BUS 4474 Troy University Union Carbide Corporation and Bhopal Case Study Read the Union Carbide Corporation and Bhopal case that begins on page 384 of your

BUS 4474 Troy University Union Carbide Corporation and Bhopal Case Study Read the Union Carbide Corporation and Bhopal case that begins on page 384 of your Business, Government, and Society textbook. In lieu of answering the questions that follow the case, you will respond to the prompt below;Consider the concerns as described in this case and prepare a memorandum that addresses the concerns described below. Your memo should be completed in narrative form (you may use headings if you choose to do so for organizational purposes, but do not list your responses in bullet form). Minimum page length: 6 pages; Maximum page length: 10 pages (double spaced).Identify all of the potential ethical issues you see (if any). Describe and analyze the implications of each issue, including who or what were affected by the company’s response. In identifying issues and addressing their implications, your discussion should be as comprehensive as possible—you should consider any economic, social, or ecological implications. Additionally, your analysis should thoroughly identify and discuss at least two potential courses of action that the company could have taken with respect to each issue you have discussed. Clearly demonstrate your reasoning process—identify and explain any ethical principles or arguments you are relying on; do not simply state unsupported conclusions. If you choose to apply any approaches to ethical reasoning that you learned about in this course, clearly state what they are and how you are applying them to this case. Of the possible solutions you identified, which would you recommend that the company should have adopted as a resolution? Again, fully explain and justify your recommendations. Finally, explain how you would implement each solution you have recommended. Chapter Eleven
Multinational
Corporations
The Coca-Cola Company
John S. Pemberton, an Atlanta pharmacist, invented Coca-Cola in 1866. After some
experiments to create a headache remedy, he found a formula that pleased him and
named it Coca-Cola, after two of its ingredients, namely, “coca,” the dried leaf of a
South American shrub, and “cola,” an extract of the kola nut. It became popular after local druggists began mixing it with soda water at their store fountains. When
Pemberton became ill his formula moved into the hands of an Atlanta druggist
named Asa Candler. Candler revised the formula, promoted it as a soft drink, and
founded The Coca-Cola Company in 1892.1
Coca-Cola was the first soft drink to become a national brand. Candler’s strategy
was to manufacture the syrup, selling it to fountains, and let others add sparkling
water and bottle it for the mass market. It made him rich. The company still follows
this basic strategy, although its execution has grown far more complex.
The Coca-Cola Company is now an international giant with revenues of $35 billion from more than 200 countries in 2010. Its headquarters are still in Atlanta, but
America is no longer its dominant market. It gets 75 percent of its sales in 200 other
nations where 86 percent of its 92,800 employees live and work. Its global strategy is
to expand by licensing more and more bottlers to make and sell its brands. It produces only about 21 percent of its “unit case volume,” the measure it uses to calculate output, in its own syrup manufacturing and bottling plants. The rest comes from
licensed bottlers with whom it has a wide range of business relationships. Some,
about 23 percent, are from independent bottlers in which Coca-Cola has no ownership. Another 45 percent are bottlers partly owned but not controlled by Coca-Cola,
and 11 percent are bottlers it partly owns and controls.2
1
The exact nature of the formula is a trade secret. Years ago food and drug regulators accused the
company of adulterating its product with a “poisonous” ingredient—caffeine. Coca-Cola denied any
health danger and the dispute went to court. When the Supreme Court overturned a lower court ruling
in the company’s favor, its opinion divulged that Coke syrup contained extracts from coca shrub leaves
and cola tree nuts, water (42.63 percent), sugar (52.64 percent), caffeine (1.21 grains per ounce),
glycerine, and lime juice. See United States v. Coca Cola, 36 S.Ct. 573 (1916), at 574 and 579.
2 The Coca-Cola Company, Form 10-K 2010, February 28, 2011, p. 33.
352
Chapter 11 Multinational Corporations 353
While some multinational corporations try to project a uniform product and
“company way” around the world, Coca-Cola Company adapts to foreign business
climates. Its organization structure divides the world into five operating groups—
Eurasia and Africa, Europe, Latin America, North America, and the Pacific—reflecting
a focus on regional markets. International experience is a key criterion for selecting
members of its board of directors. Eight of 14 current directors are noted for strength
in this area.
Acting within this structure and through more than 300 bottlers, the company is
“a global business that operates on a local scale.”3 Instead of trying to market the
same beverages everywhere, it finely adapts its portfolio to local tastes, selling 3,300
products based on 500 brands. It markets Georgia Coffee in Japan, Matte Leao
herbal beverages in Brazil, Tian Yu Di (Heaven & Earth) teas in China, Cappy Lemonade
in Turkey, and Mazoe peach juice in Ghana. Per capita consumption of its products is
highest in Mexico, where the average citizen drinks 665 company beverages a year,
far more than the 399 average in the United States.4
Around the world 1.6 billion Coca-Cola brand drinks are consumed daily. Yet satisfied customers do not insulate the company from vicious critics. In India, for example,
environmental activists released data purporting to show the company’s soft drinks
harbored pesticides. Although Coca-Cola produced laboratory data certifying the
safety of its products, several Indian states prohibited their sale. Indian courts have
since reversed these bans.
In Columbia, a widow backed by activist lawyers alleged Coca-Cola was complicit
in the murder of her husband, a union leader at a bottling plant. This charge has
persisted despite a series of court decisions dismissing the case for lack of evidence
that the company had any knowledge of, or control over, events at the independently
owned plant.5 In the United States, legendary labor activist Ray Rogers launched a
“Killer Coke” campaign broadening accusations against the company to include condoning torture and kidnapping of union organizers at bottling plants, using child and
prison labor, exploiting water resources, and overselling products that cause obesity.
At the company’s 2010 annual meeting Rogers rose to confront management, charging that the company operated “like a criminal syndicate” and asking the directors to
make sure it “reins in its greed [and] cleans up its act.”6 CEO Muhtar Kent dismissed
his accusations as having “no merit.”7
One way Coca-Cola protects its brand is to set rising standards for corporate citizenship. It is spending $6 million to plant 30 million trees in Mexico and $30 million
to supply 2 million Africans with clean water. If any of the 60,000 African workers for
Coca-Cola and its bottlers or their family members contract HIV/AIDS, the company
3
The Coca-Cola Company, “The Coca-Cola System,” at www.thecoca-colacompany.com, September 19,
2010.
4
The Coca-Cola Company, “Per Capita Consumption of Company Beverage Products,” at www.thecocacolacompany.com/ourcompany/ar/pdf/2009-per-capita-consumption.pdf, 2010.
5 See, most recently, Sinaltrainal v. Coca-Cola, 578 F.3d 1252 (2009).
6 Quoted in Stop Killer Coke Newsletter, May 6, 2010, at www.killercoke.org/nl100506.htm, at 1.
7 Quoted in Jeremiah McWilliams, “Mixed Emotions at Coca-Cola Annual Meeting,” Atlanta JournalConstitution, April 21, 2010, p. A15.
354 Chapter 11 Multinational Corporations
provides medical coverage. It builds playgrounds in the Ukraine and organized thousands of volunteers to clean parks in Russia. It has global programs to reduce its
energy use and replace the water it takes from nature.
Along with other multinational corporations Coca-Cola has embraced schemes of
civil regulation that promote responsibility in emerging economies. To protect against
accusations of bad behavior it is awash in codes. It has adopted a “Code of Business
Conduct,” a “Workplace Rights Policy,” a “Human Rights Statement,” an “AntiBribery Policy,” and “Supplier Guiding Principles.” As a signatory of the United
Nations Global Compact it pledges to follow a set of 10 corporate responsibility
principles. A statement on its Web site reads: “The Coca-Cola Company and our
bottling partners are committed to making a lasting, positive difference in the
world.”8
In this chapter we discuss the nature of multinational corporations, their strategies
for internationalization, the impacts of their foreign investment, and their efforts to
show responsibility using a range of devices, from voluntary codes of conduct through
collaborations with multiple stakeholders. Elements of the Coca-Cola story illustrate
all these themes.
THE MULTINATIONAL CORPORATION
multinational
corporation
An entity headquartered in
one country
that does business in one or
more foreign
countries.
The multinational corporation (MNC) is an entity headquartered in one country, its
home country, that does at least part of its business in one or more foreign, or host,
countries. The universe of MNCs is one of exceptional diversity. Most are private
enterprises, but some are cooperatives or state-owned. A few MNCs have the majority of their assets, sales, or employees in foreign countries. Most are primarily
domestic businesses with some foreign activity. While some global giants have
made a visible impact for good or ill in foreign societies, most MNCs are only medium or small in size and hardly make a ripple. The oldest, largest, and mostpowerful ones are based in rich countries. However, those based in China, India,
Malaysia, South Africa, and other developing countries now challenge the global
leaders, especially in emerging markets.
MNCs also vary widely in their organizational structures and operations. In
general, however, there are five tiers of internationalization as shown in Figure
11.1. These tiers are not stages, though they might be for a given company. Rather,
they represent options to extend business activity into foreign markets. Each tier is
best seen as a theory, model, or ideal. Many of the largest MNCs defy categorization. They have so much structural and strategic variation that they simultaneously use the methods in all five tiers.
1. Export sales to foreign countries.
2. Establish foreign sales offices.
3. License franchises, brands, the use of patents, or technology to foreign firms that
make or sell the MNC’s products. For example, McDonald’s restaurants outside
8
The Coca-Cola Company, 2008/2009 Sustainability Review, at www.thecoca-colacompany.com/
citizenship/index.html, p. ii.
Chapter 11 Multinational Corporations 355
FIGURE 11.1
Five Tiers of
Internationalization
Global Production
Direct Investment
Foreign Sales Office
Licensing
Export Sales
the United States are franchises run by foreign entrepreneurs. Coca-Cola licenses
foreign bottlers to make almost all of its beverages in some 200 countries.
4. Buy or create facilities in another country for producing in local markets. Such
facilities may become hubs for regional or global sales. The company operates
as a group of country-based business units or subsidiaries.
5. Practice global production in which a value chain spans two or more countries.
Work on one or more tasks—research, design, manufacturing, logistics, distribution, marketing, sales, or support services—that would be confined to a single country in the fourth-tier model now is done in two or more countries.
Organization and control of these cross-border processes are centralized in the
parent company’s headquarters.
Companies have strategic reasons for moving across these tiers. Through much
of the previous century, firms limited themselves to the first four tiers. Before World
War II, only a handful of large companies, such as Ford Motor, Singer, and Bayer,
had moved into the fourth tier by operating foreign production facilities. Most
manufacturers exploited foreign consumer markets through exports and foreign
sales offices. The bulk of foreign investment was made in poor countries by multinationals engaged in plantation agriculture, mining, or petroleum extraction.9
9
Jeffry A. Frieden, Global Capitalism (New York: Norton, 2006), p. 293.
356 Chapter 11 Multinational Corporations
liberalization
The economic
policy of lowering tariffs and
other barriers
to encourage
trade and
investment.
transnational
corporation
As defined by
the United Nations, a parent
firm that controls the assets
of affiliated entities in foreign
countries.
After World War II the situation changed for manufacturers. Strong feelings
of nationalism in many countries led to the rise of trade barriers for protecting
domestic firms from import competition. Particularly in Europe, rising tariffs
made export sales less profitable. Rather than exit large and lucrative domestic
markets there, American manufacturers shifted strategies and set up subsidiaries within them. Thus, they moved from one of the first three tiers into the
fourth tier. These new foreign subsidiaries often operated very independently
of their parent firms, making distinctive products and assuming strong local
identities.10
By the end of the century, however, the strategic advantages of this fourth-tier
model were less compelling. One reason was the spread of liberalization, or the
economic policy of lowering tariffs and other barriers to encourage trade and investment. As trade barriers fell it became easier for corporations to move components, products, and services across borders. Also, revolutionary changes in
information technology and telecommunications made new forms of global production possible. What ensued was fierce global competition stemming from the
adoption of border-spanning production systems. To lower costs and speed output, MNCs created far-reaching networks of suppliers and foreign affiliates. Using
new technologies they integrated work across geographic boundaries. As they
did, they moved into the fifth tier of internationalization, where their strategic
thinking was less influenced by national boundaries.
Today companies with international operations are given many names. They
can be called simply international or global. A less preferred name is multidomestic. Usually they are called either multinational or transnational. These names are
used loosely, but they occasionally signify diverging beliefs about the nature of
these corporations. Sometimes those using the name multinational mean to imply
that these companies have erased national allegiances, becoming itinerant firms
that move investment and activity from nation to nation in search of profits. The
name transnational is sometimes intended to suggest that rather than becoming
stateless entities, large global firms are best understood as invariably and unalterably national companies that have simply extended their reach over borders. The
distinction is impractical. There are so many variations of MNCs that either definition fails if applied to the whole universe. Therefore, in this book, we prefer the
traditional and long-standing name multinational used loosely and interchangeably with transnational, global, and international.
A Statistical Perspective
Multinational corporations have flourished so spectacularly that if they were a
natural species ecologists would inspect their environment for the explanation.
One trend is a rapid rise in numbers. The United Nations calculated that in 2008
there were 82,000 transnational corporations (TNCs), which it defines as parent firms
that control the assets of affiliated entities in foreign countries including branches,
subsidiaries, and joint ventures. It estimated that these parent TNCs controlled
10 Geoffrey G. Jones, “Nationality and Multinationals in Historical Perspective,” Working Paper 06-052,
Harvard Business School, 2005, p. 23.
Chapter 11 Multinational Corporations 357
FIGURE 11.2
The
Dominance
of the Largest
Transnational
Corporations
The United
Nations reports
there are now
82,000 transnational corporations. Of these,
the largest 100
nonfinancial
corporations
are 12 percent
of the number
but have a disproportionately
great impact
on the global
economy. All
but 10 are from
the United
States, Europe,
and Japan.
Source: Data from
United Nations Conference on Trade and
Development, World
Investment Report
2009 (New York:
United Nations,
2009), p. 17; and
United Nations Conference on Trade and
Development, World
Investment Report
2010 (New York:
United Nations,
2010), annex table 26.
foreign
affiliates
Business entities in foreign
countries
controlled
by parent
transnational
corporations.
The Top 100
Top 100 Nationality
9% of foreign assets
16% of foreign sales
11% of foreign employment
Average TNI = 63.4
United States = 18
Europe = 63
Japan = 9
Other developed = 3
Developing = 7
82,000
807,000 such foreign affiliates.11 This is more than double the 37,000 TNCs in the
United Nations’ first estimate of their numbers back in 1991 and more than seven
times the 10,700 estimated to exist in 1969.12 The ranks of parent TNCs are dominated by those from developed nations, but the number from developing countries has risen to 28 percent of the total, up from only 8 percent in 1992.13
If the largest firms are any indication, transnational firms have also grown in
size. In the decade from 1998 to 2008, the assets, sales, and employment of the largest 100 transnational firms increased by 131 percent, 107 percent, and 20 percent,
respectively. As they grew, a larger part of their activities became international.
During the same decade, the foreign assets, foreign sales, and foreign employment
of these top 100 firms grew faster than their overall growth, going up 217 percent,
153 percent, and 35 percent, respectively.14 On average, each of these big firms operates in 41 countries and 70 percent of their affiliates are in foreign countries.15
Figure 11.2 sketches the universe of TNCs and hints at the dominance of the 100
largest firms. Their origins reflect the commanding position in the global economy
of the United States, Europe, and Japan, which are home to 90 of the top 100. TNCs
11 This 2008 estimate is from United Nations Conference on Trade and Development, World Investment
Report 2009 (New York and Geneva: United Nations, 2009), annex table A.I.8.
12 The 1990 estimate is from United Nations Conference on Trade and Development, World Investment
Report 1993 (New York: United Nations, 1993), table I.6. The 1969 estimate is extrapolated from data in
fn. 7 and table I.6.
13 United Nations Conference on Trade and Development, World Investment Report, 2010, p. 17 and
figure I.12.
14 United Nations Conference on Trade and Development, World Investment Report 2000 (New York:
United Nations, 2000), table III.2; and United Nations Conference on Trade and Development, World
Investment Report 2009, table I.7. Figures are based on an annual list of nonfinancial companies ranked
by foreign assets.
15 United Nations Conference on Trade and Development, “Largest Transnational Corporations Pursued
further Expansion Abroad in 2007,” press release, September 24, 2008.
358 Chapter 11 Multinational Corporations
TABLE 11.1 Three Top 10 Rankings
Rankings by revenues, foreign assets, and transnationality give three perspectives on transnational
corporations. Revenues are for 2009, and foreign assets and transnationality are for 2008.
Source: “Global 500,” Fortune, July 26, 2010, p. 131; and United Nations Conference on Trade and Development, World Investment Report 2010 (New
York: United Nations, 2010), annex table 26.
Rank
1
2
3
4
5
6
7
8
9
10
Revenues*
Walmart Stores
Royal Dutch/Shell
ExxonMobil
BP
Toyota Motor
Japan Post Holdings
Sinopec
State Grid
AXA
China National Petroleum
Foreign Assets*
$408
285
285
246
204
202
188
185
175
166
General Electric
Royal Dutch/Shell
Vodafone
BP
Toyota Motor
ExxonMobil
Total
E.On
Electricite De France
ArcelorMittal
Transnationality
$401
222
202
189
170
161
141
141
134
127
Xstrata
ABB
Nokia
Pernod Ricard
WPP Group
Vodafone
Linde
Anglo American
Nestlé
Air Liquide
TNI
93.2%
90.4
90.3
89.1
88.9
88.6
88.3
87.5
87.1
86.9
*Revenues and assets are rounded in billions of dollars.
from developing countries occupy only 7 spots in the top 100, but their importance
is growing. They account for 28 percent of all TNCs, up from only 8 percent in 1992
and their foreign assets are about 10 percent of all TNC foreign assets.16 Table 11.1
shows several dimensions of the top 10 firms—their sales, assets, and rank on an
index of internationalization to be explained in the next section.
How Transnational Is a Corporation?
transnationality index
(TNI)
The average of
three ratios:
foreign assets
to total assets,
foreign sales to
total sales, and
foreign employment to total
employment.
One way of gauging the largest TNCs is by measuring the degree to which they
have extended critical elements of their operations into foreign countries. Corporations vary in a range of international dimensions. These include the ratio of
domestic to foreign operations; the number of foreign countries entered; the size
of foreign direct investment; the geographic span of operations; the extent of global integration in the production chain; and the…
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