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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


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


Higher

PerformanceReturns

Innovation

Use CoreCompetence

Modes ofEntry

Exporting


Licensing

Strategic

Alliances

Acquisition

ExploreResources &

Capabilities



MultidomesticStrategy

GlobalStrategy


IdentifyInternationalOpportunities

IncreasedMarket Size

Return onInvestment

Economiesof Scale and

Learning

Location

Advantage



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


Higher

PerformanceReturns

Innovation

Use CoreCompetence

Modes ofEntry

Exporting


Licensing

GlobalSourcing

JV/Alliances

ExploreResources &Capabilities



Multidomestic

Strategy

Global

Strategy


IdentifyInternationalOpportunities

Increased

Market Size

Return on

Investment

Economiesof Scale and

Learning

LocationAdvantage




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


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


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.


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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.


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


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.


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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


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


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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.


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


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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.


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.


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


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Organizing and Leading

Multinational organization structures

Global area structure

Global product structure

Staffing international operations

Competent locals

Expatriates


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.


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


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.


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

7 4

3 8

1 61 3

4

0

2 0

4 0

6 0

8 0

Ye a r s f o r Re a c h i n g 5 0 Mi l l i o n

(

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ars

)

CNNI Cs St ati st ical Sur vey ont he Int er net Development in Chi na

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2

7/0

2

1/0

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7/0

3

Computer H ost in China (M illion)

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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4 . 1 9 . 41 8 . 4 2 9 . 0

4 8 . 7

9 9 . 71 2 2 . 1 1 2 8 . 4 1 2 7 . 3 1 2 6 . 1

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2 5 0 . 6

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. CN d o ma i n n a me s a n d WWW we b s i t e s i n Ch i n a

( T h o u s a n d )

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CNNI Cs St ati st ical Sur vey on

t he Int er net Development in Chi na

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t he Int er net Development in Chi na

8 7 . 7 9 2 . 8 8 6 . 0 8 5 . 07 9 . 0 7 4 . 7 6 9 . 6

6 1 . 3 6 0 . 0 6 0 . 9 5 9 . 3 6 0 . 1

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P r o p o r t i o n b e t w e e n Ma l e a n d F e ma l e

M a l e F e m a l e


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


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


Final DraftInternational

Standard

Committee

Draft

Draft


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


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



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.


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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



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.



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



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


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


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.


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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.



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.



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]

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