Multinational sourcing, sustainable agriculture and alleviation of global poverty

1、multinational sourcing, sustainable agriculture, and alleviation of global povertyjonathan p. dohdirector, center for responsible leadership and governancecollege of commerce and financevillanova university800 lancaster avevillanova, pa 19085tel: (610) 519-7798fax: 610-519-6566e-mail: jonathan.dohvi

2、in this paper, i propose proactive management of mne sourcing as a possible contributor to global poverty alleviation. drawing on and extending research on development economics, international business, and ethics and social responsibility, i suggest mnes may be in a position to leverage

3、their role as consumers of unfinished or semi-finished products to promote sustainable economic development in emerging economies. i report on several nascent initiatives in sustainable agriculture that appear to reflect this proposed role, and discuss both constraints to and potential facilitators

4、of wider-spread efforts.key words: poverty, mne, international business, global sourcing multinational sourcing, sustainable agriculture, and alleviation of global povertypoverty continues to be a vexing and pervasive problem for the global commons. although poverty has been dramatically reduced in

5、many parts of the world, a quarter of the world's people remain in severe poverty (undp, 2002). an estimated 2.8 billion persons, roughly 45 percent of the worlds population, live on less than $2 dollars per day, and 1.2 billion, or about 20 percent of all humans, receive less than $1 per day, t

6、he generally accepted international level of absolute poverty (world bank, 1999). about 1.1 billion persons live without access to safe drinking water, and 840 million adults and children are severely undernourished. multinational enterprises (mnes) are not typically viewed as significant players in

7、 the fight against global poverty. yet, mnes have become increasingly intertwined with many facets of social and economic life. indeed, they have often been at the center of debates regarding relationships and obligations between the developed and developing world. mnes are often viewed as the agent

8、s through which the ideals and practices of western market capitalism are transmitted to developing countries. by some accounts and using some measures, this process has assisted in the economic improvement of impoverished regions of the world. other interpretations suggest that globalization and th

9、e transnational penetration by mnes of developing markets has both exacerbated existing social and economic problems and contributed to new ones. both of these perspectives generally position multinationals as exporters to and/or investors in developing host countries. one role of some mnes that of

10、sourcing agent for purpose of purchasing goods for additional processing, marketing, and distribution is somewhat less explored. in this paper, i investigate mne sourcing strategies as a possible positive contributor to global poverty alleviation. drawing on and extending research on development eco

11、nomics, international business, and stakeholder management, i propose a normative and instrumental theory that suggests how mnes can use their role as “consumers” of often unfinished or semi-finished inputs into final production to contribute to global poverty alleviation. this consumption can be pa

12、rt of an internal supply chain in which mnes manage the entire production and distribution process, or via sourcing from sub-contractors. such changes may contribute to poverty alleviation through shifting or stimulating higher value-added activities to poorer regions, and in so doing, accelerating

13、economic development. in practice, these activities have often been provoked by pressure from nongovernmental organizations (ngos) and consumers of final products in developed country markets, but may be increasingly motivated by potential competitive benefits to the mne resulting from product diffe

14、rentiation or other factors. in addition, mnes may serve as a market intelligence channel through which producers can learn about market trends and preferences in developed country markets. i begin with a brief review of the history of fdi in emerging economies, summarizing both the neoclassical arg

15、uments supporting the benefits of fdi to third world growth and development, as well as critiques that have focused on imbalances and dependencies associated with that investment. i then discuss contemporary concerns regarding the perceived negative spillovers of economic globalization that have pla

16、ced pressure on mnes to improve their social and environmental contributions in developing countries. next, i propose an extension of the international product lifecycle as a framework for understanding how mnes might accelerate the shift of value-added investment or sourcing activities in emerging

17、economies.in the following section, i identify several literatures drawn from philosophy, economics, and management to provide a range of normative and instrumental justifications for this process. i suggest that there are many of caveats associated with the success of these activities, suggesting t

18、he necessity of several safeguards namely social responsibility codes of conduct to ensure that some firms do not free ride on the investments of others.i then review several cases in which mnes have stimulated higher value added production in developing country markets through their sourcing and pu

19、rchasing power. i focus on the agricultural sector because it is in this sector that globalization of production has had particularly radical (and often disruptive) impacts on developing countries, but which also promises the potential for productive and sustainable trading relationships that are be

20、neficial to both developed and developing countries. specifically, i analyze the sustainable coffee movement, the fair trade and “better bananas” initiatives, and the forest products stewardship certification process. i show how mnes, in response to external pressure and their internal strategic mar

21、keting management, have used their market power to stimulate value added production and prompt changes in processes leading to more sustainable agricultural practices. these efforts have the potential to generate direct and indirect social and economic benefits (higher value-added production in grow

22、ing country, increased income for farmers, formation of cooperatives, slowing of urbanization/preservation of agricultural opportunities) and to contribute to the conservation of scarce resources (such as less use of fossil fuels in the agricultural production process, improved natural habitats for

23、wildlife, reduced use of pesticides or fertilizer, preservation of natural sources of drinking water). globalization, international business, economic development, and global sourcingbrief history of fdi in emerging economiesaccording to some accounts, the modern era of foreign direct investment fro

24、m the developed to developing world began in the late 19th and early 20th centuries (lewis, 1938, 1948). wilkins (1977, 1988) described “free standing companies” to characterize a specific form of british outbound investment that did not necessarily grow out of domestic sales. such firms had compone

25、nts of direct and portfolio investment: the directors were foreigners in the country of operation, but the firms financing was through bonds. wilkins (1977) contrasted this form with u.s. outbound fdi, which involved the expansion of domestic activities abroad. these new forms of investment contribu

26、ted to a period in the late 1800s and early 1900s in which u.s. and british investors helped finance infrastructure in a number of developing economies, such as railroads in mexico. as hoffman (2000) has documented, however, the share of foreign investment to overall gdp in many developing countries

27、 fell precipitously throughout the 20th century due to nationalism, decolonization, more attractive investment opportunities in developed countries, and concerns about expropriation of overseas investments. in mexico, with the emergence of the “revolutionary” pri party, the decline in investment was

28、 especially dramatic. in the 1990s, the process of private, foreign participation in developing country infrastructure accelerated once again (world bank, 1999). broad global trends toward more open economic systems, specifically characterized by official policies of economic liberalization and priv

29、atization, have facilitated this investment (doh, 2000; ramamurti, 2000). mnes from the developed world have become very active in developing countries, viewing the emerging regions of the world both as new consumer markets and sources of inputs for finished goods produced in home regions, whether a

30、s part of their own investment strategies in a vertically integrated global supply chain, or through independent sub-contracting and sourcing strategies.globalization, anti-globalization, and the role of mnes in developing countriesneoclassical economics has maintained that there is a positive relat

31、ionship between open market economics and growth. solow (1956) and swan (1956) provided the most basic version of the neoclassical theory of growth. the neoclassical model emphasizes how growth arises from the accumulation of capital, implying that countries with similar production technologies, res

32、ource endowments, time preference of consumption, and saving and population growth rates, should converge to similar steady state levels of per-capita income (barro & sala-i-martin, 1992). the concept of convergence relies on technology diffusion. the use of knowledge and technologies are major

33、factors accounting for the high state of development in the western industrialized economies. barriers to the free flow of information and transfer of technologies from the developed economies to the less developed ones have often been cited as one of the most important explanations for the lack of

34、convergence in growth performance among economies in the world (taylor, 2000). market knowledge and intelligence are also potential contributors to these spillover effects and the convergence in incomes between developed and developing economies.dependency theory emerged in the late 1960s and early

35、1970s to counter the presumption that the growth patterns of developing and developed countries would converge, and that barriers to capital and technology flows were the source of the absence of convergence. on the contrary, dependency theorists suggested that the development of the industrialized

36、nations had occurred at the cost of the developing nations. development and underdevelopment represented two sides of the same coin, with development of the industrialized countries a product of the underdevelopment of the third world. developing nations were often the victims of global forces (mult

37、inational corporations, world markets, foreign embassies, and military interventions) that the developing countries were powerless to control (cardoso & faletto, 1979; frank, 1967). lending agencies such as the world bank and international monetary fund were complicit in this process as they pus

38、hed private sector (often foreign) development in developing countries and urged a curtailment of state-led or state-directed development policies.grounded often in marxian philosophy, the dependency school tended to employ terms like "colonialism" and "imperialism" to describe f

39、oreign investment activities in domestic markets. one extension of this perspective is the import substitution industrialization (isi) approach to development within less developed economies. prebisch (1964) proposed that less developed countries should build their own development model through stat

40、e-initiatives like high tariff barriers to protect industries from fierce outside competition. in this way they substitute their own homemade industrial products for expensive imported goods. even mainstream scholars of international political economy (ipe) such as moran (1974) acknowledged the mixe

41、d role that american corporations operating in developing countries have played. in his case study of kennecott copper of chile, moran (1974) argued that kennecott exploited political and economic resources to maneuver and manipulate the chilean political system. the legacy of the dependency model o

42、f development for the emerging markets in general is a residual suspicion of the private sector and private investment, especially in strategic and “national” sectors. more recently, the advent of economic globalization has inspired a renewed stream of criticisms of the impact of global capital and

43、investment flows from a wide range of quarters (ralph nader and george soros, for example) and academic disciplines (political science, sociology, psychology, and economics, for example). these include friedmans the lexus and the olive tree (1999); stiglitzs globalization and its discontents (2002);

44、 singers one world: the ethics of globalization (2002); soross george soros on globalization (2002); barber and schulzs jihad vs. mcworld: how globalism and tribalism are reshaping the world (1996); and dunnings making globalization good: the moral challenges of global capitalism, among many others.

45、 dunning (2003) argues that modern capitalism has failed on at least three basic dimensions: failure of markets, failure of institutions, and failure of moral virtues. criticisms have been especially sharp in relation to the activities of multinational companies such as nike, levis, united fruit, an

46、d others - whose sourcing practices in developing countries have been alleged to exploit low-wage workers, take advantage of lax environmental and workplace standards, and otherwise contribute to social and economic degradation. many governments, international organizations, and both local and multi

47、national ngos have criticized the low-cost labor seeking behavior of mnes in developing countries, suggesting such firms scan the globe for the cheapest, least regulated, and most exploitive situations in which to source raw materials and semi-finished products (singer, 2002). most of these treatmen

48、ts have tended to focus on the costs and benefits of globalization, rather than proposing potential solutions or modification of current models of global trade and investment. one classic international business theory that may be used to better understand the role of mnes in the global economy and a

49、s a potential contributor to poverty alleviation in developing countries, is the international product life-cycle theory as first articulated by vernon (1966).the international product life-cyclein 1966, raymond vernon described a theory of international competition that broke free of the constraint

50、s associated with previous neoclassical perspectives on economic growth and development. in what is referred to as a product life cycle model (plc), vernon argued that capital intensive and technologically sophisticated innovations were typically developed in the us for the domestic market. initial

51、production took place in the us to obtain market feedback and resolve start-up production uncertainties and problems. market demand then emerged in other advanced industrial nations that had similar developed infrastructures and high incomes, and was served by exports from the us.in vernons view, pr

52、oduction capacity in other industrial nations was then developed to satisfy growing local demand and, over time, substituted for imports from the us. knowledge was then transferred to the other industrial countries. firms in other industrial nations then began exporting, increasingly to non-industri

53、al developing countries where demand eventually emerged. in the final stage of his model, vernon (1966) argued that non-industrial nations' firms became producers of a then standardized product for which low cost production was important. mncs from the us and other developed countries invested i

54、n developing countries. these investments became the production base from which mncs exported from developing nations back to the us and other industrial nations, thereby completing the cycle. as a complement to vernons country and industry orientation on cycles in international trade, johanson and

55、vahlne (1990) developed a model of sequential internationalization on a firm level. this model emphasizes incremental internationalization through acquisition, integration, and use of knowledge concerning foreign markets. initially, the domestic firm responds to external stimuli that prompt it to re

56、spond via considerations of foreign market entry. this strategic initiative begins a sequential process of experimental, active, and committed international involvement, often progressing from agent to equity modes of international involvement (fina & rugman, 1996). since the proffering of the i

57、nternational product life-cycle theory and the firm-level internationalization model, there have been several modifications, theoretical extensions, and empirical tests to both perspectives (fina & rugman, 1996; lancaster & wiesenlund, 1984; lau, kwok, chan & fai, 2000). in general, theo

58、retical development and empirical investigations have focused on the relevance of these theories for merchandise trade. recently, scholars have also questioned the validity of the plc model (cantwell, 1995) and of the internationalization perspective (anderson, 1993; itaki, 1991) to contemporary ib.

59、 vernon himself suggested the plc may lose utility in an increasingly complex and integrated international trade environment (vernon, 1979), and other researchers have argued that some international ventures may not follow the slow, sequential process anticipated by the plc and internationalization perspectives, but rather may experience a more uneven or accelerated process of internationalization (mcdougall, shane, & oviatt, 1994). although the plc assumes that all produ