International Business

Challenges in a Changing World

by Janet Morrison

Chapter summaries

Click on the links below to access summaries for each chapter of the book

Part 1 The international dimension and the organization
Chapter 1 The business enterprise in the international environment
Chapter 2 Perspectives on globalization

Part 2 The environment of IB
Chapter 3 The economic environment
Chapter 4 The cultural environment
Chapter 5 The political and legal environment

Part 3 Competing in the global marketplace
Chapter 6 International trade and regional integration
Chapter 7 Strategy and organizations
Chapter 8 Marketing

Part 4 Managing in the global environment
Chapter 9 Human resource management
Chapter 10 Supply chains
Chapter 11 Finance and accounting
Chapter 12 Innovation and strategy

Part 5 Global issues and IB
Chapter 13 Ecological challenges for business and society
Chapter 14 Corporate social responsibility
Chapter 15 Global governance

Chapter 1: The Business Enterprise in the International Environment

  • International business entails greater complexity in both organization and strategy than the national or local firm. Businesses seeking to expand internationally find that a diversity of national environments presents a host of challenges, extending across economic, political, legal and cultural dimensions. Businesses which are entrepreneurial and international in their thinking from the outset are often better placed to take advantage of new opportunities, particularly in the internet and high-tech sectors, than established companies dominated by their home-country culture. SMEs increasingly play vital roles in international business.

  • There is no single model or optimal size of the international firm. The MNE covers a range of possible organization and ownership structures. While it is generally the case that the MNE is a public company with international shareholders, many MNEs remain home-country dominated, with prominent shareholders, including governments. The company’s shareholder profile and the size of dominant stakes affect its strategy and culture. The company’s corporate governance system is linked to its ownership and is the chief determinant of how major decisions are taken. These systems vary in their openness to outsiders and in the transparency of their processes, but, in general, pressures for greater transparency intensify as companies become more internationalized. Similarly, companies now take greater account of stakeholder interests, extending their perspective to social and environmental issues, both globally and in national environments.

  • MNEs increasingly interact with other players in the international environment. Co-operative alliances and networks are facilitated by advances in communications technology and open up new opportunities, especially in emerging markets. For many companies, the international joint venture offers an opportunity to benefit from the know-how of a local partner. National governments play a crucial role, directly and indirectly, for domestic and foreign businesses within their borders. Interaction and co-operation between governments have led to a range of international frameworks which impact on international business. MNEs are thus involved in a range of relations with government and civil society players. Managing stakeholder relations, both national and international, is key to international business success.

Chapter 2: Perspectives on Globalization

  • Globalization has ‘shrunk’ the world, in that distance is no longer a major obstacle for those wishing to communicate or do business across the globe. Interconnectedness across national boundaries engulfs individuals, business organizations and governments. For businesses, the question of where to locate the production of goods or provision of services, once assumed to be the home country of the company, now offers choice among many potential contenders in different parts of the world. There is also abundant choice in the means for organizing production, including outsourcing, joint ventures and FDI. The MNE has thus been able to build and co-ordinate operations in numerous countries, benefiting from location advantages. Similarly, whereas the home country was once considered the key market in which to sell their products, even young companies are now looking to markets across the globe. For the consumer, there is an unprecedented choice of products to buy, as well as unprecedented access to information, goods, entertainment and services via the internet. Nonetheless, while the means of delivering goods and services have become globalized, national markets remain divergent.

  • For societies, MNE strategies of shifting production have brought jobs and opportunities for technology transfer to a wide range of countries. The developed world has attracted foreign investors wishing to locate near their largest markets, and now it is the turn of emerging economies. There are differing perspectives on these developments. Low-skilled workers in advanced economies are vulnerable, as MNEs are shifting low-skilled operations to lower cost locations such as China. Developing countries which have attracted significant FDI have seen rising incomes in manufacturing industries, as well as spillover effects of technology transfer. Development is uneven, however, and concerns over global inequalities and environmental degradation are being linked to globalization. Businesses and governments are recognizing that policies and strategies should be broadened beyond solely economic goals, to include qualitative impacts on societies.

Chapter 3: The Economic Environment

  • National economies diverge in their activities, size and organizations. The rich countries of the developed world, mainly in America and Western Europe, enjoy the highest levels of GDP per capita. The earliest to industrialize, these high-income economies are now mainly service based and reliant on high-tech sectors. Joined by Japan in the 1970s, developed states share concerns about competitiveness in the global economy. All face the public spending pressures of ageing populations, and rising costs of healthcare. Attracting and retaining FDI becomes difficult in these high-cost environments, and manufacturing jobs have tended to migrate to lower cost developing economies. On the positive side, large markets and good infrastructure in the developed countries provide location advantages for international business strategists.

  • Divergent models of economy have emerged as more countries have become industrialized. Alongside the liberal economic model of the UK and US, there has evolved the social market model prevalent in European countries, which takes a more state-oriented approach to social welfare. Although there is no specifically Asian model of capitalism, Asian countries tend to share a view of the state as guiding economic development, although not acting in a strong welfare role. China is now the world’s largest developing economy, and also a transition economy, progressing from state planning to market institutions. Its high growth rate owes much to FDI and the burgeoning domestic private sector. Despite strong growth, China still has much to do to raise levels of prosperity for all the population.

  • MNEs have also beaten paths to the post-communist transition economies of Central and Eastern Europe. Many of these countries have seen the fruits of market reforms, in the shape of EU membership, and their low costs make them attractive for foreign investors. But corruption and uncertain legal environments continue to cloud their prospects. The former Soviet republics, including Russia, offer even greater rewards, but higher risks from the growing role of the state. Some of the world’s least developed economies are attracting attention for their natural resources, but the gains from extraction industries could prove short-lived. For these – and other – developing countries, improved governance and enterprise structures are needed to assure sustainable growth.

Chapter 4: The Cultural Environment

  • Culture is sometimes treated as a variable which can be measured quantitatively, but the reality is that culture impacts on every aspect of international business in ways that defy quantification and may be difficult for outsiders to fathom. Business and management research has shed light on the dimensions of national cultures, such as key concepts of power distance and individualism, but it has been less helpful on the springs of culture, the social groupings which we identify with and which shape our values and attitudes. Many of these are national cultures, but they can also be ethnic or language groups or religions – all of which may cut across national boundaries.

  • The culture of the business organization, including its embeddedness in its own national culture and the degree of openness to other cultures, is a factor of growing importance in international business. The expansion of subsidiaries, networks, alliances and other co-operative arrangements such as joint ventures has made the need for cross-cultural understanding imperative. At the same time, the MNE is finding new opportunities in both operations and markets which are opening up. As cultural distance widens, the risks grow, and cultural sensitivity becomes a crucial element in internationalization.

  • Most of the world’s societies are multicultural, and understanding the patterns of diversity and convergence within them is key to organizational success in differing national environments. The view that globalization would make distance irrelevant now seems naive. On the other hand, economic development is bringing modern consumer lifestyles to developing countries across the globe, representing a kind of convergence that proponents of globalization predicted. But these societies are evolving in ways which reflect their own national cultures and values, as well as diversity beneath the national level. Cultural diversity is increasingly intermingled with social and economic divisions, creating both challenges and opportunities for international business.

Chapter 5: The Political and Legal Environment

  • Businesses interactions with political and legal actors centre mainly on national environments, those of their home country and those of countries where they do business. The national political system can be a key determinant of the manner in which enterprise activities are carried on. Although a market economy is traditionally associated with a democratic political system, among the major emerging countries such as China and Russia, authoritarian governments are guiding economic development through market reforms. Democratic systems, by contrast, set as their ideals the rule of law, free and fairly elected governments through competitive elections, and basic civil and political rights. In many countries, electoral processes exist in form, but lack the qualitative underpinnings, such as freedom of expression and a free press, which ensure genuinely pluralist politics. Whether democratic governments provide a more congenial or stable business environment than an authoritarian one partly depends on the conditions obtaining in particular countries. Where democratic institutions are shallow, and the society is divided, democracy faces an uncertain future. Some authoritarian governments may offer attractive prospects for foreign investors in liberalized environments, but the underlying role of the state casts a shadow over business relations, creating political risk.

  • Political and legal risks arise in any business transactions. Businesses desire transparency and predictability in regulatory systems, and impartiality in their administration. The uncertainties stemming from weak rule of law are the major drawbacks in many legal systems. Managers may be unsure that contracts will be honoured or enforceable in the courts, and they may also fear for the legal rights in their intellectual property, on which their businesses rely. Many of the most lucrative opportunities for international business arise in countries where the rule of law is weak, and corruption is pervasive – phenomena which tend to go together. Due to pressures within countries and from outside, including the need to attract foreign businesses, governments are now concentrating on improving the legal environment for international businesses. The growing importance of regional and international lawmaking is shifting focus upwards to international standards and inviting governments and businesses to think beyond national systems, as the international legal environment becomes more interconnected.

Chapter 6: International Trade and Regional Integration

  • Trade is at the heart of international business. Thanks to growing production capacity and improved communications and transport, businesses of all sizes can export and import goods and services. As firms benefit from wider markets, so consumers have also benefited from the growth in trade, bringing them greater choice and lower prices. The dominance of the triad, consisting of the US, Europe and Japan, has given way to the rise of developing countries in world trade. Despite applauding the benefits of free trade in theory, governments are wary of its impacts on their national economies and societies. Where domestic producers may struggle to compete with imported products, governments tend to adopt protectionist approaches, subsidizing the domestic industry and putting up barriers to imports. Such measures, as this chapter has shown, offer only short-term palliatives, doing little to tackle the underlying structural issues of industries failing to compete globally.

  • Freer trade has been the objective of the WTO, taking up the principles of multilateral liberalization introduced by GATT. Although much progress has been made in reducing tariff barriers, some ‘hard cases’ remain, notably agricultural products, as the disappointments of the Doha Round testify. These difficulties need not spell the end of multilateralism, but they do indicate that it is rather optimistic to expect a WTO of 150 members to reach agreement on trade issues crucial to national economies. Many countries are looking closer to home, to regional groupings, to achieve liberalized trade and economic integration, but even within regions, diverse interests and political divisions emerge. The growth in bilateral trade agreements is perhaps testimony to the frailties of multilateralism. However, the spaghetti bowl of agreements poses obstacles for businesses, which seek consistency and clarity for multi-locational operations.

Chapter 7: Strategy and Organizations

  • The international dimension presents new opportunities and also new challenges for companies, involving their strategies, structures, relations (both internal and external) and cultures. For every company, strategy, structure and environmental factors are intertwined. The company seeking to internationalize its operations is confronted with a number of alternatives, including outsourcing and FDI options, such as greenfield investment and acquisition. The choice depends on a number of considerations, including its own goals in terms of ownership and control, its cultural affinity with foreign locations and the competitive environment which characterizes its industry. This last consideration is the focus of Porter’s approach to international strategy. Porter’s view of competitive advantage, which emphasizes markets and locations, lays less stress on the internal advantages a firm may possess. These resource-based advantages, including core competencies, have become a focus of strategy as the competitive environment has become more complex. The growth of emerging MNEs from developing countries is highlighting the diversity of strategies and visions in international business.

  • Differences among MNEs in building their international presence are influenced by the national environment of their home country, and by the company’s own administrative heritage. The multidivisional structure has facilitated international growth through a balance between central control and local responsiveness, varying in the degrees of responsibility entrusted to subsidiaries and other affiliates in different locations. Although global strategy would seem to point towards strong direction from the centre, in practice, highly centralized MNEs have tended to be bureaucratic and inflexible, struggling to adapt to market changes. On the other hand, highly decentralized organizations, while responsive to differing local markets, have been weakened by a lack of central co-ordination. The considerable restructuring that MNEs have undergone in recent years has sought to balance these twin goals of global strategy and local responsiveness. The emergence of international networks, both intra-firm and inter-firm, represents a means of integrating global and local dimensions.

Chapter 8: Marketing

  • Marketing focuses on satisfying consumer needs with products they desire at prices they are willing to pay. While a domestic firm acquires experience of consumer needs from the outset, the firm which seeks international markets faces a more complex task of acquiring knowledge of potential markets, differing cultures and the needs of differing groups of consumers. It must also assess the strengths of existing suppliers in any potential market. Only then can country selection and entry strategy be decided upon, always bearing in mind the firm’s own resources and culture. Emerging and developing countries present some of the most attractive markets in today’s world, as growing incomes and changing lifestyles encompass more and more consumers. While they are attractive as markets, however, they can be uncertain business environments, in which political instability and weak legal systems may afford scant protection for contractual arrangements and property rights. Market entry through joint ventures or acquisition of a local business allows the foreign entrant to benefit from a local partner’s knowledge of the cultural and business environment.

  • The success of products and brands in differing markets depends heavily on the needs of particular groups of consumers and their perceptions of the firm – perceptions largely governed by the image of the firm’s brands. Global brands were once thought to hold universal appeal, but that appeal is now rather fragmented. In many Western markets, retailers’ own brands have made inroads into the market shares of global brands. In developing countries, global brands are typically associated with high quality, but it is a quality which most consumers cannot afford. MNEs seeking a wider spectrum of low-income consumers are using their innovative skills to design products specifically for these markets. Similarly, reaching consumers in developed countries through advertising and media exposure contrasts with communications in developing countries, where levels of technology are lower. In addition, the content and design of marketing messages must reflect cultural sensitivities and tastes. As companies venture deeper into new markets, ethical issues associated with products, selling methods and advertising are being voiced by consumers and other stakeholders. Global brands have basked in high levels of brand awareness worldwide, but they are now discovering the downside of being well known, feeling the heat of consumer concerns over health, fair marketing practices and the environment.

Chapter 9: Human Resource Management

  • Managing people from diverse cultural backgrounds and national environments is the formidable task of international HRM. To add to the challenge, the modern firm demands not simply a diligent workforce, but one made up of workers who identify with corporate goals, and managers who prioritize employee needs and personal goals. While it was once thought that Western HR policies and practices were transferable across cultures, the more recent view is more tentative. As market forces penetrate economies, especially in developing countries, HR issues are rising up the corporate agenda. HR functions, including selection, compensation, appraisal, and training and development, must take account of differing cultural contexts. Designing and implementing systems which accord with aspirations of local workers can benefit corporate performance, helping to achieve corporate goals.

  • Cross-cultural competencies are increasingly seen as a core resource within the firm, forming a cornerstone of its competitive advantage in global markets. Whereas firms have traditionally seen relations between parent firm and subsidiary as central to strategy, the current global competitive environment presents numerous other organizational options which present both opportunities and challenges. MNEs’ internationalized production, carried out by independent contractors, offers opportunities to reduce costs and achieve economies of scale, but working arrangements and conditions in low-cost environments seldom measure up to the standards of MNEs’ home countries. Diffusion of responsibility in international operations can militate against improving HRM practices. In international joint ventures, partner firms take direct ownership and responsibility, but relations are often bumpy, as cultures collide. Acquisitions have proved popular as a market entry strategy, among MNEs from both the developed and developing world. The integration of HR policies and practices, taking account of local differences, is crucial to the success of these alliances. Strategies conceived in the boardroom depend on people working together to achieve common goals, a test which should ensure the centrality of IHRM in corporate strategy.

Chapter 10: Supply Chains

  • Henry Ford is often remembered for offering consumers any colour of car, so long as it was black. The modern consumer expects a choice of model, customized equipment, competitive prices, high levels of quality, and, as if these demands were not enough, rapid delivery. MNEs have developed flexible manufacturing systems, capable of delivering customized products, while keeping costs down. Innovations such as lean production and JIT processes, pioneered by Japanese companies, have transformed manufacturing globally. These developments entailed organizations visualizing supply chains as interdependent elements, through which materials and products should, ideally, flow smoothly. Entering strategic thinking only in the 1980s, supply chain management, taking in each stage in the sourcing, production and delivery of goods, is now seen as critical to corporate success. Compelled to rethink questions of what to make and what to buy from outsiders, the firm must look at where its own core competencies lie, and where it might gain competitive advantage by relying on others. Sourcing materials and parts, especially for complex products such as cars, has been transformed by the rapid growth in global suppliers, most recently in low-cost emerging economies.

  • Flexible manufacturing and global sourcing, although appearing to be the ideal strategy, match up uneasily in practice: the dependability of supplies is inclined to decrease as the distance increases. Japanese companies have traditionally sourced from suppliers in the near vicinity of assembly plants, often through an inter-firm alliance. Sourcing a component from a distant supplier entails risks, from transport hold-ups as well as uncertainties about reliability and quality. Expectations of quality have risen enormously, as have expectations that firms will respond quickly to changing markets. These expectations, similarly, test global supply chains. The nearby supplier can respond instantly to changing demand in JIT systems, or make changes instantly if quality problems are spotted. The distant supplier is not so well placed, and is probably dealing with much larger quantities of goods. Strategies for integration of supply chains rely increasingly on technology, for information exchange, ordering and tracking. However, supply chains are not static, and a problem in a complex network will have knock-on effects down the line. Logistics and transport are elements vulnerable to disruption and delays, particularly in the light of a multiplicity of providers and disparities in infrastructure in different countries. While scale has increased and costs have fallen in the era of globalization, achieving seamless integration has proved an elusive goal. Vertical integration, so often criticized for its inflexibility, has advantages after all, as Henry Ford might remind MNEs if he were around today.

Chapter 11: Finance and Accounting

  • Whereas in the past, finance as a function was envisaged as subordinate to core business activities, it has now become central in corporate decision-making. This ascendancy is linked to internationalization of investment and operations. Wider opportunities for international financial strategies offer possibilities undreamt of in previous generations, but also greater exposure to risk and market volatility. International expansion has been encouraged by national governments which have liberalized their financial systems and welcomed foreign investors. With relative ease, companies may list on foreign stock exchanges, attract international investors and access debt facilities from a host of global providers. The finances of subsidiaries located in foreign countries can be managed through various hedging arrangements to minimize foreign exchange risk, and the improving financial systems in emerging economies facilitate the localization of financing foreign operations. These benefits provide the means to manage currency risk and associated political and legal risk. On the other hand, the globalization of financial markets has brought interdependence and the risk that any market turmoil will create ripple effects across the globe.

  • As the competitive environment has become globalized, corporate finance has become swept up in competitive pressures to deliver ever-improving financial performance. These pressures crystallize in takeovers and buyouts, often triggered by private equity and hedge funds, and leading to increased levels of debt. Despite the globalization of capital markets, regulatory systems are predominantly national in scope. Regulatory bodies are becoming increasingly aware of the need for consistency and transparency across national borders, as evidenced by moves towards the harmonization of international accounting standards. The IFRS is now impacting on corporate reporting the world over, even in countries which have not adopted it. Although focusing on convergence in the reporting of financial data, the IFRS has broader implications for financial decision-making and corporate governance. Investors, creditors and managers are thus becoming better able to scrutinize a company’s financial position and assess strategic options in rapidly changing markets.

Chapter 12: Innovation and Strategy

  • Innovation encompasses both a distinctive corporate culture and a range of activities which spur firms and individuals to come up with new ideas which can be translated into new and better products. Radical innovations include ground-breaking inventions which are capable of shifting an entire industry, but gradual improvements to refine and adapt existing products, while less revolutionary, can have profound impacts on a firm’s competitive position. These effects can become amplified as firms extend their reach in international markets.

  • The small, creative firm, often with a ‘born-global’ perspective, is the source of many new ideas, but translating them into new products usually requires either benefiting from considerable entrepreneurial skill and determination on the part of the owners, or catching the attention of a large company with the resources to penetrate global markets. Large companies face challenges in maintaining a culture of openness to new ideas, as organizations tend to become more bureaucratic with age and size. Large and small companies look to in-house and external sources of new ideas. Possibilities abound for the alert manager as well as for the R&D specialist. Firms linked in global supply chains, in which information and ideas are commonly shared, offer much scope for improving ways of doing things. Innovation strategies, once rooted in technology push forces, are being transformed to consumer pull approaches. This focus does not imply that technology and R&D have taken a back seat, but that R&D activities are integrated into the firm’s overall strategy of competitive advantage: the new product, new brand and new marketing strategy are now seen as interdependent, each element crucial to satisfying customer needs.

  • Innovation can spring from any company or individual anywhere in the world. In inventions of new products and technology dependent on R&D resources, the developed world has long been dominant. The concentration of IPR in these advanced countries has played an important role in the ability of their MNEs to maintain innovation leads. Is the globalization of production and markets leading to the globalization of innovation? All countries have distinctive innovation capacity, rooted in their sociocultural environment, their education systems, levels of scientific and technological research, industry structure and links between businesses and other research activities, such as universities. Government policies are crucial in public support for education and science, and in encouraging young entrepreneurial businesses to bring new ideas to fruition. For developing countries, rising up the innovation ladder can be slow and halting, especially in a context of economic and political instability, which is often a consideration. Historically, developing countries have relied on processes of technology transfer, most recently from FDI, to boost innovative capacity. These processes have produced dramatic transformations of national economies, for example, in Southeast Asia. At the same time, MNEs from the developed countries are awakening to the innovation potential in different locations, whether in subsidiaries or research partnerships. The growth of co-operative R&D is perhaps a key indicator of the changing competitive landscape, encompassing a wide range of organizations in diverse locations.

Chapter 13: Ecological Challenges for Business and Society

  • Industrialization, urbanization and improved transport have brought economic benefits and improvements to human wellbeing across the globe. However, these processes have also led to environmental degradation and climate change, threatening the prospects of future generations to reap similar benefits. Many harmful effects are localized, impairing the living conditions and natural environment of communities. Concentrations of air and water pollution are now recognized as causing ill health, threatening future gains in well-being which economic development makes possible. Of the challenges facing the planet, climate change is the most pervasive, including rising sea levels, floods, drought and extreme weather events. Reducing emissions of greenhouse gases, largely resulting from the burning of fossil fuels, is recognized as key to curbing climate change impacts. Responses to environmental concerns by national governments have been mixed. Many have taken policy steps to curtail emissions, while others remain focused on economic growth. The Kyoto Protocol of 1998 called on the major economies in the developed world to abide by targets to reduce emissions, while refraining from including developing countries in such a regime. However, developing countries are now in the spotlight, in particular China and India, with their rapidly increasing greenhouse gas emissions.

  • International businesses with operations in diverse locations must focus on a variety of environmental impacts, which are increasingly recognized in global corporate strategy. While regulation is a driver in some countries, in others, such as developing countries, motivations stem from principled concerns about sustainable development, as well as perceived risks to future financial performance. Environmental strategies entail possible changes in operations and sourcing, performance targets and monitoring. Although operational changes and rising costs for scarce resources present a gloomy picture, the opportunities for innovation and efficiency gains have spurred many forward-thinking companies to devise creative solutions which can be a source of competitive advantage. Stakeholders, including investors and consumers, have taken a growing interest in corporate ‘green’ credentials, but are only gradually recognizing the implications for changes in their own patterns of consumption. Legislation is biting in some areas, such as waste recycling, and in others, the hope is that business innovations are producing cleaner alternatives which meet consumers’ expectations, without the need to make painful changes to lifestyles.

Chapter 14: Corporate Social Responsibility

  • Companies are forces in all the societies in which they either operate directly or direct operations of others. Corporate leaders in Western market economies have traditionally seen their role chiefly in economic terms, as one of wealth creation for the company’s shareholders, within the legal constraints imposed by national law. This view is now challenged by a broader view of the company in society, encapsulated in the concept of CSR, which takes into account the social and environmental dimensions of the company’s activities. CSR principles also imply that companies’ impacts should be assessed on ethical as well as legal criteria. A stakeholder approach serves to assess these wider impacts. Beyond shareholders, companies interact with an array of stakeholders, including employees, consumers, communities and governments. However, approaches to CSR and stakeholder participation vary greatly. For some companies, CSR represents a bow to stakeholder considerations, without entailing a shift in competitive economic strategy. For these companies, philanthropic activities are often viewed as a means of satisfying a company’s social obligations. For other companies, CSR represents an opportunity to remodel strategy on socially and environmentally sustainable principles. This more radical approach, perhaps more costly in the short term, is viewed by many companies as generating sustainable competitive advantage in the future.
  • CSR has both governance and management implications. Most governance structures are wedded to shareholder primacy, although in some national settings, stakeholders, especially employees, have a voice in governance. Given the traditional focus on maximization of shareholder value prevalent in marketbased economies, it is perhaps ironic that shareholders have little say in governance processes in most companies. Boards of directors are charged with monitoring managers and safeguarding shareholders’ interests, but are often dominated by the executive interests they should be monitoring, or by dominant shareholders. Although directors’ legal obligations to non-shareholding stakeholders receive scant acknowledgement in corporate governance systems, they are being increasingly recognized in management policies. Importantly, as globalization has deepened, workers in supply chains and contract manufacturing plants are now recognized as stakeholders. Although MNEs have tended to view national law as the extent of their legal obligations, adherence to international labour standards and moral obligations to a wider range of stakeholders are increasingly demanded. Moreover, investors and consumers are often at the forefront in demanding broader and deeper CSR commitment, as well as higher levels of transparency and disclosure of social impacts through reporting mechanisms. International managers, whether reluctantly or enthusiastically, are now taking CSR seriously.

Chapter 15: Global Governance

  • Global governance represents evolving processes of rulemaking and norm-setting, together with organizational frameworks for implementation. Diverse participants are active in governance mechanisms, including governments, businesses, inter-governmental organizations and NGOs. In contrast to rule-making by sovereign states, international governance processes typically involve participants devising frameworks for self-regulation with which all agree to comply. They address areas of common concern, including the environment, social issues, communications, and economic and political issues. Key global challenges which can be highlighted are risks to peace and security, poverty and climate change. Reaching agreement on common goals and the means to achieve them is often elusive where sovereign states are concerned. Governments are inclined to see national self-interest in a rather competitive context, fearing that any relinquishing of authority to a ‘higher’ international level will detract from their autonomy. Many governments now appreciate that co-operative frameworks to deal with global problems actually enhance national potential through cooperative efforts which both alleviate the problems and create a more stable international environment.

  • Tensions with governance processes stem particularly from the changing power relations among countries. The era of globalization is witnessing a rise in economic power on the part of the large developing countries and the resource-rich nations, which are becoming more influential in international trade and FDI. As their economic power translates into international political influence, they are gaining stronger positions in global markets, especially through the expansion of state-controlled companies and sovereign wealth funds. It is perhaps a paradox that globalization seems to have bred a rise in economic nationalism. Have processes of global governance slipped backwards, or is there merely realignment among the key actors? The global citizenship approach to governance holds that international co-operation is needed to deal with global issues, and that participation of all stakeholders – large and small, poor and rich – is the only sustainable approach to global challenges. Many governments would find this notion unpalatable, but MNEs are increasingly taking a more outwardlooking stance, from both a self-interested and CSR-oriented point of view. As global governance increasingly encompasses corporate and NGO players, in addition to government authorities, the tensions remain evident, but emerging solutions may be in sight.