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KM Loi & Associates
Managin g In t er nati onal EconomyMGT 6233 Modul e 2
May 9, 2012 1 KM L oi & Associ at es
I n to the 21st . cent ur y
MGT 6233
Managing i n t he Int er nati onal Economy
Module 2 Theory of Int er nat ional Tr ade
2
MGT6233 Tim et abl e
Assignment No: 1June 16
Group PresentationJuly 2110.
8 : Leadership Perspectives in Multinational ManagementJuly 149.
4 : Strategic Marketing Management of Multinational BusinessJune 095.
No: Date Module
1. May 12 1: Nature of International Business
2. May 19 2 : Foundations of Multinational Management
3. May 26 3 : Theories of International Trade
4. June 09 4 : Strategic Marketing Management of Multinational Business
6. June 16 5 : Export & Import Practices
7. July 07 6 : International Human Resources Management
8. July 07 7 : Differences Across Countries
August 04 Assignment No: 2
Br eak 1
Foundations ofMultinationalManagement
Chall enges of In t er nati onalManagement - Globali zat ion
Key concepts in the challenges of
globalization:
Global Economy
Globalization
International Management
Global Manager
Europe
European Union (EU)
Political and economic
alliance Europeancountries that agreed to
support mutual economic
growth
Expanding to at 27
member countries with
> 400 million consumers
Chal l enges of I nt er nat ional
Managem ent - Gl obal izat ion
The Americas
North American Free Trade
Agreement (NAFTA)
Agreement for free flowof goods and services
between the Canada,
Mexico, and United States
Free Trade of the Americas
(FTAA) Alaska to Chile
is a possibility
Chall enges of In t er nati onalManagement - Globali zat ion
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Asia and the Pacific
Rim Economic power of
China and Japan
Growth in otherPacific Rim countries
Asian countriesrepresent a third ofthe globalmarketplace
Chal l enges of I nt er nat ional
Managem ent - Gl obal izat ionChal l enges of I nt er nat ion alManagem ent - Gl obal izat ion
Africa Increased attention
to stable countries
Beckonsinternationalbusiness
South AfricanDevelopmentCommunity (SADC)links 14 countries intrade and economicdevelopment
Oppor t uni t ies of Int er nat ionalBusiness
Reasons for engaging in international
business:
Profits
Customers
Suppliers
Capital
Labor
Strategic
CompetitivenessOutcomes
HigherPerformance
Returns
Innovation
Use Core
Competence
Modes ofEntry
Exporting
Establishmentof New Sub.
Licensing
StrategicAlliances
Acquisition
ExploreResources &Capabilities
InternationalStrategies
InternationalBus.-LevelStrategy
Multidomestic
Strategy
Global
Strategy
TransnationalStrategy
IdentifyInternational
Opportunities
Increased
Market Size
Return on
Investment
Economiesof Scale andLearning
LocationAdvantage
ManagementProblems, Risk,and First Steps
ManagementProblems, Risk,and First Steps
In t ern at ional St r ategy Opport uni t ies
& Out comes
Increased
Market Size
Return on
Investment
Economiesof Scale andLearning
LocationAdvantage
Benef it s of In t er nati onal
St r at egies
Increased market size.
Greater returns on major capital investments
or new products or processes.
Greater economies of scale, scope or learning.
A competitive advantage through location.
Strategic
CompetitivenessOutcomes
Higher
PerformanceReturns
Innovation
Use CoreCompetence
Modes ofEntry
Exporting
Establishmentof New Sub.
Licensing
Strategic
Alliances
Acquisition
ExploreResources &
Capabilities
InternationalStrategies
InternationalBus.-LevelStrategy
MultidomesticStrategy
GlobalStrategy
TransnationalStrategy
IdentifyInternationalOpportunities
IncreasedMarket Size
Return onInvestment
Economiesof Scale and
Learning
Location
Advantage
ManagementProblems, Risk,and First Steps
ManagementProblems, Risk,and First Steps
In t ern at ional St r ategy Opport uni t ies
& Out comes
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International Strategies
International Business Level Strategies
International Corporate Level Strategies International Strategy
Multi-domestic Strategy
Global Strategy
Transnational Strategy
Four St r at egies
Int er nat ional St r at egy
Create value by transferring valuable corecompetencies to foreign markets thatindigenous competitors lack
Centralize product development functionsat home
Establish manufacturing and marketingfunctions in local country but head officeexercises tight control over it
Limit customization of product offeringand market strategy Strategy effective if firm faces weak pressures
for local responsive and cost reductions
Support domestic operations
One market
Home country strategy + local strategies
Sales, Supplies
Remote control
International Multinational Global Transnational
Goal
Market
conceptualization
Strategy
International
functions
Managers
Int er nat ional St r at egy
In t er nati onal Cor por at e-Level
St r at egy
Multi-domestic Strategy
Strategic & operating decisions are decentralizedto the strategic business unit in each country to
tailor products to the local market.
Global Strategy
Assumes more standardization of productsacross country markets
Transnational Strategy
The firm seeks to achieve both global efficiencyand local responsiveness
In t er nati onal Cor por at e-Level
Strategy
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Mult idomest ic St r at egy
Main aim is maximum local responsiveness
Customize product offering, market strategyincluding production, and R&D according tonational conditions
Generally unable to realize value fromexperience curve effects and locationeconomies
Possess high cost structure
International Multidomestic G lo ba l T ra ns na ti on al
Maximize international operations
New markets
Corporate strategy = local strategies
Sales, supplies, production
Local entrepreneurs
Goal
Market
conceptualization
Strategy
International
functions
Managers
Mult idomest ic St r at egy
Gl obal St r at egy
Focus is on achieving a low cost strategy byreaping cost reductions that come fromexperience curve effects and locationeconomies
Production, marketing, and R&Dconcentrated in few favorable functions
Market standardized product to keep costs low
Effective where strong pressuresfor cost reductions and low demandfor local responsiveness
Semiconductor industry
I nt ernational M ultinational Global Transnational
Maximize productivity of all structureRationalize networkTake advantages of similarities among
countries
N markets, emphasis on similarities, synergies
Joint-strategy, coordination
Dispersed. Geographical concentration byfunction
International career path
Goal
Marketconceptualization
Strategy
Internationalfunctions
Managers
Gl obal St r at egy
Tr ansnati onal St r at egy
To meet competition firms aim to reduce costs,transfer core competencies while paying attentionto pressures for local responsiveness
Global learning Valuable skills can develop in any of the
firms world wide operations
Transfer of knowledge from foreign subsidiaryto home country, to other foreign subsidiaries
Transnational strategy difficult task due tocontradictory demands placed on the organization Example : Caterpillar
In te rn ati on al Mu ltin ati on al G lo ba l Transnational
Get advantages of being global and local at the
same time
One market when it is possible, pay attention
to differences
Global when possible. Learn from everywhere
Dispersed. Geographical concentration by
function
International career path, continuos rotation
Goal
Marketconceptualization
Strategy
International
functions
Managers
Tr ansnati onal St r at egy
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Four St r at egies
Strategic
CompetitivenessOutcomes
Higher
PerformanceReturns
Innovation
Use CoreCompetence
Modes ofEntry
Exporting
Establishmentof New Sub.
Licensing
GlobalSourcing
JV/Alliances
ExploreResources &Capabilities
InternationalStrategies
InternationalBus.-LevelStrategy
Multidomestic
Strategy
Global
Strategy
TransnationalStrategy
IdentifyInternationalOpportunities
Increased
Market Size
Return on
Investment
Economiesof Scale and
Learning
LocationAdvantage
ManagementProblems, Risk,and First Steps
ManagementProblems, Risk,and First Steps
Oppor t uni t ies of Int er nat ionalBusiness
Mode of Ent r y
Market entry strategies involve the sale ofgoods or services to foreign markets butdo not require expensive investments.
Types of market entry strategies:
Exporting / Importing
Licensing agreement
Global Sourcing
JV / Alliances
Foreign Subsidiaries
Oppor t uni t ies of Int er nat ionalBusiness
ExportingExporting
Choice of Int er nati onal Ent r y Mode
No need to establish operations in other nations.
Establish distribution channels throughcontractual relationships.May have high transportation costs.May encounter high import tariffs.May have less control on marketing
and distribution.
Difficult to customize product.
Common way to enter new international markets.
Expor t ing
Advantages
No need for operationalfacilities in host country
Economies of scale
Internet facilitatesexporting opportunities
Disadvantages
Lost locationadvantages
Dependence on exportintermediaries
Exposure to tradebarriers
Transportation costs
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Licensing
Licensing firm is paid a royaltyon each unit produced and sold.
Licensee takes risks inmanufacturing investments.
Least risky way to enter a foreign market.
Licensing firm loses control over productquality & distribution.
Relatively low profit potential.
Firm authorizes another firm to
manufacture & sell its products -
Choice of Int er nati onal Ent r y Mode Licensing
Advantages
Contractual source ofincome
Limited economic andfinancial exposure
Disadvantages
Difficult to identify goodpartner
Loss of competitiveadvantage
Limited benefits fromhost nation
Strategic Alliances
Most joint ventures (JVs) involve a foreign corp.
with a new product or technology & a hostcompany with access to distribution orknowledge of local customs, norms or politics.
May experience difficulties in merging disparate
cultures.
May not understand the strategic intent of
partners or experience divergent goals.
Enable firms to shares risks andresources to expand into international ventures.
Choice of Int er nati onal Ent r y Mode Join t Vent ur es and A l l i ances
Advantages
Shared investment risk
Complementaryresources
May be required formarket entry
Disadvantages
Difficult to find goodpartner
Relationshipmanagement
Loss of competitiveadvantage
Difficult to integrate andcoordinate
Can be very costly.Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex and costlynegotiations.
Potentially disparate corporate culture.
Enable firms to make most rapidinternational expansion.
Acquisitions
Choice of Int er nati onal Ent r y Mode
Greenfield VentureGreenfield Venture
New Wholly-Owned Subsidiary
Most costly & complex of entry alternatives.
Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, marketingand distribution.May need to acquire expertise & knowledge
that is relevant to host country.
Could require hiring host country nationalsor consultants at high cost.
Choice of Int er nati onal Ent r y Mode
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FDI / Gr eenf iel d
Advantages
Full control Integration and
coordination possible
Rapid market entrythrough acquisitions
Greenfield investments
Disadvantages
Substantial investmentand commitment
Acquisitions maycreate integration/coordination issues
Greenfield investmentsare time consuming andunpredictable
New MNCs do not pop up randomly in foreignnations. It is the result of conscious planning
by corporate managers.
Investment flows from regions of lowanticipated profits to those of high returns.
Growth motive: A company mayhave reached a plateau satisfyingdomestic demand, which is notgrowing. Looking for new markets.
Mot iv es f or FDI
Protection in the importing countriesForeign direct investment is one wayto expand bypassing protectiveinstruments in the importing country
EU: imposed common external tariff againstoutsiders. US companies circumvent thesebarriers by setting up subsidiariesDell inIreland etc.
Japanese corporations located auto assembly
plants in the US, to bypass non-tariff barriers
Mot iv es f or FDI
1. Market competition
The most certain method ofpreventing actual or potentialcompetition is to acquire foreignbusinesses.
GM purchased Monarch(GM Canada) and Opel(GM Germany).
It did not buy Toyota, Datsun
(Nissan) and Volkswagen.They later became competitors.
Mot iv es f or FDI
2. Cost reduction
United Fruit has establishedbanana-producing facilities inHonduras. Cheap foreign labour.
3. Labour costs
Cost tend to differ among nations.MNCs can hold down costs bylocating part of all theirproductive facilities abroad.(Maquiladoras)
Mot iv es f or FDI
An IJV is a business organization establishedby two or more companies that combines theirskills and assets.
A JV is formed by two businesses that
conduct business in a third country.(French firm + Japanese firm jointlyoperate in the Central Europe - TPCA)
Joint venture with a local firm
(Copirisco [POR] + Cautor [CZ]
Joint venture includes local government(Messerschmitt-Boelkow-Blom, Germany => Iran OilInvestment Company + National Iranian Oil Company
In t er nat ional Jo int Vent ur es
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AeraEnergy
The State of Californias leading oil and gas producerwith joint venture with affiliates of Exxon Mobil and
Royal Dutch Shell.
Omega Navigation Enterprises Inc.
Omega Navigation Enterprises Inc. is an internationalprovider of marine transportation services formed anequal partnership joint venture company with TopleyCorporation, namely Megacore Shipping Ltd.
Japan Nuclear Fuel Co., Ltd. (JNF)
JNF, a nuclear fuel manufacturing joint venture withGeneral Electric Company (US); Toshiba Corporationand Hitachi Limited.
In t er nat ional Jo int Vent ur es
Why?
Large capital costs - costs are too large
for a single company Protection - LDC governments close
their borders to foreign companies
Bypass protectionism. e.g.: US workersassemble Japanese parts. The finishedgoods are sold to the US consumers.
Share know-how
Problems.Control is divided. The ventureserves "two masters"
In t er nat ional J oint Vent ur es
Welfare Effects of IJVs
The new venture increases production,lowers prices to consumers
The new business is able to enter themarket that neither parent could haveentered separately
Cost reductions (otherwise, no jointventures will be formed) increasedmarket power => not necessarily good
In t er nat ional Jo int Vent ur es
International diversification
facilitates innovation in the f irm.
May generate resources necessary tosustain a large-scale R&D program.
Provides larger market to gain moreand faster returns form investmentsin innovation.
St r ategic Comp et it i veness Out comes
Generally related to above-average returns,assuming effective implementation and
management of international operations.
International diversificationprovides greater economiesof scope and learning.
St r ategic Comp et it i veness Out comes
Complications in the global business environment:
Environment is complex, dynamic, and highly
competitive. Global business executives must deal with
differences in the environment of business
in different countries.
World Trade Organization resolves trade
and tariff disputes among countries.
Protectionism can complicate global
trading relationships.
Oppor t uni t ies of Int er nat ionalBusiness
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Br eak 2
Nature ofMultinationalCompany
Mult inat i onal Corp orat i on ( MNC)
A multinational corporation (MNC) is a
business with extensive internationaloperations in more than one foreign country.
A corporation that owns and operatesproduction facilities in two or more countriesA corporation with power to coordinate andcontrol operations in two or more countrieswithout owning them.
Multinational Corporations (MNCs)are economic organisations engagedin productive activities in two or morecountries.
Typically have Headquarters (HQ)in the country of origin
Build or acquire affiliates or subsidiariesin other countries (the host nation)
This kind of expansion is referred toas Foreign Direct Investment (FDI)
Mult inational Cor por ation (MN C)
Horizontal MNCsFirms replicate production process at homeand abroadMost common between equally developedcountries
Vertical MNCsFirms divide production into stagesand undertake each stage where itis relatively cheaperMost common between countriesat different levels of development
Intra-firm trade
Trade between affiliates of the same MNCAccounts for one-third of total world trade
Mult inat i onal Corp orat i on ( MNC)
I nt er nat ional Pr esence of
Sel ect ed MNCs
496917PizzaUSAPapaJohns
35652,165Online
Actions
USAeBay
41598,279GadgetsUSAApple
48521,540AudioJapanClarion
29,378
37,031
TotalSales
6832CarsGermanyAudi
991Cellphones
FinlandNokia
Sales -Foreign
Sales Domestic
ProductsCountryCompany
Mutual benefits for host country and MNC:
Shared growth opportunities
Shared income opportunities
Shared learning opportunities
Shared development opportunities
Mult inat i onal Corp orat i on ( MNC)
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Host country complaints about MNCs:
Excessive profits
Domination of local economy
Interference with local government
Hiring the best local talent
Limited technology transfer
Disrespect for local customs
Mult inat i onal Corpor at ion (MNC)MNC-host coun t r y Relat ionshi ps
MNC complaints about host countries:
Profit limitations
Overpriced resources
Exploitative rules
Foreign exchange restrictions
Failure to uphold contracts
Mult inational Cor por ation (MN C)
Ethical issues for MNCs:
Corruption illegal practices that further
ones business interests.
Sweatshops employing workers at low
wages for long hours and in poor working
conditions.
Child labor full-time employment of children
for work otherwise done by adults.
Sustainable development meeting current
needs without compromising future needs.
Mult inat i onal Corp orat i on ( MNC)
Culture
The shared set of beliefs, values, and patternsof behavior common to a group of people.
Culture shock Confusion and discomfort a person
experiences in an unfamiliar culture.
Ethnocentrism
Tendency to consider ones own culture assuperior to others.
Cul t ur e : Gl obal Di ver sit y
Stages in adjusting to a new culture:
Confusion
Small victories The honeymoon
Irritation and anger
Reality
Cul t ur e : Gl obal Di ver sit y
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Cul t ur e : Gl obal Di ver sit y
Popular dimensions of culture:
Language Low-context cultures and
high-context cultures
Interpersonal space
Time orientationMonochronic cultures and
polychronic cultures
Religion
Contracts and agreements
Values and National Cultures (Hofstede):
Power distance
Uncertainty avoidance
Individualism-collectivism
Masculinity-femininity
Time orientation
Hofstede: studied the relationship
between national cultures and organizational cultures.
Cul t ur e : Gl obal Di ver sit y
Hofst edes Dim ension of
Nat ional Cul t ur e Understanding cultural differences
(Trompenaars):
Relationships with people: Universalism versus particularism
Individualism versus collectivism
Neutral versus affective
Specific versus diffuse
Achievement versus prescription
Attitudes toward time sequential andsynchronic views.
Attitudes toward environment inner-directed
and outer-directed cultures.
Cul t ur e : Gl obal Di ver sit y
Managem ent Pr act ices & Cul t ur es
Comparative Management
How management systematically
differs among countries and/or cultures.
Global Managers
Need to successfully apply
management functions across
international boundaries.
Planning and controlling
Complexity of international environment makes
global planning and controlling challenging.
Planning and controlling risks:
Currency risk
Commercial risk
Country risk
Cross-culture risk
Managem ent Pr act ices & Cul t ur es
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Organizing and Leading
Multinational organization structures
Global area structure
Global product structure
Staffing international operations
Competent locals
Expatriates
Managem ent Pr act ices & Cul t ur es
Are management theories universal?
U.S. management theories may be
ethnocentric.
Participation and individual performance are
not emphasized as much in other cultures.
Not all Japanese management practices
can be applied successfully abroad.
Managem ent Pr act ices & Cul t ur es
Global organizational learning:
Companies can and should learn from each other.
Readiness for global organizational learning
varies based on managerial attitudes.
Ethnocentric attitudes
Polycentric attitudes
Geocentric attitudes
Be alert, open, inquiring, but always cautious.
Managem ent Pr act ices & Cul t ur es Br eak 3
Globalization
Globalization
Economic Globalization
is the international integration of goods,technology, labor, and capital.
refers to the implementation of globalstrategies which link and coordinate a firmsinternational activities on a worldwide basis.
definition continues to broaden to include
political, social, environmental, historical,geographical, and cultural implications
Gl obal izat ion For ces
There are five majorkinds of drivers that areleading internationalfirms to the globalizationof their operations.
Political
Technological
Market
Cost
Competitive
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Gl obal izat ion For ces - 1
Political
There is a trend toward the unification
and socialization of the global community.
Preferential trading agreements
NAFTA
European Union
Globali zat ion For ces - 2
Technological
Advancements in computers and communicationtechnology are permitting an increased flow ofideas and information across borders.
The Internet and network computing enables smallcompanies to compete globally.
Business to business commerce is experiencingsignificant savings by using the Internet forbusiness exchanges. Web is used to find suppliers
Web is used to process purchase orders
Gl obal izat ion For ces - 3
Market
As companies globalize,they also become globalcustomers.
Companies followcustomers abroad
Saturation of the homemarket
Customer tastes andlifestyles are converging
Globali zat ion For ces - 4
Cost
Economies of scale to reduceunit cost are always a management goal.
Globalizing product lines can reducedevelopment, production, and inventorycosts can help achieve economies of scale.
Companies can also locate production incountries where production costs are lower.
Gl obal izat ion For ces - 5
Competitive
Competition continues to
increase in intensity.Newly industrialized and developing countries
Companies are defending their homemarkets from competitors by enteringthe competitors home markets to
distract them.
The Gl obali zat i on Debat e
Supporting
Free trade advanceseconomic development
Expanded trade createsmore and better jobs
GlobalizationConcerns produces uneven results
across nations and
people
has negative effects onlabor and laborstandards
contributes to decline inenvironment and healthconditions
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Br eak 4
Impact of Internet
Or igins of t he In t er net
ARPRNET funded by the U.S. AdvancedResearch Projects Agency in the late
1960s.
Expansion in the academic communityin the 1980s as a result of NSFNET.
Open to the private sector in the early1990s and becoming commercial.
Or igins of t he Wor l d Wide Web
Vannervar Bush developed a system calledmemex (memory extension) in 1945.
Ted Nelson coined the term hypertextin 1965.
Berners-Lee of Switzerland proposeda system for information sharing at theConseil Europeen pour la RechercheNucleaire (CERN) in 1989.
In late 1990, an operating prototype ofthe Web ran on a NeXT computer in CERN.
In 1991, the CERN team spread the wordabout their www system.
In 1993, a young undergrad at theUniversity of Illinois, Urbana-Champaign,named Marc Andressen, developed abrowser called Mosaic.
In 1994, the Netscape CommunicationsCorporation was established.
Web server Growth
Or igins of t he Wor l d Wide Web
ITUs St at ist ic
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Up to June 30,2003,
to the same
period oflast year,the increaseis 59.5 .
it is 86times ofthat inOctober,1997
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CNNI Cs St ati st ical Sur vey on
t he Int er net Development in Chi naBr eak 5
Rise ofGlobal Standards
KM Loi 89
International Organization for Standardization
Promotes the development of technicalstandards, standardization and related
activities in the world.Established on Feb. 23, 1947 -Geneva, Switzerland.
Total : 163* country members.190 Technical Committees.
*At December 2011
Subscriber MembersSubscriber Members1010
CorrespondentCorrespondentMembersMembers
4242
Developingcountries
DevelopingCountries
95%
Developed
countries5%5%
Developed countries32%32%
Developingcountries
68%68%
Full MembersFull Members105105
ISO Member sh ip
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Technical Committees - 190
Subcommittees - 544
Working Groups - 2188
Ad hoc Study Group - 30
ISO St r uctu r e
1906 - International Electrotechnical Commission(IEC) was established.
1926 - International Federation of the NationalStandardizing Associations (ISA) was set up.
1946 - Delegates from 25 countries met in Londonand decided to create a new internationalorganization, of which the object would be"to facilitate the international coordinationand unification of industrial standards".
1947 - ISO officially began operations on 23February 1947 in Geneva, Switzerland.
Bir t h of ISO
Technical Committees comprising experts onloan from the industrial, technical andbusiness sectors which have asked for thestandards, and which subsequently put themto use.
These experts may be joined by others withrelevant knowledge, such as representativesof government agencies, testing laboratories,consumer associations, environmentalists,and so on.
These experts participate as nationaldelegations, chosen by the ISO nationalmember institute for the country concerned.
These delegations are required to representnot just the views of the organizations in
which their participating experts work, but ofother stakeholders too.
Wh o devel ops ISO st andar ds?
TechnicalCommittee
Subcommittees
Workgroups
Since 1947, some 229 Technical Committees wereestablished starting with TC 1 Screw Threadsuntil TC 267 Facility Management
When a technical committee is dissolvedits number is not allocated to anothertechnical committee.
Technical committees have been dissolved:
3, 7, 9, 13, 15, 16, 32, 40, 49, 50 , 53, 55, 56, 57,62, 64, 65 , 66, 73, 75, 78, 80, 88, 90, 95, 97, 99, 103,124, 125 , 139, 140, 141, 143, 151, 169, 187 and 200.
Technical Commi t t ee
Each technical committeenominates a permanentchairman, he/she need not be anational of the country holdingthe secretariat.
Chairmen are normally appointedfor a three-year term by the ISOTechnical Management Board.
Each technical committee shallhas a secretariat assigned to anISO member body DSM, AFNOR,ANSI, DIN, SIS, BSI, etc.
Techn ical Commi t t ee
TECHNICALCOMMITTEE
Subcommittees
Workgroups
The national delegations of expertsof a technical committee meet todiscuss, debate and argue untilthey reach consensus on from aworking draft to committee draft to
an agreement where it is thencirculated as a Draft InternationalStandard (DIS) to ISO'smembership as a whole forcomment and balloting.
Many members have public reviewprocedures for making draftstandards known and available tointerested parties and to thegeneral public.
St ages of ISO st andar ds
InternationalStandard
Final DraftInternational
Standard
Committee
Draft
Draft
InternationalStandard
Working
Draft
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The ISO members then takeaccount of any feedback they
receive in formulating theirposition on the draft standard.
If the voting is in favour, thedocument, with eventualmodifications, is circulated to theISO members as a Final DraftInternational Standard (FDIS).
If that vote is positive, thedocument is then published as an
International Standard.
St ages of ISO st andar ds
InternationalStandard
Final DraftInternational
Standard
Committee
Draft
Draft
InternationalStandard
Working
Draft
For some users of standards,particularly those working in fast-changing technology sectors, it may
be more important to agree on atechnical specification and publish itquickly, before going through thevarious checks and balances neededto win the status of a full InternationalStandard.Therefore, to meet such needs, ISOhas developed a new range of"deliverables", or different categoriesof specifications, allowing publicationat an intermediate stage ofdevelopment before full consensus:Technical Specification (TS),Technical Report (TR), PubliclyAvailable Specification (PAS),International Workshop Agreement(IWA).
A ny ot her ISO st andard s?
International Standard
International WorkshopAgreement
Technical Specification
Public AvailableSpecification
Technical Report
St r uct ur e of ISO/ TC 176
Technical Committee TC176
Responsible for developing and maintaining
ISO 9000 family of standards.
Secretariat Standards Council of Canada.
63 participating and 19 observer countries.
About 200 experts from various industrial,technical, business and governmentalsectors.
Evol ut ion of Qual i t y Mgt . Syst em
1959
MIL-Q-9858 - Quality Program.
MIL-I-45208 - Inspection System.
MIL-C-45662 - Calibration System.
1968
NATO-AQAP 1 - QC System.
NATO-AQAP 4 - Inspection System.
NATO-AQAP 6 - Measurement &Calibration.
NATO-AQAP 9 - Basic Inspection.
1970
UK MOD - 05-08 (AQAP 1).
1972
BS 4891 - Guide to QualityAssurance.
1974
BS 5179 - Operational Evaluationof QA System.
1979
BS 5750 - Quality System
BS 5781 - Measurement &Calibration.
1984
Revised BS 5750
1987
ISO 9001 : 1987
1994
ISO 9001 : 1994
2000
ISO 9001 : 2000
St r uctu r e of I SO/ TC 207
Responsible for developing and maintainingISO 14001 family of standards.
Secretariat Standards Council of Canada.
63 participating and 16 observer countries;43 internal & external liaison organizations.
About 300 experts from various industrial,technical, business and governmental sectors.
I SO 14000 Ser i es of St andar ds
ISO 14001 & 14004 : EMS
ISO 14010 to 14015 :Environmental Auditing
ISO 14031 : Environmental PerformanceEvaluation (EPE)
ISO 14021 - 25 : Environmental Labeling
ISO 14040 - 43 : Life Cycle Assessment (LCA)
ISO 14050 : Terms and Definitions
ISO 14060 : Environmental Aspectsin Product Standards
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KM Loi 103
ISO 26000 Guidance on SocialResponsibility
ISO 26000 Social Responsibi l it y
KM Loi 104
Sustainability Concept
Reporting to SocietyDialogue
ConformityPrinciples
Early SR Standards
ISO 26000 Social Responsibi l it y
KM Loi 105
GlobalWarming
Friedmanand The business of a
business is business.
Howard Bowen
The Stakeholder
Theory
Sustainable
Development
Triple Bottom Line
Social
Responsibility
ISO 26000 SR Concept Bui l di ng
CarrollsPyramid of CSR
Human Suffering
Br eak 6
Business Ethics
Eth ical Behavi our
Is there such a thing as Business Ethics?
Oxymoron a concept that combines oppositeor contradictory ideas.
Ethics Resource Center survey
1,324 USemployees
48% engaged in one or more unethical / illegal actions
16% cutting corners on quality
14% covering up incidents
11% abusing or lying about sick days
9% lying to or deceiving customers
56% pressured to act unethically or illegal on the job.
Eth ical Decision Mak in g
Corporate practices -
Massive write-downs and
restatements of profit
Misclassification of expensesas capital expenditures
Pirating corporate assets
for personal gain
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Reason f or Un et hi cal Behavi our
Provocative Question --
Why are businesspeopleperceived to be actingunethically?
What is considered in onecountry to be bribe to expediteservice is sometimes consideredin another country to be normalbusiness practices? Tipping !
Reason f or Unet hi cal Behavi our
Perceptions caused by --
Not aware of impropriety
Cultural norms and values vary
Governance systems based onrule or relationships
Differences in values betweenbusinesspeople and key stakeholders
Allport-Vernon-Lindzey Study of Values-
Aesthetic
Economic
Political
Religious
Social
Theoretical
Reason f or Unet h ical Beh av iou r Reason f or Unet h ical Beh av iou r
Most common reasons forbending rules -
Organizational performancerequired it
Ambiguous or out of date rules
Pressure from others everyone
else does it
Mor al Relat iv ism
Morality is relative to some personal,social, or cultural standard and there
is no method for deciding whetherone decision is better than another.
K ohlber gs Level of Mor alDevelopment
1. Preconventional level
Characterized by a concern for self
Personal interest
Avoidance of punishment
2. Conventional level
Characterized considerationof societys values
External code of conduct
3. Principled level
Characterized by adherence to internalmoral code
Universal values or principles
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Encour agin g Eth ical Behavi our
Codes of Ethics
Specifies how an organization expectsits employees to behave on the job.
Guidelines for Ethical Behavior
Ethics
Morality
Law
Encour agin g Eth ical Behavi our
Approaches to Ethical Behavior
Utilitarian Judged by consequences
Individual Rights Fundamental rights in all decisions
Justice Distribution in equitable fashion
Ethics
A set of moral values and principleswhich form the standards guiding the
code of conduct of individuals,professions and organizations.
Et hi cs of I ndiv idual
Individual ethics consists of a set ofvalues that guide the conduct and
behaviour of individuals, enabling themto differentiate between right and
wrong, good and bad, and betweenwhat should and can be done, and
what should not and cannot be done.
These options will always be present inthe course of carrying out ones duties
daily life, or in the course of
interactions with others.
Pr ofessional Et hi cs
Professional ethics is a code thatprovides guidelines for practitioners invarious professionals. Professionals
with their code of ethics include
medicine, law, accountancy,engineering and others.
Eth i cs of Or gani zat ion
For those working in organizations,organizational ethics serves as
guidelines in the conduct of duties.These includes adherence to the
principles of honesty, competency,trustworthiness, truthfulness,
transparency, accountability andjustice.
Since organizations continuously interactwith the public, organizational ethics
also demands staff of the organizationto uphold the Clients Charter.
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Et hi cs i n Bu si ness
1. What is the corporations responsibility?
Does it have any responsibilities to society
to produce goods of high quality?
2. Does the corporation reduce its volume ofproduction in order to create an artificial shortageand in doing so it create a reason to raise the priceof product?
3. Should taxi-operators permit their drivers to tamperwith their taxi-meters so that they will run fast andcollect more from passengers?
4. Has management the right to look into the privatelives of its employees?
Eth i cs i n Bu si ness
5. Does a company has a moral responsibility to informpublic of how they dispose their wastes which maybe throw away discriminately?
6. Is it ethical for transport facilities to charge theirpassengers exhorbitant fares during festivalseasons or during times of emergency?
7. Is it ethical for agri-business corporation to disposeor destroy surplus commodities in order to stabilizethe prices?
8. Should a company get away without install anti-pollution devices through political connectionsor greasing the palm?
Mal aysian Code of Bu sin ess Et h i cs
Rukuniaga
1. Sincerity in Business Dealings
2. Conscious of Responsibility towardsCustomers, Society and Environment
3. Geniality towards Fellow Humans
4. Moderation in Business Dealings
5. Fair treatment of Customers
6. Zeal in Business Building
1. Sincerity in Business Dealings
O you who believe! Keep your duty to Allah and fearhim and speak (always) the truth (in all matters). Al-Quran, Surah Al-Ahzaab 33:70)
The honest and trustworthy tarder will be with theprophets, the truthful and the martyrs (in theHereafter) Narrated by At-Tirmidhi and Al-Hakim.
Lord, who may dwell in your sanctuary? He whosewalk is blameless and who does what is righteous,who speaks the truth from his heart who keeps hisoath even when it hurts and does not accept a
bribe against the innocent. He who does these thingsshall never be shaken. The Bible, Psalm 15:1 5.
Mal aysian Code of Business Et h i cs
Mal aysian Code of Business Et h i cs
1. Sincerity in Business Dealings
One commodity mixed with another must not besold (as pure), nor a bad one (as good), nor anythingthat is not at hand or that is concealed. One whocommits any of these is deemed a sinner. The Lawsof Manu - Ch 8 Verse 203.
One who keeps his life free of greed and ignorancefinds true and everlasting peace. Dhammapadaverse 36.
Deal in the true trade, O trader, and yourmerchandise shall be safe in the Court of the Lord.Guru Arjun-Sukhmani Psalm of Peace.
As for the wise, when they aspire wealth theyacquire it by honest and ethical means. Confucius.
2. Conscious of Responsibility towardsCustomers, Society and Environment
Allah burdens not a person beyond his scope. Hegets rewarded for that (good) which he has earned,
and he is punished for that (evil) which he hasearned. Al-Quran, Surah Al-Baqarah 2:286.
Your God has a right over you, your body has aright over you and your familiy has a right over you.Therefore you must give those entitled their rights.Narrated by Al-Bukhari and At-Tirmidhi.
Who may ascend to the hill of the Lord? Who maystand in His holy place? He who has clean hands anda pure heart, who does not lift up his sould to an idolor swear by what is false. The Bible, Pslam 24:3, 4.
Mal aysian Code of Business Et h i cs
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2. Conscious of Responsibility towards Customers,Society and Environment
He truly lives who knows and rightly discharges his obligationstowards a society; he who does this not will be reckoned amongthe dead. Thirukkural : Kural 214.
Before doing something or saying words or making a decisionone must first consider whether such act or word or thoughtwould endanger oneself, any other person or both. If it would leadto suffering refrain from doing it. Majjhima Nikaya page 416 420.
Do not practise deception God is the Assayer of all. Those whopractice falsehood and deceit are reincarnated in the world to payback their evil. Guru Arjun-SGGS page 461.
whatever you do, do it with full responsibility neglect of dutyhas dire consequences. Taoism
Mal aysian Code of Bu sin ess Et h i cs
3. Geniality towards Fellow Humans
And if the debtor is in difficulty, grant him time till it iseasy for him to repay. But if you remit it by way of charity,that is best for you if you only knew. Al-Quran Surah Al-
Baqarah 2:280.
May Allah show mercy to a man who is considerate whenhe sells, when he buys and when he demands payment.
Narrated by Bukhari and Ibnu Majah.
He has showed you, O man, what is good; and what doesthe Lord require of you? To act justly and to love mercy,and to walk humbly with your God. The Bible, Micah 6:8.
Mal aysian Code of Business Et h i cs
3. Geniality towards Fellow Humans
To incline to neither side, but to rest impartial as the evenfixed scale is the ornament of the wise. Thirukkural : Kural
118.
May all beings be happy and at ease. Metta Sutra verse 3& 5.
Do not harbour evil intentions against others within yourheart, and you shall not be troubled. Guru Arjun SGGS
page 386.
Mutual greetings should be exchanged with warmth of
heart for unrefined behaviour is the bane of business.
Taosim
Mal aysian Code of Bu sin ess Et h i cs
4. Moderation in Business Dealings
O you who believe! Make not unlawful the good thingswhich Allah has made lawful for you, but commit noexcess: for Allah loves not those given excess. Al-QuranSurah Al-Maaidah 5:87.
The Prophet, peace be upon him, said: Allah lovesgentleness in all matters..
But godliness with contentment is great gain. For webrought notihing into the world and we can take nothingout of it. But if we have food and clothing we will be
content with that. The Bible, 1 Timothy 6: 6-8.
Malaysian Code of Busin ess Ethi cs
4. Moderation in Business Dealings
Sri Krishna is opposed to the amassing of wealth by
irresponsible means and the hoarding of merchandise withintent to gain undue profit at the expense of the societys
needs. Bhagavd Geeta : Chapter 3 verse 13.
Practise moderation in all aspects of living without overzealousness, especially in matters concerning religion.
Samyutta Nikaya.
All trade is good i f conducted with compassion anduprightness. Guru Amardass SGGS page 568.
Practise moderation in all things, do not overzealous
adopt moderation as your life principle. Confucianism
Malaysian Code of Business Ethics
5. Fair treatment of Customers
And give full measure when you measure, and weigh with
a balance that is straight. That is good (for you in thisworld) and better in the end (as you will be rewarded in the
Hereafter.
Al-Quran Surah Al-Israa
17:35.
It is unlawful for a person to sell any article unless hediscloses its condition and it is unlawful for those whoknow about its condition to conceal it. Narrated by Al-
Hakim and Baihaqi.
Simply let your Yes be Yes and your No, (be) No;anything beyond this come from the evil one. The Bible,Matthew 5:37.
Mal aysian Code of Business Et h i cs
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5. Fair treatment of Customers
A trader who always give priority to his customers
interests will eventually propser and be successful in hisbusiness. Thirukkural : Kural 120.
When each member of a society is happy and contented,
social differences disappear; good character, loft virtuesand mutual respect are its fruits. Suvarnaprabhasa Sutra12.
No one is my enemy, and no one is a stranger. I getalongwith everyone. Guru Arjun SGGS page 1299.
Do not unto others as you would not have them do untoyou. Confucianism : Chapter 12.
Mal aysian Code of Bu sin ess Et h i cs
6. Zeal in Business Building
Then when the prayer is finished, then may you dispersethrough land, and seek of the Bounty of Allah ; andcelebrate the Praises of Allah often (andwithout stint) ended, ; that you may prosper. Al-QuranSurah Al-Jumuah 62:19.
Allah loves to see his slave striving to seek halalsubsistence. Narrated by Aisyah and Kuliab.
All hard work brings a profit, but mere talk only leads topoverty. The Bible, Proverbs 14:23.
Mal aysian Code of Business Et h i cs
6. Zeal in Business Building
An ambitious businessman who charts his course and
sincerely and honestly pursues it with full determination issure to succeed. Thirukkural: Kural 666.
Attention leads to immortality. Carelessness leads todeath. Those who pay attention will not die, while thecareless are as good as dead already. Dhammapadaverse
21.
Look ahead with hope; do not despair. Guru Arjun
SGGS page 1096.
Be attentive and firm in business, for laziness and lack ofenthusiasm ruins everything. Taosim.
Mal aysian Code of Bu sin ess Et h i cs Malaysian Insti t ut e of Cor por at eGover nance
MICG was established in March 1998 by the HighLevel Finance Committee on Corporate
Governance.
It is a non-profit public company limited by guarantee,with founding members consisting of :-
(i) Federation of Public Listed Companies (FPLC)
(ii) Malaysian institute of Accountants (MIA),
(iii) Malaysian Association of Certified PublicAccountants (MICPA),
(iv) Malaysian institute of Chartered Secretaries and
Administrators (MAICSA), and(v) Malaysian Institute of Directors (MID).
In tegr i t y
Integrity is a quality of excellence thatmanifested in a holistic and integral mannerin individuals and organizations. Integrity is
based on ethics and noble values and theirconcrete manifestation in daily lives.
In t egr i t y of Ind iv i dual
Integrity of individual is the harmony between whatan individual says and does. His or her actions arein accordance with moral and ethical principles aswell as laws and regulations and do not go against
public interest. They also reflect promptness,correctness and quality.
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Int egr i t y of Or ganizat ions
Integrity of organization is reflected in the
formulation and implementation of its codeof ethics, clients; charter, and system or
work procedures, as well as compliancewith best practices. The organizations codeof ethics is constantly reiterate, internalizedand upheld by members of the organization
until it becomes second nature, andultimately transforms into the culture for the
organization as a whole.
Int egr i t y of Publ i c Off ic ials
For holders of public office, integrity means
carrying out the trust and responsibilitiesbestowed upon them in line with public
interest. They are not allowed to misusetheir power for their self interest, or for theinterest of their family or relatives. Should aconflict of interest occurs, public interest
overrides personal interest. Holders ofpublic office must be transparent, sincere,
accountability to their superiors andsubordinates, as well as to their clients.
In looking for people to hire,you look for three qualities:-
INTEGRITY, INTELLIGENCE,
and ENERGY.
And if they dont have the first,
the other two will kill you.
Warren Buffet
In tegr i t y
May 9, 2012 142
Last ly but har dly t he least
Dr. Kheng Min [email protected]