed  on  their  largely  unregulated  activities.    
 
The  Growing  Discontent  
à  growing  distrust  of  MNEs  led  to  a  growing  anti-­‐globalization  movement.    
à  While  globalization  used  to  be  widely  viewed  as  a  powerful  engine  of  economic  development,  
spreading  benefits  of  free  market  capitalism  around  the  world,  only  a  few  developing  countries  
has  seen  those  benefits  
à  Worse:  Growing  gap  between  the  rich  and  the  poor  à  Globalization  only  as  a  new  means  of  
exploiting  the  developing  world    
à  Seattle  1999:  protests  against  trade  ministers,  which  were  seen  as  the  main  drivers  and  
beneficiaries  of  globalization  
 
Book  “Globalization  and  its  discontents”  by  Joseph  Stiglitz:  
-­‐ globalization  often  has  damaged  developing  countries’  economies  more  than  they  had  
helped  them.    
-­‐ First  world  still  protected  and  subsidized  agricultural  products,  textile  and  appareal,  
which  are  precisely  those  goods  exported  by  the  third  world.  
-­‐ Instead  of  creating  value,  they  intend  to  crowd  out  local  enterprises  and  use  their  
monopoly  power  to  raise  prices.    
Fact:  Only  modest  progress  in  reducing  the  number  of  people  living  in  poverty;  still  one  third  of  
world  living  with  less  than  2$  per  day.  
 
 
The  Challenge  Facing  MNEs  
 
à  need  to  rethink  an  approach  that  relied  so  heavily  on  government-­‐funded  aid  programs  
which  did  not  lead  to  significant  process.    
à  Contrast:  China:  unleashing  the  power  of  their  market  economies  rather  than  through  
massive  aid  programs  à  seeing  it  not  only  as  an  access  to  low-­‐cost  labor  and  a  fast-­‐growing  
market,  but  also  as  a  technology  source    
 
à  win-­‐win:  The  faster  the  poor  gain  wealth,  the  faster  they  become  customers.    
 
New  Challenge:  Taking  on  a  leadership  role  in  dealing  with  the  problems  that  are  the  
underlying  causes  of  the  anti-­‐globalization  movement  and  the  discontent  in  the  developing  
world.    
 
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Source: http://www.doksi.net

 
 

Global  Business  –  2014  –  Ranim  Helwani  

 
 

 
Responding  to  the  Developing  World  Needs:  Four  MNEE  postures    
 
There  are  four  responses  along  a  spectrum  of  possible  action:  from  exploitative  to  
transformative.  Many  are  shifting  to  the  latter  due  to  their  long-­‐term  interest.    
 
1. The  Exploitative  MNE:  Taking  Advantage  of  Disadvantage  
-­‐ Strong  motivation  of  accessing  low-­‐cost  factors  of  production  à  unethical  working  
standards  
à  wages  very  low,  bad  health  and  safety  conditions  and  low  human  rights  of  workers  
à  exploitative  MNEs  see  cross-­‐country  differences  in  wages,  working  conditions,  legal  
requirement  and  living  standards  as  opportunities  to  capture  competitive  advantage.  View  
that  they  only  have  the  responsibility  of  maximizing  profits  and  shareholder  value.  
Sweatshops:  workplaces  characterized  by  hot,  crowded,  poorly  ventilated,  poorly  lit  and  
unsafe  environment  with  a  labor  force  which  is  very  young  and  have  to  work  long  hours  for  
less  than  a  “living  wage”  
 
à  As  many  “sweatshop”  cases  became  public,  it  caused  consumer  outrage(boycotts)  and  
public  demands  that  MNEs  should  take  responsibility  for  the  suppliers  with  whom  they  
contract  to  make  the  products.    
 
à  Response  of  exploitative  firm:    
-­‐ simply  close  down  and  move  to  another  city  where  they  can  continue  with  their  
exploitation    
-­‐ engage  in  illegal  activities    
 
à  Global  exploitation  also  goes  beyond  ethics-­‐free  pursuit  of  low  cost  labor:  Seeking  market  
expansion  regardless  of  the  likely  resulting  economic,  social  or  cultural  damage  à  impact  on  
local  communities.  (Example:  Nestle  Infant  formula)    
 
MNEs  vs  NGOs:  
-­‐ Because  MNEs  are  able  to  operate  outside  the  legal  framework  of  any  single  government,  
some  believe  that  they  need  to  be  better  regulated  and  controlled.    
à  because  supranational  organizations  (ie.  UNESCO)  have  been  quite  ineffective,  NGOs  
began  to  assume  the  role  of  monitors  and  controllers  of  exploitative  MNEs    
à  protests,  boycott,  political  action,  targeting  MNEs  customers,  stock  owners  or  
regulators.    
à  MNEs  soon  developed  hostile  attitudes  against  NGOs    
MNEs  often  counter  NGOs  by  emphasizing  that  they  create  jobs  and  increased  taxes  
available  to  the  governments  from  the  investments  they  made.  Or  putting    blame  on  their  
subcontractors.  
 
The  exploitative  MNE  is  willing  to  collude  with  political  elites,  violate  environmental  norms,  ignore  
the  welfare  of  consumers  and  employees  and  expose  emerging  market  communities  to  potential  
harm.  
   
 
2. The  Transactional  MNE:  Doing  Deals,  Respecting  Laws  
à  only  a  few  MNEs  today  only  driven  by  profit  maximization  in  sole  service  for  
shareholder  (exploitative  MNEs).  Most  MNEs  show  at  least  some  sensitivity  toward  the  
community.  
à  Today’s  minimum  expectation  of  MNE  behavior:  Transacti
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onal  Attitude  
Difference  to  exploitative  MNE:  
-­‐ legally  compliant  and  non-­‐oppressive  

Source: http://www.doksi.net

 
 

Global  Business  –  2014  –  Ranim  Helwani  
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does  not  pursue  bottom  line  at  all  costs    
recognizes  the  need  to  make  minor  adaptations  to  meet  local  needs  or  preferences  in  
order  to  avoid  promoting  socially,  culturally  or  economically  inappropriate  products  
(Nestle)  –  but  only  if  its  likely  to  expand  market  share  or  increase  profits.  
Respect  labor  laws  and  workplace  regulations  (no  sweatshop)  but  still  maintain  
pressure  to  capture  the  value  of  the  lower-­‐cost  labor  that  attracted  their  original  
investment.    

 
à  Transactional  MNEs  do  not  exhibit  the  same  level  of  indifference  and  irresponsibility  
towards  the  local  community  and  the  broader  society  as  the  exploitative  MNE.  In  fact,  they  
noticed  that  it  makes  economic  sense  to  obey  the  spirit  of  local  and  international  laws  and  
regulations.    
à  Hippocratic  Oath:  ”First,  do  no  harm”  
 
The  Role  of  NGOs:  
à  pushing  MNEs  to  take  more  responsibility  
à  Despite  Hippocratic  oath,  NGOs  carefully  monitor  transactional  MNEs  
à  however,  it  is  based  less  on  confrontation  and  accusation  and  more  on  monitoring  and  
challenging.    
 
 
3. The  Responsive  MNE:  Making  a  Difference    
-­‐ In  recent  years:  Management’s  concept  of  a  sustainable  strategy  has  migrated  from  a  
passing  acknowledgement  of  the  need  to  develop  a  responsible  corporate  environmental  
policy  to  a  recognition  that  companies  must  articulate  a  philosophy  that  reflects  their  
long-­‐term  viability  as  participants  in  and  contributors  to  the  broader  social  and  
economic  environment.    
à  managers  becoming  increasingly  aware  of  their  larger  responsibilities  and  broader  
roles.  High  returns  to  shareholders  must  be  balanced  with  contributions  to  a  broader  
good.    
 
 
Book:  The  Fortune  at  the  Bottom  of  the  Pyramid:    
-­‐ MNEs  have  responsibility  to  contribute  to  the  development  in  the  poorest  nations    
-­‐ At  the  same  time:  by  investing  in  developing  markets  they  avail  a  huge  opportunity  by  
gaining  access  to  a  huge  market  place  of  underserved  consumers.    
à  expand  target  market  beyond  middle  and  upper-­‐class  consumers    
 
à  But  responsive  MNES  are  more  that  a  commercial  participant  
à  the  responsive  MNE  makes  a  conscious  commitment  to  be  a  contributing  corporate  citizen  in  
all  the  environments  in  which  it  operates.  More  sensitive  and  proactive  to  responding  to  
different  needs.  Want  to  have  a  positive  impact  on  those  whose  lives  they  touch.    
 
The  Global  Compact:  A  voluntary,  self-­‐regulated  set  of  aspirational  norms  that  encourage  MNEs  
to  embrace  a  more  responsive  and  constructive  role  in  the  developing  world.    
à  Includes  ten  principles  about  human  rights,  labor  standards,  environment  &  anti-­‐corruption  
 
 
4. The  Transformative  MNE:  Leading
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 Broad  Change  
à  not  only  being  sensitive  and  responsive,  but  also  taking  the  lead  in  broad-­‐scale  efforts  to  
deal  with  root  causes  biggest  problems  of  health,  education,  and  welfare.  
à  high  cost  and  commitment  needed  for  such  initiatives  à  often  done  by  private  individuals  
with  their  foundations  (ie.  Bill  gates)  

Source: http://www.doksi.net

 
 

Global  Business  –  2014  –  Ranim  Helwani  

 
 

à  also  some  pioneering  transformative  MNEs  are  leading  major  initiatives  to  help  by  
bringing  their  resources  to  bear  on  the  massive  problems  that  these  governments  and  
countries  face.  à  beyond  being  a  corporate  citizen  
à  This  high  level  of  commitment  evolved  from  the  more  modest  business-­‐linked  activities  
that  characterized  the  responsive  MNEs    
 
“Im  not  interested  whether  the  plan  brings  competitive  advantage…  It’s  the  only  way  to  do  
business  in  the  long  term”  
à  Because  they  often  deal  with  long-­‐term  problems  or  challenge  deeply  embedded  
practices,  such  transformational  programs  can  be  difficult  to  implement,  particularly  when  
social  and  economic  environments  are  governed  by  different  cultural  norms  and  legal  
frameworks.  
à  Requires  a  long  process  of  learning,  adaptation  and  commitment  to  achieving  results.    
 
Role  of  NGO:  
à  transformative  MNE  often  find  themselves  in  working  in  a  partnership  with  NGOs  or  
supragovernment  agencies  that  provide  expertise  in  social  program  delivery  that  the  
companies  typically  lack.    
à  Partnership  can  be  engine  that  can  drive  the  changes  by  accelerating  economic  and  social  
development  
à  This  will  create  a  new  future  role  for  the  MNE  that  will  make  it  an  even  more  important  
and  respected  player  on  the  world  stage.    
 
 
Concluding  Comments:    
Biggest  change:  the  evolving  attitudes  of  companies  toward  their  sense  of  corporate  social  
responsibility  and  their  commitment  to  a  strategy  of  sustainability.    
à  Only  few  MNEs  stuck  in  the  exploitative  mode,  most  have  adopted  at  least  a  transactional  
approach.  
à  Trend  is  moving  towards  responsive  and  transformative  models.    
à  MNEs  feeling  both  pressure  an  encouragement  to  respond  to  the  social  needs.    
à  the  commitment  of  their  resources  may  well  represent  on  the  long  term  one  of  the  most  
important  investments  that  the  MNE  will  ever  make.