Business ethics and corporate social responsibility

BUSINESS IN A
GLOBALIZED WORLD
Fidan hajiyeva

15.03.2023
business in a globalized world

The world economy has become

increasingly integrated, and many
businesses have extended their reach 1. How can companies best deal with the
beyond national borders. Yet the process challenges of doing business in a world
of globalization is controversial, and the of great complexity?
involvement of corporations in other 2. What are the respective roles of
nations is not always welcome. business, civil society organizations, and
Doing business in diverse political and governments in addressing common
economic systems and in societies with global problems?
stark differences in wealth and income
poses difficult challenges.
The Process of
globalization
Globalization - the increasing movement of goods,
services, and capital across national borders
Process – an ongoing series of interrelated events

International trade and financial flows integrate the

world economy, leading to the spread of technology,
culture, and politics. Globalization is not simply a trend
or a fad but, rather, an international system.
 xample
E
Entering and Competing
in the Global Marketplace
Develop global market channels
First build a successful business in their home country, then
export products or services to buyers in other countries.
Establish global operations
Locate manufacturing plants or service operations in other
countries as a way to cut costs.
Develop global supply chains
Purchase raw materials, components, or other supplies from
sellers in other countries; work may also be subcontracted.

Summarized in 3 words: sell, make, and source.

MAJOR MULTINATIONAL
ENTERPRISES (MNE)
Firms with significant foreign assets or
revenues, or that has subsidiaries
outside its home country.

Defined by the United Nations as firms

that control assets abroad.
 MNEs account for more than half of world
trade, comprise 40 percent of the world’s
stock value, and own much of its

STATISTICS intellectual property.

Their affiliates — meaning suppliers,
subcontractors, retailers, and other entities
with which they have some business
relationship — collectively produce 10% of
global gross domestic product (GDP).
 Leading non-financial
multinational
enterprises (MNEs)
globally in 2021,
by foreign assets
(in billion U.S. dollars)

statista 2023
most valuable brands
worldwide in 2022,
(in billion u.s. dollars)

statista 2023
Foreign Direct Investment (FDI)

Another important aspect of globalization is the

worldwide flow of capital.

FDI occurs when a company, individual, or fund

invests money in another country, buying shares
of stock in or loaning money to a foreign firm.
FOREIGN DIRECT INVESTMENT, NET INFLOWS (% OF GDP)
INVERSION
Companies avoid taxes in their
home countries by merging with
companies located in other
countries and shifting their
headquarters there.

A strategy of acquiring or merging

with a foreign firm in order to
reduce corporate tax obligations
at home.
 xample
E
In 2016, Pfizer announced a $160 billion merger
with Irish drug company Allergan, with the
intention of moving its headquarters to Ireland
to take advantage of the country's lower However, the deal was eventually abandoned after
corporate tax rate. the U.S. government implemented new rules aimed at
Under the proposed merger, the new company curbing corporate inversions. The new rules made it
would have been based in Ireland, where the harder for companies to move their headquarters
corporate tax rate was 12.5%, compared to the abroad for tax purposes. Despite the failure of the
U.S. corporate tax rate of 35%. The merger Pfizer-Allergan merger, the issue of corporate
would have allowed Pfizer to save billions of inversions remains controversial and continues to be
dollars in taxes over the long term. debated by policymakers and the public.
International Financial
and Trade Institutions (IFTI)
Three institutions that set the rules by which international
commerce is transacted:
World Bank (WB)
International Monetary Fund (IMF)
World Trade Organization (WTO)

No business can operate across national boundaries

without complying with rules set by the WTO.
Many businesses in developing countries are dependent
on WB and IMF loans to survive.
the world bank

Established in 1944, near the end of World War II.

Main motivation was to help rebuild the war-torn
economies of Europe
Provides economic development loans to its
member nations.
Funds used mainly for roads, dams, power plants,
and other infrastructure projects, as well as for
education, health and social services.
Funding provided by member countries and
international capital markets.
 International Monetary Fund
Established in 1944.
Purpose: to stabilize the system of currency exchange rates
and international payments to enable member countries to
participate in global trade by lending foreign exchange to
member countries.
Sometimes imposes strict conditions on governments that
receive its loans which often leads to hardship:
1. Demands that governments cut spending
2. Devalue their currencies
3. Increase exports
4. Liberalize financial markets and reduce wages
(Example, Greece in 2010)
World Trade Organization
Founded in 1995, successor to General Agreement on
Tariffs and Trade (GATT).
International body that establishes the ground rules for
trade among nations.
Its major objective is to promote free trade; attempts to
eliminate barriers to trade (e.g. quotas, duties and
tariffs).
Does not lend money or foreign exchange; it simply sets
the rules for international trade.
Conducts “rounds” of negotiations on various topics.
“Most favored nation” rule - members countries cannot
discriminate against foreign products for any reason.
 THE BENEFITS AND COSTS OF GLOBALIZATION
Benefits of Globalization Costs of Globalization
Increases economic productivity. Causes job insecurity.
Reduces prices for consumers. Weakens environmental and labor
Gives consumers access to a wide standards.
range of diverse goods. Prevents individual nations from
Gives developing countries access to adopting policies promoting
foreign investment funds to support environmental or social objectives, if
economic development. these discriminate against products
Transfers technology, the best ideas and from another country.
newest innovations. Erodes regional and national cultures
Spreads democracy and freedom, and and undermines cultural, linguistic, and
reduces military conflict. (Allen religious diversity.
Halmond) Is compatible with despotism.
COMPARATIVE POLITICAL
AND ECONOMIC SYSTEMS
Doing business in other nations is
much more than a step across a
geographical boundary; it is a step
into different social, political, cultural,
and economic realities.

Nations differ greatly in their political,

social and economic systems.
 Comparative Political
Systems - Democracy
The presence of political freedom. The primary
meaning - all who are affected by a decision should
have the right to participate in making that decision,
either directly or through chosen representatives.
Defining features (according to the U.N.)
Fair elections - citizens may freely choose their
leaders from among candidates.
Independent media - journalists and citizens may
express their political views without fear of censorship
or punishment.
Separation of powers - among the executive,
legislative, and judicial branches of government.
Open society - citizens have the right to form their
own independent organizations to pursue social,
religious, and cultural goals.
Human rights - the rights and privileges
1. More than 5 million children die each year
accorded to all people, simply by virtue of
before their fifth birthday due to pneumonia,
being human, for example, the rights to a
diarrhea, malaria, and other diseases.
decent standard of living, free speech,
2. Genocide, mass murder of innocent
religious freedom, and due process of law,
civilians, has occurred all too recently in
among others.
Syria, Iraq, Somalia, Sudan, etc.
Degree to which human rights are protected
3. Minority groups and indigenous peoples in
differs greatly among nations. Several
many nations still lack basic political and
international codes of human rights exist.
social rights. e.g., the status of
United Nations Universal Declaration of
“untouchables” in Nepal.
Human Rights of 1948 (most important) 4. In 2014, 21 million people worldwide were
Over the half of world’s nations have adopted victims of forced labor, trafficking, and
these human rights covenants. Still, many human slavery.
violations of human rights still occur:
Comparative
Economic Systems
FREE ENTERPRISE SYSTEMS
Based on the principle of voluntary
association and exchange.
Members of society satisfy most of their
economic needs through voluntary
market transactions.

CENTRAL STATE CONTROL

Economic power is concentrated in the
hands of government officials and political
authorities.
The central government owns the property
that is used to produce goods and services.

MIXED
The Heritage
Foundation
Has scored the nations of the
world according to an Index of
Economic Freedom: the
fundamental rights of every
human being to control his or
her own labor and property.
In economically free societies,
governments “refrain from
coercion or restraint of liberty
beyond the extent necessary to
protect and maintain liberty
itself.”
 xample
E
Azerbaijan's economic freedom
score is 61.6, making its economy
the 75th freest in the 2022 Index.
Azerbaijan is ranked 37th among
45 countries in the Europe
region, and its overall score is
below the regional average but
above the world average.
The most repressed countries
Global Inequality and the
Bottom of the Pyramid
Inequality may be measured in two ways:
1. Wealth - assets that a person
accumulates and owns.
2. Income - how much a person earns in
a day or a year.

Focusing on the bottom of the pyramid

can foster:
Social development
Provide employment in underserved
communities
Reap profits
 MICROFINANCE
Microfinance occurs when financial
organizations provide loans to low-
income clients or solidarity lending
groups (a community of borrowers)
who traditionally lack access to
banking or related services.

Example: FINCA, Azerbaijan Micro-

finance Association (AMFA)
Collaborative Partnerships
for Global Problem Solving
Emerging trend for development of collaborative, multi-
sector partnerships focused on particular social issues or
problems in the global economy. These partnerships have
been termed global action networks, or GANs.

Involves 3 sectors:
Business
Government
Civil society (comprises nonprofit, educational,
religious, community, family, and interest-group
organizations)
Distinctive Attributes of the Three Major Sectors
 Summary
Many businesses have realized that these differences across sectors can
be a resource to be exploited. The process of globalization presents
today’s business leaders with both great promise and great challenge.
Despite periodic global economic downturns and the ever-present threat
of war and terrorism, the world’s economy continues to become more
integrated and interdependent. Multinational corporations, with their
financial assets and technical and managerial skills, have a great
contribution to make to human betterment.
The challenge facing forward-looking companies today is how to work
collaboratively with stakeholders to promote social and economic justice,
while still achieving strong bottom-line results.
discussion
case
Intel &
Conflict
Minerals
 QUESTION 1 ANSWER
Because they are mined in areas of armed
conflict or under conditions of human rights
How do conflict minerals, and in abuses, and the profits from their sale are
particular, conflict coltan get their used to fund or perpetuate violence and
name? exploitation in those regions.
What groups benefited from the Benefited armed groups, smugglers, and
companies that have sourced these minerals
trade in conflict minerals?
at lower prices due to their involvement in
What groups were hurt by it?
conflict.
Harmed local communities and workers in
conflict-affected regions who have been
subjected to violence, exploitation, and
forced labor; legitimate tantalum industry.
 QUESTION 2 ANSWER
Business - access to raw materials,
Consider the three sectors reputation, SCR. Governments - geopolitical
discussed in this chapter considerations, economic priorities, human
(business, government, and civil rights concerns. Civil society - human rights
and social justice, promote sustainable and
society). What were the interests
responsible mining practices.
of each, with respect to conflict
Importance of promoting peace and stability
coltan? in the region; need for transparency and
In what ways did their interests traceability in the supply chain; importance
converge? of collaboration and partnerships; promoting
responsible business practices.
 QUESTION 3 ANSWER
1. The issue of conflict minerals was complex
and pervasive throughout the electronics
Why was Intel unable to eliminate industry.
2. Intel faced the challenge of trying to
conflict minerals from its supply
eliminate conflict minerals from its supply
chain unilaterally, that is, without
chain while still maintaining competitive
the help of others? prices and quality products.
3. Issue of conflict minerals was not just a
supply chain issue but a human rights issue.
 QUESTION 4 ANSWER
U.S. Securities and Exchange Commission
In what ways did Intel collaborate
(SEC) and Congolese government
with other sectors (governments (government); NGOs, such as the Enough
and civil society) in its efforts to Project, and Global Witness and Responsible
eliminate conflict minerals from Sourcing Network (civil society).
its products? Government - authority and resources to
regulate the use of conflict minerals, but
What strengths and weaknesses
bureaucratic nature. Civil society - ability to
did each sector bring to the task?
raise awareness, but lack of resources.
Business - resources to address the issue,
but primary focus on maximizing profits
 QUESTION 5 ANSWER
What further steps could be 1. Increasing transparency and accountability
in the supply chain
taken by governments, NGOs,
2. Increasing due diligence
and companies to strengthen the
3. Supporting responsible sourcing
process to exclude conflict
4. Engaging with local communities
minerals from the global supply 5. Strengthening legal frameworks
chain? 6. Supporting international initiatives
THANK YOU!