1. What factors make it difficult to evaluate whether the overall effects of FDI are sufficiently
positive?
Answer
MNEs may affect countries' balance-of-payments, growth, and employment objectives. Under different scenarios, these effects may be positive or negative for either host or home countries. a. Home-country gains—Countries want capital inflows because they allow them to increase
their imports. However, because FDI brings both capital inflows and outflows, countries worry that the balance-of-payments effect may be negative. Unlike balance-of-payments effects, the effects of MNEs on growth and employment are not necessarily a zero-sum game among countries. The argument that both the home and the host countries may gain from FDI assumes that resources are not necessarily fully employed and that capital and technology cannot be easily transferred from use in one industry to another.
b. Home-country losses—The United States is the home country for the largest amounts of
foreign licensing and direct investment. Therefore, its policies understandably invite criticism. One of its critics is organized labor, which argues that foreign production often displaces what would otherwise be U.S. production. Critics also cite many examples of highly advanced technology that has been at least partially developed through
governmental contracts and then transferred abroad. In fact, some MNEs are moving their most advanced technologies abroad and in some cases producing abroad before they do so in the United States.
c. Host-country gains—Most observers agree that an inflow of investment from MNEs can
initiate greater local development through the employment of unused labor and other resources. A company will want to move resources such as capital and technology abroad when the potential return is high—especially in an area where they are in short supply. Most observers also agree that an inflow of investment from MNEs can initiate an upgrading of resources by educating local personnel to use equipment, technology, and modern production methods.
d. Host-country losses—Some critics have claimed that there are examples of MNEs
making investments that domestic companies otherwise would have undertaken. The result may be the displacement of local entrepreneurs and entrepreneurial drive. Or they may bid up prices by competing with local companies for labor and other resources.
Critics also contend that FDI destroys local entrepreneurial drive, which has an important effect on development. Another argument is that investors learn abroad by observing foreign companies closely. This may give them earlier access to technology abroad that they may copy in their home countries. Critics also say that MNEs absorb local capital, either by borrowing locally or by receiving investment incentives.
2. Explain why the argument that \"anything that is legal is ethical\" is insufficient.
Answer
a. The law is not appropriate for regulating all business activity because not everything that
is unethical is illegal.
b. The law is slow to develop in emerging areas of concern. Laws take time to be legislated
and tested in courts. Further, they cannot anticipate all future ethical dilemmas; basically, they are a reaction to issues that have already surfaced.
c. The law often is based on moral concepts that are not precisely defined and that cannot be
separated from legal concepts. Moral concepts must be considered along with legal ones. d. The law is often in need of testing by the courts. This is especially true of case law, in
which the courts establish precedent.
e. The law is not very efficient. Efficiency in this case implies achieving ethical behavior at
a very low cost, and it would be impossible to solve every ethical behavioral problem with a law.
3. Discuss the ethical dimensions and pressures related to labor issues that MNEs face.
Answer
The many labor issues that companies must deal with include fair wages, child labor, working conditions, working hours, and freedom of association. These issues are especially critical in retail, clothing, footwear, and agriculture where MNEs outsource production to independent companies abroad, usually in developing countries.
Child labor is a highly publicized issue. The challenge for MNEs is that they work in an environment with different cultural, legal, and political rules than what they are used to in their home countries. Two arguments used for hiring children as laborers are (1) children are better suited than adults to perform certain tasks and (2) if the children were not employed, they would be worse off. MNEs often face pressure to leave countries that do not have the same labor policies as their home country; however, this is short-sighted because MNEs may be able to improve the working conditions for the laborers in their own firms. Some companies avoid operating in countries that support child labor, while others try to establish responsible policies in those countries. Either way, MNEs cannot solve all the problems of child labor.
4. What motivations do companies have to act responsibly?
Answer
a. Unethical and irresponsible behavior could result in legal sanctions, especially in the
areas of bribery and product safety.
b. Unethical and irresponsible behavior could also result in consumer boycotts, although
there is little evidence of the effectiveness of consumer boycotts in effecting change. c. Unethical behavior can affect employee morale. Good behavior can positively influence
both the workers in the developing countries as well as those in corporate headquarters back home who are proud of their company's behavior.
d. Companies never know when bad publicity is going to cost them sales.
