Global Dimensions of Business

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• Global Dimensions of Business
• Mark McKenna
• BUS 187(5), Fall 2008
• Charles H. Hill, International Business
  Competing in the Global Marketplace, 7th ed. (New
  York McGraw-Hill/Irwin, 2009)
• Adapted from PowerPoint slides prepared for the
  text by Veronica Horton

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• WEEK 4 (Sept. 15)
• Etch-A-sketch ETHICS
• Case Discussion 1

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The Ohio Art Company

• Located in Bryan, Ohio
• Established in 1908, to manufacture metal oval
  frames
• Incorporated in 1930, making metal toys
• One of the oldest toy companies in the business
• Manufactures games, toys, childrens vehicles

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LEcran Magique

• In 1959 Ohio Art
• Visited the national toy fair in Germany
• Discovered LEcran Magique, invented by a
  Frenchman
• Originally not interested
• Ohio Art visits the fair again in 1960
• Decides to buy the toy
• Changes name to Etch-A-Sketch
• Becomes one of the top-selling toys of all time

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Etch-A-Sketch Art
http//www.etch-a-sketchartist.com/etchasketches.p
hp?emona
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Inside Etch-A-Sketch
http//www.etchy.org/
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Case Background

• In the late 1990s, toy sales were sluggish
• In December 2000, Ohio Art made a strategic
  decision to outsource production of Etch-A-Sketch
  to Kin Ki Industrial
• Rationale for decision was cost savings
• Lower wages Chinese factory workers made 75/mo
  versus 1,500 month for US factory workers
• Lower overhead for plant, maintenance,
  electricity, health benefits

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Impact of Decision

• Death of a community
• Ohio Art laid-off 100 US workers
• There were home foreclosures
• Tax base of Bryan, Ohio was severely eroded
• New York Times (12/07/03) publishes report
• Dismal picture of working conditions in China
• Workers work from 730 am to 1000 pm
• 84 hrs/week versus 40 hrs/week set by local
  authorities
• 24 cents/hr versus 33 cents/hr minimum wage
• No pensions or medical benefits
• Poor dormitory conditions and unhealthy food

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Response and Case Questions

• Ohio Arts response
• Senior executive at Chinese plant acknowledges
  low wages, says they will be raised
• Ohio Art CEO claims no knowledge of labor
  problems, but will visit China soon to make sure
  expectations are met
• Case question 1
• Was it ethical of the Ohio Art Company to move
  production to China?
• What were the economic and social costs and
  benefits of this decision?
• What would have happened if production had not
  moved?

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Case Questions (continued)

• Case question 2
• Assuming that the description of working
  conditions given in The New York Times is
  correct, is it ethical for the Ohio Art Co to
  continue using Kin Ki to manufacture
  Etch-A-Sketch toys?
• Case question 3
• Is it possible, as Mr. Killgallon claims, that
  the Ohio Art Company had no knowledge of labor
  problems at Kin Ki?
• Do you think company executives had any knowledge
  of the working conditions?
• Case question 4
• What steps can executives at the Ohio Art Company
  take to make sure they do not find the company
  profiled in The New York Times again as an
  enterprise that benefits from sweatshop labor?

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Part I

• Review

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Globalization

• Globalization of markets and production
• Drivers of globalization
• lower trade barriers, technological innovation,
  and human aspirations
• Emergence of global institutions
• Declining barriers to trade and foreign
  investment
• The role of technological change
• transportation, telecommunications,
  microprocessors, the internet, and world wide
  web

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National Differences

• Political economy
• Concerned with the interdependence of a nations
  political, economic and legal systems
• Political systems can be placed along two
  continua
• Individualistic vs. collectivistic
• Democratic vs. totalitarian
• Economic systems
• Defined as either free-market or command
  economies
• Most economic systems mixed economies, with
  varying degrees of government regulation of
  economic activity limiting the purely free
  operation of market forces
• Legal systems
• Based on common law, civil law or theocratic law

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Product Safety And Product Liability

• Different approach based political economy
• Economic systems
• Market Economies Caveat Emptor
• Command Economies Fox guarding the hen-house
• Mixed Economies government regulation
• Legal systems
• Common Law legislative enactments and case law
  requires injured party to bring suit punitive
  damages
• Civil Law liability established by code, applied
  by judge
• Theocratic Law punishment may include moral as
  well as criminal and financial sanctions

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The Economic Transformation

• The shift toward a market-based system involves
• The creation of a legal system to safeguard
  property rights
• Deregulation to remove restrictions to the free
  play of market forces and the establishment and
  operation of private enterprises
• Privatization to transfer ownership of state
  property into the hands of private investors
• As a result of this economic transformation new
  markets are opening up for international business
  (notably India and China)

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The Worlds Largest Economies, 2005-25
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Collectivism and Individualism Revisited

• By the mid-1990s,
• Communism was in retreat worldwide
• State-owned enterprises have been privatized
• Adoption of democratic political systems and
  free-market economic policies
• Social democracy in retreat
• What about today
• What domestic political issues reflect this
  tension between collectivism and individualism?
• What about internationally?

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Collectivism and Individualism Revisited

• The American dream is far too centered on
  personal material advancement and too little
  concerned with the broader human welfare to be
  relevant in a world of increasing risk,
  diversity, and interdependence.
• The European Dream emphasizes community
  relationships over individual autonomy, cultural
  diversity over assimilation, quality of life over
  the accumulation of wealth, sustainable
  development over unlimited material growth, deep
  play over unrelenting toil, universal human
  rights and the rights of nature over private
  property, and global cooperation over the
  unilateral exercise of power.
• Jeremy Rifkin
• The European Dream (2004 3)

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Cultural Differences

• Definition (Hill)
• A system of values and norms that are shared
  among a group of people and that when taken
  together constitute a design for living
• Components and distinctions
• Values, norms (folkways and mores)
• Cultures, societies (ethnies), nations, and
  states
• Determinants and manifestations
• Political and economic philosophy
• Education and language
• Religion and social structures

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Cultural Differences

• Social structures
• Individual vs. group orientations
• Social stratification (class or cast structures)
• Social rigidity vs. social mobility
• Religious and ethical systems
• Christianity (Judeo-Christian tradition), Islam,
  Hinduism, Buddhism, and Confucianism
• Hostedes four dimensions of national cultures
• Implications for management
• Importance of cross-cultural literacy
• Culture as a source of competitive advantage

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Business Ethics

• Ethics are accepted principles or right and wrong
  that govern relations between persons and groups
• Ethical issues in international business
• Employment practices Working conditions, wages
  and forced or child labor
• Human rights Responsibility of business when
  working in countries that lack human rights
  protections
• Environmental regulations Best practices vs.
  dumping
• Corruption Emergence of international regimes to
  control corrupt practices by international
  business

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Business Ethics

• Aethical perspectives on ethics
• Friedman doctrine, cultural relativism, naïve
  immoralism, righteous moralism
• Perspectives grounded in moral philosophy
• Utilitarianism, Kantian ethics, rights theories,
  justice theories
• The roots of unethical behavior
• Personal ethics, decision-making processes,
  organizational culture, unrealistic performance
  goals, leadership

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Power and Moral Obligations

• Multinational corporations have power that comes
  from their control over resources and their
  ability to move production from country to
  country
• Moral philosophers argue that with power comes
  the responsibility to give back to the societies
  that make it possible for companies to prosper
  and grow
• Socially responsible companies consider the
  social consequences of economic actions when
  making business decisions and make decisions that
  have both good economic and good social
  consequences

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Ethical Decision Making

• To ensure ethical issues are considered in
  business decisions, firms should
• hire and promote people with a well-grounded
  sense of personal ethics
• build an organizational culture that places a
  high value on ethical behavior, with realistic
  performance goals
• put in place decision-making processes that
  require consideration of the decisions ethical
  dimension
• makes sure that leaders not only articulate the
  rhetoric of ethical behavior, but act accordingly
• support employees in developing moral courage

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Moral Courage

• Moral courage does not come easily and employees
  have lost their jobs for acting courageously
• To support employees in developing moral courage,
  companies must reward, not punish, employees who
• walk away from a business opportunity that may
  have been profitable but was unethical
• have the strength to say no to a superior who
  instructs them to pursue actions they believe are
  unethical
• have the integrity to blow the whistle on
  persistent unethical behavior within the company,
  even if that means going public to the media

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Other Steps to Foster Ethical Behavior

• Adopt a code of ethics that articulates values
  consistent with a strong emphasis on ethical
  behavior
• Appoint ethics officers to ensure employees are
  trained in ethics, the companys code is
  followed, and ethical issues are considered in
  decision making
• Adopt a decision-making process that requires
  managers to consider
• whether they would be willing to have the
  decision communicated to all those affected by
  it, and
• whether persons which whom they have significant
  personal relationships would approve of their
  decision
• Put in place incentives and rewards that
  recognize ethical behavior and sanction unethical
  behavior

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