Case 1
International business operates in an interdependent global economy where market functions are influenced by national political and cultural diversity. Ethics focuses attention on the choice of values. Ethics concerns the nature and the justification of right actions. Prospectively, ethical norms are prescriptive, identifying values to guide actions now or in the future. Ethical norms may also provide standards for judgment of current or past actions. These uses apply to the fields of politics, economics and business. Legitimate businesses, including international enterprises, need a societal foundation of ethical values in order to operate efficiently and effectively.
However, ethical obligations of Multinational Corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear. There has been no agreement on ethical principles accepted. From an international business perspective, some argue that what is ethical depends upon one’s cultural perspective.
In the developing world, such as the South Africa, poverty, poor sanitation and lack of adequate medicine conspire to make infectious diseases like HIV/AIDS and malaria commonplace and deadly, accounting for about 25 percent of all deaths ( 2005). Meanwhile, in developed countries such as the United States, these same diseases can be prevented, treated or cured. Much of this disparity can be attributed to one thing: drugs. However, mostly essential drugs that are able to treat these diseases are patent protected by drug companies making the prices unaffordable in the developing countries.
A patent, as embodied in American law, is a government-issued grant that confers upon the patent owner “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a period of twenty years beginning from the filing date of the patent application. A patent effectively grants the patent owner a limited monopoly on the patented invention (1998). While the inventor can collect monopoly rents on sales of her product until the time of patent expiration, this inefficiency is justified on utilitarian or consequentialist grounds–that is, without patent protection, inventors would not invent, or would invent only to a level that would be considered sub-optimal. This concern is particularly salient in the world of medicines, where a substantial capital investment is required to bring products to market (2003). Significant funds are needed for drug research for two reasons: first, new drugs are exposed to extensive regulatory scrutiny and must be tested in expensive clinical trials in order to prove their safety and efficacy; and second, medical research is inherently uncertain and risky in nature, with a number of failures typically preceding any valuable breakthroughs (). Without the prospect of a limited monopoly, it appears unlikely that many investors would be willing to place tens or even hundreds of millions of dollars at risk on early-stage biomedical research.
The drug companies argued that because drug development is a very expensive, time consuming and risky process, they need the protection of intellectual property laws maintain the incentive to innovate. It can take 0 million and 12 years to develop a drug and bring it to market. Less than one in five compounds that enter clinical trials actually become marketed drugs- the rest fail in trails due to poor efficacy or unfavorable side effects-and of those that make it to market, only 3 out of 10 earn profits that exceed their costs of capital. If drug companies could not cont on high prices for their few successful products, the drug development process would dry up.
With these high prices, the deadly possibilities have shown themselves most starkly in the case of HIV/AIDS. In the developed world, modern antiretroviral drugs help patients to live an average of 11 years after contracting HIV. Yet 45 million infected people worldwide remain untreated, with five million new cases and two million deaths each year–in part because many antiretroviral drugs are relatively new, patent-protected inventions. That puts them far beyond the means of patients in the poorest countries ( 2005).
The current patent system means raising prices and patents deny life-saving drugs to the ill. But in wealthy nations, the case in favor of IP rights is equally simple: the ability to charge more for patented drugs is what gives pharmaceutical companies a financial incentive to develop new, life-saving drugs in the first place. And money is critical because research and development are costly; by some estimates, fewer than one in 10 thousand compounds tested ever reaches the market. But developing countries are poor, so there is little profit to be made in selling drugs to them, let alone in developing new ones for diseases unique to the developing world.
Tropical diseases are notably increasing which includes sleeping disorder, dengue fever, river blindness and malaria. However, there is a little effort has gone to research and development of tropical diseases. Instead, the patent system continues to produce anti-balding and the like. It is as if the balding of men are more important to solve than treating a dying men, after all, the dying men are poor and the balding men is rich.
However, in contrary to the argument of the drug companies, significant amount of research is now primarily funded by government grants.
Global patent rules raise the price of medicines in developing countries and bring no benefits, and that poor countries should therefore limit patent protection. It also suggested that they encourage local production of generic versions of vital medicines, consider the compulsory licensing of “essential” drugs by overruling drug companies market exclusivities, and import patented medicines if they can buy them more cheaply elsewhere.
Case 2
International trade has grown rapidly in recent years, thanks to the progressive reduction of tariffs and quotas through successive rounds of multilateral trade liberalization. Globalization and international competition encourage international corporations to use a variety of locations for the manufacture and sourcing of components and final products.
argued that trade is beneficial because of differences between countries in the costs of producing different goods (2000). According to (2000), like all of his contemporaries, Smith held to a labor theory of value, according to which the cost of producing a good was given by the labor time required to produce it.
Therefore, differences in the costs of producing a certain good in different countries reflected differences in labor efficiencies in each country. However, rather than each country striving to produce all the products which they could, each should concentrate on those products in which they enjoy a cost advantage over other countries. The result will be that all are better off.
It is argued that countries differ in their ability to produce goods efficiently, and should therefore engage in the practice of international trade. According to Smith, such countries should specialize in the production of goods for which they have an absolute advantage and then trade for the goods produced more efficiently by other countries (2001).
Increased trade also benefits consumers and efficient producers, through lower prices and access to a wider variety of goods. This is because trade encourages greater specialization—which dramatically lowers costs—and more intense competition, which is central to innovation.
Without trade the prices of Logitech’s Price may be at high price because costs of producing the products is also high if they have just concentrated in a geographical area in which the costs of the producing the product is high.
demonstrated that the reason why it pays countries to trade is the existence of different relative or comparative costs in the production of different goods (1998). So long as each country possesses a comparative advantage in at least one activity, it pays to specialize in that activity and engage in trade.
Differences in comparative costs are given by comparing the relative cost ratios existing in the two countries before trade. These express the cost of producing one unit of a particular good in terms of the number of units of the other good that must be forgone in order to do so. If we assume that all labor is employed in one or other activity, an extra unit of one good can only be produced by reducing output of the other. This way of expressing cost is what economists call ‘opportunity cost’ or the cost of something expressed in terms of opportunities foregone.
Specifically, comparative advantage draws upon the idea that specialization is efficient in order to forcefully establish the broader generalization that free trade must be in the best interest of all trading countries.
Comparative advantage argues that unlimited trade between countries will increase the total amount of goods produced if countries specialize in specific products and offer them at lower prices. Each country then will trade some of those lower-cost goods with other nations for goods that can be produced elsewhere more cheaply than at home. At the end of the day, with free trade among nations, all countries will find that their consumption possibilities lie outside their domestic production possibilities.
Ricardo suggested that countries should specialize in the goods it produces most efficiently and trade for goods it produces less efficiently, even if they could produce the second product more efficiently than the country with which they are trading (1998). Even more than the concept of absolute advantage, the theory of comparative advantage suggests that trade is a positive-sum game in which all gain (1998).
Based on the theory of comparative advantage, international trade is designed to lessen the scarcity problem through specialization, focusing on the production of a limited variety of goods and services. By concentrating on one activity or task, resources can be used more efficiently, and more efficient production leads to greater output without greater costs.
In addition, based on the theory of comparative advantage, Logitech found a way to improve maintain its core competence in differentiating themselves from competitors while lowering production costs. The company’s decision on its operations has continually guided by the comparative theory.
Manufacturing is done in China and Taiwan since these countries offer low direct costs. They can hire many people in lower cost. Overhead costs are also low in these countries. Costs of production would also cost Logitech a little percent of their returns. R&D works are done in Switzerland and Fremont because these places are close to high technology enterprises. Design is done in Ireland because this is what that country is good at.
Logitech employs a total of 650 people in Fremont and Switzerland and 4,000 factory workers in China. Although a less number of employees are employed in Fremont and Switzerland, they create more value for the company since they are the ones doing the mind work while the workers in China are doing labor work or assembling of the R&D group has invented. With Fremont’s geographical site, it is more accessible to high technology enterprises which are needed by the company thus making the company decide to shift its headquarters in Fremont.
Taiwan, on the other hand has been chosen to be the major manufacturing site of Logitech because supplier has less bargaining power. Suppliers include those who provide the direct labor and materials. The country provided well developed supply base for parts, qualified people and factory space in the low cost. Customers has no bargaining power because there are no direct customers in the country since the Taiwanese factory was only out producing U.S. facility. In addition there are no threats of new entrants since the country is still expanding in the local computer industry. Competitive advantage of the company is its continuing innovations.
A growing number of tech companies are looking at China as the next huge business frontier, both as a way of tapping into its growing consumer market and for manufacturing goods at cheaper costs.
China’s increasing integration with the global economy has contributed to sustained growth in international trade. Its exports have become more diversified, and greater penetration of industrial country markets has been accompanied by a surge in China’s imports from all regions—especially Asia, where China plays an increasingly central role in regional specialization.
Credit:ivythesis.typepad.com
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