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NAME: ASAD MUHAMMAD

ROLL NO: 183002
SUBJECT: INTERNATIONAL BUSINESS
CLASS: M.COM
SEMESTER: 4TH
MOBILE NO: 03030488220

Q1: Define foreign exchange market. Discuss the function and importance of foreign
exchange market.

Ans: The foreign exchange market is the market in which participants are able to buy, sell,
exchange and speculate on currencies. Foreign exchange markets are made up of banks,
commercial companies, central banks, investment management firms, hedge funds, and
retail forex brokers and investors. The forex market is considered the largest financial market in
the world. And a stock market in which the currencies of other countries are bought and sold
simply.
The foreign exchange market – also called forex, FX, or currency market – trades currencies.
Aside from providing a floor for the buying, selling, exchanging and speculation of currencies,
the forex market also enables currency conversion for international trade and investments.
The forex market has unique characteristics and properties that make it an attractive market for
investors who want to optimize their profits.

HIGHLY LIQUIDITY:

The forex market has enticed retail currency traders from all over the world because of its
benefits. One of the benefits of trading currencies is its massive trading volume, which covers
the largest asset class globally. This means that currency traders are provided with high liquidity.
Open 24 Hours a Day, 5 Days a Week
In the forex market, as one major forex market closes, one in another part of the world opens.
Unlike stocks, the forex market operates 24 hours daily except on weekends. Traders find this as
one of the most compelling reasons to choose forex, since it provides convenient opportunities
for those who are in school or work during regular work days and hours.

LEVERAGE:

The leverage given in the forex market is one of the highest forms of leverage that traders and
investors can use. Simply put, leverage is a loan given to an investor by his broker. With this
loan, investors are able to enhance profits and gains by increasing traders’ and investors’ control
over the currencies they are trading.
For example, investors who have a $1,000 forex market account can trade $100,000 worth of
currency with a margin of 1%, with a 100:1 leverage.
The Biggest in the World of Finance
In 2013, the Triennial Central Bank Survey of Foreign exchange and OTC Derivatives Market
Activity provided statistics on the amount of currencies traded daily, and has stated an average of
$4 trillion traded daily. The break-down of this amount shows that $1.490 trillion were traded in
spot transactions, $475 billion in outright forwards, $1.765 trillion in foreign exchange swaps,
$43 billion in currency swaps, and $207 billion in options and other forex products.
The foreign exchange market is a global online network where traders buy and sell currencies. It
has no physical location and operates 24 hours a day, seven days a week. It sets the exchange
rates for currencies with floating rates.
This global market has two tiers. The first is the Interbank Market. It's where the biggest banks
exchange currencies with each other. Even though it only has a few members, the trades are
enormous.
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As a result, it dictates currency values.
The second tier is the over-the-counter market. That's where and individuals trade. The OTC has
become very popular since there are now many companies that offer online trading platforms.
For more, see About Forex Trading.
Foreign exchange trading is a contract between two parties. There are three types of trades. The
spot market is for the currency price at the time of the trade. The forward market is an agreement
to exchange currencies at an agreed-upon price on a future date. A swap trade involves both.
Dealers buy a currency on the spot market (at today's price) and sell the same amount in the
forward market. This way, they have just limited their risk in the future. No matter how much the
currency falls, they will not lose more than the forward price. Meanwhile, they can invest the
currency they bought on the spot market.

INTERBANK MARKET:

The interbank market is a network of banks that trade currencies with each other.
Each has a currency trading desk called a dealing desk. They are in contact with each other
continuously. That process makes sure exchange rates are uniform around the world.
The minimum trade is one million of the currency being traded. Most trades are much larger,
between 10 million to 100 million in value.
As a result, exchange rates are dictated by the interbank market.
The interbank market includes the three trades mentioned above. Banks also engage in
the SWIFT market. It allows them to transfer foreign exchange to each other. SWIFT stands for
Society for World-Wide Interbank Financial Telecommunications.
Banks trade to create profit for themselves and their clients. When they trade for themselves, it's
called proprietary trading. Their customers include
governments, sovereign wealth funds, large corporations, hedge funds and wealthy individuals.

RETAIL MARKET:
The Chicago Mercantile Exchange was the first to offer currency trading. It launched the
International Monetary Market in 1971. Other trading platforms include OANDA, Forex Capital
Markets, LLC and Forex.com.
The retail market has more traders than the Interbank Market. But the total dollar amount traded
is less. The retail market doesn't influence exchange rates as much. (Source: "The Foreign
Exchange Market," Martin Boileau, University of Colorado.)

CENTRAL BANKS:

Central banks don't regularly trade currencies in foreign exchange markets. But they have a
significant influence. Central banks hold billions in foreign exchange reserves. Japan holds $1.2
trillion, mostly in U.S. dollars. Japanese companies receive dollars in payment for exports. They
exchange them for yen to pay their workers.
Japan, like other central banks, could trade yen for dollars in the forex market when it wants the
value to fall. That makes Japanese exports cheaper. Japan prefers to use more indirect methods
though, such as raising or lowering interest rate to affect the yen's value.
For example, the Federal Reserve announced it would raise interest rates in 2014. That sent the
dollar's value up 15 percent. For more, see Asset Bubbles.
The foreign exchange market is unique because of the following characteristics:
its huge trading volume, representing the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on
Sunday (Sydney) until 22:00 GMT Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition,
notwithstanding currency intervention by central banks.
According to the Bank for International Settlements, the preliminary global results from the 2016
Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity
show that trading in foreign exchange markets averaged $5.09 trillion per day in April 2016.
This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Measured
by value, foreign exchange swaps were traded more than any other instrument in April 2016, at
$2.4 trillion per day, followed by spot trading at $1.7 trillion.
The $5.09 trillion break-down is as follows:
$1.654 trillion in spot transactions.
$700 billion in outright forwards.
$2.383 trillion in foreign exchange swaps.
$96 billion currency swaps.
$254 billion in options and other products.

FUNCTIONS OF FOREIGN EXCHANGE MARKET:

Foreign Exchange Market is the market where the buyers and sellers are involved in the buying
and selling of foreign currencies. Simply, the market in which the currencies of different
countries are bought and sold is called as a foreign exchange market.
The foreign exchange market is commonly known as FOREX, a worldwide network, that
enables the exchanges around the globe. The following are the main functions of foreign
exchange market, which are actually the outcome of its working:

Transfer Function: The basic and the most visible function of foreign exchange market is the
transfer of funds (foreign currency) from one country to another for the settlement of payments.
It basically includes the conversion of one currency to another, wherein the role of FOREX is to
transfer the purchasing power from one country to another.
For example, If the exporter of India import goods from the USA and the payment is to be made
in dollars, then the conversion of the rupee to the dollar will be facilitated by FOREX. The
transfer function is performed through a use of credit instruments, such as bank drafts, bills of
foreign exchange, and telephone transfers.
Credit Function: FOREX provides a short-term credit to the importers so as to facilitate the
smooth flow of goods and services from country to country. An importer can use credit to
finance the foreign purchases. Such as an Indian company wants to purchase the machinery from
the USA, can pay for the purchase by issuing a bill of exchange in the foreign exchange market,
essentially with a three-month maturity.

HEDGING FUNCTION:

The third function of a foreign exchange market is to hedge foreign exchange risks. The parties
to the foreign exchange are often afraid of the fluctuations in the exchange rates, i.e., the price of
one currency in terms of another. The change in the exchange rate may result in a gain or loss to
the party concerned.
Thus, due to this reason the FOREX provides the services for hedging the anticipated or actual
claims/liabilities in exchange for the forward contracts. A forward contract is usually a three
month contract to buy or sell the foreign exchange for another currency at a fixed date in the
future at a price agreed upon today. Thus, no money is exchanged at the time of the contract.
There are several dealers in the foreign exchange markets, the most important amongst them are
the banks. The banks have their branches in different countries through which the foreign
exchange is facilitated, such service of a bank are called as Exchange Banks.

IMPORTANCE OF FOREIGN EXCHANGE MARKET:

It is critical to support imports and exports, which are necessary to gain access to resources and
to create additional demand for goods and services. Without the ability to trade in different
currencies, companies' prospects would be limited and global economic growth would suffer.
Investors also use the forex market.
Foreign exchange is important for one major reason: it determines the value of foreign
investment. A volatile exchange rate discourages foreign investment, as does a high, stable one.
A low, stable exchange rate, however, encourages foreign investment, but at the price of the low-
valued currency's economy.

VOLATILE EXCHANGE RATE:

If an exchange rate is volatile, foreign investors cannot accurately predict their investment
returns. Even if they invest in holdings that give stable, consistent returns in a foreign currency,
if that foreign currency is liable to dramatically change its value, then the investment is similarly
volatile.

STABLE, HIGH VALUE:

A high value currency encourages import markets while discouraging export markets. This is
because foreign investors can increase their return on investment (ROI) by making money in a
currency that goes far in their country. Exports, however, are harmed, as they are not worth as
much overseas as they are at home.

STABLE, LOW VALUE:

A currency that has a low value encourages exports and discourages imports. This is because
goods sold overseas for higher-value currencies are worth even more than their face value solely
because of the currency value. Conversely, there is little incentive for importers to bring goods
into a country, and if they do, importers must mark these goods up in order to recoup their losses
due to the low currency rate.

Q2: Define the international business. Discuss the nature and scope of international
business.

Ans: INTERNATIONAL BUSINESS:

International business is defined as commercial transactions that occur across country borders.
When a company sells products in the US, Japan and throughout Europe, this is an example
of international business.
International business consists of trades and transactions at a global level. These include the
trade of goods, services, technology, capital and/or knowledge.
It involves cross-border transactions of goods and services between two or more countries.
Transactions of economic resources include capital, skills, and people for the purpose of the
international production of physical goods and services such as finance, banking, insurance, and
construction. International business is also known as globalization. Globalization refers to the
international trade between countries, which in turn refers to the tendency of international trade,
investments, information technology and outsourced manufacturing to weave the economies of
diverse countries together. To conduct business overseas, multinational companies need to
separate national markets into one global marketplace. In essence there are two macro factors
that underline the trend of greater globalization. The first macro-factor consists of eliminating
barriers to make cross-border trade easier, such as the free flow of goods and services, and
capital. The second macro-factor is technological change, particularly developments in
communication, information processing, and transportation technologies.
"International business" is also defined as the study of the internationalization process of
multinational enterprises. A multinational enterprise (MNE) is a company that has a worldwide
approach to markets, production and/or operations in several countries. Well-known MNEs
include fast-food companies such as: McDonald's (MCD), YUM (YUM), Starbucks Coffee
Company (SBUX), Microsoft (MSFT), etc. Other industrial MNEs leaders include vehicle
manufacturers such as: Ford Motor Company, and General Motors (GMC). Some consumer-
electronics producers such as Samsung, LG and Sony, and energy companies such as Exxon
Mobil, and British Petroleum. Multinational enterprises range from any kind of business activity
or market, from consumer goods to machinery manufacture; a company can become an
international business. Therefore, to conduct business overseas, companies should be aware of
all the factors that might affect any business activities, including, but not limited to: difference
in legal systems, political systems, economic policy, language, accounting standards, labor
standards, living standards, environmental standards, local cultures, corporate cultures, foreign-
exchange markets, tariffs, import and export regulations, trade agreements, climate, education.
Each of these factors may require changes in how companies operate from one country to the
next. Each factor makes a difference and a connection.
1. The exchange of goods and services among individuals and businesses in multiple countries.
2. A specific entity, such as a multinational corporation or international business company that
engages in business among multiple countries.

THE NATURE AND SCOPE OF INTERNATIONAL BUSINESS:

International Business is the process of focusing on the resources of the globe and objectives of
the organisations on global business opportunities and threats.
International business defined as global trade of goods/services or investment. More
comprehensive view does not focus on the “firm” but on the exchange process
Free Trade occurs when a government does not attempt to influence, through quotas or duties,
what its citizens can buy from another country or what they can produce and sell to another
country. The Benefits of Trade allow a country to specialize in the manufacture and export of
products that can be produced most efficiently in that country. The Pattern of International Trade
displays patterns that are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods).
Others are not so easy to understand (Japan and cars).
NATURE OF INTERNATIONAL BUSINESS:

1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets

SCOPE OF INTERNATIONAL BUSINESS:

1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange

NEED FOR INTERNATIONAL BUSINESS:

1. To achieve higher rate of profits

2. Expanding the production capacity beyond the demand of the domestic country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalisation, Privatisation and Globalisation (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade barriers (WTO), decreasing costs in
telecommunications and transportation; and freer capital markets

REASONS FOR RECENT INTERNATIONAL BUSINESS GROWTH:

1. Expansion of technology
2. Business is becoming more global because

•Transportation is quicker
•Communications enable control from afar
•Transportation and communications costs are more conducive for international operations.

3. Liberalization of cross-border movements

4. Lower Governmental barriers to the movement of goods, services, and resources enable
Companies to take better advantage of international opportunities

PROBLEMS IN INTERNATIONAL BUSINESS:

1. Political factors
2. High foreign investments and high cost
3. Exchange instability
4. Entry requirements
5. Tariffs, quota etc.
6. Corruption and bureaucracy
7. Technological policy

Q3: Explain the factors influencing international business environment.

Ans: These include economic, social, legal, technological and political factors. Business
environment is therefore, the total of all external forces, which affect the organization and
the business operations
Analysis
Business is affected by different factors which collectively form the business environment.
These include economic, social, legal, technological and political factors. Business environment
is therefore, the total of all external forces, which affect the organization and the business
operations (Kotler &Armstrong 2004). These forces include customers, creditors, competitors,
government, socio-cultural organizations, and political parties, national and international
organizations. Some of these forces affect the business directly but others affect business
indirectly. Business environment are categorized into three main categories; internal
environment; operational environment; and general/external environment.

1. ENVIRONMENT ANALYSIS-POLITICAL ENVIRONMENT:

The political environment of any country influences the business to a larger extent. This
political environment is influenced by the political organization, philosophy, government
ideology, nature and extent of bureaucracy, the country’s political stability, its foreign policy,
defense and military policy, the country’s image and that of its leaders both locally and
internationally (Shaikh 2010). For example a country’s policy that restricts the growth of
multinationals in the market will automatically limit the business operations of the company
hence its growth. Similarly, government policy that allows licensing that is liberal, liberal
exportation and importation, inflow of foreign capital and technology, affects the business
operation. Globalization as government policy too has influence on the business. Burberry was
able to establish its first foreign outlets in Paris, United States and South America, and export its
first shipment of raincoat to Japan because of the government’s globalization policy.

2. ECONOMIC ENVIRONMENT:
Economic factors that influence the business are the collective of the nature of the country’s
economic system, its structures, and economic policies, how the capital market is organized, and
nature of factors of production, business cycles, and socio-economic infrastructure. Any
successful organization pictures out the external factors that affect the business, anticipates the
prospective market situations and work to minimize the costs while maximizing the profits.
When Burberry noticed the high demand of rainwear, it utilized this opportunity increasing its
production in the market. Also, due to Japanese and American craving for prestigious designer
goods, Burberry export business increased dramatically (Burberry 2012). Changes in demand are
also one great factor that determines success and business performance. Still on the economic
aspect, it is undeniable that all business and non-business organizations felt the impact of the
2008 economic crisis, which rocked the whole world. The trends on most business performances
dropped during this period and Burberry experienced a low just like any other business.
Performance trends in Burberry are expected to at least have a flow of returns that conforms to
this trend.
In all economic situations low rates of interest encourage borrowing and the Federal government
in a bid to improve this lowered the Federal fund rate from 6.5% to 1%. This was meant to better
business the economic situation after the 9/11. The demand for further lowering of the interest
rates however, continued due to rising and high U.S current account deficit as portrayed by the
above graph. This deficit peaked alongside the housing bubble whose onset began in 2006. The
deficits elicited foreign borrowing to cushion effects by enhancing exports. The spin off led to a
high demand of financial assets and this lowered interest rates whilst raising prices of the
respective assets. The high borrowing fueled high citizen consumption in the period before the
onset of the crisis and this consequently led to the raising of Feds fund rate which turned things
in the situation that resulted. This trend portrayed by the graph shows how the economic
situation may affect the economy and general spending and therefore the performance of any
business within such an economy.
Similarly, the long-term view of the graphical representation below shows how the
economic trends in business and household debt to Gross domestic product change with times
and it is easily notable that in the periods of peak moments of the rate there is a high level of
economic challenges such as the 1930s period and the 2000 to 2010 period. Therefore, it can be
concluded that economic trends are indeed significant determinants of general economic and
business performance.

3. SOCIAL ENVIRONMENT:
The country’s social environment affects the functioning of the business since it determines
the value system of the society. Sociological factors establish the culture of work, labor mobility,
work groups etc, hence, business operation of an enterprise. These factors include cost structure,
customs and conventions, cultural heritage, peoples’ view towards wealth and income and
scientific methods, seniority respect, mobility of labor (Shaikh 2010). All these factors have big
impact on the business. For example, peoples’ demand determine the kind of products to be
offered for sale; this demand is consequently affected by peoples’ attitudes, customs, cultural
values, fashion and other related forces. The code of conduct that is supposed to be followed by
the business is determined by the socio-cultural environment.
The social changes in life also lead to new fashion trends that affect business in any part of
the economy. For example, fashion-based demands are social based forces that lead to changes
or increase in demand. The higher the demand as portrayed in line three demand, the higher the
sales level as well as the business performance. The lower the demand as portrayed in line two
the lower the level of returns attained.

4. TECHNOLOGICAL ENVIRONMENT:
Technological factors affects business concerning technological investment, technological
application and the effect of technology on markets. Therefore, any technological advancement
affects highly the business in a country. The type and quality of goods and services to be
produced and the type and quality of plant and equipment to be used in a company, is determined
by the kind of technology employed by that company (Mühlbacher, Dahringer & Leihs 2006).
Burberry is extending its web reach so that its customers worldwide can view its brands. For
example, the company is targeting the Chinese shoppers directly by launching a site in China.
This is because this target market accounts for 30% of sales in its London stores (Burberry,
2012).

5. LEGAL ENVIRONMENT:
The legal environment affects the business and its managers greatly. Legal factors involve
how flexible and adaptable the law and legal rules that govern the business are. It also includes
the exact rulings and courts decision. Legal provisions may also contribute to more or less
income depending on the environment of operation. For example, Burberry Limited makes a
considerable portion of its income from licensing, which amounts to about £109 million pounds.
This is made possible as portrayed by the graph below because of laws and regulations in its
foreign destinations of operations, which allow it to charge licensing fee.
Recommendation
Before implementing any business policy, it is important for the company to understand its
business environment. Business environment determines the success or failure of this
policy. Burberry Company should study well its business environment before implementing its
business policies. The company should identify with the environment in which it operates and
formulate its policies in accordance with the forces which operate in its environment
(Mühlbacher, Dahringer & Leihs 2006). The company should tackle the business environment
well since internal environment will reveal its strengths and weaknesses, while the external
environment will reflect the opportunities available to the organization and the threats it faces.
Through this the company will be able to implement business policies that will ensure success.

Q4: what is meant by globalization of business what implications it has for problems if any,
created by globalization of business.

Ans: GLOBALIZATION IN BUSINESS:

Globalization refers to the changes in the world where we are moving away from self-contained
countries and toward a more integrated world. Globalization of business is the change in a
business from a company associated with a single country to one that operates in multiple
countries.
Impact of Globalization
Imagine for a moment that you run a business that produces digital cameras. How would
globalization impact your company?
The impact of globalization on business can be placed into two broad categories: market
globalization and production globalization.
Market globalization is the decline in barriers to selling in countries other than the home country.
This change will make it easier for your company to begin selling products internationally, since
lower tariffs keep consumer prices lower and fewer restrictions when crossing borders makes it
easier for a company to enter a foreign market. It also means that companies must consider other
cultures when developing their business strategies and potentially adjust the product and
marketing messages if they aren't appropriate in the target country. This may not be an issue in
the camera industry, but a hamburger company entering India would definitely need to revisit
their product and strategies to be successful!
Production globalization is the sourcing of materials and services from other countries to gain
advantage from price differences in different nations. For example, you might purchase materials
and components for your cameras from multiple countries and then assemble the product in yet
another international location to reduce your costs of production. This change should lead to
lower prices for consumers since products cost less to produce. It also impacts jobs, since
production may shift from one country to another, usually from more developed countries to less
developed countries with lower average wage rates.

Globalization is a leading concept which has become the main factor in business life during the
last few decades. This phenomenon affects the economy, business life, society and environment
in different ways, and almost all corporations have been affected by these changes. These
changes are mostly related to increasing competition and the rapid changes of technology and
information transfer. To challenge these changes, companies need to keep in mind various
aspects of the main effects of globalization.
Competition
Globalization leads to increased competition. This competition can be related to product and
service cost and price, target market, technological adaptation, quick response, quick production
by companies etc. When a company produces with less cost and sells cheaper, it is able to
increase its market share.
Customers have a large multitude of choices in the market and this affects their behaviors: they
want to acquire goods and services quickly and in a more efficient way than before. They also
expect high quality and low prices. All these expectations need a response from the company,
otherwise sales of company will decrease and they will lose profit and market share. A company
must always be ready for price, product and service and customer preferences because all of
these are global market requirements.
Exchange of Technology
One of the most striking manifestations of globalization is the use of new technologies by
entrepreneurial and internationally oriented firms to exploit new business opportunities. Internet
and e-commerce procedures hold particular potential for SMEs seeking to broaden their
involvement into new international markets.
Technology is also one of the main tools of competition and the quality of goods and services.
On the other hand it necessitates quite a lot of cost for the company. The company has to use the
latest technology for increasing their sales and product quality. Globalization has increased the
speed of technology transfer and technological improvement. Customer expectations are
directing markets. Mostly companies in capital intensive markets are at risk and that is why they
need quick/rapid adapting concerning the customer/market expectations. These companies have
to have efficient technology management and efficient R&D management.
Knowledge/Information transfer
Information is a most expensive and valuable production factor in the current environment.
Information can be easily transferred and exchanged from one country to another. If a company
have a chance to use knowledge and information then it means that it can adapt to this global
changing. This issue is similar with the technology transfer issue in global markets. The rapid
changing of the market requires also quick transfer of knowledge and efficient using of that
knowledge and information.
Q5: Explain the theory of comparative cost advantage how do firms in two different
countries benefit from international trade in terms of this theory? Explain with examples.

Ans: Comparative advantage is when a country produces a good or service for a

lower opportunity cost than other countries. Opportunity cost measures a trade off. A country
with a comparative advantage makes the trade off worth it. The advantages of buying their good
or service outweigh the disadvantages. The country may not necessarily the best at producing
something. But the good or service has a low opportunity cost for other countries to import.
For example, oil-producing nations have a comparative advantage in chemicals. Their locally-
produced oil provides a cheap source of material for the chemicals when compared to countries
without it. A lot of the raw ingredients are produced in the oil distillery process. As a result,
Saudi Arabia, Kuwait, and Mexico are competitive with U.S. chemical production firms.
Their chemicals are inexpensive, making their opportunity cost low.
Another example is India's call centers. U.S. companies buy this service because it is cheaper
than locating the call center in America. Indian call centers aren't better than U.S. call centers.
Their workers don't always speak English very clearly. But they provide the service cheaply
enough to make the tradeoff worth it.
In the past, comparative advantages occurred more in goods and rarely in services. That's
because goods are easier to export. But telecommunication technology like the internet is making
services easier to export.
That includes call centers, banking, and entertainment.
Theory of Comparative Advantage
Eighteenth-century economist David Ricardo created the theory of comparative advantage. He
argued that a country boosts its economic growth the most by focusing on the industry in which
it has the largest comparative advantage.
For example, England was able to manufacture cheap cloth. Portugal had the right conditions to
make cheap wine. Ricardo predicted that England would stop making wine and Portugal stop
making cloth. He was right. England made more money by trading its cloth for Portugal's wine,
and vice versa. It would have cost England a lot to make all the wine it needed because it lacked
the climate. Portugal didn't have the manufacturing ability to make cheap cloth. Therefore, they
both benefited by trading what they produced the most efficiently.
This theory of comparative advantage became the rationale for free trade agreements. Ricardo
developed his theory to combat trade restrictions on imported wheat in England. He argued that
it made no sense to restrict low-cost and high-quality wheat from countries with the right climate
and soil conditions. England would receive more value by exporting products that required
skilled labor and machinery. It could receive more wheat in trade than it could grow on its own.
The theory of comparative advantage explains why trade protectionism doesn't work in the long
run. Political leaders are always under pressure from their local constituents to protect jobs from
international competition by raising tariffs.
But that’s only a temporary fix. In the long run, it hurts the nation's competitiveness. It allows
the country to waste resources on unsuccessful industries. It also forces consumers to pay higher
prices to buy domestic goods.
David Ricardo started out as a successful stockbroker, making $100 million in today's dollars.
After reading Adam Smith’s The Wealth of Nations, he became an economist. He was the first
person to point out that significant increases in the money supply create inflation. This theory is
known as monetarism.
He also developed the law of diminishing marginal returns. That’s one of the most important
concepts in microeconomics. It states that there is a point in production where increased output is
no longer worth the additional input in raw materials.
Example
One of America's comparative advantages is its large land mass bordered by two oceans.
It also has lots of fresh water, arable land, and available oil. U.S. businesses benefit from
cheap natural resources and protection from land invasion.
Most important, it has a diverse population with a common language and national laws. The
diverse population provides a large test market for new products. It helped the United States
excel at producing consumer products
Diversity also helped the United States became a global leader in banking, aerospace, defense
equipment, and technology. Silicon Valley harnessed the power of diversity to become a leader
in innovative thinking. Those combined advantages created the power of the U.S. economy.
How It Affects You
Comparative advantage is what you do best while also giving up the least. For example, if you’re
a great plumber and a great babysitter, your comparative advantage is plumbing. That's because
you’ll make more money as a plumber. You can hire an hour of babysitting services for less than
you would make doing an hour of plumbing. Your opportunity cost of babysitting is high. Every
hour you spend babysitting is an hour’s worth of lost revenue you could have gotten on a
plumbing job.
Absolute advantage is anything you do more efficiently than anyone else. You’re better than
everyone else in the neighborhood at both plumbing and babysitting. But plumbing is your
comparative advantage. That's because you only give up low-cost babysitting jobs to pursue your
well-paid plumbing career.
Competitive advantage is what makes you more attractive to consumers than your competitors.
For example, you are in demand to provide both plumbing and a baby sitting services. But it’s
not necessarily because you do them better (absolute advantage). It's because you charge less.

Q6: (a) what are the dimensions of international business?

(b) discuss the factors that have led to the globalization of business.

Ans: DIMENSIONS AND MODE OF OPERATIONS IN INTERNATIONAL BUSINESS:

When any business across the border of its domestic country & reach foreign countries for
carrying out their business, then it is called that, this firm is indulging in International business.
International markets provide a wide range of opportunities compared to the domestic markets.
But global business is inherently more risky than the domestic business. However, the firms
prefers to go international, if the perceived benefits outweigh the anticipated risks. International
business firms, have the fundamental goals of expanding market share, sales revenue & increase
in profits. Expanding markets in oversees countries is one of the strategies to achieve these
fundamental goals. The firms have alternative foreign markets & alternative modes to enter those
countries. Firstly the country is selected, & for the sake of it, the firms have to
(1) Analyze alternative foreign markets
(2) Evaluate the respective costs, benefits & risks & select one that hold the most potential for
entry.
The firms have to analyses the alternative foreign markets by taking the following factors into
consideration:
Current & potential size of alternative markets ,which include following factors
i. Size of the population of the country/market
ii. GDP of the country & per capita GDP
iii. Urban / rural areas
iv. Purchasing power of potential customer
v. Level of competition the firm will face in each of these alternative markets
vi. Legal & political environment
vii. socio-cultural environment

DIMENSIONS & MODES OF ENTRY IN FOREIGN MARKETS:

Dimensions of International Business are as follows:

(1) Trading : exporting & importing
(2) Manufacturing & Marketing : manufacturing at home country & marketing in foreign country
(3) Sourcing & Marketing: manufacturing at foreign country & marketing in home & foreign
country
(4) Global Sourcing & Production: manufacturing at global level through sourcing from different
forign countries & production at home or host country
(5) Services : telecommunication, banking, tourism & transportation services
(6) Investments : portfolio investment, setting wholly owned manufacturing facility in abroad,
investment in foreign countries etc.
Modes of Entry in Foreign Markets:
Dimensions in international business show the presence of business firm in foreign market &
quantity of foreign investment needed for each routes of globalization. The usual routes of
globalization on the basis of their dimensions are following: Exports & Imports, Tourism &
Transportation: including industries like shipping, airlines, hotel & travel agency, Use of assets:
licensing & franchising, Performance of services: turnkey operations & management contracts,
Direct investment: joint venture, wholly owned subsidiary, portfolio investment etc.
At Asia Pacific Institute of Management, international business is a separate stream of
specialization. The exposure provided through industry interface and updated curriculum is one
of the best amongst all b-schools in India. The students not only get the taste of international
dimensions of marketing, HR and finance disciplines in class but also get to meet leaders in the
area of international business to experience the real excitement in IB.
The factors that have led to the globalization of business:
Factors influencing Globalization are as follows: (1) Historical (2) Economy (3) Resources and
Markets (4) Production Issues (5) Political (6) Industrial Organisation (7) Technologies.
Globalisation though is basically an economic activity, is influenced by many factors.
Globalisation though is basically an economic activity, is influenced by many factors.
The important factors are:

(1) HISTORICAL:
The trade routes were made over the years so that goods from one kingdom or country moved to
another. The well known silk-route from east to west is an example of historical factor.

(2) ECONOMY:
The cost of goods and values to the end user determine the movement of goods and value
addition. The overall economics of a particular industry or trade is an important factor in
globalisation.

(3) RESOURCES AND MARKETS:

The natural resources like minerals, coal, oil, gas, human resources, water, etc. make an
important contribution in globalisation.
The mineral based industries like steel, aluminium, coal in Australia are examples. Few of these
Australian mining and metal companies are owned by European / Japanese / American
companies.
Near distance to end user or consumer also is an important factor in globalisation. The large
markets as consumer bases in Asian countries have led many European, Korean to Japanese
manufacturing conglomerates and shift their manufacturing and trading bases in Asian countries.
That is going near the customer makes globalisation. The Table 16.1 gives the strengths and
weakness of India in global level. The details are based on expert survey on globalisation. As
may be seen from the table low on scale is lack or shortfall and hence, ranking is low.

(4) PRODUCTION ISSUES:

Utilisation of built up capacities of production, sluggishness in domestic market and over
production makes a manufacturing company look outward and go global. The development of
overseas markets and manufacturing plants in autos, four wheelers and two wheelers is a
classical example.

(5) POLITICAL:
The political issues of a country make globalisation channelised as per political bosses. The
regional trade understandings or agreements determine the scope of globalization. Trading in
European Union and special agreement in the erstwhile Soviet block and SAARC are examples.
(6) Industrial Organisation:
The technological development in the areas of production, product mix and firms are helping
organisations to expand their operations. The hiring of services and procurement of sub-
assemblies and components have a strong influence in the globalisation process.

(7) TECHNOLOGIES:
The stage of technology in a particular field gives rise to import or export of products or services
from or to the country. European countries like England and Germany exported their chemical,
electrical, mechanical plants in 50s and 60s and exports high tech (then) goods to under
developed countries. Today India is exporting computer / software related services to advanced
counties like UK, USA, etc.

Q7: (a) discuss the various factors that influence foreign investment decisions.
(b) state the various distinguishing features of transaction cost approach of fdi.
Ans: FACTORS THAT INFLUENCE FOREIGN INVESTMENT DECISIONS:

Now that you understand the basic economic reasons why companies choose to invest in foreign
markets, and what forms that investment may take, it is important to understand the other factors
that influence where and why companies decide to invest overseas. These other factors relate not
only to the overall economic outlook for a country, but also to economic policy decisions taken
by foreign governments—aspects that can be very political and controversial.
The policy frameworks relating to FDI and FPI are relatively similar, although there are a few
differences.
Direct investors tend to look at a number of factors relating to how they will be able to operate in
a foreign country:
the rules and regulations pertaining to the entry and operations of foreign investors
standards of treatment of foreign affiliates, compared to “nationals” of the host country
the functioning and efficiency of local markets
trade policy and privatization policy
business facilitation measures, such as investment promotion, incentives, improvements in
amenities and other measures to reduce the cost of doing business. For example, some countries
set up special export processing zones, which may be free of customs or duties, or offer special
tax breaks for new investors
restrictions, if any, on bringing home (“re-patriating”) earnings or profits in the form of
dividends, royalties, interest or other payments
The determinants of FPI are somewhat more complex, however. Because portfolio investment
earnings are more likely to be tied to the broader macroeconomic indicators of a country, such as
overall market capitalization of an economy, they can be more sensitive to factors such as:
• High national economic growth rates
• Exchange rate stability
• General macroeconomic stability
• Levels of foreign exchange reserves held by the central bank
• General health of the foreign banking system
• Liquidity of the stock and bond market
• Interest rates
In addition to these general economic indicators, portfolio investors also look at the economic
policy environment as well, and especially at factors such as:
the ease of repatriating dividends and capital
taxes on capital gains
regulation of the stock and bond markets
the quality of domestic accounting and disclosure systems
the speed and reliability of dispute settlement systems
the degree of protection of investor’s rights
Factors influencing Foreign Direct Investment in a Country
The following are the various factors an FDI look for before investment:
1. Stability of the Government:
A stable Government is an essential prerequisite for any investment. The investor will always
look for a government which is supporting investment and which will not take any steps that are
anti-investment. The investor should not have any fear of take over by the government. This will
enable him to go for expansion.
2. Flexibility in the Government Policy:
Certain investments were not allowed in the hands of FDI but such a rigid policy will not help in
the growth of industries. With WTO regulation, government has to adopt flexible policies,
permitting FDIs in all areas including those in which they were prevented previously. For
example, in India, power generation was not permitted to private sector. Now, in Maharashtra,
Dabhol Power Company is allowed to do so.
3. Pro-active measures of the Government to promote investment (infrastructure):
The Government should also undertake pro-active measures such as expansion of ports, captive
power, development of highways, atomic power etc. These measures will attract more foreign
direct investment.
4. Exchange rate stability:
Commercial viability of any FDI is based on exchange rate stability. This means that the value of
domestic currency should not drop abnormally by which while repatriating the funds, the foreign
investor will lose heavily. Exchange rate should be more or less the same as prevailing at the
time of investment.
5. Tax policies and concessions:
Government should adopt uniform tax policies as per international norms. A heavy excise duty
or sales tax or customs duty will prevent foreign direct investment. A moderate tax policy should
continue so that the FDIs will feel comfortable.
6. Scope of the market:
FDIs must be in a position to exploit the market and expand both in the domestic as well as the
foreign markets. This will reduce their cost of production and will give them ample scope for
diversification.
7. Other favorable location factors (including logistics and labor):
The productivity of labor in the country should be high. Adequate skilled labor should be
available, especially in technical areas. Different transport facilities with a proper coordination
between land, rail and air should be available.
8. Return on investment:
One of the major attractions for FDIs is the profit or the return they get for the investment made.
Unless the return is substantially higher than what they could have obtained in other countries,
they will not venture for investment. The rectum should also be consistent and it should be
increasing over a period. These factors are closely looked into while undertaking investment.
The financier of the FDIs will also ensure that they get their money back as it is a safe
investment.
Thus, return on investment is a major deciding factor for FDls while undertaking investment in
foreign countries. They also would like to ensure that the payback period is also less so that the
return is ensured within a short period. Weightage is given to each of these factors and decisions
are finalized.

STATE THE VARIOUS DISTINGUISHING FEATURES OF TRANSACTION COST

APPROACH OF FDI:
In recent decades all spheres of life are encompassed by the process of globalization.
Globalization is the most powerful impetus of the contemporary life and the predominant feature
of the 21st century. This process is very unique and has no other alternative or equivalent for
comparison. Globalization manifests in all spheres of life – economic, social, political, military,
cultural, religious, environmental, etc. All the manifestations of globalization have a diverse and
inevitable impact on the countries’ economy. Obviously, the economic dimension of
globalization has a tremendous effect on a country’s economic development. However, in
abundant literature on globalization there is a lack of meaningful distinctions between causes and
effects of globalization process.
1. Methodology and data
Many scholars emphasize the impact of FDI on the process of economic globalization and
analyze the effects of FDI on economic development . Some authors investigate FDI attracting
factors . The tendencies of FDI mostly are being described with indicators of FDI positions and
flows; and the input of FDI into the economic globalization is measured by the indicators of FDI
positions or flows as a percentage of GDP. However, the discussion about the distinction of
causal and consequential interrelations of FDI as a key factor of globalization is still missing, and
there is a lack of attempts to assess the level of economic globalization with a complex set of
FDI indicators. The Organisation for Economic Co-operation and Development (OECD, 2005)
recommends a big set of FDI indicators to measure the level of economic globalization.
Proposed FDI indicators are differentiated by the role of FDI in international economic
integration and the extent of globalization, the contribution to globalization by the host and
investing economy, by the significance of globalization for individual economic sectors, by the
geographical concentration of FDI and by the competitiveness and attractiveness of economies or
economic sectors.
2. FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except the
following, which will require approval of the Government:
(a) Activities/items that require an Industrial Licence;
(b) Proposals in which the foreign collaborator has a previous/existing venture/tie up in India in
the same or allied field.
(c) All proposals relating to acquisition of shares in an existing Indian company by a foreign/NRI
investor.
(d) All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not
permitted.
(2) FDI in areas of special economic activity:
(a) Special Economic Zones:
100 per cent FDI is permitted under automatic route for setting up of Special Economic Zone.
Units in SEZ qualify for approval through automatic route subject to sectoral norms. Details
about the type of activities permitted are available in the Foreign Trade Policy issued by the
Department of Commerce. Proposals not covered under the automatic route require approval by
FIPB.
(b) Export Oriented Units (EOUs):
100 per cent FDI is permitted under automatic route for setting up 100 per cent EOU, subject to
sectoral norms. Proposals, which are not covered under the automatic route would be considered
and approved by FIPB.
(c) Industrial Park:100 per cent FDI is permitted under automatic route for setting up of the
Industrial Park. Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI
investment in EHTP Units are eligible for approval under the automatic route subject to the
parameters listed. For proposals not covered under automatic route, the applicant should seek
separate approval of the FIPB, as per the procedure outlined in the policy.
(d) Software Technology Park Units:
All proposals for FDI/NRI investment in STP Units are eligible for approval under automatic
route subject to parameters listed. For proposals not covered under automatic route, the applicant
should seek separate approval of the FIPB, as per the procedure outlined in the policy.

Q8: (a) explain the different approaches to control in multi-national enterprises.

(b) it has been said that MNCs often introduce new efficiency oriented management
practices. What can developing host country learn from the MNCs in this respect?

Ans: THE DIFFERENT APPROACHES TO CONTROL IN MULTINATIONAL

ENTERPRISES:
Explain different sociological approaches to health and ill health There are many
sociological approaches that explain health and ill health. In this assignment I will be focusing on
Marxism, feminism, interactionaist and functionalism perspectives. The Marxist perspective
believe that the bourgeoisie (middle class) exploit the proletariat (working class) as we live in a
capitalist system and that if we lived in an communist society that would be our ideal society
because there would be equality...
There are many sociological approaches that explain health and ill health. In this assignment I
will be focusing on Marxism, feminism, interactionaist and functionalism perspectives. The
Marxist perspective believe that the bourgeoisie (middle class) exploit the proletariat (working
class) as we live in a capitalist system and that if we lived in an communist society that would be
our ideal society because there would be equality between everyone. In health and social care
setting doctors and surgeons are the bourgeoisie who exploit the proletariat who are patients. In
England patients are exploited by having to pay for prescriptions whereas Scotland and Ireland
do not have to pay for their prescriptions. The prices for medication is also another way the
bourgeoisie exploit the proletariat as they set high prices for their products which enables them
to make a large profit because there will always be a demand for medication and people need
them to restore their health so they will buy the product no matter how much it costs as it is such
a necessity. Furthermore private health care only benefits the bourgeoisie as they are the only
ones who can afford it, this gives them better access to health care for example if they need to
seek emergency medical help they wouldn’t have to wait for a long time whereas the proletariat
would have to normally wait a few hours before being seen by anyone at a normal emergency
medical centre. Additionally each hospital spends a different amount of money on food for the
patients at the hospital. Some hospitals spend very little money and others spend a large amount
of money on the food for the patients for example one hospital could spend £3.50 whereas on
hospital could spend £30. Food is a major factor to getting rid of an...
An MNC (Multinational corporation) is a corporation that has its management. headquarters in
one country, known as the home country, and operates in several other countries, known as host
countries. MNCs are companies that manage production or deliver services in several countries.
Multinational Corporations are indeed a mixed blessing for the development countries. This is
because of the fact that although MNCs has there advantages but, along with them it also has its
own disadvantages. The following points highlight the advantages of MNCs to the developing
countries. i. Better employment opportunities- MNCs help to create better and high number of
employment opportunities in the developing countries. With increased market operations, they
help in boosting the employment in the nation. ii. Employing
MULTINATIONAL ENTERPRISES CONFLICTS WITH HOST NATIONS:
A multi national enterprise (MNE's) is defined as a business, which owns or controls foreign
subsidiaries in more than one country (Host nation). These are also called transnational
corporations (TC's). Multi national enterprises cover the entire spectrum of businesses, including
manufacturing, agriculture, service provision and finance. These can be vast, well known
companies or smaller specialist firms. There are three different types of MNE's which all
have different primary motives. Horizontally.

OUTSOURCING AND MULTINATIONAL ENTERPRISES:

Outsourcing Jason Lasko Baker College Online Caroline Bell 4/24/2011 Abstract The topic of
my research paper will examine the role of outsourcing and the benefits they present
for multinational enterprises. There are many people for and against the outsourcing business
to different countries other than the domestic nation. Outsourcing gives many people jobs in
foreign nations, while taking away work from people in the host nation. International trade has
seen more and more outsourcing...

MULTINATIONAL NATIONAL ENTERPRISE:

Abstract Historically multinational enterprises have geared there product offerings to the
developed world. These same products were then often toned down in aspects of quality and or
features and offered to emerging economies. However, often these products did not meet the
needs, demands or wants of customers in emerging economies. Thus, to prevent a disruption of
product offering and market control multinational enterprises need to look to new product ideas
developed for emerging economies rather...

ENTERPRISE:
is an enterprise? What is the role of the enterprise? Discuss with examples. An enterprise is an
activity or a project that produces services or products. There are essentially two types
of enterprise: * Business enterprises, which are run to make a profit for a private individual or
group of individuals. This includes small business. * Social enterprises, which function to
provide services to individuals and groups in the community. Business enterprises There are lots
of different enterprises.

(b) WHAT CAN DEVELOPING HOST COUNTRY LEARN FROM THE MNCS IN THIS
RESPECT:

The word "Multinational" is a combined word of "Multi" and "National", which when combined
refers to numerous countries. A Multinational Corporation is a corporation that has its facilities
and other valuable assets in at least one country, which is other than its parent country. It is a
organization or company that both produces and sells services and goods in a multitude of
countries. Some MNCs have a budget which is greater than some small sized countries GDP's.
Some of the major examples of MNCs today are Nokia, McDonalds, Microsoft, Exon Mobile
and BP.
One of the initial MNCs was the East India Company (1600 - 1874), which is an excellent
examples of both the benefits and drawbacks of such ventures. On one hand there existed a
dynamic profit making entity, on the other existed a company operating on foreign soil, under
very little control of the British government, having, operating and running their own private
armies, utilizing military power and ultimately taking over administrative functions of India.
MNCs have come a long way since then and have seen a sharp increase in the past few decades.
The numbers of active MNCs went from being roughly 7,000 in the 1970's to 78,000 in 2006,
being responsible for over half the global industrial output.
Multinational corporations usually bring with them foreign direct investment, which is direct
investment in a country by the company for expanding their existing business base or for buying
of raw goods and inputs from them.
Multinational corporations were the vital factor in globalization, where local and national
governments competed against each other in order to incentives and attract more MNCs and
ultimately, investment in their countries. An example of such incentive is the Free Trade Zones,
where goods may be manufactured, handled, landed or even exported without any intervention of
the local custom authorities. Most of these free trade zones exist in developing countries such as
Pakistan, Mexico, Sri Lanka, Madagascar, Brazil and India, as they are eager to attract more
foreign investors.

DEFINITION OF MNC:
Economists are not in unanimous agreement as to how best define trans or multinational
corporations. Most MNCs are multidimensional and can be viewed from a multitude of
perspectives. These include: Ownership, strategy, management and structural.
According to Franklin Root (1994), that though some argue that ownership is the key criterion
amongst all of the above, a firm truly becomes multinational given its parent company or
headquarter is run/owned by nationals of varying countries. Examples that fit this category are
Unilever and Shell, which are owned and run by Dutch and British interests.
However via this test, very few companies would fall under the banner of being a true
Multinational company, rather most are uninational.
According to Howard Perlmutter (1969) [4] multinational companies might pursue either world
oriented, host country oriented or home country oriented policies. He uses these terms as
geocentric, polycentric and ethnocentric, however the last is misleading since it focuses upon
ethnicity and race, but most countries are themselves populated by a variety and mix of races,
whereas Polycentric means the MNCs operations only take place in a couple of foreign
countries.
Franklin Root (1994) [5] states that MNC is a parent company which:
Shows implementation of strategies of finance, marketing, staffing and production in its
business.
Has direct and binding control over its affiliates and their policies.
Uses those affiliates to conduct foreign production in several countries.
Advantages of MNCs
Increase Investment:
The primary argument in favor of MNCs is that they enable investment into less developed
countries which is essential for their growth. According to this argument, there exists a huge gap
between the optimal investment levels and the levels of savings in a country. This gap can be
minimized via foreign direct investments, i.e. transfer of resources from a foreign source in the
form of economic injections.

TECHNOLOGICAL TRANSFERS:
Another important aspect is the issue of technological transfer. Any MNC operating in a certain
country needs to have an agreement with the host country about its operating guidelines. This
can be both beneficial or harmful, depending upon the negotiations. If done right, the MNC
would agree to a transfer of technology which would turn out to be very beneficial for the host
country, since technological advancements require huge research and development funds that the
developing countries just do not have. So it makes sense for them to open up their markets in
exchange for a technology that could make them self reliant and self sustaining.

TRANSFER OF SKILLS:
Like a transfer of technology, MNCs also bring with them a wealth of knowledge and
experience. Their staff is amongst the best in the world and employees from the less developed
countries learn plethora of skills from them, enabling them to train others and have a trickledown
effect. Foreign firms pay for and provide world class training to its employees and stimulates
intellectual as well as capital growth.

TRICKLE DOWN EFFECTS:

MNCs, via their broad investments enable linkages backward, forward and horizontally. Not
only does the MNC provide a FDI, but it also benefits companies that it collaborates with, such
as industries that produce complementary goods. The service industry also benefits via the
increase in investment. It creates additional demand and improves infrastructure abilities.

INCREASE IN TAX REVENUE:

An increase in tax revenue is also an added benefit, since the host country gets to tax them and
includes it in their public revenue. This can be used to finance projects that lead to development
of infrastructure, causing economic development.
Reduces gap between capital and labor:
Less developed countries are also highly labor sensitive. As in the ratio of capital to labor is very
low. MNCs employee vast numbers of the local population reducing this gap, creating jobs and
employment and revenue means for the populace. There are two effects, direct and indirect. Job
creation is direct, while the increased stimulus in demand and supply is the indirect employment
effect.

ENCOURAGES COMPETITION:
This investment encourages entrepreneurship and breeds a culture of competition, increasing
competitiveness amongst local companies, causing them to improve their own goods and
services by increasing their efficiency and ultimately quality in order to better compete.
Improves Balance of Payments:
An added benefit of foreign direct investment is that it helps the Balance of Payments of both,
the capital and current accounts, of the host country.

CRITICISM OF MNCS:
"Multinational corporations do control. They control the politicians. They control the media.
They control the pattern of consumption, entertainment, thinking. They're destroying the planet
and laying the foundation for violent outbursts and racial division." Jerry Brown
There are two sides to every coin, and this is no different. Critics of MNCs state that the cons far
outweigh the pros that MNC involvement brings to host countries. The primary concern for them
is the high levels of unmonitored influence these companies have on host countries.

COLONIALISM:
MNC's are seen as a offshoot of western colonialism, albeit in a more subtle manner. Far from
improving the balance of payments on both the current and capital accounts, critics argue that
MNC's worsen it. This they argue happens when the profits are repatriated to their own
countries. Though the local governments may come to an agreement that a certain portion of
their inputs be bought in the local market, this however may come at a cost with negative
impacts upon the less developed countries current accounts.

UNMATCHABLE INFLUENCE:
The power, influence and reach of these MNCs have enabled them to have considerable and
highly influential affect on the political dynamics of numerous governments and their countries.
The MNCs have been known to use this influence to pressurize governments into letting them
become more competitive via the implementation of national policies that is conductive to their
end goals, which is ultimately a hefty profit. One major drawback of such reforms is a vast
decline in any socio-economic reforms.
The regulation and responsibilities of states is growing in number as MNCs' continue to expand
economically and geographically. A set of new difficulties have taken rise as MNCs' continue to
take over most economic activities. Today, they outnumber states in terms of size and power.
General Motors is an outstanding example to explain this phenomenon. The MNC is run at a
scale larger than seven nations together. The power it has in terms of economics and politics,
allows it to control a huge chunk of the world. Hence, it is worthwhile to note that since the
1990's when there were only 3 MNCs controlling the world's economies, the number jumped up
to 15 within the span of 10 years.
Their large investment portfolios make MNCs a powerhouse when it comes to the negotiating
table and most developing countries cannot match up to their level, enabling the MNCs to get the
upper hand. This leads to them coercing the government into implementing policies that favor
their needs at the expense of the local industry and market.

TECHNOLOGICAL FRAUD:
Technological transfer agreements are not always kept, and when kept they are usually skewed
in favor of the MNC. Even though most do not agree to a full transparent technological transfer,
even if that comes to pass, the technology passed onto the country is usually obsolete in nature or
is patented so it would be of little use to the host country on a global scale.

LITTLE OR NO ACCOUNTABILITY:
MNCs comprise of international bodies which function beyond the state authorities, in terms of
decision making power and the power they hold over monetary assets. Though this legitimate
challenge has been out there for thirty years now, yet only slight developments have been noted
in terms of accountability. The old-fashioned regulatory body and the MNCs' significant
economic and political power have resulted in a clash which makes the regulation of states turn
into a major problem. The MNC has surpassed the national legal structures and disregarded the
delicate international bodies, increasing the already existing burden of fulfilling the basic norms
of human rights.

UNDERMINE SOCIAL AND ECONOMIC RIGHTS:

The MNCs' dominant and significant position within the international forum increases its
opposing competencies. MNCs' can easily promote or undermine economic and social rights,
which can in turn affect the international community, positively or negatively, depending on the
local market of an economy. Though the State still holds much power over the laws and
regulations on an international level, MNCs' have a considerable impact over the decision
making process of nation-states. As MNCs' continue to grow economically and politically, the
shift in power is gradually becoming visible. It is a must that the MNCs' take into consideration
the impact that they are leaving in developing countries. As MNCs' continue to grow, their
interference in the public domain also continues to increase. Their interference, leads to social
and economic hazards for the public, i.e., the shareholders, employees, consumers and local
populations. There is increasing support that calls for a more rigid and stricter regulation of the
responsibilities of MNCs within their new assumed role. The world order is determined via
deregulations of economics in nature and the lessening of government responsibilities when it
comes to the public domain. This new reality has highlighted the growing need for regulation, as
the influencing powers of various private organizations is increasing. This needs to be done in
order to manage policies and reduce the gap. This extends to the customarily governmental realm
of political and social policy, which are areas in which the Multinational Companies hold
particular sway.
Their contribution, be it positive or negative, will affect the economies, accordingly. Hence, a
positive outlook on their part is a necessity if economic, cultural and social rights are to be
promoted in this growing world of evils.
Stifles Competition:
The superiority of MNC's shines through their competitive nature as the stifle competition by
getting subsidized inputs, lowering their costs and then competes with local manufacturers who
cannot realistically match up to their prices. This results in a lot of them leaving the field, leaving
the MNC's to monopolies the economy and then once in power, to jack up prices.
Although FDI is supposed to foster growth, with the inclusion of MNCs it might lead to a loss of
jobs as more businesses are put out of work. Although host countries require foreign investors to
have a fix percent of local workers, this requirement is on the decline due to WTO's agreement
on Trade Related measures on investment.

UNMATCHED BUDGETS:
An offshoot of their influence on the government, the MNCs also have a huge advertising
budget, which enables them to portray a much better image in the eyes of the local populace.
With budgets that run in the millions, MNCs almost always succeed in gaining mass market
shares of their products since the local companies cannot produce/hire production companies to
do the same. This again alienates the local entrepreneurs and makes it harder for the majority of
the population.

HUMAN RIGHT ABUSES:

The Multinational Corporation is an adaptable and established entity that profits from the
principles of neo-liberal economics, as well as the predicament of the "home and host" state, the
combination of which with restricted levels of liability and a decentralized decision-making
hierarchy allows for abuses of human rights to take place internationally, by having doubt
standards. Moreover, polices of MNCs such as the WTO, OECD, IMF and the World Bank, have
enabled MNCs to gain a position of considerable influence on agendas of social and economic
nature.
In this never ending race to be the most economical, one major aspect that has not been given
much due consideration is linked to the capacity that a state has to meet the terms and conditions
of different forms of human rights obligations, i.e. economic, cultural and social rights. In order
to meet this challenge, IMF and the World Bank have imposed economic reforms that allow
production of goods and services to be worth exporting along with being deregulated and
privatized. Foreign investment has become a must. Today, all states are inclined towards easing
labor standards and modifying legal taxes to attract foreign investors. This inclination of states,
in turn has led to a major destruction of human rights principles and the capability of states to
self-sufficiently regulate their progress. Cooperation is required not only on an international level
but also from non-state actors to safeguard rudimentary societal and financial privileges. As
nations continue to fight over sovereignty and the power shift continues to impact human rights
negatively, the international legal structure is fast becoming inadequate to regulate and control
the growth of influential non-state players, i.e. MNCs'.

ENVIRONMENTAL IMPACTS:
Economic globalization has had quite a destructive impact on state regulation. People have been
affected negatively and gradually the impact is increasing and becoming more obvious. The
more competitive a nation, the lesser the regulations. Though this tactic is almost perfect in
attracting multinational corporations, it is quite destructive in nature. In order to compete with
such nations, other states are also forced to decrease their regulatory measures if they wish to get
foreigners to invest in their country. No nation wishes to reduce its competitiveness or power.
Foreign investors are now consuming the money that should have been legally invested in
maintains the rights of the public socially, economically and culturally. Hence, MNCs are free
from any legal obligations which may bind them and put a stop to the activities which are prone
to destruct the communities that are subjected to the MNCs treatment.

MOVING FORWARD:
With the growing economic power of corporations, an increasing number of domestic and
international systems have started relinquishing control over their business over to their locally
dominant MNCs. This leads to economic power having a say over political influence, which can
be dangerous if left unchecked.
The MNCs have complete power over national development, i.e. on matters such as trade, patent
and monetary strategies. While regimes remain divided due to contradictory interests
(effectiveness versus social modification), MNCs have a terse, vibrant and single-minded aim of
creating as much profit as possible profit which allows them to control all parties a national and
international level.
The abuse faced by developing countries at the hands of MNCs has now become almost
unbearable. The international financial structure that accentuates the free market way of thinking,
denationalization and a decrease in the involvement of the public sector is thwarting many
developing and underdeveloped countries from sanctioning a fair and reasonable progress, on the
basis of human rights. MNCs have uncountable funds, are only inclined to maximize profit, use
the least amount of employees possible, jump from nation to nation without much consideration ,
import employees rather than using the local labor, and refuse to acknowledge the social
requirements of the state they operate in. All these activities directly impact the socio-economic
rights of the public. As a consequence of these elements and several other international monetary
problems such as inadequate technology transmission, absence of external investment and the
brain drain, various developing countries need guidelines in order to react efficiently to the
circumstances.
There is a growing mistrust and anger developing in the developing countries where the
economic and environmental impacts have started to show.

CONCLUSION:
"I was initially recruited while I was in business school back in the late sixties by the National
Security Agency, the nation's largest and least understood spy organization; but ultimately I
worked for private corporations." John Perkins
In his book, "Confessions of an Economic Hitman" (2004), John Perkins states how he was hired
by such organizations to coerce leaders of developing countries to take high levels of un payable
loans in favor of a quick short time gain. He states that by doing so, the country would eventually
default or ask for more time, upon which these multinationals would sweep in and monopolize
the markets.
This practice, he emphasized was being carried out globally and under the guise of various
fronts. The public must be made aware of such fraudulent activities and they should demand an
end to such exploitations.
A few sweeping observations can be made. With trade and investment barriers on the verge of
being dissolute globally, the penetration of MNCs across the globe, especially in developing
markets is bound to increase. This would lead them into further clawing their way into the inner
workings of weak governments and increase their socio-politico-cultural influences. With
numerous MNCs merging, they are increasing their powers and would be harder to resist.
Foreign direct investments has its pros and cons. However they should not be ignored for fear of
their adverse effects. Instead policies should be made to better utilize them as the host country
sees fit. Foreign capital is one of the primary catalyst of encouraging development, but it should
never been treated as an alternate to domestic investments, but rather a helping supplement.
Developing countries need to develop more indigenous industries that are capable of competing
on a global scale, in a market full of MNCs. This cannot be done if local industries are
considered infant industries and given subsidies so they could play safe, rather they should be
forced to compete with the best of them, which would enable them to increase their efficiency.
Less developed countries should focus internally and improve basic areas, so as to better
compete against mega organizations and prevent them from dominating the market. This can
only be done if they are made to come to economies of scale and plan on operating on a global
scale, rather within the confines of a few local markets.
Multinational Companies are a reality and they are here to stay for the forseeable future. It is
time for countries which have been exploited to start making changes and amend their ways for
the better and the sooner the better.
Q9: write a comprehensive note on collectivism, socialism, communism, social democrats
and democracy. Do you think that a democratic political system is an essential condition
for sustainable economic progress? Discuss.
Ans: COLLECTIVISM:

Collectivism is a cultural value that is characterized by emphasis on cohesiveness among

individuals and prioritization of the group over self. Individuals or groups that ascribe to
a collectivistic worldview tend to find common values and goals as particularly salient and
demonstrate greater orientation toward in-group than ...
Collectivism is a political, economic, or cultural system that privileges the needs of groups and
communities over individuals.
Collectivism refers to a society, a culture, or an economy that values groups over individual
interests. Collectivism is often understood in contrast to individualism, which privileges the
individual interests over the group. Community is not valued as highly in very individualistic
societies. Collectivism, on the other hand, is a stance that argues for the importance of group
identities and allegiance over individual values. It stresses joint decision-making and group
goals. In this way of thinking, your particular needs and interests are not any more important
than the needs or interests of anyone else.
Let's talk about some different types of collectivist scenarios.

ECONOMICS AND POLITICS:

If we're talking about the economy, collectivism refers to a system in which the distribution of
goods and services is controlled by the government or the state, or by groups of individuals. In
this kind of economic system, the means of production (the materials, buildings, and machines
used to make things) are not owned by private individuals. This is the opposite of capitalism,
where enterprise is owned by private individuals.
A socialist economy is an example of an economic system that is collectivist in nature. The
means of production are owned by the state or collectively by workers, and the point of
producing goods is not necessarily to make a profit but to produce for the benefit of society.
Socialist economic systems seek to make sure that the needs of people come before the needs of
profit, making it different from capitalism's more individualistic focus. For example, joint
ownership of farms was a common practice in the former Soviet Union. Farmers would own land
collectively and benefit from pooling their labor and resources. In more extreme examples of
collectivism, private property is eliminated entirely.
In politics, collectivism is found in a system such as a representative democracy. In this system,
citizens vote for their leader, and after the votes are counted, you are expected to accept this
leader, even if it wasn't the leader you voted for. Because here we're privileging the collective, or
the majority of voters, this collective voice matters more than the voice of one individual. In this
way, more individualistic cultures like the U.S. do have some collectivist tendencies.
Collectivism can also exist independently from political and economic systems. A good example
of this is culture. Collectivism in cultural terms refers to a culture that privileges family and
community over individuals. For example, children in collectivist societies are likely to take care
of elderly parents if they fall ill and will change their own plans in the event of a family
emergency.
Members of a collectivist culture are expected to care for one another and show concern for the
needs of the community. In places such as India and Japan, which are considered to have
collectivist cultures, values such as cooperation and selflessness are valued very highly.
SOCIALISM:

Socialism is a range of economic and social systems characterised by social

ownership and democratic control of the means of production, as well as the political theories
and movements associated with them. Social ownership may refer to forms
of public, collective or cooperative ownership, or to citizen ownership of equity. There are many
varieties of socialism and there is no single definition encapsulating all of them, though social
ownership is the common element shared by its various forms.
Socialist economic systems can be divided into non-market and market forms. Non-market
socialism involves the substitution of factor markets and money, with engineering and technical
criteria, based on calculation performed in-kind, thereby producing an economic mechanism that
functions according to different economic laws from those of capitalism. Non-market socialism
aims to circumvent the inefficiencies and crises traditionally associated with capital
accumulation and the profit system. By contrast, market socialism retains the use of monetary
prices, factor markets and in some cases the profit motive, with respect to the operation of
socially owned enterprises and the allocation of capital goods between them. Profits generated by
these firms would be controlled directly by the workforce of each firm, or accrue to society at
large in the form of a social dividend. The socialist calculation debate discusses the feasibility
and methods of resource allocation for a socialist system.
The socialist political movement includes a set of political philosophies that originated in the
revolutionary movements of the mid-to-late 18th century and of concern for the social problems
that were associated with capitalism. In addition to the debate over markets and planning, the
varieties of socialism differ in their form of social ownership, how management is to be
organised within productive institutions and the role of the state in constructing socialism.
Core dichotomies include reformism versus revolutionary socialism and state
socialism versus libertarian socialism. Socialist politics has been both centralist and
decentralised; internationalist and nationalist in orientation; organised through political parties
and opposed to party politics; at times overlapping with trade unions and at other times
independent of—and critical of—unions; and present in both industrialised and developing
countries. While all tendencies of socialism consider themselves democratic, the term
"democratic socialism" is often used to highlight its advocates' high value for democratic
processes in the economy and democratic political systems, usually to draw contrast to
tendencies they may perceive to be undemocratic in their approach. Democratic socialism is
frequently used to draw contrast to the political system of the Soviet Union, which critics argue
operated in an authoritarian fashion.
By the late 19th century, after the work of Karl Marx and his collaborator Friedrich Engels,
socialism had come to signify opposition to capitalism and advocacy for a post-capitalist system
based on some form of social ownership of the means of production. By the 1920s, social
democracy and communism had become the two dominant political tendencies within the
international socialist movement. By this time, socialism emerged as "the most influential
secular movement of the twentieth century, worldwide. It is a political ideology (or world view),
a wide and divided political movement" and while the emergence of the Soviet Union as the
world's first nominally socialist state led to socialism's widespread association with the Soviet
economic model, many economists and intellectuals argued that in practice the model functioned
as a form of state capitalism or a non-planned administrative or command economy. Socialist
parties and ideas remain a political force with varying degrees of power and influence in all
continents, heading national governments in many countries around the world. Today, some
socialists have also adopted the causes of other social movements, such as environmentalism,
feminism and liberalism

COMMUNISM:
According to communist writers and thinkers, the goal of communism is to create a classless
society. Communist thinkers believe this can happen if the people take away the power of the
bourgeoisie (the ruling class, who own the means of production) and create a dictatorship of the
proletariat (the working class).
In political and social sciences, communism (from Latin communis, "common, universal") is the
philosophical, social, political and economic ideology and movement whose ultimate goal is the
establishment of the communist society, which is a socioeconomic order structured upon
the common ownership of the means of production and the absence of social classes, money and
the state.
Communism includes a variety of schools of thought, which broadly include
Marxism, anarchism (anarchist communism) and the political ideologies grouped around both.
All of these share the analysis that the current order of society stems from its economic
system, capitalism; that in this system there are two major social classes: the working class who
must work to survive and who make up the majority within society and the capitalist class a
minority who derives profit from employing the working class, through private ownership of
the means of production and that conflict between these two classes is the root of all problems in
society and will ultimately be resolved through a revolution. The revolution will put the working
class in power and in turn establish social ownership of the means of production, which
according to this analysis is the primary element in the transformation of society towards
communism.
Critics of communism can be roughly divided into those concerning themselves with the
practical aspects of 20th century communist states and those concerning themselves with
communist principles and theory.

SOCIAL DEMOCRATS:
The name Social Democratic Party or Social Democrats has been used by a large number
of political parties in various countries around the world. Such parties are most commonly
aligned to social democracy as their political ideology.
Social democracy is a political, social and economic ideology that supports economic and social
interventions to promote social justice within the framework of a capitalist economy, as well as a
policy regime involving a commitment to representative and participatory democracy, measures
for income redistribution and regulation of the economy in the general interest and welfare
state provisions. Social democracy thus aims to create the conditions for capitalism to lead to
greater democratic, egalitarian and solidaristic outcomes; and is often associated with the set of
socioeconomic policies that became prominent in Northern and Western Europe particularly
the Nordic model in the Nordic countries during the latter half of the 20th century.
Social democracy originated as a political ideology that advocated an evolutionary and peaceful
transition from capitalism to socialism using established political processes in contrast to
the revolutionary approach to transition associated with orthodox Marxism. In the early post-
war era in Western Europe, social democratic parties rejected the Stalinist political and economic
model then current in the Soviet Union, committing themselves either to an alternate path to
socialism or to a compromise between capitalism and socialism. In this period, social democrats
embraced a mixed economy based on the predominance of private property, with only a minority
of essential utilities and public services under public ownership. As a result, social democracy
became associated with Keynesian economics, state interventionism and the welfare state, while
abandoning the prior goal of replacing the capitalist system (factor markets, private property and
wage labor) with a qualitatively different socialist economic system.
Modern social democracy is characterized by a commitment to policies aimed at
curbing inequality, oppression of underprivileged groups and poverty, including support for
universally accessible public services like care for the elderly, child care, education, health
care and workers' compensation. The social democratic movement also has strong connections
with the labour movement and trade unions and is supportive of collective bargaining rights for
workers as well as measures to extend democratic decision-making beyond politics into the
economic sphere in the form of co-determination for employees and other economic
stakeholders.
The Third Way, which ostensibly aims to fuse right-wing economics with social
democratic welfare policies, is an ideology that developed in the 1990s and is sometimes
associated with social democratic parties, but some analysts have instead characterized the Third
Way as an effectively neoliberal movement.

DEMOCRACY:
The term democracy comes from the Greek language and means "rule by the (simple) people".
The so-called "democracies" in classical antiquity (Athens and Rome) represent precursors of
modern democracies. Like modern democracy, they were created as a reaction to a concentration
and abuse of power by the rulers.
Many countries have democratic governments now. Democracy means government by the
people. They do this by electing their representatives to the government. All adult citizens of a
country have the right to vote in a democracy. This vote is extremely important because it
determines the kind of government that comes in power.
Name a few countries in the world which have a democratic form of government.
The role of the citizens becomes extremely important in a democracy. They have to be aware of
their rights and know what they should expect from their elected representatives. The citizens
should be aware of the problems of their region as well as of the whole country. Only then can
they understand whether the government is taking the right steps for their welfare or not. For this
reason it is important to acquire knowledge about current events and policy making through
newspapers, radio and television as well as public meetings.
Democracy also means that all citizens are free to express their opinion in public. They can
freely criticize the government, if they feel that it is not discharging its duties properly. They can
even oppose its policies, but peacefully, without resorting to violence or breaking the laws. The
government on the other hand is expected to give due consideration to the views of the people
speaking out against it. It cannot take steps to prevent them because that would be undemocratic.

(b) Do you think that a democratic political system is an essential condition for sustainable
economic progress? Discuss.
According to political scientist Larry Diamond, democracy consists of four key elements: (a) A
political system for choosing and replacing the government through free and fair elections; (b)
The active participation of the people, as citizens, in politics and civic life; (c) Protection of
the human rights of all citizens, and (d) A rule of law, in which the laws and procedures apply
equally to all citizens. In this way economy can build its progress.

Q10: Explain the common ethical issues in international business.

ANS: Some of the most common ethical issues in international business include outsourcing,
working standards and conditions, workplace diversity and equal opportunity, child labor, trust
and integrity, supervisory oversight, human rights, religion, the political arena, the environment,
bribery and corruption.
As businesses expand internationally, they must not only understand an organization’s mission,
vision, goals, policies and strategies but also must take into account the legal and ethical issues in
international business. When companies plan their long-term expansion into a foreign
environment, they must tackle serious moral and ethical challenges and decision-making in order
to make their expansion a success.
Some of the most common ethical issues in international business include outsourcing, working
standards and conditions, workplace diversity and equal opportunity, child labor, trust and
integrity, supervisory oversight, human rights, religion, the political arena, the environment,
bribery and corruption. Businesses trading internationally are expected to fully comply with
federal and state safety regulations, environmental laws, fiscal and monetary reporting statutes
and civil rights laws.
Cultural considerations can also make or break a company conducting business globally. Every
culture and nation has its own history, customs, traditions and code of ethics. Cultural barriers
include language, which often means a company must rely on translators when speaking to
business contacts and customers. Gender can be an issue in countries where women do not have
the same rights as men. Religious holidays and other cultural events can prohibit trade at certain
times. Acting in accordance with ethical and cultural values is crucial for a multinational
company to win clients’ support and business and to achieve a competitive advantage in a
particular market.
The rapid growth of international business has increased demand for qualified professionals who
are familiar with global markets, business practices, cultural considerations and ethical issues in
international business. Students learn about international law and ethics, along with unique
customs and attitudes, governmental policies, monetary systems, trade basics, cross-cultural
management and other factors that affect global operations.

LEGAL & ETHICAL ISSUES IN INTERNATIONAL BUSINESS EXPANSION:

When markets in foreign countries offer a higher profit potential than your home market, it
makes sense to expand internationally. As you prepare your expansion and research target
markets in other countries, you will often find that the legal structures and ethical frameworks
differ substantially from those in the United States. You have to address the legal and ethical
issues of your entering these markets to make your expansion a success.

EMPLOYMENT:
Wages and the working environment in overseas locations are often inferior to those in the
United States, even when you fulfill all local legal requirements. If you hire workers there, you
face the issue of what pay levels and working conditions are acceptable. Applying U.S. standards
is usually not realistic and often simply disrupts the established market. An effective approach is
to develop company standards which protect workers while fitting into the local economy. Your
standards have to guarantee a living wage, protect the safety of your workers and establish a
reasonable number of hours for the work week.

CORRUPTION:
Companies making payments to secure business that they would not otherwise obtain are guilty
of illegal actions under the U.S. Foreign Corrupt Practices Act. The payments, even if they seem
to be customary, are usually illegal under local laws as well. When your company makes such
payments, it is encouraging a local system of corruption through unethical behavior. Smaller
gifts, of a size that would not normally influence a major decision, are considered ethical in some
societies and may be legal under local and U.S. laws. If you find that large sums are routinely
required to do any business in a country, you may want to reevaluate your decision to enter that
market.

HUMAN RIGHTS:
The country into which you are expanding may not respect basic human rights. The ethical issue
facing your company is whether your presence supports the current abusive regime or whether
your presence can serve as a catalyst for human rights improvements. If you find that you are
supporting a regime that oppresses its citizens, engages in discrimination and does not recognize
basic freedoms, the ethical action is to withdraw from the market. If you find that the regime
allows you to observe human rights within your organization and that your presence moderates
human rights abuses, you may actively work to improve local conditions.

POLLUTION:
Not all foreign countries have environmental legislation that makes it illegal to pollute.
Companies may discharge harmful materials into the environment and avoid costly anti-pollution
measures. An ethical approach to your expansion into such markets is to limit your
environmental footprint beyond what is required by local laws. An ethically operating company
ensures its operations don't have harmful effects on the surrounding population. Since your
company has the knowledge and expertise to operate within U,S. environmental regulations, it is
ethical to apply similar standards in your new locations.
Ethical Issues in International Business. Most Common Ethical Issues

Employment practices

Human rights

Environmental regulations

Corruption

Moral obligation of multinational firms Employment Practices

•When work conditions in a host nation are clearly inferior to those in a multinational’s home
nation, companies must decide which standards should be applied, those of the home nation,
those of the host nation, or something in between

When work conditions in a host nation are clearly inferior to those in amultinational's home
nation, what standards should be applied?

Those of the home nation?

Those of the host nation?

Or something in between?

Firms should establish minimal acceptable standards that safeguard the basic rights and dignity
of employees and audit the foreign subsidiaries and subcontractors on a regular basis
Human Rights
• Basic human rights taken for granted in the developed world such as freedom of association,
freedom of speech, freedom of assembly, freedom of movement, andso on, are by no
means universally accepted•
Basic human rights are still not respected in many nations
•Many rights are not universally accepted such as freedom of:
•association
•speech
•assembly
•movement

POLITICAL EXPRESSIONROLE OF THE MULTINATIONAL FIRM:

It is often argued that inward investment by a multinational firm can be aforce for economic,
political, and social progress that ultimately improves the rights of people.
But there is a limit to this argument because some governments are so repressive that investment
cannot be justified on ethical grounds
Environmental Pollution
• When environmental regulations in host nations are far inferior to those in the home nation,
ethical issues arise
• The tragedy of the commons
occurs when a resource held in common by all, but owned by no one, is overused by individuals
resulting in its degradation
•Ethical issues arise when environmental regulations and/or enforcement are inferior to those in
the home nation
•This might result in higher levels of pollution from the operations of multinationals than would
be allowed at home
•Some economists suggest that the practice of giving bribes might be the price that must be paid
to do a greater good• These economists believe that in a country where preexisting political
structures distort or limit the workings of the market mechanism, corruption in the form
of black-marketeering, smuggling, and side payments to government bureaucrats to “speed up”
approval for business investments may actually enhance welfare

• Other economists have argued that corruption reduces the returns on business investment and
leads to low economic growth

Corruption has a been a problem in almost every society in history and it continues to be one
today

Some international businesses can and have gained economic advantages by making payments to
government officials

TWO LAWS ADDRESSES THIS ISSUE:

1977 U.S. Foreign Corrupt Practices Act

1997 OECD Convention on Combating Bribery or Foreign Public Officials in International

Business Transaction.