D270 Chapter 5

Comprehensive vocabulary flashcards covering international business ethics, strategic orientations, stakeholder theories, balance-of-payments FDI calculations, and regulatory dynamics.

Stakeholder

The collection of constituencies that an organization must satisfy in order to survive in the long run.

Society (as a Stakeholder)

The specific stakeholder group primarily interested in trustworthy behavior by corporate executives and increased corporate responsibility.

Floating Subsidiary Dilemma

The operational conflict that occurs when a foreign subsidiary is caught between the competing demands, laws, and cultural values of its host country and home country.

Exploitive Strategic Orientation

An MNE strategic orientation that views cross-national differences in wages and working conditions strictly as opportunities for profit maximization, prioritizing shareholder returns over local worker welfare.

Transactional Strategic Orientation

An MNE orientation focused on engaging in law-abiding, non-exploitive commercial interactions in foreign markets without taking on broader social or community development responsibilities.

Responsive Strategic Orientation

An MNE orientation characterized by operating in a manner that is sensitive and actively responsive to the needs and expectations of all immediate stakeholders.

Transformative Strategic Choice

An MNE approach committed to leading initiatives that promote life-enhancing, long-term positive changes for broader host-country society.

FDI Balance-of-Payments Formula

The equation used to evaluate the overall balance-of-payments effect ($B$) of Foreign Direct Investment: $B = (m - m_1) + (x - x_1) + (c - c_1)$.

Import Displacement ($m$) and Import Stimulus ($m_1$)

$m$ represents import displacement (local production replacing imports), whereas $m_1$ represents import stimulus (increased imports caused by an FDI project).

Export Stimulus ($x$) and Export Reduction ($x_1$)

$x$ measures export stimulus (the generation of new exports), while $x_1$ measures export reduction (a decline in existing exports caused by the investment).

Capital Inflows ($c$) and Capital Outflows ($c_1$)

$c$ signifies capital inflows other than import/export payments (such as investment funds for building capacity), while $c_1$ signifies capital outflows (such as outward profit repatriations).

Positive Net Import Effect ($m - m_1 > 0$)

A favorable balance-of-payments condition where an FDI project substitutes local manufacturing or production for products that were previously imported ($m > m_1$).

Negative Net Import Effect ($m - m_1 < 0$)

An adverse balance-of-payments condition where an FDI project increases host country imports ($m_1 > m$), such as importing capital equipment, components, or intermediate inputs.

Positive Net Export Effect ($x - x_1 > 0$)

A favorable balance-of-payments condition where foreign direct investment directly generates more host country exports than it reduces ($x > x_1$).

Home Country Export Stimulus via FDI

The mechanism where an MNE's foreign subsidiary stimulates home country net exports by demanding complementary products, specialized machinery, or intermediate parts produced in the home country.

Capital Flow Shift Over Time ($c - c_1$)

The transition of host country net capital flows from positive to negative as initial investment inflows ($c$) subside and subsequent outward profit repatriations ($c_1$) grow.

Net Capital Flow Time Lag

The extensive time delay between initial inward investment flows ($c$) and subsequent outward remittances or repatriations ($c_1$), making long-term FDI impact difficult to evaluate.

Home Country Offshoring Employment Trade-off

The domestic job loss resulting from the elimination of production and factory positions, counterbalanced by the domestic job gain in high-skilled corporate and administrative roles to manage global operations.

Fiscal Impact of Offshoring

The loss of local corporate and employee tax revenues experienced by home country communities when an MNE moves factory production abroad.

Greenfield FDI vs. Foreign Acquisition (Employment Impact)

Greenfield FDI generates brand-new employment opportunities by building entirely new facilities, whereas foreign acquisitions primarily preserve or reallocate existing jobs.

Technological Spillover of FDI

The transfer of advanced technical knowledge, production technology, and managerial capabilities from MNEs to host country economies.

Inward FDI Market Disadvantages

Adverse economic consequences for local firms when MNEs crowd out local competitors, suppress domestic entrepreneurship, and bid up the prices of local labor and resources.

Ethical Relativism

The belief that ethical standards and business practices should be adapted strictly to the local legal frameworks, social values, and cultural customs of the host country.

Ethical Normativism (Universalism)

The belief that universal moral standards exist and must be maintained consistently across all global operations, regardless of local host country practices.

Downward Regulatory Adjustment

An application of ethical relativism where an MNE lowers its health and safety standards in developing host nations to match minimal local regulatory baselines.

Legal Compliance vs. Ethical Integrity

The principle that laws provide only a minimum legal baseline ('rules of the game'), whereas true ethical conduct requires considering broader moral duties beyond statutory requirements.

Foreign Corrupt Practices Act (FCPA)

U.S. legislation forbidding American companies from paying bribes or providing items of value to foreign government officials to obtain or retain business.

Facilitating Payments ('Speed Money')

A specific legal exception under the FCPA permitting minor payments made exclusively to expedite or secure the performance of routine, non-discretionary governmental actions.

Routine Non-Discretionary Actions (FCPA)

Administrative government duties—such as processing customs papers or issuing routine permits—where the official is legally obligated to act and lacks the discretion to refuse service.

Corruption

The abuse of entrusted power for private gain.

Macroeconomic Effect of Corruption

A persistent empirical relationship where higher national levels of corruption result in lower economic growth rates and reduced per capita income levels.

Institutional Cost of Systemic Corruption

The erosion of public trust, moral credibility, and legal authority within governing institutions that tolerate or participate in corrupt practices.

Corporate Brand Equity Damage

The severe impairment of non-financial assets, such as firm reputation and home-country prestige, that occurs when an MNE's foreign bribery and corruption are exposed.

Corporate Code of Conduct

An internal governance mechanism established by an MNE to set uniform ethical and operational rules across all global subsidiaries to prevent corruption.

Corporate Social Responsibility (CSR)

A management framework through which multinational corporations integrate societal, environmental, and ethical concerns into their global business operations.

Stakeholder Mapping

An operational management tool used to systematically identify, evaluate, and prioritize key constituencies based on their power to influence the firm and their specific interests.

Constituency Trade-offs

Strategic compromises required of international managers due to opposing demands among groups, such as shareholders seeking profit maximization versus activist groups demanding costly environmental protections.

Ethnocentric Management Orientation

An international management perspective where an MNE exports its home-country norms and practices abroad, operating under the assumption that home-country methods are inherently superior.

Economic Downturn Effect on MNE Perception

The intensification of public scrutiny, protectionist sentiment, and political pressure directed toward foreign MNEs when host economies experience downturns.

Net Import Effect Calculation ($m - m_1$)

The balance-of-payments calculation showing a positive effect of $+\$80\text{ million}$ when an MNE replaces $$\

Net Import Effect ($m - m_1$)

The net import balance calculated as displacement minus stimulus; for example, displacing $\$100\text{ million}$ in imports while causing $\$20\text{ million}$ in imported inputs yields $+\$80\text{ million}$.

Net Export Effect ($x - x_1$)

The net export balance calculated as export stimulus minus export reduction; for example, generating $\$50\text{ million}$ in new exports while displacing $\$10\text{ million}$ in existing exports yields $+\$40\text{ million}$.

Shareholder vs. Stakeholder Orientation

Shareholder orientation focuses primarily on maximizing financial returns and share price for owners, whereas stakeholder orientation seeks to balance the diverse demands of all constituencies critical to long-term survival.

Host Government FDI Restrictions

Regulatory constraints imposed by host states to protect national security interests and shield vulnerable domestic industries from intense foreign competition.

Bribery vs. Facilitating Payment Distinction

Bribery induces an official to misuse discretionary authority for an unlawful benefit, whereas a facilitating payment merely speeds up the execution of a mandatory, non-discretionary routine duty.

National Security Screening of FDI

Regulatory reviews, foreign equity limits, or complete prohibitions applied to inward FDI when foreign investments target sensitive infrastructure or defense assets.

Determinants of Societal Views toward Business

The key elements shaping public perception of MNEs, including historical events, the perceived impact of globalization, national security issues, economic conditions, and environmental or health concerns.

Love-Hate MNE Relationship

The simultaneous appreciation host and home countries hold for an MNE's economic benefits (capital, technology, and jobs) alongside tension over corporate control, tax avoidance, and sovereignty.

Media Amplification Effect

The process through which media coverage of corporate scandals, labor abuses, or environmental damage magnifies public outrage and forces host governments to impose stricter regulatory policies.