Chapter 16: International
Dimensions of Public Policy
The term internationalization
refers to an expanded foreign influence on national trends and policies.
Increase trade and greater openness with respect to foreign investment have
increased the importance of influences from other nations.
Multinational
corporations that are generally headquartered in an industrial country pursue
business activities and locate plants in one or more other countries. They
share with branches, subsidiaries, and joint ventures common globally oriented
corporate policy with respect to sharing information, using resources, and
dividing responsibilities.
Four Reasons for Firms Becoming
International in Scope:
1. To find new
markets for products. Larger production runs lower average costs
2. To find
opportunities to earn greater returns on capital investment. Third world consumption
is rising rapidly with less competition.
3. To obtain
resources that are needed for operations, especially labor.
4. To respond to
domestic market satiation. (Nestle's infant formula in the Third World)
Importance for
Foreign Investment from US Dept of Commerce survey:
1. Maintain or
increase market share.
2. To reach markets
blocked by tariffs, transportation costs, or nationalistic purchasing policies
3. To meet
competition
4. To meet local
content requirements and host government pressure
5. Faster sales
growth than in the US
6. To obtain or use
local raw materials or components
7. Low wage costs
8. Greater profit
prospects abroad
9. To follow major
customers
10. Inducements
from host government investment program
The International
Regulatory Environment
Multinational
Corporations (MNCs) have greater flexibility in the movement of goods and
resources. They have more leverage in playing one country against the other for
government concessions.
MNCs are accused of
numerous negative externalities as follows:
1. The benefits of
foreign investment are poorly or unfairly distributed among the MNC and the
host country.
2. MNCs preempt the
development of an indigenous economic base by squeezing out local
entrepreneurs.
3. They employ inappropriate
capital-intensive technology, adding to country unemployment.
4. The worsen the
distribution of income in the host country.
5. They alter
consumer tastes in the host country, undermining its culture.
6. They subvert
host country political processes by co-opting the local elites and using their
influence to keep host governments and authorities in line.
Conflicts arise
from the exercise of economic power by MNCs with regard to company objectives
rather than the interests of the countries involved. The interest of the
countries rarely coincide, so that MNCs would find it impossible to meet all of
their needs anyway.
Host countries influence MNCs behavior in
a variety of ways:
1. Developed
countries set the rules of the game.
2. Third world
countries lack regulations or mechanisms to enforce regulations that do exist.
3. Third world
countries lack legal and administrative institutions and the technical
proficiency to implement national policies.
4. An international
regulatory structure has evolved over the years to deal with some of these
problems, since it is impossible for any single country to effectively deal
with multinationals unilaterally.
International
Regulatory Structure
1. United Nations Centre
on Transnational Corporations (UNCTC) has developed an international code of
conduct to provide a stable, predictable, and transparent framework to
facilitate the flow of resources across national boundaries. The code has been
criticized as not being performance oriented with political objectives to
redistribute wealth and income.
2. The General
Agreement on Tariffs and Trade (GATT). Formed in October 1947 as the world's
trading club. (Members account for over 80 percent of world trade.) Its purpose
is to promote world trade.
3. The United
Nations Conference on Trade and Development was formed in response to
disappointment over GATT's performance for less developed countries (the
distribution of benefits).
4. The Organization
of Economic Cooperation and Development. Guidelines are an attempt by
industrialized countries to regulate MNCs to suit their objectives.
NAFTA and the
EEC are
examples of regional organization to remove trade constraints and include
consideration of regional regulatory policies of such things as working
conditions and environmental standards.
1. Regional
groupings stimulate trade between participating countries.
2. They require
participating countries to give up some degree of sovereignty in terms of
economic matters.
3. They encourage
lower prices, economies of scale, and technology transfer.
National Policy involve unilateral policy
to regulate MNCs in order to accomplish national goals and objectives. They may
use fiscal policy, trade policy, technology transfer limitations, and other
national policies to affect a firm's operations. In the US these policies are
applied to operations of MNCs in foreign countries. They include:
1. Laws affecting
competitive conduct in foreign countries.
2. Technology
transfer into countries that might have national security implications
3. Bribery in
foreign countries.
4. Policies to
stimulate exports and restrict imports of foreign goods and services
5. Imposition of economic sanctions to accomplish certain political
objectives.
ETHICS AND
MULTINATIONALS
MNCs can be caught
between different standards and expectations regarding ethical behavior in
different countries. Cultural relativism may result in acceptable
behavior in some countries that is unacceptable in this country. How should
MNCs respond?
1. Adopt a when-in
Rome-do-as the-Romans-do policy? or
2. Adopt a uniform
worldwide standard of behavior?
The foreign
payments controversy in the early 1970s during which companies made questionable payments
to politicians for election or favors and to agents of the government to win
contracts caused great concern among U.S. officials and the public.
1. Business tried
to explain that these payments were a necessary cost of doing business.
2. The public
concern was that these payments corrupted the free enterprise system.
3. Theoretically, a
third party solution could be provided by an international body. The United
Nations prepared resolutions but they were never formulated into an
international code of conduct.
4. Eventually
Congress passed the Foreign Corrupt Practice Act (1977) that contains
both antibribery provisions and accounting provisions. (A criminal offense)
There has been a
growing consensus regarding multinational guidelines that includes:
1. Employment
practices and policies
2. Consumer
protection
3. Environmental
protection
4. Political
payments and involvement
5. Basic human
rights and fundamental freedoms
Global
Environmental Problems gained new importance in the 1980s when global warming and ozone depletion
added to the emphasis upon international environmental cooperation with regard
to air pollution.
International
Public Affairs
are more complex because of advanced in foreign trade and direct foreign
investment by US companies. Public affairs programs are necessary for MNCs to
cultivate markets and adjust products and services to the needs and tastes of
foreign consumers, and to adapt to the priorities and values of host
governments. They perform the same basic functions as all companies with respect
to their external but the process is more complicated. Functions of
international public affairs staffs include:
1. Issues scanning
and analysis
2. Forecasting and
planning
3. Relations with
overseas officials
4. Political risk
analysis
5. International
philanthropy and community relations
6. Development of
international codes of conduct.