Foreign Investment and Ethics How To Contribute To Social Responsibility by Doing Business in Less-Developed Countries

Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing
Business in Less-Developed Countries

Author(s): Roland Bardy, Stephen Drew and Tumenta F. Kennedy
Source: Journal of Business Ethics, Vol. 106, No. 3 (March 2012), pp. 267-282
Published by: Springer
Stable URL: https://www.jstor.org/stable/41426690
Accessed: 21-04-2020 22:03 UTC
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J Bus Ethics (2012) 106:267-282
DOI 1 0. 1 007/s 1 055 1 -0 1 1 -0994-7
Foreign Investment and Ethics: How to Contribute to Social

Responsibility by Doing Business in Less-Developed Countries
Roland Bardy • Stephen Drew • Tumenta F. Kennedy
Received: 14 March 201 1 / Accepted: 29 July 201 1 / Published online: 23 August 201 1
© Springer Science+Business Media B.V. 201 1
Abstract Do foreign direct investment (FDI) and inter- strategies of corporate social responsibility (CSR) and
national business ventures promote positive social and ethical business practice. The paper draws insights from
economic development in emerging nations? This question development, FDI, poverty alleviation, and bottom-of-the-
will always prove contentious. First, the impacts differ pyramid (BOP) literature. Applications are demonstrated
according to context. Second, the social consequences and using examples from poverty-stricken areas of Sub-Saha-
spillover effects of knowledge diffusion and technology- ran Africa. The paper attempts not only to argue theoreti-
sharing may be limited and hard to measure. Third, con- cally but also to provide practical evidence. The approach
tributions to enhancing social responsibility and improving is simultaneously descriptive, analytical, and prescriptive
living standards in host countries are delayed in effect, in order to address a wide audience. It also highlights issues
causally complex, and also hard to measure. Outcomes and trends for further academic research and presents the
often critically depend on collaboration of governments, viewpoint that some limitations lie in the nature of ethics
international institutions, the business world, and non- frameworks widely referenced in business and that these
governmental organizations (NGOs). Research in this area often fail to consider the compatibility of ethical constructs
is challenging and requires interdisciplinary collaboration with relevant incentives. In this vein, we explore the
between economists, financial experts, sociologists, ethi- application of Homann's framework for advantage and
cists, and other specialists. This paper explores: (1) the incentive-based ethics.
evidence to support the proposition that FDI and interna-

tional business improve social conditions in less-developed Keywords Foreign direct investment •
countries, and: (2) how these improvements are linked to Corporate responsibility • Transition economies •
Bottom of the pyramid • Lecturing business ethics •
Sub-Saharan Africa
R. Bardy (Ю)
BardyConsult, Mannheim, Germany
e-mail: rbardy@t-online.de
Introduction
R. Bardy
Florida Gulf Coast University, Fort Myers, FL, USA
Globalization, foreign direct investment (FDI), and trade
S. Drew can potentially bring social, economic, and business ben-
Center for Leadership and Innovation, Lutgert College efits to emerging market countries through inflow of cap-
of Business, Florida Gulf Coast University, Fort Myers, FL, USA
ital, knowledge, and increased employment. However, the
e-mail: sdrew@fgcu.edu
specific conditions and mechanisms for this to happen are
T. F. Kennedy complex, not well understood, and may depend upon an
Wittenberg Center for Global Ethics, Wittenberg, Germany individual country's situation. There is a broad stream of
research which argues on the one hand that FDI effects can
T. F. Kennedy
African Business Information Bank, Berlin, Germany be unpredictable, unintended, and counterproductive
e-mail: tfkennedy@africanbib.com (Nunnenkamp 2001; Yamin and Sinkovics 2009), or even
^ Springer
268 R. Bardy et al.
the game and the play of the

threatening game (Lin-Hi 2008). It is
(Dixon
authors evident that this produces changes a
show in the respective
ver envi-
ronment, and we can nowissues
development articulate how this outcome is (
is also an evidence of recent more realistic and critical
achieved. In our context, it is certainly corporations that
have the ability to produce changes in how employment
assessment, probing more deeply into the external effects
of international business (Ghauri and Yamin 2009). Muchcontracts are executed, how the needs of a local community
research focuses on economic development (for an over-are addressed, etc. This may sometimes require the assis-
tance, often prior to the corporate endeavors, of global
view see Moran et al. 2005), and only a few authors deal
with social development (Pratt 1991; Donaldson 2001; institutions (donors like, e.g., the various United Nations
Kolk and van Tulder 2006; Jamali 2010). However, thereAgencies) which promote infrastructural changes before
are related ethical and social issues that are often crucial private investment.
for multinational enterprise (MNE) strategies and long- This picture of infrastructure improvement through
term success. These include corruption, employment con-foreign donors is taking on a new aspect, with Chinese
ditions, marketing practices, and effects on the natural investors in Africa improving roads, telecommunication, or
environment (Donaldson 1989; Longworth 1998). The educational institutions and in turn, receiving the rights to
impact of such issues on host countries has been investi- oil or minerals (Williams et al. 2009; Sautman 2009).
gated by Glac (2004), Bennett (2002), and Wei (2000). Where there is no such evident reward scheme, the col-
When reviewing the literature addressing the question laboration of supranational actors will still be a prerequisite
which MNE strategies may lead to social benefits in the and it should induce both the investor and the recipient of
emerging host countries, we find that the answers point toFDI to improve the "standards" of social as well as of
CSR and business ethics (Pratt 1991; Hart and London business behavior. "Improving standards" is now a key-
2005; Pies et al. 2009). Even though the discussion about word for many of the Chinese investors in Africa who until
CSR and business ethics has a history of more than 50a few years ago have earned a bad reputation for not
years (Carroll 1999), both constructs, to this day are opa-behaving ethically as they favored land grabbing, corrup-
que (Lin-Hi 2008). One reason may be that the issues are tion, and sweat-shop conditions in their host countries and
not solely business problems but also social concerns.who are presently very much aware of corporate respon-
While it cannot be fruitful to oppose responsible behaviorsibility when they invest in Africa (van Dijk 2009). This
and ethics against the market economy, the terms CSR andbrings us to the concept of "incentive- and advantage-
business ethics are often seen as oxymorons. To begin, webased ethics" which we propose as the optimal model for
note that the construct of CSR combines economic, legal,analyzing the issues in question.
ethical, and discretionary elements (Carroll 1979), and that
discussions of business ethics typically include issues of
corruption, human rights, regulation, and discretionary Incentive- and Advantage-Based Ethics
elements. This connects to what may be called "moral
standards" which include for example, basic rights ofPre-modern philosophy considered (universal) standards as
freedom, movement, free speech, and nondiscrimination.given. We argue that a different approach which comes
Those standards can be viewed from a universal, relati v- closer to relativism and even constructivism is needed in
istic, or social contracts perspective (Donaldson and contemporary complex global business. Homann (2002)
Dunfee 1999). The "universal" would point out that states that in the age of globalization, moral foundations
those standards are "hypernorms" which means that theyshould be based on advantages and incentives, and that
should be applicable in any (business) context. ethics is not about following rules, but about developing
On the other hand, relativism is apparent when we lookthem, i.e. not about just following rules but setting the rules
at how standards arise in individual communities. They areof the game. With so-called "incentive- and advantage
always influenced by economic, cultural, and religiousbased ethics" (Luetge 2005), the question is not whether
differences. Therefore, a controlled combination of nor- altruism or other nonadvantage seeking behaviors are his-
mative ideals and empirical conditions is required in order
toric anachronisms nor if practice has proven that only self-
to implement CSR- and business-ethics-standards intointerested behavior leads to beneficial economic result.
practice. It becomes the responsibility of corporations notThere is a long tradition - both in public and academic
discourse - of discussing the tension-filled relationship
only to act "morally", but also not to injure the interests of
all stakeholders. Those "interests" must be legitimate, andbetween profit and morality under competitive market
with this we come close to the social contracts perspective:circumstances (Hemphill 2004). Often, proof is sought by
The relation between corporations and society must berecurring to a list of moral concerns, which includes
perceived along the distinction between the level of rules ofenvironmental pollution, global warming, child labor,
â Springer
Foreign Investment and Ethics 269
human rights she will

violations, themore often th
deterioration
dards like jobexperience.
security, and the So what
fight w
again
these instances, and "logic of more,
in many the - moral -
what fo
been looked at as sibility
clash to make
between reach
private in
interest, is now market - a
becoming the "moral m
collaborati
business firms seem we proceed from
increasingly the to
willing a
of corporate and
citizens by competition - ough
embracing the rig
"moral"
political actors. They as it does
have engaged ingo
r
condition of markets,
courses as well as rule-setting processe
actively cooperate the
witheconomy in theact
government se
society and
organizations. Butthe market
what alone a
are their m
incentives,and what enhance the to
is required opportuni
encoura
life in
ethical behavior? One line with
answer lies their
with
(1999) has called the "mistake"
the on which
market economy b
often rest. of the social order (H
Boatright may get
(1999)
departs fromto the
an conven
easy d
the aim of
business"moral"
ethics.even thoughth
He argues "
move managers fromina modern usage: "M
type of thinking in
systemic constraint,"ethics" would be
to a thinking, in the
whi
an in a society/in
"authoritative guide," a mar
in which "respec
and concerns of all business
affected policies"
parties iswoul
giv
force in the bring
leader's aboutconsciousn
operating moral ord
1987). In this model,parties involved.
the manager is not o
acts morally but Another
who must argument fo
think mora
include moral ethics comes
considerations in from refle
business d
as a "moral business
manager". This decisions.
would leadBust
to the basis the
for this ethical
"moral fundament
thinking". W
that it is either based
it not on only cognition traces back or
links the
background (There is a caveat already: bac foundation o
foundations
eventually develop into different conce of John Stu
also sets the by
morality as was found focus on results:
Lakoff Utilitarianism evaluates
(2002), f
conservatives whoactions
think on the basis of their outcomes or
people areconsequences
mad
self-discipline and(hence the term "Consequentialism"),
hard work, and while
it considers any U
people as somethingaction which
towould be result in the greatest net gain for all
"nurtured", i
assisted.). Werhane (1999)
concerned parties to be theand Johnson
right, or morally obligatory
action. And
"moral imagination" this comes close to moral
where the modern term ofinsig
from (1) disengaging oneselffoundation,
"stakeholder orientation". Another from and here on
particular situation,we (2)
are withfrom
the modern business term of "compliance",awa
becoming
scheme would be the notion ofand
one has adopted, moral rights(3)
and duties that warrant
from e
individual
possibilities to frame freedom (from
new John Locke's rights on to
solutions property
pr
to Immanuel in
However, people differ Kant's personal
their rights)experienc
and the notion of
and education. The justice concepts of
and fair distribution of benefits, the
where, "m
in the terms
versus the of John Rawls, inequalities
"moral
market" haveare acceptedbeen
(they are "just")
exp if
(2005) who to they can reasonably be expected
tries
reconcile the to be
twoto everyone's
conc
his advantage.by the efficacy of
approach is limited
by institutions, and, The threealso,
foundations ofhe utilitarianism, rights, and jus-
restricts
motives which he tice will govern
looks at ethical
to decision-making
very to the extent that
general
From the by these
preceding we decisions
maya system of norms is created. Butth
conclude a
manager", while a system of this kind needs
useful to be supported by advantages co
educational
1998), is often too and sanctions, thus
vague a through
notion incentives.to
One may
be be u
practical businesstempted
decisions. In
to state that "in the history of thebusines
world there has
problems will be never yet been
first be for governed
any length of time a system
byof norms
eco
of the market in that was not the
which supportedmanager
by advantages and sanctions"
oper
â Springer
270 R. Bardy et al.
(Homann 2006b).
host Here
country cannot solely be implanted by a foreign
advantage investor
as - there mustemployed
already be some kind of receptacle in
the theorythe society.ofOnly then will foreign
ethics business activities (H
"incentive") everythin
contribute to (human) development and poverty alleviation.
selves Thus, we can look at as
regard CSR as an "investment
advant in social
health, cooperation for mutual advantage
leisure, and (Lin-Hi 2008) or,a to "
ers.Economics
choose an even more programmatic is, in
title, to a "global
social contract" (Pies
disadvantage 2003).
grammar
action and expectatio
determine action. If m
ompensed Poverty- in
Alleviation, Ethics, and whate
"the Market"
morally from self-inter
The
most Poverty
convincing
is undoubtedly a key question for global ethics and
model/thejustice, incentive-b
because no other moral deficit withholds funda-
imity to Nobel laureate
mental human rights and dignity from so many people. The
economic theory
number of "absolute poor," i.e. living to an
below the World
(1974) argues that
Bank's international line of US $1.25 a daymany
in 2005 prices,
can be is approximately
seen as 1.5 billion (World Bank 2007; Chronic
rational
defining Poverty
individuals'
Research Centre 2009). Annually some 18 million
behavior can
deaths, be
including millions wide
of children, are due to poverty-
uses is "social incom
related issues such as starvation, malnutrition and disease
earnings of a
(World Health person
Organization 2005). There is no single key an
to that person of
to a just reduction of worldwide poverty, buthis
globalization s
strive to is seen by many experts (e.g. Sachs 2005)
increase this as one of the i
his or her mostwants -
important opportunities for eradicating for
absolute
Bentham in
poverty whose
worldwide. North Korea provides a living casewofor
and pains" (Becker
the connection between nonparticipation in global197
markets
text of (ethical) busine
and economic poverty. Markets, properly handled without
and pains"distortions by corruptive actors, are a way to self-suffi-w
to what
2008), which go
ciency, and if combined with thebeyon
chance of promoting
prise social standing,
individual prosperity, they are also an expression of free a
etc. An example
interaction and a chance to improve of a
living conditions. An f
and incentives to
example is the micro-financing activities ofenco
Grameen Bank
could be the
in Bangladesh,establishm
by which poor women are empowered to
at reducing
participate inoverall em
markets, and achieve self-determination and
We have elaborated
autonomy. her
market model/the adv
However, only if markets are based on and supported by
model fair international frameworks will
because it individual self-determi-
is th
outcomesnationcan be
be possible. This applies env
to the policy issues for all
"ethical business polici
levels of rule-setters, supranational, regional, national, and
and the local: A recent example is the marked interdependence
corresponding
In theory, what
between the conditions a supranationalis to
funding institution b
(Europeanwould Commissio
set for the national government of Ghana for oil
tion extraction
2010). In rights, the national Ghanaian laws on barter
practice,
sibilitychallenges
agreements with foreign investors, and the negotiation byfo
developingthe 14 tribes chiefs of the Takoradi region (the coastal
country, esp
(MNEs), will differ
province nearest the oil) for development levies (Wallisf
context, business
2011). It goes without saying that all theseand
hold aspects of
MNE, and responsibility
itstoward stakehold
social as well as business issues. Rule
be the institutional qua
setting in this manner falls in line with incentive- and
host country, for
advantage-based ethics. Especially, whic
when the efficacy of rules
been constructed (Kauf
and the validity of rule-setting processes need to be recon-
2008). CSR must
sidered meet
(Michael 2006), incentive- and advantage-based
ô Springer
ethics, together with Habermas'

location s di
for foreig
provide a robust Africa.
framework. Both poi
to elaborate Knowledge
worldwide of
fair labor a c
pra
to diffuse new choice of location
technologies, to deve
advantages and
specializations
underestimate in ba
entr
channel a
sociallymate
beneficial
risks, re-expor
pushing
tured decision-making
goods and resources. Overall, p
w
norms for markets, we mean "fair
opportunities equ
in alm
This requires not UNCTAD
merely that
(201 office
la), A
market be distributed
in theon the basis
world, of
far ex
importantly thatas each
competitive as at
member of
reasonable opportunity
bode well for Africa as a market to acquire
as more than half its
"merit" is assessed (Rawls 2001).
population is under the age of 24. Europe's population
will lose 60 million people by 2050, however, Africa will
add 900 million. Ironically, Africa's very poverty creates
Attracting and opportunities:
Conducting FDI:
Education; healthcare; infrastructure; bank- A
ing the unbanked; and middle class aspirational consumer
Through FDI, a goods
company not
etc. (Luiz 2010). Many investors only
are still unaware
country's market, it may also gain
that many sub-Saharan African countries have reformed
economies of scale andimproved
their institutions, scope in
infrastructure, prod
and liberalized
marketing processes. Important
their regulatory frameworks for FDI. This overlook has m
chains, distribution
caused the networks,
region to remain unattractive forand
FDI (McBrideen
a firm chooses FDI rather
2005; Asiedu than
2004). The investment community servi
would
through exporting,have to get licensing, allianc
better informed about how the following has
been addressed:
determined by three macroeconomic indicators
factors (Dunnin(growth,
These include: a transferable compet
inflation, and budget deficits) have improved, and so have
home-market, specific characteristics
quality infrastructure, access to natural resources, political
which allow the firm
stability, quality to
of human exploit its
capital, and transaction- and co
that market, andbusiness-costs.
the Some areas in sub-Saharan
firm's Africa still
ability t
tive position by have deficiencies in all
taking these areas, and more often than
advantage of
has to offer for controlling
not, the risk profile is heightened the
by political entir
and insti-
conditions must be
tutional present
instability or
and unpredictability and FDI
high levels of
(Dunning corruption (Ngowi
and Lundan 2001). InvestorsThe
2008). need reliable infor-
firm
which constitutemation,
spillover effects
but too often the official of
statistics are lacking or
technology, unreliable and official sources cannot provide robust
secondary employment,
skills) are oftendata
what less-develope
on markets, business partners, and available labor
their growth and development.
(Kennedy 201 1). The
investor may focus onwhen
Unfortunately, the location-s
reliable information is absent, and
factors to enticewhen
higher levels
all ingredients of a risky environment areof FD
present, the
When the threevicious
conditions as
cycle of poverty continues. FDI stated
does not take place
then FDI either does not
and the associated possibleoccur
benefits cannot beor oc
exploited.
levels. This
explains why
This is where the instruments ofsome area
solidarity with the poor
and strong
cially the poorest, fail transnational
to institutions
attract have a vital FDI.
role. The
Africa have increased in recent
International Development Association (IDA) is years
a division
a small portion of the
of the World total
Bank that flows
helps the world's to
poorest countries.
Average annual FDI flows
IDA complements increased
the World Bank's other lending arm, the f
1980, to 15 bn. International
during the period
Bank for Reconstruction and Development
Africa's share of global
(IBRD), flows
which serves middle-income fell
countries with capi-
about 1.5% during 2000-2004.
tal investment As
and advisory services. IBRD and IDA share a
flows to developing countries,
the same staff Africa
and evaluate projects with the same rigorous
in 1980 to 7% during 2000-2004
standards. These common standards encourage private (C
investors to follow suit and resolvemacroecono
infrastructure, effective the informational and
infrastructural host
able data of possible deficits. nations are
Ö Springer
272 R. Bardy et al.
livestock, and veterinary services and thus started

Contributing to to C
"unlearn" old habits and acquire new ones (Spring 2009).
A large Parallel to what may be called an "upgrading"
body of of stance lite
FDI (e.g. and Kowalewsk
habits as in the example of Sierra Leone farming,
as follows:
physical infrastructure mustFDIbe upgraded, too. However, inc
small but visible steps must be taken here
technologies, such in order to attain a
niques, personal involvement of rural and urban population. Only
managerial s
ital goods.then can sustainable
For improvements in income, this,
food, clean
water, energy, personal
conditions to security be achieved
maxim through good
("absorption
governance, the absence of conflict, andcapaci
social structures can
possible
with
be built to promote fairness and equitya thre
and the opportunity to
country.make Here,
choices. These "small but visible steps" require
thepru-
reference
dent cooperation (Perrons
in local and cross-border public-private
level, or which
partnerships pres
in the areas of water treatment, healthcare, and
the education
social that combine indigenous resource capital and
structures
study oninstitutional
China capital (UNCTAD 201 la, p. 26). Improvements
show
the in these areas can
degree of be measured andfutur
assessed. So too can
and progress in free physical movement

in-group collectand nondiscriminatory
human treatment, physical security,and
capital freedom of speech and
it
(Jiang et al.
association, 2010).
political participation, and education. The host
European countrie
country's efforts and the investors' endeavors will meet in a
Zeghni 2007). Howe
two-way give and take: e.g., if the host country wishes to step
Policy Research pa
up education, and investors need skilled labor, a combined
there is effort will be the most productive.
little researThe actual process is
one main reason
definitely more m
complex, but the best results will always
information as stated above. come out through mutual collaboration, not only in job
When it comes to informational and institutional defi- training, but also in transport, communication, healthcare,
and financial services.
ciencies in less-developed countries, commonly differences
in training and education are cited as possible obstacles thatBut what happens when the level of human capital
lie in the path of realizing development. Some authors
development is far from the necessary threshold? A key
response to this question is acceptance, at least for a while,
recognize that education largely takes place outside formal
that there is just not enough performance for the "formal
institutions and through family influence and peer group
sector" of the economy and hard-core business invest-
pressure within the local community. They state that to
benefit from formal education it may be necessary for ments, and to diversify into and intensify informal sector
activities. Many of these activities are based on natural
people to "unlearn" beliefs from their informal education
(Buckley 2009). Indeed, unlearning beliefs is one step resources
to and include carpentry and craft production,
charcoal manufacturing, collection and trade of nontimber
changing the order of thought. When we look at the recent
economic and institutional progress in African countries
forest products (examples in the following section), artisan
such as Rwanda and Sierra Leone (OECD 2007), we find
mining and metal works. Entry into many such activities is
relatively easy, and it must be secured that their profit-
that the roots of this progress lie not only in education but
also in improvements to political stability, government ability and efficiency is not undercut by bureaucratic con-
effectiveness, and the rule of law (OECD 2007, p. 13). trols and inadequate support for market engagement.
These improvements could only be achieved because the Reference to the Chinese agro-business projects as men-
major ethnic groups developed a positive sentiment toward tioned above should suffice to demonstrate how strength-
participation in social and in business life after the disas-
ening the informal market sector contributes to human
trous consequences of ethnic conflict were gradually capital development. When private capital does not meet
overcome. This required changes in ethical judgment and the requirements, government will seek support through
application by the various groups in these countries' soci-loans from the World Bank and the International Monetary
eties. In this process, an important role was taken on by Fund (IMF) under the new Poverty Reduction and Growth
Chinese investors who carried out a multitude of agricul- Facility Program (PRGF) and its new lending window, the
tural projects in Rwanda and Sierra Leone that went down Extended Credit Facility (ECF). PGRF is expressly direc-
to the village level. Hundreds of rural households were ted at pro-poor-spending, as opposed to the World Bank's
involved in projects on water control, fishery, crops, and IMF's heavily criticized former Structural Adjustment
â Springer
Programs (SAPs) to
that civil
have society as a pr
very often w
wrong means. Loans professionalization
under the PRGF not imp
on
"debt sustainability concept",
base i.e.
in the host debt is
country
from residual interaction
resources between
after the th
borrowin
has met its priority employees and the
spending, they also com
are
comprehensive, This can lead
country-specific to impro
strategies p
borrowing supervision,
governments with the and cond
active pa
civil society and other development
ultimately not only part
hav
Reduction and on ethical
Growth Facilitythought
Programand
20
tatives from aware that they share
in-country and transnational
increasingly than
involved first thought, as
here.
For FDI to lead to investments in Africa.
spillovers that increas
capital reconsider
threshold level, corruptive
and thus lead to imp
standards committees
in areas like and
sub-Saharan supervi
Africa, it
business could
investments progress
are preceded from
by a
or ac
globally financed involvement is loose ("Status 1")support.
infrastructure to a closer level of As s
1, this combined cooperation should
effort and collaboration ("Status
provoke2"). Subsequent a sh
country's status to investments
a new ("Object
and 2") will improved
be better accepted and soc
This move, which isassimilated into the managerial and induced
primarily business infrastructure by
financial and of the host country as more
technological local entrepreneursis
capital, will partake
mainl
effects on human in joint ventures. effects
capital, This can be elucidated on
by the example
ethicalof
with regard to what the "Chad-Cameroon
happens Oil Experiment"
in labor which some call a
relat
sideration new model for oil-led poverty
of value systems and reduction (Gary 2003).
ethical pract
The diagram Chad is landlocked, requiring
encompasses the massive
maininvestment toflow
knowledge, and bring its oil to market. It is extremely
communication poor, making the
between th
involved in an investment
leverage of the World Bank project
particularly strong priorfinanc
to the
business in a host oil boom. Because of It
country. the criticism
shows heaped on companies
that pa
investors, donor operating in Sudan during help
institutions its war, foreign oil companiesinfra
with
the outset (Status decided
1). An that they could not go forward
initial in conflict-ridden
investment p
1") remains Chad without
"foreign" World Bank participation. The status
throughout project
form a part of the amount
host is USD country's
3.7 billion and it involves ExxonMobil,
society,
institutions, or even Chevron,
of Petronas
the (the Malaysian state oil company),
business partner.the
produces technology World Bank, and the governments
transfer andof knowledge
Chad and Cameroon.
The investor consortium,
investor's business partners, but also, "Object 1 " in Exhibit 1 ,by
would wa
Exhibit 1 The impacts of FDI

in developing countries
I Status I Status 2
- I - i r-
( Source : authors)
-
- Donor /
- Institutions f ^ Host Couijlrý ' 'l - Host Countiv I
Jr-T*
T1 " vil Society / ' sr-
Investors X
-
1'
<
^ Spillovers: technology, know

DDl =C> Effects on human capital,
country's status to improved liv
â Springer
274 R. Bardy et al.
certainly forbe
globalization. These perceived
changes include a focus on people,
nians to be
democratic andlocated
effective states, sustainable development, we
and it must take
productive and equitable all
markets, fair rules, solidarity, e
civil accountability, partnerships,
society, and and an effective United
infr
Technological
Nations (World Commission on theknow-Social Dimension of
sional skills will
Globalization 2004). be
To quote from this report: p
ness partners or they
Globalization is seen through the eyes of women and
foreign contractors a
men in terms of the opportunity it provides for decent
issues the pertinent r
work; for meeting their essential needs for food,
Management Law") a
water, health, education and shelter and for a livable
become stakeholders
environment, (p. 5)
start to act responsibl
levels, because they
This quote highlights the close relationship between n
been successfully
value systems and the effects of business activity, local, ac
where all national,
the cross-border trade,parties
and FDI. They may be viewed
interact in a
from the social substant
responsibility perspective and effects of
investors FDI,
(logistics,
or from a social justice stance of "democratizing m
conditions
commerce" that preva
(Prahalad 2006). When companies do business
meet positive respons
in less developed or poor countries, and when they work
ency. Additional spill
there "with imagination, passion, courage, humanity, and
Another also hope for some luck" (Prahalad 2004), they can con- "s
aspect of
country policies
tribute are
to change both through own activities and through
regulations, new
the combined effects which fo
their activities provoke in civil
supervision are
societies. This has establ
been recognized by the New Partnership
ductivityfor
andAfrica's Developmentimprove
(NEPAD), an economic devel-
direct effects
opment program of the Africanof Union founded inFDI
2001 and
development
endorsed by the G 20 andand the
other international development
systems,financial
partners.1 A series of investment projects in the areasnor
of
by the general popula
basic infrastructure (e.g., roads, schools, and hospitals),
when associated struc
staples (food, consumer-packaged goods, and medicines),
accessible (Nissanke
and early life-stage products (e.g., baby-care, children's
2005). We can
clothing, and toys) take
have shown multiple win-win effects:
accounts The payable on
foreign investor not only benefits through an adequate
area will return be accepted
on investment, the African environment also teaches
accepts that the investor how to failing
develop low-cost alternative business o
may destroy a supplier and the subsistence of its models and how to respond to stakeholder expectations for
employees and sub-suppliers. Without such understanding socially responsible behavior. For the respective commu-
to become part of the collective social consciousness, nities of consumers and citizens, this not only provides
credit market failure may result, preventing the poor from access to affordable goods, to healthcare, and to employ-
using growth-promoting investment opportunities. Some ment, it may also shape improved and social order where
of these effects can be planned, and they contribute to the the inclination for corruption and violence looses its
project succeeding to achieve its objective. In other motivation (Luiz 2006). The work of socially responsible
instances, we are talking about unintended consequences investors will also contribute to overcoming dilemmatic
when, e.g., local authorities intervene in the flow of situations in countries where acting in one's self-interests
information in order to establish the build-up of skills cannot be separated from the traditional values of family
through government programs etc. They may wish to act ties: When family ties are the prevailing social security
in the best interest of their communities, but they might system because poor public revenue cannot provide social
provoke a reaction by foreigners to withhold information
(Slaughter 2001). 1 NEPAD' s four primary objectives are: to eradicate poverty,
The view is increasingly being put forward, not only by promote sustainable growth and development, integrate Africa in
the world economy, and accelerate the empowerment of women, with
ethicists, but also by national and international policy-
the eight priority being: political, economic and corporate gover-
makers, that changes in attitudes, policies, and institutions nance; agriculture; infrastructure; education; health; science and
are needed in order to create a stronger social dimension technology; market access and tourism; and environment.
â Springer
security, public officials will

The primary limitation to this interdependence firstly only
is
shifting funds the magnitudehome
"back of financial returns to on FDI in the
an EM: At trib
private and least inincome
public the short run, the business results
are are not deemed to
establish
FDI projects (Kennedy 201
be sufficiently robust for sustaining1).
additional expenses on
NGOsalso increasingly
social improvement. This short-termacknowledge
view obstructs that it
resources and scale
is in the of
enlightened MNEs to
self-interest of the investors accomp
to include
into theirmutual
This recognition of decisional processes all the nontangible
dependence conse-
and adversarial relationships
quences which arise from their actions. Especially and
when is q
collaboration (Prahalad 2006).
acting in a foreign environment where value systems differ
Exhibit 2 summarizes various
from their home-market, investors must carefully considerargum
impacts on social changes
the effects in ofemergi
of present actions on future conditions action
("incentive compatibility"). The outcome of FDI may
often be jeopardized by this short-term view and by the
Exhibit 2 Contributing to change throug
misconception of how local conditions interfere with the
arguments
intentions of the investor.
The basic social improvements that can be achieved through FDI
in emerging nations (EMs) are closely interrelated to the economic
objectives of FDI:
Contributing to the development of infrastructures
Contributing to Change: Some Evidence
Contributing to changing the institutional framework
(institution-building) and inducing local governments to Business Adaptation and Innovation
upgrade the national legal frameworks to further business
operations
Prahalad (2006) suggests foreign investors should "stop
Developing hpman capital (training) and providing new thinking of the poor as victims or as a burden and start
knowledge and technological transfer
recognizing them as resilient, creative entrepreneurs, and
Increasing economic success value conscious consumers." Some two to five billion
underserved consumers have enormous collective spendin

power. Affordable, world-class products and services are
needed to include these consumers in the global economy
Hence, the following actions should be envisaged:
The mobile phone business has had enormous impact. In
1 . FDIs should not try to transfer Western notions of moral
India, five million new subscribers are added per month.
(underpinnings) to less-developed countries, but rather deal
cautiously with the enormously fraught issue of inter-cultural Similar growth is found in China, sub-Saharan Africa, and
ethics by harmonizing with local notions and by reciprocally Latin America. All the major global mobile operators and
negotiating what is to be understood by cultural norms manufacturers participate in this business. Innovation
2. FDIs could contribute to ethical and socially responsible norms are evident in products, services, and business model
by insisting on a level playing field (appropriate rules,
Examples include unorthodox, low-cost distribution an
monitoring, and sanctioning mechanisms in the host countries)
for all operating companies, both national and foreign
pricing, new features such as phones with a torch light fo
3. Where FDI experience is inadequate, or rules of the game

rural populations, and SMS-based financial transaction
unclear (legal or governing framework), it is in the enlightened Not only do these innovations make connection and par-
self-interest of the FDI (profit motive, ethical and social ticipation in the community accessible, affordable, an
responsibility) to engage in discourse on the necessity for such
available, they also contribute to social progress. Copelan
rules, as for example in the Global Compact
(2009) reports on programs at Stanford University, teach
4. FDIs, in collaboration with supranational bodies, need to set up
ing a new generation of entrepreneurs to use their busines
voluntary rules for engagement in less-developed countries -
especially those with inadequate legal frameworks. An example and engineering skills for profitability, designing, an
would be the international self-regulation on deforestation selling products to the developing world.
(United Nations Environment Programme 2010) When foreign businesses target low-income markets, they
5. Since the abilities and capacities of many government actors in can achieve more win-win rewards by recognizing tha
less-developed countries to develop global competitive
Western-style patterns of economic development do not occu
frameworks to attract FDIs are very limited, pertinent support
should be given on a broader scale (as is done by UNCTAD, but in these business environments: Business strategies that rel
only in selected cases) on leveraging the strengths of the existing market environ
6. FDIs have the capacity to worsen the existing ethical and social ment outperform those that focus on overcoming weaknesse
environment (see for example: Siemens Scandals in Nigeria, These strategies include developing relationships with non
BBC 2007), and therefore better surveillance is required both by
traditional partners, co-inventing custom solutions, and
local and foreign overseers
building local capacity (London and Hart 2004).
Springer
276 R. Bardy et al.
financing, such as of the Gautrain projectComm

Democratizing and the Maputo
corridor project in the Republic of South Africa proper, as
Many well as more distant projects such as the Lesotho
hundreds of hospital ef
project and the
producers, North-South-Corridor Road project reach-
often with
role. The ingoriginal
into Zambia and Tanzania. The bank's interest is cer- ide
as in tainly financial,
milk farming.as it often acts as the lead investor A
with a membership
combining its own money with a consortium of private
10,000 capital from investors outside the region.
villages andThe investment 3,
model is a private-public
organizing subsistenc partnership and thus a rigorous
million approach to project appraisal isof
liters employed. However,
milk
up fromanalysis also extends to the impacts than
less which the projects 1
model of deliver on the lives of the communities and areas they will
sustainable
duced by serve. There is no contradiction, because there what is ot
several
Darby socially responsible and environmentally sustainable has
Investment Gr
Swiss-based
proved to also be financially
agro-c
and economically viable
(Karani and Gantsho 2007).
syngenta.com) throu
tion. The poor in rural areas face a triple burden is
Sime-Darby when it t
with comes to finance. Firstly, there
business inmay be limitedMala
access to
as well as credit
those on competitive terms, especially
of for women,
Synto
in remote areas,
finance agricultural pro
and other income-generating activities.
access to technology
Secondly, appropriate low-risk savings instruments may be
This is unavailable. Thirdly, access to risk-reduction instruments
provided by s
called "soft investments" to the hard-core FDI in real estate such as crop insurance may prevent rural households from
or agrochemicals. These combine social responsibility and innovating or expanding into new activities.
sustainable development with a long-term growth perspec- Micro-financing has evolved in response to the
tive. Benefits come to both farmers and investors. Public- inability of traditional financial institutions to address
private partnerships based on treaties between local and/orthese issues, the prédations of unscrupulous informal
national governments and investors are also powerful institutions, and the failures of state subsidized agricul-
mechanisms for development. tural finance schemes in the 1970s and 1980s (Interna-
Indigenous knowledge can be used to create and exploit tional Labour Office 2008). As is now well-known,
business opportunities. This knowledge may be based on micro-finance began with Dr. Muhammad Yunus, who
centuries of observation, continually developing in first demonstrated the commercial viability of the concept
response to changing social and environmental conditions.in Jorba, Bangladesh, and subsequently founded Grameen
An example is the increasing market for nontimber forestBank. There is now a proliferation of micro-financing
products, such as Prunus africana, Harpagophytum proc- schemes supported by foundations, corporations, or indi-
umbens (devil's claw), and Kigelia africana (African sau-viduals, both local and foreign. Quite a few US charitable
sage tree). Trade in devil's claw, a traditional medicinalfunds have been engaged here for many years (Lyman
plant, now supports a US$ 100 million industry. In the2000). These financing schemes are often loaded with
beginning only a fraction of the benefits went to domesticcomplex legal issues which, however, seem to be indis-
producers, while the bulk went to processors and distrib-pensable for enabling sustainable development (Kiweu
utors. However, some prudent low investment in improving2009, refers to due diligence, legal expenses, and custo-
community skills and gaining access to relevant informa-dial arrangements which may reduce returns but are a
tion is now slowly changing that pattern of benefitsprerequisite for profit sharing to investors). Micro-finance
(Katerere and Mohamed-Katerere 2005). has now evolved to include other lending products such as
Transportation and communications infrastructure is housing and educational loans. This is a story of
vital for rural development in poor countries in order to democratizing finance as a part of social dialog, shared
access healthcare and bring agricultural products to market.decision-making, and change.
Public funding may be lacking and private investment Large transnational corporations have also achieved
inhibited by weak prospects for profitability. However, success with social responsibility projects. Major pharma-
some far-sighted private institutions are now steppingceutical companies such as Roche, Aventis, Novartis, and
forward to build roads, bridges, and hospitals, such asGlaxoSmithKline have funded and supported crucial pro-
the Development Bank of Southern Africa (http://www. jects in developing countries and won many awards for
dbsa.org). This bank is now fully engaged in infrastructuretheir work. As a result, many communities in poorer
Ô Springer
countries have received much assistance in their healthcare Cases from Sub-Saharan Countries
and fight on disease. However, these companies have also

attracted criticisms because they often either fail to prop- In the Republic of South Africa, quite a few investments
erly balance their global policies with their local endeavors have been directed at the specifics of this region's con-
to overcome political neglect of health problems in some sumers and producers. One of the biggest FDI deals of
developing countries or they fail to properly disclose what 2001 was Saudi Oger's USD 180 million investment in Cell
those endeavors are about (Hielscher and Pies 2011). C, the new cellular operator. Also in 2001, Malaysian
Doing business in the least developed countries will always Resources Corporation announced a USD 200million
put a quandary on the pharmaceutical industry since the property development. Global Environment Fund acquired
general expectation often is that they should give away forestry assets worth USD 150 million billion from Mondi
their know-how and intellectual property for the sake of and formed Global Forest Products, signaling its intention
charity and philanthropy (Boldrin and Levine 2008). While to bid for state-owned forestry assets. These ventures not
it is true that that much of the population in least developed only contribute to improving the base for follow-up
countries still lacks access to much needed medicines, investments that broaden the opportunities for local small
despite impressive gains in the availability of certainbusinesses, they are also directed toward improving com-
medicines in the last decade, relying on subsidies andmunication throughout rural areas and providing new skills
receiving aid continuously would further disconnect themto hitherto unskilled labor (Akinboade et al. 2006).
from markets and market economics (Pogge 2009). At least The second case is from Uganda, which in the past was
for some of the countries, e.g. Cameroon, Kenya, and shunned by investors, but has over the past 20 years
Tanzania, it makes to scale up local production of medi-attracted a significant number of investors mainly in
cines through FDI combined with technical assistance. In response to the implementation of far-reaching economic
those three countries, local production will soon become and structural reforms. Privatization of state enterprises and
compliant with good manufacturing practices assisted by, the return of confiscated enterprises and properties to the
among others, the German Agency for International Asians who had been expelled form the country during the
Cooperation. They will also be able to export to neigh-Idi Amin dictatorship, have positively affected the attrac-
boring regions, and thus, in the longer run, poorer countries tion of FDI. But a major impact on social development
may no longer be able to rely on China and India to be the stems from the services sector FDI which has grown rap-
"pharmacy for the developing countries" (UNCTADidly in Uganda. Typical of this is accounting and computer
2011b). Local production of pharmaceutical products services, warehousing, transportation and communication,
should not be seen as an end in itself. If undertaken, it and other services to support the manufacturing sector. In
should be cost effective and sustainable, and the develop- addition, the liberalization of the economy coupled with
ment dimension needs to be properly appreciated by alllocal demand for services like mobile telephony has
domestic stakeholders and incorporated into the investment attracted investments from big players on both the regional
deal negotiations from the outset. This would help to open and international scene, such as Vodafone and MTN. This
up the sector to various opportunities, including access to has produced income growth and technological which in
credit, tax incentives, export-concessions, and a range of turn have boosted the provision of additional services,
other tools that support local firms in becoming profit- including management and franchise contracts in hotels
able. Pursuing local pharmaceutical production would then restaurants and car rentals, as well as joint ventures in some
not only be connected to achieving public health goals, but recreational and civil engineering services in which a local
also to improve living conditions in general (UNCTADpartner is required for marketing and distribution. The
2011b). government has reacted to the demands of its new business
The latest report of UNCTAD on FDI in less-developed partners by introducing universal primary education - not a
countries (UNCTAD 2011a) offers the vision that LDCs common practice in Africa - which has contributed to
have significant untapped potential to attract beneficial massive enrolment and the reduction in gender differences.
FDI, including because of reforms to the business climate Significant progress has also been made through public and
at home, and that FDI can make a significant contribution private efforts in improving some health indicators such as
toward the goal of LDCs to pull out of poverty. Still, as will the continuing decline of the prevalence of HIV/AIDS and
be demonstrated by cases of some sub-Saharan countries, successful efforts to eradicate polio. Uganda also presently
in order to "untap" the potential, recipients of FDI together produces about 10,000 university graduates annually with
with some lead investors will have to jointly revert the varied skills in finance, management, engineering, medi-
negative perception the business community has of this cine, and other areas vital to the development of the
region. country (Obwona 2006).
ô Springer
278 R. Bardy et al.
Anotherrainwater
example
management for dryland crops, the objective of f
business investments in various sub-Saharan states. In which is to increase the effectiveness of rainfall to stabilize
andthat
recent years, agriculture is being perceived as a sector enhance yields. The most promising of these are the
various types of conservation farming, including deep
not only offers investment opportunities for the private
sector but also a drives local development of agriculture-
tillage, reduced tillage, zero tillage, and various types of
related industries and the rural nonfarm economy (World
planting basins, all of which have been successfully dem-
Bank 2007). In East Africa, fisheries are an expanding sub-
onstrated in many parts of the region, both in the semi-arid
sector due to the presence of some of the largest freshand dry sub-humid zones. The results have been impres-
water
lakes in the world. Lake Victoria, half of which is in sive, particularly when the technology input has been
Uganda, is the second largest freshwater lake in the world.combined with what is called "Farmers' Field Schools".
Similarly, Ghana, Côte d'Ivoire and Cameroon haveThese consist of a community-based, practically oriented,
attracted investments in cocoa processing as a result offield study program, involving a group of farmers, facili-
suitable agro-climatic conditions for cocoa production.tated by extension staff (public or private) or, increasingly,
Recent land purchases have also been driven by availability by other farmers, in which farmers learn together and test
of excess arable land and water (Mhlanga 2010). From this and adapt practices, using practical, "hands-on" methods
type of investments, the low-skilled labor force which is of discovery learning that emphasize observation, discus-
employed in subsistence farming purposes is being con- sion and analysis to combine local indigenous knowledge
verted into skilled labor with processed foods gainingwith new concepts (Peacock 2007).
prominence in both domestic and global markets. And the
primary investments spur follow-ups like the DrumNet
project implemented launched by Pride Africa that uses a Summary and Trends
mobile phone interface to link smallholder farmers to
banks, farm input suppliers and agricultural buyers. The The current wave of globalization has intensified the
project's premise is that information on the market is one competition for FDI among developing countries, and all
of the key elements that keeps farmers from getting the fullactors share responsibility to make changes in attitudes,
market value for their products. This lack of informationpolicies, and structures (Dupasquier and Osakwe 2005).
keeps the farmers in a disadvantageous financial position,International organizations, national governments, busi-
making it difficult for them to obtain the financing and ness, labor, civil society, and the media each have impor-
resources they need to grow their business. DrumNet pro- tant roles to play.
vides marketing, financial, and informational services Opportunistic and short-term ventures driven only by the
aimed at stimulating wealth creation and the economicprofit motive are becoming less acceptable, bringing cor-
integration of smallholder farmers. After the success of theporations pursuing such strategies into disrepute, and making
pilot project in central Kenya, DrumNet is now movingthem targets for a technology-enabled global community of
into a beta phase in other parts of the country (Rauschactivists and NGOs. Strategies that not only add to business
2010). In Mozambique, where agriculture, fisheries, andvalue but also lead to long-term economic and social
industry head the list of economic development priorities inimprovements are increasing in significance. Profit seeking
the Government of Mozambique's Action Plan for the by, e.g., selling luxury goods or high-end eco-tourism des-
Reduction of Absolute Poverty (PARPA), great emphasis istinations to an elite of wealthy customers and using parts of
placed on entrepreneurial initiatives to foster social the profit to address social inequality issues, will not be
development. Investors and the state cooperate in ruralsufficient. Serving the needs of customers at the top of the
infrastructure development (irrigation, storage, and roads),pyramid is becoming less important than meeting the needs
dissemination of market information, rural financing, theof those at the bottom of the pyramid and the increasing ranks
promotion and capacity building of farmer organizations,of the middle classes with similar ambitions to their coun-
and value-chain development. On the part of the state, thisterparts in developed nations. It also seems the world has
is facilitated by the ongoing transfer of competencies and started to commit itself to a number of principles and values.
financial resources to provincial and district authorities Fair globalization means making these values an integral part
through decentralization (FANRPAN - Food, Agriculture of the process of global economic integration.
and Natural Resources Policy Analysis Network 2009). This paper has highlighted the complexity and challenges
To conclude this list of examples, reference shall beof moving to a more socially responsible vision of capitalism
made to private sector participation in agricultural water across borders. There is a wide body of theoretical and
development, which has been developing over the lastempirical literature on the economic effects of FDI. However,
decade in e.g. Kenya, Niger, and Cameroon. Private studies addressing the links between cross-border business
investment here uses increased technologies for in-field and ethical considerations are less abundant. This paper
Springer
describes a "Dare to
growing Care: Passion of
body and Compassion
study in Management
and e
ethics, CSR, and Practice
poverty alleviation.
and Research." Therefore, it is timely to propose
poverty alleviationan agenda
as forafurther
key cross-disciplinary
question research: for
particular sub-Saharan Africa.
• Problems of CSR and economic development are often
Up on the
reference to the incentive-
addressed by multiple agencies with different goals,
ethics-approach, a number of trends s
cultures and values, working together in networks.
which shape future agendas for rese
Further research into how to lead and manage such
follows.
networks more effectively could be helpful. More
efforts could also be made to integrate management
Nations
tools into the practice of CSR, for example, strategic
planning and balanced scorecards.
Due to deep and systemic financial crises in Western
• There are many frameworks for ethics and social
nations, institutions and individuals have retrenched, and
responsibility arising in traditions outside North America
budgets for aid are under stress. Western governments and
or Europe. Scholars and practitioners could pay further
institutions risk being distracted by internal political and attention to how these can be linked to business and CSR
structural change, and may focus less on urgent global
in developing countries. This should include the notion
issues. Growth of new emerging market MNES and state-
that politics is an integrative constituent in the interplay
run companies doing business overseas may have poten-
between economics and ethics (Becker 2009).
tially significant social and economic impacts in many
• Future research could explore the mechanisms linking
Sub-Saharan African nations.
CSR, ethics, and poverty alleviation. Further attention
could be paid to the significance of intercultural factors,
Companies and Organizations
leadership and values in institutions, and MNEs when
crafting CSR strategies for emerging markets.
There is an increasing evidence from recent research that
• Topical case studies are needed that integrate issues
there are positive returns to CSR, especially in emerging
of CSR, business ethics, and FDI, to help promote
countries such as China (Qu 2007). MNEs increasingly
understanding of the complexity of the issues in
adopt cross-boundary team-working, appoint international
business school programs. It would be interesting to
top teams, and CEOs from emerging nations. There is
examine the disappointments and failures as well as
increasing realization of the importance of intercultural
popular stories of success. This could be a valuable area
differences and how this impacts on perceptions, decision-
for student projects and field studies.
making, ethical orientations, and the success of CSR in
companies. A new generation of young managers with very These are vital challenges to nations and societies.
diverse interests and attitudes toward ethics and CSR is Politicians, scholars, managers, organizations, and com-
emerging across the globe. This has become a topic munities
of can all contribute and collaborate in these efforts.
interest for changes to business school programs, and to

criteria of business school accrediting agencies. For
example, the AACSB International (2011) has recently References
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Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing

Business in Less-Developed Countries

Foreign Investment and Ethics: How to Contribute to Social

evidence to support the proposition that FDI and interna-

the game and the play of the

human rights she will

ethics, together with Habermas'

livestock, and veterinary services and thus started

and progress in free physical movement

Exhibit 1 The impacts of FDI

^ Spillovers: technology, know

security, public officials will

underserved consumers have enormous collective spendin

3. Where FDI experience is inadequate, or rules of the game

financing, such as of the Gautrain projectComm

and fight on disease. However, these companies have also

interest for changes to business school programs, and to

Kolk, A., & van OECD. (2007). R.

United Nations Environm

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