Transcript Chapter 6

Chapter Six
Stakeholders:
Their Concerns and Actions
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Chapter Objectives
To comprehend the concept of stakeholders and
their importance to companies’ operations
To understand the stakeholder interests for
restricting or enhancing companies’ abilities to
trade internationally
To learn about the different means countries use
to restrict companies’ international trade
To conceive why countries encourage, prohibit,
and regulate foreign direct investment
To recognize how conflicting stakeholders
improve their positions to affect companies’
international operations
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Introduction
 Stakeholders: individuals and groups that benefit from
or are harmed by organizational actions
• Stakeholders in business organizations include stockholders,
employees, customers, suppliers, and society at large
 The international company must be aware of the various
interests of stakeholders and serve them unevenly at any
given period
 Companies are stakeholders in society and act as pressure
groups to governmental and international organizations
whose actions can benefit or harm them
 In a sense, countries are stakeholders representing the
combined interests of their national stakeholders within
international forums
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Introduction
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Trade Restrictions
In general, governments influence trade to satisfy
economic, social, or political objectives
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Trade Restrictions
 Every country has full employment as one of its primary
economic and social objectives
• A country may retaliate against another’s import restrictions by
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imposing import restrictions of its own
Even without retaliation, import restrictions may limit
employment in related industries
Import restrictions also cause consumers to pay higher prices
and to have less choice, which may also reduce employment
because they buy less
 Because the trade account is a major component of the
balance of payments for most countries, governments
restrict trade to bring imports and exports into balance
• Trade restrictions differ from other means of balance-ofpayments adjustments (deflation of the economy or currency
devaluation) because of their greater selectivity
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Trade Restrictions
 Certain economic theories promote import restrictions to gain
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economic growth by developing new industries with growth
potential and by diversifying the economy through a broader
industrial base
• Import substitution policy: entices companies to initiate
production within the protected economy
• Infant industry argument: government should guarantee an
emerging industry a large share of its domestic market until the
industry becomes sufficient enough to compete against imports
Most emerging economies depend on commodities such as
agricultural products and raw materials
• Many emerging economies want to broaden their industrial bases
so that they are more dependent on manufactured products and
less dependent on commodities
Terms of trade: the quantity of imports that a given quantity of
exports can buy
• The terms of trade have been deteriorating for many emerging
economies
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Trade Restrictions
 Some companies and industries argue for the same
access to foreign markets that their foreign competitors
have to their own markets
 Arguments against the fairness doctrine include:
• Countries gain advantages from freer trade and thus
restrictions may deny their own consumers lower
prices
• Implementation of restrictions based on fairness
requires government negotiate and enforce separate
agreements for each of the products and services they
might import and with each country that might export
them
• Restriction of imports from countries with lax
environmental and labor standards may make those
countries poorer
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Trade Restrictions
 Much governmental trade protection is based not on economics, but
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rather on political or cultural imperatives
Governments sometimes restrict exports, even to friendly countries,
so that strategic goods will not fall into the hands of potential
enemies
To protect their common identity, countries sometimes limit the
availability of foreign products and services that might undermine
this identity
There is a near consensus that governments should prohibit sales of
products that are hazardous to people’s health or the environment
Governments use trade restrictions to coerce other governments to
follow certain actions
• Sanctions
They have the most impact when large or multiple countries
impose them because they more deeply affect a sanctioned
country
Sanctions seldom work successfully
Companies from countries imposing sanctions can lose
business
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Forms of Trade Restrictions
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Trade restrictions are of four types: tariffs, quotas,
bureaucratic practices, and subsidies
• Tariff: a tax on goods moving internationally; also
known as duty
Ad valorem tariff: tariff on the percentage of
the value of the goods moving internationally
Specific tariff: per-unit basis
Compound tariff: combination of ad valorem
and specific tariffs
Optimum tariff: revenues shift from the
exporting to the importing country through
income loss in the exporting country and tax
collection gain in the importing country
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Forms of Trade Restrictions
 Import tariffs are protectionist because governments assess
the tax only on foreign-made products or services
 Export tariffs are rare because governments fear the tax
will raise export prices and limit their companies’ ability to
sell abroad
 Tariffs also serve as a source of governmental revenue
•
Quotas: quantitative limits on the maximum
amount of product a country will trade in a given
year
 Governments place quotas most commonly on imports
 Governments usually use export quotas to increase foreign
prices or decrease domestic prices
 Embargo: a specific type of quota that prohibits all trade
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Forms of Trade Restrictions
• Governments establish bureaucratic practices
ostensibly for reasons other than protection,
however the practices often restrict imports from
foreign countries
Testing standards: to protect the safety or health of
residents
Governmental permission
Governmental regulations
Standards for licensing
• Government subsidies may be direct or indirect
Governments may reduce its imports by enabling its
domestic companies to survive competition
Governments may increase its exports by making its
companies competitive in foreign markets
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Influence on Foreign Direct
Investment
 Given the costs and benefits of receiving FDI, most countries allow
FDI entry and even promote it
• Emerging economies are depending more on MNEs
(multinational enterprises) to bring resources they need from
abroad when they make foreign direct investments
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Countries can offer a variety of incentives to companies so they will
invest there
Tax postponement
 Generally, companies prefer to establish investments in highly
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developed countries because of the large markets and a high degree
of stability
Countries largely want FDI because of the potential positive effects
on economic objectives of growth, employment, and balance of
payments
Governments worry, however, that foreign investors merely displace
what domestic companies would have otherwise done and are
concerned that the long-term effects of FDI will be negative
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Influence on Foreign Direct
Investment
 In countries in which investors are headquartered, stakeholders have
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raised concerns about the possible loss of domestic jobs when
companies invest abroad and the possible loss of future domestic
competitiveness when companies transfer technologies abroad that
might make foreign production more competitive in the future
Closely related to the question of job loss is the question of whether
foreign investors’ outsourcing of production puts downward pressure
on wages in their home countries
The sheer size of many foreign investors concerns stakeholders in
the countries in which they do business
• Extraterritoriality: the extension of a country’s laws beyond
its borders
• Host-country stakeholders worry that MNEs will meddle in local
politics so that they get regulations favorable to their interests
• Key industries: those industries that might affect a very large
segment of the economy or population by virtue of their size or
influence
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Improving Stakeholder Positions
 One method of improving stakeholder positions is to
build allies:
• The most likely allies are other stakeholders whose positions
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are affected the same way
Enlist the support of other groups that have different but
complimentary stakes in the outcome
Companies may lobby governmental decision makers,
particularly those within their home countries
Companies may survey stakeholders to determine opinions that
might lead to pressure on managerial decisions
Companies may foster local participation in their operations to
reduce the image of foreignness and to develop local
proponents whose personal objectives may be fulfilled by their
continued success
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