Ibe-Tutorial 5b

Chapter 5-Globalization and Society

Essay Questions

1. Which stakeholders must companies satisfy? Why is this process more difficult for companies operating abroad?

Answer

Stakeholders include stockholders, employees, customers, and society at large. In the short term, the aims of these groups conflict. Stockholders want additional sales and increased productivity, which result in higher profits and larger returns going to them. Employees want additional compensation. Customers want lower prices. And society at large would like to see increased corporate taxes or corporate involvement in social functions. In the long term, all of these aims must be achieved adequately, or none will be attained at all because each stakeholder group is powerful enough to cause the company's demise. Management must be aware of these various interests but serve them unevenly at any given period. At one time, gains may go to consumers; at another, to stockholders. Making necessary trade-offs is difficult enough in the domestic environment. However, abroad, where corporate managers are not so familiar with customs and power groups, the problem of choosing the best alternative is compounded—particularly if dominant interests differ among countries.

2. 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...