Explain in a minimum of one paragrapth on the Point/Counterpoint topics from Chapters 11, 12, and 13.

Chapter 11: Offshore Financial Centers Chapter 12: Strategic Planning Chapter 13: Companies in Violent Areas

Chapter 11

Chapter 12

Chapter 13

Should Offshore Financial Centers and Aggressive Tax Practices Be Eliminated? Point Point Yes The problem with OFCs is that they operate in a shroud of secrecy that allows companies to establish operations there for il- legal and unethical purposes. In 2016, the so-called Panama Papers, a treasure trove of an estimated 11.5 million internal documents of a firm in Panama called Mossack Fonseca, were obtained by German newspapers and shared with others worldwide, including the New York Times. The papers showed how Mossack Fonseca helped wealthy clients evade U.S. tax laws in very creative ways. Mossack Fonseca set up over 2,800 companies for at least 2,400 U.S. clients in the British Virgin Islands, Panama, and the Seychelles, among other tax- haven countries. However, this scandal was worldwide. The prime minister of Iceland, who was named in the papers, even resigned because of the appearance of impropriety. Not all of the transactions were considered illegal, and no charges have been filed yet. But it's probably just a matter of time. As another example, Italian company Parmalat set up three shell companies based in the Caribbean to capture cash. The companies allegedly sold Parmalat products, and Parmalat sent them fake invoices and charged costs and fees to make the sales look legitimate. It would then write out a credit note for the amount the subsidiaries supposedly owed and take that to banks to raise money. Given the location of the sub- sidiaries, you would think the banks would have been suspi- cious, but Parmalat got away with these activities. Off-balance-sheet financing was also used to hide debts. The company transferred over half of its liabilities to the books of small subsidiaries based in offshore tax havens such as the Cayman Islands. This allowed it to present a healthy balance sheet and a profitable income statement to investors and creditors by hiding large amounts of debt, un- derstating interest expenses (thus overstating income), and overstating revenues for false bookings. Parmalat's actual debt was nearly double the amount disclosed to outsiders. Terrorists and drug dealers also use OFCs to launder money. When the U.S. government went after the money of Osama bin Laden, it went after OFCs notorious for their secrecy. When a bank in the Bahamas refused to open its books to U.S. government investigators, the United States cut the bank off from the world's wire transfer systems. Within two hours, the bank changed policies.52 Standard Chartered plc, a British bank, was fined $340 million for violating U.S. money laundering laws involving an illegal scheme to hide more than 60,000 transactions worth $250 billion for Iranian clients.53 These kinds of activities must stop. Should Offshore Financial Centers and Aggressive Tax Practices Be Eliminated? Counterpoint No OFCs are an efficient way for companies to use their financial re- sources more effectively. They are good locations for estab- lishing finance subsidiaries that can raise capital for the parent company or its subsidiaries. And they allow the finance subsid- iaries to take advantage of lower borrowing costs and tax rates. Not all types of tax-minimization activities are illegal because the companies are still subject to home- and host-country laws and tax regulations. It is true that some transactions may be illegal, but most are not. The key to policing truly illegal activi- ties, such as hiding drug money or engaging in corporate fraud Counterpoint like the Parmalat case, is to improve transparency and reporting. Why shouldn't countries have the opportunity to attract business by offering tax-haven status to MNES? Many don't have other visible means of generating resources. They are too small to set up manufacturing operations, have too small a population base to offer low-cost labor, and don't have nat- ural resources they can sell. So what can they do? Compa- nies and individuals need places to bank their wealth or raise capital, so the OFCs have decided to use the theory of factor proportions (discussed in Chapter 6) and develop the banking CHAPTER II Global Capital Markets 297 countries want to charge high taxes on financial transactions, let them do so, but don't force the OFCs to play their game. Even the chairwoman of the British Public Accounts Committee, in complaining about the tax policies of MNES like Google, Amazon, and Starbucks, admitted that they are probably not doing anything illegal; she was accusing them of being immoral.55 and financial infrastructure necessary to attract wealth. As long as they establish banking, privacy, and taxation laws that attract money, they should be allowed to do so. The Cayman Islands attract a lot of tourism, but the territory is also one of the world's biggest financial centers, and one of the most secretive as well. It has worked hard to crack down on money laundering so it can use its financial expertise in legal ways to help companies and individuals.54 OFCs don't rely on taxation to fund huge government ex- penditures because they don't have a large military budget or significant welfare costs. Is there anything wrong with not collecting large amounts of taxes? Some countries are upset that OFC's offer a tax-free environment for revenues gener- ated offshore, but that's their business. Nobody should force them to collect higher taxes just because the high-tax coun- tries are at a disadvantage in attracting banking and finance. If QUESTION 1. You can order a book from Amazon in the UK using a Brit- ish website (amazon.co.uk) and receive it from a British warehouse through the British Royal Mail. However, you will be paying an Amazon subsidiary set up in Luxem- bourg, which offers more favorable tax conditions than the UK. Is Amazon illegal, immoral, both, or neither for having a subsidiary in Luxembourg to minimize its tax bill? CHAPTER 12 The Strategy of International Business 313 Is Strategic Planning Productive? Point Point Yes Strategic planning was once similar to playing chess. The board, the players, and the moves were fairly well-defined, the pace of play permitted deliberative movement, and surprises were few and far between. Indeed, one needs only recall the infamous "3-6-3" rule in banking a generation or two ago: bankers gave 3 percent interest on depositors' accounts, lent depositors money at 6 percent interest, and then planned to hit the golf links at 3 P.M.50 Today, the global business environment, turbocharged by innumerable causes and ef- fects, makes for a far more complex game. Technology, both routine and disruptive, resets efficiency frontiers and market boundaries. Competitors, both established and emerging, reinvent systems of production and distribution as well as experiment with entirely new business models. Governments, both democratic and authoritarian, change the rules of game. Making sense of the situation and then acquiring re- sources, developing capabilities, and creating competencies is tough. Strategic planning makes it possible. Strategic planning pushes managers to break free of day-to-day routines, look toward the horizon, and ask and answer big questions. Determining goals and mapping opti- mal paths pinpoints the potential of a business and directly links objectives to actions and required resources. Setting systematic criteria and imposing rigorous analytics, by or- ganizing the complexity of the global business environment, helps managers formalize goals, formulate strategies, de- termine programs, and define standards. Besides that, the planning process frames and facilitates coordination, com- munication, and learning. Promoting conversations among decision-makers about the future of the MNE and the re- sources, capabilities, and competencies required to reach it fortifies decision-making. Strategic planning improves the flexibility to change as markets change. Few contest the importance of proactive executives, but, still, passivity often prevails. Planning push- es managers to get on with it, asking big as well as small questions. Purposeful debate helps reposition resources to new courses of action as well as estimate the urgency to reset or reverse commitments. Instituting strategic planning with an eye toward improving flexibility prior to the change, rather than after, sensitizes managers to alternative options. Not surprisingly, strategic planning supports higher performance and improved competitiveness. The interplay of formal planning processes, greater flexibility, and im- proved innovativeness across multiple industries in mul- tiple countries shows that planning pays off. Performance effects do not vary significantly between different industry groups. Some empirical evidence indicates a positive and direct relationship-the more one plans, the better the firm performs.51 Unquestionably, the intrinsic complexity of mapping markets means that strategic planning often hits difficul- ties. Ironically, its shortcomings follow from its strengths. Planning imposes an analytical discipline that frames how managers assess markets. Acceptable for similar mar- kets (say, moving from the United States to Canada), this perspective may struggle to adjust analytics for dissimilar markets (say, moving from Australia to Venezuela). In theory, anchoring analysis in terms of the orderly progression of systematic planning procedures helps managers formulate optimal strategies. Still, as with any objective model, the template might encourage linear thinking that misinterprets markets and misdirects decision-making. Enterprising executives, recognizing the messiness of internal conditions and external circumstances, stress-test their planning process. High-power brainstorming proce- dures identify "what-if" situations that help managers chal- lenge their planning model before committing to a course of action. In particular, managers incorporate elements of scenario analysis and contingency planning. In the former they assess alternative futures, interpreting likely outcomes of a variety of operating strategies and industry conditions. Alternatively, contingency planning helps managers esti- mate the effect of market disruptions and devise preemp- tive strategies. Ultimately, performance records of leading MNES worldwide show that tried-and-true strategic planning processes productively equip managers to deal with what the processes are best suited to deal with: the messy, ill- structured realities of IB. Strategic planning, by enforcing rigorous, disciplined, systematic decision-making, makes expanding into familiar markets or venturing into different territories manageable. Is Strategic Planning Productive? Counterpoint No The productivity of strategic planning rests on an appealing, yet ultimately dubious, thesis: strategy is a science with immutable laws that, by reliably guiding decision-making toward optimal outcomes, lets bright strategists imagine bright plans that build bright futures. In actuality, the shifting dynamics of the global marketplace present overwhelm- ing challenges that suggest strategic planning is arguably ineffective. Correspondingly, after more than 40 years of empirical study, the data suggest an equivocal relationship between strategic planning and firm performance.52 Notwithstanding managers' best intentions to map the future, many continually run into the problem that the future famously does not cooperate with pre-set visions, missions, and plans. Consider the less-than-inspiring record of firms that consistently invest great effort into strategic planning, namely the Standard & Poor's 500 Index (S&P 500).53 The average time a company spends in the S&P 500 index has declined from 61 years in 1958 to about 18 years today; re- moval typically follows strategic shortfall. An average of 22 companies are replaced annually.54 Nearly 50 percent of the companies included in the S&P 500 index in 2000 no longer exist. Similarly, up to 90 percent of ventures fail shortly after start-up; venture-capital firms see more than 80 percent of their investments fail; more than 80 percent of equity mutual funds consistently underperform the S&P 500; the average business model life span has fallen from about 15 years to less than 5 over the past 50 years, and more than 75 percent of mergers and acquisitions never pay off.55 Many compa- nies committed to rigorous, objective, systematic planning processes, rather than reaping great success, struggle to survive. Skeptics point to planning's fundamental limit: the deception that a comprehensive strategic planning pro- cess, anchored in countless hours of assessing strengths, weaknesses, opportunities, and threats, fundamentally influences short-term competitiveness and long-term sus- tainability. Notwithstanding best intentions, strategic plan- Counterpoint ning falls prey to deficiencies and delusions. It confuses the superficial trappings of rigor and discipline with grand storytelling. It muddles managers' abil- ity to think critically about the nature of success in business- including vastly underestimating the power of plain old good luck." Inevitably, planning devolves into glorified soothsay- ing that undermines the effectiveness of decision-making.57 Then, in the off chance that planning generates a genuine insight, it often runs into implementation problems-plans poorly connected to vague action steps that are just as likely to be a day late and a dollar short. Scarcely tolerable under stable conditions, these ten- dencies prove damaging given the extreme sorts of chang- es that mark the global business environment. Significant trends and innovations reconfigure the global marketplace. Expansion in once peripheral, but now core markets (such as China, India, Indonesia) resets performance standards. Some 400 midsize emerging market cities, many unfamil- iar in the West (e.g., Sanaa, Ouagadougou, Chittagong, Kinshasa), will produce about 40 percent of global growth over the next 15 years.58 Today's market revolution spans the globe, includes far more people in far more countries, and represents the biggest change in the history of capital- ism. The Internet further turbocharges change. Already, it is the most powerful force for globalization, economic growth, and education in history. Indeed, say some, whatever the Internet touches, it transforms in ways that reset analytics and defy prediction. The upshot is that no matter how sensitive their strategic compass, executives' struggle to plan in the face of minor as well as momentous dynamism.5 Ultimately, managers intent on overlaying logical rules of cause and effect on mar- kets delude themselves that strategic planning is an effec- tive decision-making process. Beset by intractable decision biases-from generalizing halo effects, confusing correla- tion and causality, and connecting only the winning dots- strategic planning inevitably proves unproductive. Then, as before, impressive plans fall short of performance targets. Should Companies Operate in and Send Employees to Violent Areas? Point Point Yes Where there's risk, there are usually rewards. Companies should not shun areas with violence. Businesspeople have always taken risks, and employees have always gone to dangerous areas. As far back as the seventeenth century, immigrants to what are now the United States, India, and Australia encoun- tered disease and hostile native populations. Had compa- nies and immigrants not taken chances, the world would be far less developed today. Violence is only one type of risk. Although we lack histori- cal data, most locations are probably safer today. Disease is still a bigger danger than violence, but medical advances against a number of historic killers (polio, measles, smallpox, tuberculosis, etc.) have reduced that risk, while evacuation in case of a real emergency is much faster. But let's assume that we decide to avoid countries with the potential for violence against our facilities and employ- ees. Is there any such place? To answer this question, you need to consider an array of indicators that include overall crime and murder rates, terrorism, kidnapping, and political violence. Because so many occurrences go unreported, sta- tistics are unreliable. Further, situations change quickly, such as the sudden outbreak of violence in Syria. Opinions from so-called risk experts are conflicting. Finally, countries that we think of as safe-France, Belgium, the United States- have had recent fatal violence. Some industries don't have the luxury of avoiding vio- lent countries. Take the petroleum industry. Oil companies have to go where there is a high likelihood of finding oil. Most of the credible alternatives have had recent bombings, kidnappings, or organized crime-the Middle East, West Af- rica, the Central Asian former Soviet republics, and Colom- bia. If companies didn't go to these places, they'd be out of business. In effect, we'll keep operating anywhere there are oppor- tunities. If a place seems physically risky, we'll take what- ever precautions we can. We'll share intelligence reports, put people through safety training courses (there are plenty of these available now), and take security actions abroad And perhaps we won't transfer spouses and children to the "risky" areas so we don't have to be on top of what is hap- pening with as many people. Should Companies Operate in and Send Employees to Violent Areas? Counterpoint Coun No We're no longer concerned simply with being caught in the crossfire between opposing factions. Antiglobalization groups want international publicity, and they also target MNEs' per- sonnel and facilities so that they'll leave or pay ransoms. Still others are against foreigners or people of another religion, re- gardless of their aims. Such groups have killed staff members from Mdecins sans Frontires and the Red Cross who were abroad to treat sick and injured people.53 At the same time, getting caught in the crossfire has be- come a bigger risk. Arms trafficking has risen and has lowered prices not only to revolutionaries but also to drug and alien smugglers and money launderers.54 MNEs can't help being visible, and thus vulnerable. In essence, if MNEs operate where risk of violence is great, they put their personnel in danger. Even if no violence comes to them, they endure stress that negatively affects their performance.55 Although local personnel may be at a lesser risk of, say, kidnapping, experience shows that they too are not immune. Further, MNEs must send personnel to areas where they operate. Some go as managers or tech- nicians on long assignments; others go short-term to audit CHAPTER 13 Country Evaluation and Selection 353 books, ensure control, and offer staff support. The dangers are not inconsequential. There are thousands of reported kidnappings per year as well as countless unreported ones. Many of these target foreign workers and their families. It's simply unethical to put employees in such situations. Of course, they are not forced to go to dangerous places, and firms can get enough people to work there. However, experience shows there are three types of people who want or are willing to work in such areas, and none are ideal. First are those who simply want the high compensation and big insurance policies, some of whom are experienced in military or undercover activities. They tend to be highly independent and hard to control. Second are the nave who don't under- stand the danger and are difficult to safeguard through train- ing and security activities. Third are the thrill seekers who find that adrenaline is like an addictive drug; they are most at risk because of the thrill of danger and their reluctance to leave when situations worsen.56 High risk to individuals is indicative of a political situation out of control-a harbinger of additional risks that may oc- cur through governmental changes, falls in consumer con- fidence, and a general malaise that damages revenues and operating regulations. This is not the kind of country in which to conduct operations