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International Business (1178 words)

International Business
Tarhab Motiwala
Assignment 4
Critical thinking (page 159-160)
1. Avisiting American executive finds that a foreign subsidiary in a poor nation has hired a 12-year-old girl to work on a factory floor, in violation of the company’s prohibition on child labour. He tells the local manager to replace the child and tell her to go back to school. The local manager tells the American executive that the child is an orphan with no other means of support, and she will probably become a street child if she is denied work. What should the American executive do?
ANS: it is a very real ethical dilemma that the American executive facing. Both alternatives have its own right and wrong. As a student, neither alternative violating the company’s position on child labour, nor putting the child out on the streetsseems acceptable. But in the aspect of American executive might choose to allow the child to continue to work in the factory which could prevent the little girl became street child and still can earn income for her although that has violated the company’s policy.

2. Drawing upon John Rawls’s concept of the veil of ignorance, develop an ethical code that will (a) guide the decisions of a large oil multinational toward environmental protection, and (b) influence the policies of a clothing company to outsourcing of manufacturing process.

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ANS: John Rawls suggested that a decision is just and ethical if people would allow for it when designing a social system under a veil of ignorance. Rawls’ veil of ignorance is a conceptual tool that can contribute towards the moral compass that managers can use to help them navigate through difficult ethical dilemmas.
Although in some large oil multinational countries will not charge for violating laws if there are leakage of oil happening, but the companies should consider about the ethical dilemmas by contributing toward environmental protection. The policy of the companies should strengthen the ethical issue on the environmental protection because this is an order of the society.
The companies who did outsourcing is to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. This also means that the manufacturing process will be taken place in other countries. Therefore, the companies should consider about the ethical dilemmas issue toward the pollution that might happen the outsourcing countries during the manufacturing process. The company should strengthen the policy on minimization of waste to fulfil the order of the society.

3. Under what conditions is it ethically defensible to outsource production to the developing world where labor costs are lower when such actions also involve laying off long-term employees in the firm’s home country?
ANS: Many American companies are outsourcing not only blue collar work, but white collar positions to the developing world. Students are facing a tenuous job market where positions that they may have sought when they began their college degrees are being “shipped abroad.” Some students will argue that companies must do what is best for all stakeholders, and if that means taking advantage of cheaper labor costs elsewhere, then that is the appropriate strategy. Others however, will probably argue that companies owe a social debt to their home countries, and that loyalty from long term employees should be rewarded.
Critical thinking (page 205)
1. Mercantilism is a bankrupt theory that has no place in the modem world. Discuss.

ANS: Mercantilism is the first theory of international trade back in the mid-16thcentury where gold and silver were the currency of trade between countries. Mercantilism supported that countries should simultaneously encourage exports and discourage imports to ensure a surplus in the balance of trade that determine a nation’s wealth, prestige, and power. The economic development of a country would ultimately crater under mercantilism in the modern world. This is because we are currently living in the century where free trade is encouraged in many countries where we all grow as a global marketplace. Since government regulation is frowned upon by the people in the United States, the theory mercantilism would have no chance of success if it were to be applied as it would cause a dramatic economic downfall in the U.S economy. In addition, it would also likely lead to a dramatic economic recession in the world as the U.S. is one of the world’s largest economy after China
2. Is free trade fair? Discuss!
ANS:This implies the movement of commodities and services between countries unhampered by any tariff or non-tariff barriers. Suppose this was true. Then would this trade be fair? The concept of ‘fairness’ so to speak is probably derived from a remarkable proposition in trade theory which says that free trade would not only expand the world output of all commodities but also equalise wage rates, rentals, return to land, etc., between countries.
The logic is simple. If, for example, India has plentiful labour, production of commodities which use more of labour would shift to India and out of countries where labour is in short supply (example, the US). This would raise the demand for (and hence the price) of labour in India and reduce correspondingly demand and price of labour in the US.

3. Unions in developed nations often oppose imports from low-wage countries and advocate trade barriers to protect jobs from what they often characterize as “unfair” import competition. Is such competition “unfair”? Do you think that this argument is in the best interestsof
(a) the unions, (b) the people they represent, and/or
(c) the countryas a whole?
ANS: The theory of comparative advantage suggests that a country should specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries. Furthermore, the theory suggests that opening a country to free trade stimulates economic growth, which creates dynamic gains from trade. Therefore, it would follow that if low-wage countries can make certain products more efficiently than high wage countries, the low wage countries should produce and export those products. While trade barriers may protect workers and companies, they are a short-term fix at best. Moreover, by protecting industries, the government is not encouraging companies to become more efficient. Instead, they are promoting inefficiency. Consumers lose out because they have higher prices and less choice.

4. What are the potential costs of adopting a free trade regime? Do you think governments should do anything to reduce these costs? What?
ANS:It can be socially beneficial to ease the transition, for example by subsidies that have the effect of biasing the market so that new businesses set up in places where the job losses will be greatest.
Alsogovernments can provide or subsidise retraining programmes so that job-losers are personally enabled to move into the larger number of new jobs that free trade will create.


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