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Journal of Business Ethics ISSN 0167-4544 J Bus EthicsDOI 10.1007/s10551-011-0994-7

Foreign Investment and Ethics: Howto Contribute to Social Responsibilityby Doing Business in Less-DevelopedCountries

Roland Bardy, Stephen Drew & TumentaF. Kennedy

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

Roland Bardy • Stephen Drew • Tumenta F. Kennedy

Received: 14 March 2011 / Accepted: 29 July 2011

� Springer Science+Business Media B.V. 2011

Abstract Do foreign direct investment (FDI) and inter-

national business ventures promote positive social and

economic development in emerging nations? This question

will always prove contentious. First, the impacts differ

according to context. Second, the social consequences and

spillover effects of knowledge diffusion and technology-

sharing may be limited and hard to measure. Third, con-

tributions to enhancing social responsibility and improving

living standards in host countries are delayed in effect,

causally complex, and also hard to measure. Outcomes

often critically depend on collaboration of governments,

international institutions, the business world, and non-

governmental organizations (NGOs). Research in this area

is challenging and requires interdisciplinary collaboration

between economists, financial experts, sociologists, ethi-

cists, and other specialists. This paper explores: (1) the

evidence to support the proposition that FDI and interna-

tional business improve social conditions in less-developed

countries, and: (2) how these improvements are linked to

strategies of corporate social responsibility (CSR) and

ethical business practice. The paper draws insights from

development, FDI, poverty alleviation, and bottom-of-the-

pyramid (BOP) literature. Applications are demonstrated

using examples from poverty-stricken areas of Sub-Saha-

ran Africa. The paper attempts not only to argue theoreti-

cally but also to provide practical evidence. The approach

is simultaneously descriptive, analytical, and prescriptive

in order to address a wide audience. It also highlights issues

and trends for further academic research and presents the

viewpoint that some limitations lie in the nature of ethics

frameworks widely referenced in business and that these

often fail to consider the compatibility of ethical constructs

with relevant incentives. In this vein, we explore the

application of Homann’s framework for advantage and

incentive-based ethics.

Keywords Foreign direct investment �Corporate responsibility � Transition economies �Bottom of the pyramid � Lecturing business ethics �Sub-Saharan Africa

Introduction

Globalization, foreign direct investment (FDI), and trade

can potentially bring social, economic, and business ben-

efits to emerging market countries through inflow of cap-

ital, knowledge, and increased employment. However, the

specific conditions and mechanisms for this to happen are

complex, not well understood, and may depend upon an

individual country’s situation. There is a broad stream of

research which argues on the one hand that FDI effects can

be unpredictable, unintended, and counterproductive

(Nunnenkamp 2001; Yamin and Sinkovics 2009), or even

R. Bardy (&)

BardyConsult, Mannheim, Germany

e-mail: rbardy@t-online.de

R. Bardy

Florida Gulf Coast University, Fort Myers, FL, USA

S. Drew

Center for Leadership and Innovation, Lutgert College

of Business, Florida Gulf Coast University, Fort Myers, FL, USA

e-mail: sdrew@fgcu.edu

T. F. Kennedy

Wittenberg Center for Global Ethics, Wittenberg, Germany

T. F. Kennedy

African Business Information Bank, Berlin, Germany

e-mail: tfkennedy@africanbib.com

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DOI 10.1007/s10551-011-0994-7

Author's personal copy

threatening (Dixon et al. 1986; Mengistu 2009). Other

authors show a very positive and engaged posture with

development issues (Meyer 2004; Ramamurti 2004). There

is also an evidence of recent more realistic and critical

assessment, probing more deeply into the external effects

of international business (Ghauri and Yamin 2009). Much

research focuses on economic development (for an over-

view see Moran et al. 2005), and only a few authors deal

with social development (Pratt 1991; Donaldson 2001;

Kolk and van Tulder 2006; Jamali 2010). However, there

are related ethical and social issues that are often crucial

for multinational enterprise (MNE) strategies and long-

term success. These include corruption, employment con-

ditions, marketing practices, and effects on the natural

environment (Donaldson 1989; Longworth 1998). The

impact of such issues on host countries has been investi-

gated by Glac (2004), Bennett (2002), and Wei (2000).

When reviewing the literature addressing the question

which MNE strategies may lead to social benefits in the

emerging host countries, we find that the answers point to

CSR and business ethics (Pratt 1991; Hart and London

2005; Pies et al. 2009). Even though the discussion about

CSR and business ethics has a history of more than 50

years (Carroll 1999), both constructs, to this day are opa-

que (Lin-Hi 2008). One reason may be that the issues are

not solely business problems but also social concerns.

While it cannot be fruitful to oppose responsible behavior

and ethics against the market economy, the terms CSR and

business ethics are often seen as oxymorons. To begin, we

note that the construct of CSR combines economic, legal,

ethical, and discretionary elements (Carroll 1979), and that

discussions of business ethics typically include issues of

corruption, human rights, regulation, and discretionary

elements. This connects to what may be called ‘‘moral

standards’’ which include for example, basic rights of

freedom, movement, free speech, and nondiscrimination.

Those standards can be viewed from a universal, relativ-

istic, or social contracts perspective (Donaldson and

Dunfee 1999). The ‘‘universal’’ would point out that

those standards are ‘‘hypernorms’’ which means that they

should be applicable in any (business) context.

On the other hand, relativism is apparent when we look

at how standards arise in individual communities. They are

always influenced by economic, cultural, and religious

differences. Therefore, a controlled combination of nor-

mative ideals and empirical conditions is required in order

to implement CSR- and business-ethics-standards into

practice. It becomes the responsibility of corporations not

only to act ‘‘morally’’, but also not to injure the interests of

all stakeholders. Those ‘‘interests’’ must be legitimate, and

with this we come close to the social contracts perspective:

The relation between corporations and society must be

perceived along the distinction between the level of rules of

the game and the play of the game (Lin-Hi 2008). It is

evident that this produces changes in the respective envi-

ronment, and we can now articulate how this outcome is

achieved. In our context, it is certainly corporations that

have the ability to produce changes in how employment

contracts are executed, how the needs of a local community

are addressed, etc. This may sometimes require the assis-

tance, often prior to the corporate endeavors, of global

institutions (donors like, e.g., the various United Nations

Agencies) which promote infrastructural changes before

private investment.

This picture of infrastructure improvement through

foreign donors is taking on a new aspect, with Chinese

investors in Africa improving roads, telecommunication, or

educational institutions and in turn, receiving the rights to

oil or minerals (Williams et al. 2009; Sautman 2009).

Where there is no such evident reward scheme, the col-

laboration of supranational actors will still be a prerequisite

and it should induce both the investor and the recipient of

FDI to improve the ‘‘standards’’ of social as well as of

business behavior. ‘‘Improving standards’’ is now a key-

word for many of the Chinese investors in Africa who until

a few years ago have earned a bad reputation for not

behaving ethically as they favored land grabbing, corrup-

tion, and sweat-shop conditions in their host countries and

who are presently very much aware of corporate respon-

sibility when they invest in Africa (van Dijk 2009). This

brings us to the concept of ‘‘incentive- and advantage-

based ethics’’ which we propose as the optimal model for

analyzing the issues in question.

Incentive- and Advantage-Based Ethics

Pre-modern philosophy considered (universal) standards as

given. We argue that a different approach which comes

closer to relativism and even constructivism is needed in

contemporary complex global business. Homann (2002)

states that in the age of globalization, moral foundations

should be based on advantages and incentives, and that

ethics is not about following rules, but about developing

them, i.e. not about just following rules but setting the rules

of the game. With so-called ‘‘incentive- and advantage

based ethics’’ (Luetge 2005), the question is not whether

altruism or other nonadvantage seeking behaviors are his-

toric anachronisms nor if practice has proven that only self-

interested behavior leads to beneficial economic result.

There is a long tradition—both in public and academic

discourse—of discussing the tension-filled relationship

between profit and morality under competitive market

circumstances (Hemphill 2004). Often, proof is sought by

recurring to a list of moral concerns, which includes

environmental pollution, global warming, child labor,

R. Bardy et al.

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human rights violations, the deterioration of social stan-

dards like job security, and the fight against corruption. In

these instances, and in many more, what for a long time has

been looked at as clash between private interest and public

interest, is now becoming a collaborative issue. Private

business firms seem increasingly willing to take on the role

of corporate citizens by embracing the rights and duties of

political actors. They have engaged in rule-finding dis-

courses as well as rule-setting processes in which they

actively cooperate with government actors and/or civil

society organizations. But what are their motives and their

incentives, and what is required to encourage the pursuit of

ethical behavior? One answer lies with what Boatright

(1999) has called the ‘‘mistake’’ on which business ethics

often rest.

Boatright (1999) departs from the conventional view of

the aim of business ethics. He argues that the aim is to

move managers from a type of thinking in which ethics is a

systemic constraint, to a thinking, in which ethics is more

an ‘‘authoritative guide,’’ in which ‘‘respect for the rights

and concerns of all affected parties is given independent

force in the leader’s operating consciousness’’ (Goodpaster

1987). In this model, the manager is not one who merely

acts morally but who must think morally and actively

include moral considerations in business decision-making

as a ‘‘moral manager’’. This would lead to the question as

to the basis for this ‘‘moral thinking’’. We might surmise

that it is either based on cognition or on education or

background (There is a caveat already: backgrounds may

eventually develop into different conceptual models of

morality as was found by Lakoff (2002), for, e.g., the U.S.

conservatives who think people are made good through

self-discipline and hard work, while U.S. liberals see

people as something to be ‘‘nurtured’’, i.e. cared for and

assisted.). Werhane (1999) and Johnson (1993) discuss

‘‘moral imagination’’ where moral insight would come

from (1) disengaging oneself from one’s role or one’s

particular situation, (2) from becoming aware of the kind of

scheme one has adopted, and (3) from envisioning new

possibilities to frame new solutions to present dilemmas.

However, people differ in their experiences, backgrounds,

and education. The concepts of the ‘‘moral manager’’

versus the ‘‘moral market’’ have been explored by Smith

(2005) who tries to reconcile the two concepts. However,

his approach is limited by the efficacy of rules promulgated

by institutions, and, also, he restricts the managerial

motives which he looks at to very general terms.

From the preceding we may conclude that the ‘‘moral

manager’’, while a useful educational construct (Walton

1998), is often too vague a notion to be useful for guiding

practical business decisions. In business life, decision

problems will be first be governed by economic restraints

of the market in which the manager operates, and so he or

she will more often that not choose to apply his economic

experience. So what we need is an economic experience, a

‘‘logic of the—moral—marketplace’’ placing the respon-

sibility to make reach moral decisions on all actors within a

market—the ‘‘moral market’’ (Boatright 1999). With this,

we proceed from the axiom that the economy—the market

and competition—ought to serve human beings, and this is

‘‘moral’’ as it does good. Under the typically modern

condition of markets, the decisions of the actors will shape

the economy in the sense of moral ideals, as competition

and the market alone are in the position to guarantee and/or

enhance the opportunities of all individuals for a way of

life in line with their own beliefs. Thus, business ethics in

the market economy becomes, paradigmatically, an ethics

of the social order (Homann 2006a). It is here where we

may get to an easy distinction between ‘‘ethical’’ and

‘‘moral’’ even though ‘‘ethics’’ or ‘‘morals’’ are synonyms

in modern usage: ‘‘Moral’’ would be ‘‘doing good’’, and

‘‘ethics’’ would be the process of achieving a moral order

in a society/in a market. From there, the term ‘‘ethical

business policies’’ would comprise efforts and endeavors to

bring about moral order within the reach of the business

parties involved.

Another argument for incentive- and advantage-based

ethics comes from reflection on the fundaments of ethical

business decisions. Businesspeople feel most at home using

the ethical fundament of utilitarianism (Cavanagh 2006), as

it not only traces back its origins to Adam Smith and thus

links the foundation of economics with the philosophical

foundations of John Stuart Mill and Jeremy Bentham, but it

also sets the focus on results: Utilitarianism evaluates

actions on the basis of their outcomes or consequences

(hence the term ‘‘Consequentialism’’), and it considers any

action which would result in the greatest net gain for all

concerned parties to be the right, or morally obligatory

action. And this comes close to the modern term of

‘‘stakeholder orientation’’. Another foundation, and here

we are with the modern business term of ‘‘compliance’’,

would be the notion of moral rights and duties that warrant

individual freedom (from John Locke’s rights on property

to Immanuel Kant’s personal rights) and the notion of

justice and fair distribution of benefits, where, in the terms

of John Rawls, inequalities are accepted (they are ‘‘just’’) if

they can reasonably be expected to be to everyone’s

advantage.

The three foundations of utilitarianism, rights, and jus-

tice will govern ethical decision-making to the extent that

by these decisions a system of norms is created. But a

system of this kind needs to be supported by advantages

and sanctions, thus through incentives. One may be

tempted to state that ‘‘in the history of the world there has

never yet been for any length of time a system of norms

that was not supported by advantages and sanctions’’

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(Homann 2006b). Here, it is that the explicit concept of

advantage as employed by modern economics enters into

the theory of ethics (Homann 2006c): By ‘‘advantage’’ (or

‘‘incentive’’) everything is meant that individuals them-

selves regard as advantages: income and assets as much as

health, leisure, and a ‘‘good life’’ in community with oth-

ers. Economics is, in this general sense, an advantage/

disadvantage grammar; advantages and disadvantages steer

action and expectations and these expectations, in turn,

determine action. If moral behavior promises to be rec-

ompensed—in whatever fashion—individuals behave

morally from self-interest.

The most convincing attestation of the moral market

model/the incentive-based ethics models are their prox-

imity to Nobel laureate Gary S. Becker’s approach of using

economic theory to analyze interaction in society. Becker

(1974) argues that many different types of human behavior

can be seen as rational and utility maximizing and that by

defining individuals’ utility appropriately, altruistic

behavior can be widely defined. The central concept he

uses is ‘‘social income’’, which includes the monetary

earnings of a person and what he calls ‘‘the monetary value

to that person of his social environment’’. A person will

strive to increase this income, and he or she will be lead by

his or her wants—for which we can go as far back as to

Bentham in whose words incentives would be ‘‘pleasures

and pains’’ (Becker 1976). Transferring this into the con-

text of (ethical) business decisions, we get from ‘‘pleasures

and pains’’ to what we understand by incentives (Lin-Hi

2008), which go beyond economic benefits and also com-

prise social standing, a good sentiment, individual identity,

etc. An example of a framework based on the advantages

and incentives to encourage firms to do the right things

could be the establishment of carbon trading markets aimed

at reducing overall emissions of greenhouse gases.

We have elaborated here on the foundation of the moral

market model/the advantage- and incentive-based ethics

model because it is the aim of the paper to show which

outcomes can be envisaged from what may be called

‘‘ethical business policies’’ related to foreign investment

and the corresponding receptive exploit in the host country.

In theory, what is to be attained is a ‘‘level playing field’’

(European Commission, Africa Business Forum Declara-

tion 2010). In practice, the ethical and the social respon-

sibility challenges for enterprises which invest in a

developing country, especially for multinational enterprises

(MNEs), will differ from case to case, depending on the

context, business and industry climate, the nature of the

MNE, and its stakeholders. The second discriminant would

be the institutional quality and the business climate in the

host country, for which various indicators or indices have

been constructed (Kaufmann et al. 2005; Fazio and Talamo

2008). CSR must meet social awareness: Social order in the

host country cannot solely be implanted by a foreign

investor—there must already be some kind of receptacle in

the society. Only then will foreign business activities

contribute to (human) development and poverty alleviation.

Thus, we can look at CSR as an ‘‘investment in social

cooperation for mutual advantage (Lin-Hi 2008) or, to

choose an even more programmatic title, to a ‘‘global

social contract’’ (Pies 2003).

Poverty Alleviation, Ethics, and ‘‘the Market’’

Poverty is undoubtedly a key question for global ethics and

justice, because no other moral deficit withholds funda-

mental human rights and dignity from so many people. The

number of ‘‘absolute poor,’’ i.e. living below the World

Bank’s international line of US $1.25 a day in 2005 prices,

is approximately 1.5 billion (World Bank 2007; Chronic

Poverty Research Centre 2009). Annually some 18 million

deaths, including millions of children, are due to poverty-

related issues such as starvation, malnutrition and disease

(World Health Organization 2005). There is no single key

to a just reduction of worldwide poverty, but globalization

is seen by many experts (e.g. Sachs 2005) as one of the

most important opportunities for eradicating absolute

poverty worldwide. North Korea provides a living case for

the connection between nonparticipation in global markets

and economic poverty. Markets, properly handled without

distortions by corruptive actors, are a way to self-suffi-

ciency, and if combined with the chance of promoting

individual prosperity, they are also an expression of free

interaction and a chance to improve living conditions. An

example is the micro-financing activities of Grameen Bank

in Bangladesh, by which poor women are empowered to

participate in markets, and achieve self-determination and

autonomy.

However, only if markets are based on and supported by

fair international frameworks will individual self-determi-

nation be possible. This applies to the policy issues for all

levels of rule-setters, supranational, regional, national, and

local: A recent example is the marked interdependence

between the conditions a supranational funding institution

would set for the national government of Ghana for oil

extraction rights, the national Ghanaian laws on barter

agreements with foreign investors, and the negotiation by

the 14 tribes chiefs of the Takoradi region (the coastal

province nearest the oil) for development levies (Wallis

2011). It goes without saying that all these hold aspects of

responsibility toward social as well as business issues. Rule

setting in this manner falls in line with incentive- and

advantage-based ethics. Especially, when the efficacy of rules

and the validity of rule-setting processes need to be recon-

sidered (Michael 2006), incentive- and advantage-based

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ethics, together with Habermas’s discourse ethics, would

provide a robust framework. Both point to the ways of how

to elaborate worldwide fair labor practices, effective ways

to diffuse new technologies, to develop meaningful local

advantages and specializations in backward areas, and to

channel a socially beneficial re-export of newly manufac-

tured goods and resources. Overall, when we speak of fair

norms for markets, we mean ‘‘fair equality of opportunity.’’

This requires not merely that offices and positions in any

market be distributed on the basis of merit, but even more

importantly that each member of a given market has the

reasonable opportunity to acquire the skills on which

‘‘merit’’ is assessed (Rawls 2001).

Attracting and Conducting FDI: A Two-Way Street

Through FDI, a company not only penetrates a host

country’s market, it may also gain access to resources,

economies of scale and scope in production, logistics, and

marketing processes. Important markets include supply

chains, distribution networks, and end customers. Whether

a firm chooses FDI rather than serving foreign markets

through exporting, licensing, alliances, or other means is

determined by three factors (Dunning and Lundan 2008).

These include: a transferable competitive advantage in the

home-market, specific characteristics of the foreign market

which allow the firm to exploit its competitive position in

that market, and the firm’s ability to increase its competi-

tive position by taking advantage of what the host country

has to offer for controlling the entire value-chain. All three

conditions must be present or FDI may not take place

(Dunning and Lundan 2008). The firm-specific advantages

which constitute spillover effects of FDI (proliferation of

technology, secondary employment, and enhancement of

skills) are often what less-developed countries need for

their growth and development. The host country and the

investor may focus on the location-specific advantages as

factors to entice higher levels of FDI inflows.

When the three conditions as stated above are missing

then FDI either does not occur or occurs only at very low

levels. This explains why some areas of the world, espe-

cially the poorest, fail to attract FDI. Although FDI flows to

Africa have increased in recent years, these represent only

a small portion of the total flows to developing countries.

Average annual FDI flows increased from US $ 2.2 bn. in

1980, to 15 bn. during the period 2000–2004. However,

Africa’s share of global flows fell from 2.3% in 1980 to

about 1.5% during 2000–2004. As a percentage of total

flows to developing countries, Africa’s share fell from 10%

in 1980 to 7% during 2000–2004 (Cleeve 2009). Local

infrastructure, effective macroeconomic policy, and reli-

able data of possible host nations are decisive in choice of

location for foreign firms. These are often lacking in

Africa.

Knowledge of a country or region is crucial in the

choice of location, and without this, investors may

underestimate entrepreneurial opportunities or overesti-

mate risks, pushing such locations to the periphery of the

decision-making process. But there are investment

opportunities in almost any region of Africa. According to

UNCTAD (2011a), Africa offers the highest return on FDI

in the world, far exceeding all other regions. While not yet

as competitive as the BRIC countries, the demographics

bode well for Africa as a market as more than half its

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

opportunities: Education; healthcare; infrastructure; bank-

ing the unbanked; and middle class aspirational consumer

goods etc. (Luiz 2010). Many investors are still unaware

that many sub-Saharan African countries have reformed

their institutions, improved infrastructure, and liberalized

their regulatory frameworks for FDI. This overlook has

caused the region to remain unattractive for FDI (McBride

2005; Asiedu 2004). The investment community would

have to get better informed about how the following has

been addressed: macroeconomic indicators (growth,

inflation, and budget deficits) have improved, and so have

quality infrastructure, access to natural resources, political

stability, quality of human capital, and transaction- and

business-costs. Some areas in sub-Saharan Africa still

have deficiencies in all these areas, and more often than

not, the risk profile is heightened by political and insti-

tutional instability and unpredictability and high levels of

corruption (Ngowi 2001). Investors need reliable infor-

mation, but too often the official statistics are lacking or

unreliable and official sources cannot provide robust

data on markets, business partners, and available labor

(Kennedy 2011).

Unfortunately, when reliable information is absent, and

when all ingredients of a risky environment are present, the

vicious cycle of poverty continues. FDI does not take place

and the associated possible benefits cannot be exploited.

This is where the instruments of solidarity with the poor

and strong transnational institutions have a vital role. The

International Development Association (IDA) is a division

of the World Bank that helps the world’s poorest countries.

IDA complements the World Bank’s other lending arm, the

International Bank for Reconstruction and Development

(IBRD), which serves middle-income countries with capi-

tal investment and advisory services. IBRD and IDA share

the same staff and evaluate projects with the same rigorous

standards. These common standards encourage private

investors to follow suit and resolve the informational and

infrastructural deficits.

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Contributing to Change: The Impacts of FDI

A large body of literature emphasizes positive impacts of

FDI (e.g. Kowalewski and Weresa 2008) typically arguing

as follows: FDI increases growth by introducing new

technologies, such as new production processes and tech-

niques, managerial skills, ideas, and new varieties of cap-

ital goods. For this, the host country must have certain

conditions to maximize the technology spillovers from FDI

(‘‘absorption capacity’’). Technological spillover is only

possible with a threshold level of human capital in the host

country. Here, the stream of research fades. There is less

reference (Perrons 2004) on how to reach the threshold

level, or which pressures are needed to establish or change

the social structures required for this level. One interesting

study on China shows that FDI has significant effects on

the degree of future orientation, performance orientation,

and in-group collectivism. This may increase the level of

human capital and its capability to achieve higher paid jobs

(Jiang et al. 2010). There are similar studies on Eastern

European countries (e.g. Giannaros 2008; Fabry and

Zeghni 2007). However, apart from several World Bank

Policy Research papers (e.g., Chen and Ravallion 2008),

there is little research on the really poor, i.e. Africa, and

one main reason may lie in the deficiencies of reliable

information as stated above.

When it comes to informational and institutional defi-

ciencies in less-developed countries, commonly differences

in training and education are cited as possible obstacles that

lie in the path of realizing development. Some authors

recognize that education largely takes place outside formal

institutions and through family influence and peer group

pressure within the local community. They state that to

benefit from formal education it may be necessary for

people to ‘‘unlearn’’ beliefs from their informal education

(Buckley 2009). Indeed, unlearning beliefs is one step to

changing the order of thought. When we look at the recent

economic and institutional progress in African countries

such as Rwanda and Sierra Leone (OECD 2007), we find

that the roots of this progress lie not only in education but

also in improvements to political stability, government

effectiveness, and the rule of law (OECD 2007, p. 13).

These improvements could only be achieved because the

major ethnic groups developed a positive sentiment toward

participation in social and in business life after the disas-

trous consequences of ethnic conflict were gradually

overcome. This required changes in ethical judgment and

application by the various groups in these countries’ soci-

eties. In this process, an important role was taken on by

Chinese investors who carried out a multitude of agricul-

tural projects in Rwanda and Sierra Leone that went down

to the village level. Hundreds of rural households were

involved in projects on water control, fishery, crops,

livestock, and veterinary services and thus started to

‘‘unlearn’’ old habits and acquire new ones (Spring 2009).

Parallel to what may be called an ‘‘upgrading’’ of stance

and habits as in the example of Sierra Leone farming,

physical infrastructure must be upgraded, too. However,

small but visible steps must be taken here in order to attain

personal involvement of rural and urban population. Only

then can sustainable improvements in income, food, clean

water, energy, personal security be achieved through good

governance, the absence of conflict, and social structures can

be built to promote fairness and equity and the opportunity to

make choices. These ‘‘small but visible steps’’ require pru-

dent cooperation in local and cross-border public–private

partnerships in the areas of water treatment, healthcare, and

education that combine indigenous resource capital and

institutional capital (UNCTAD 2011a, p. 26). Improvements

in these areas can be measured and assessed. So too can

progress in free physical movement and nondiscriminatory

treatment, physical security, freedom of speech and

association, political participation, and education. The host

country’s efforts and the investors’ endeavors will meet in a

two-way give and take: e.g., if the host country wishes to step

up education, and investors need skilled labor, a combined

effort will be the most productive. The actual process is

definitely more complex, but the best results will always

come out through mutual collaboration, not only in job

training, but also in transport, communication, healthcare,

and financial services.

But what happens when the level of human capital

development is far from the necessary threshold? A key

response to this question is acceptance, at least for a while,

that there is just not enough performance for the ‘‘formal

sector’’ of the economy and hard-core business invest-

ments, and to diversify into and intensify informal sector

activities. Many of these activities are based on natural

resources and include carpentry and craft production,

charcoal manufacturing, collection and trade of nontimber

forest products (examples in the following section), artisan

mining and metal works. Entry into many such activities is

relatively easy, and it must be secured that their profit-

ability and efficiency is not undercut by bureaucratic con-

trols and inadequate support for market engagement.

Reference to the Chinese agro-business projects as men-

tioned above should suffice to demonstrate how strength-

ening the informal market sector contributes to human

capital development. When private capital does not meet

the requirements, government will seek support through

loans from the World Bank and the International Monetary

Fund (IMF) under the new Poverty Reduction and Growth

Facility Program (PRGF) and its new lending window, the

Extended Credit Facility (ECF). PGRF is expressly direc-

ted at pro-poor-spending, as opposed to the World Bank’s

and IMF’s heavily criticized former Structural Adjustment

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Programs (SAPs) that have very often proved to be the

wrong means. Loans under the PRGF not only follow the

‘‘debt sustainability concept’’, i.e. debt is repaid only be

from residual resources after the borrowing government

has met its priority spending, they also are framed around

comprehensive, country-specific strategies prepared by the

borrowing governments with the active participation of

civil society and other development partners (Poverty

Reduction and Growth Facility Program 2009). Represen-

tatives from in-country and transnational NGOs are also

increasingly involved here.

For FDI to lead to spillovers that increase the human

capital threshold level, and thus lead to improved living

standards in areas like sub-Saharan Africa, it is helpful when

business investments are preceded by or accompanied by

globally financed infrastructure support. As shown in Exhibit

1, this combined effort should provoke a shift of the host

country’s status to a new and improved societal standard.

This move, which is primarily induced by the inflow of

financial and technological capital, is mainly originated by

effects on human capital, effects on ethical judgment as e.g.

with regard to what happens in labor relations, by recon-

sideration of value systems and ethical practice.

The diagram encompasses the main flows of capital,

knowledge, and communication between the stakeholders

involved in an investment project financed by foreign

business in a host country. It shows that parallel to private

investors, donor institutions help with infrastructure from

the outset (Status 1). An initial investment project (‘‘Object

1’’) remains ‘‘foreign’’ throughout status 1 and does not

form a part of the host country’s society, infrastructure,

institutions, or even of the business partner. The object then

produces technology transfer and knowledge transfer to the

investor’s business partners, but also, by way of spillovers,

to civil society as a whole. Not only will education and

professionalization improve and enlarge the human capital

base in the host country, but opportunities for a new kind of

interaction between the recipient of the investment, the

employees and the community as a whole will be forged.

This can lead to improvements in labor contracts, labor

supervision, and conditions at the workplace. This will

ultimately not only have effects on living standards but also

on ethical thought and judgment. Employees might become

aware that they share more values with their employers

than first thought, as was proven in many of the Chinese

investments in Africa. Community leaders might be led to

reconsider corruptive practices as it pays more to act in

committees and supervisory boards. Thus, the host country

could progress from an initial status where stakeholder

involvement is loose (‘‘Status 1’’) to a closer level of

cooperation and collaboration (‘‘Status 2’’). Subsequent

investments (‘‘Object 2’’) will be better accepted and

assimilated into the managerial and business infrastructure

of the host country as more local entrepreneurs will partake

in joint ventures. This can be elucidated by the example of

the ‘‘Chad-Cameroon Oil Experiment’’ which some call a

new model for oil-led poverty reduction (Gary 2003).

Chad is landlocked, requiring massive investment to

bring its oil to market. It is extremely poor, making the

leverage of the World Bank particularly strong prior to the

oil boom. Because of the criticism heaped on companies

operating in Sudan during its war, foreign oil companies

decided that they could not go forward in conflict-ridden

Chad without World Bank participation. The project

amount is USD 3.7 billion and it involves ExxonMobil,

Chevron, Petronas (the Malaysian state oil company), the

World Bank, and the governments of Chad and Cameroon.

The investor consortium, ‘‘Object 1’’ in Exhibit 1, would

DonorInstitutions

Foreign Investors

Host Country Infrastructure

Host Country Business Partners

Host Country Civil Society

Host Country Institutions

Investment Object (1)

Monetary flows, technology transfer, knowledge transfer; monetary returns.

Communication and feedback.

Spillovers: technology, knowledge.

Status 1 Status 2

Host Country Infrastructure

Host Country Institutions

Host Country Business Partners

Host Country Civil Society

Investment Object (2)

Effects on human capital, effects on ethical judgment etc., moving the host

country’s status to improved living standard.

Exhibit 1 The impacts of FDI

in developing countries

(Source: authors)

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certainly be perceived by the Chadians and the Cameroo-

nians to be located well outside their societal communities,

and it must take all efforts to connect local institutions,

civil society, and infrastructure to the project (‘‘Status 1’’).

Technological know-how and knowledge about profes-

sional skills will be purposefully transferred to local busi-

ness partners or they will ‘‘spill over’’ through local and

foreign contractors and sub-contractors. The government

issues the pertinent regulations (the ‘‘Petroleum Revenue

Management Law’’) and the local communities gradually

become stakeholders of the project. Community leaders

start to act responsibly with regard to their citizens, on all

levels, because they need their cooperation. When this has

been successfully accomplished, ‘‘Status 2’’ is reached

where all the parties which are concerned have started to

interact in a substantially collaborative manner. Follow-up

investors (logistics, maintenance, etc.) can make use of the

conditions that prevail in status 2, as their projects will

meet positive response from a newly prepared constitu-

ency. Additional spillover effects will occur.

Another aspect of ‘‘spillovers’’ is that changes in host

country policies are often incited through FDI as new

regulations, new forms of contracts and new ways of

supervision are established, and these may enhance pro-

ductivity and improve infrastructure, quite apart from any

direct effects of FDI (Moss and Ramachandran 2004). For

development and the institutionalization of new financial

systems, financial norms need to be absorbed and accepted

by the general population, which is more likely to happen

when associated structures are diverse, participatory, and

accessible (Nissanke and Thorbecke 2004; Arestis et al.

2005). We can take the simple example of honoring

accounts payable on time: A norm which regulates this

area will be accepted more easily if the general public

accepts that failing on a creditor is not just unlawful but

may destroy a supplier and the subsistence of its

employees and sub-suppliers. Without such understanding

to become part of the collective social consciousness,

credit market failure may result, preventing the poor from

using growth-promoting investment opportunities. Some

of these effects can be planned, and they contribute to the

project succeeding to achieve its objective. In other

instances, we are talking about unintended consequences

when, e.g., local authorities intervene in the flow of

information in order to establish the build-up of skills

through government programs etc. They may wish to act

in the best interest of their communities, but they might

provoke a reaction by foreigners to withhold information

(Slaughter 2001).

The view is increasingly being put forward, not only by

ethicists, but also by national and international policy-

makers, that changes in attitudes, policies, and institutions

are needed in order to create a stronger social dimension

for globalization. These changes include a focus on people,

democratic and effective states, sustainable development,

productive and equitable markets, fair rules, solidarity,

accountability, partnerships, and an effective United

Nations (World Commission on the Social Dimension of

Globalization 2004). To quote from this report:

Globalization is seen through the eyes of women and

men in terms of the opportunity it provides for decent

work; for meeting their essential needs for food,

water, health, education and shelter and for a livable

environment. (p. 5)

This quote highlights the close relationship between

value systems and the effects of business activity, local,

national, cross-border trade, and FDI. They may be viewed

from the social responsibility perspective and effects of

FDI, or from a social justice stance of ‘‘democratizing

commerce’’ (Prahalad 2006). When companies do business

in less developed or poor countries, and when they work

there ‘‘with imagination, passion, courage, humanity, and

also hope for some luck’’ (Prahalad 2004), they can con-

tribute to change both through own activities and through

the combined effects which their activities provoke in civil

societies. This has been recognized by the New Partnership

for Africa’s Development (NEPAD), an economic devel-

opment program of the African Union founded in 2001 and

endorsed by the G 20 and other international development

partners.1 A series of investment projects in the areas of

basic infrastructure (e.g., roads, schools, and hospitals),

staples (food, consumer-packaged goods, and medicines),

and early life-stage products (e.g., baby-care, children’s

clothing, and toys) have shown multiple win–win effects:

The foreign investor not only benefits through an adequate

return on investment, the African environment also teaches

the investor how to develop low-cost alternative business

models and how to respond to stakeholder expectations for

socially responsible behavior. For the respective commu-

nities of consumers and citizens, this not only provides

access to affordable goods, to healthcare, and to employ-

ment, it may also shape improved and social order where

the inclination for corruption and violence looses its

motivation (Luiz 2006). The work of socially responsible

investors will also contribute to overcoming dilemmatic

situations in countries where acting in one’s self-interests

cannot be separated from the traditional values of family

ties: When family ties are the prevailing social security

system because poor public revenue cannot provide social

1 NEPAD’s four primary objectives are: to eradicate poverty,

promote sustainable growth and development, integrate Africa in

the world economy, and accelerate the empowerment of women, with

the eight priority being: political, economic and corporate gover-

nance; agriculture; infrastructure; education; health; science and

technology; market access and tourism; and environment.

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security, public officials will only get a choice to stop

shifting funds ‘‘back home to the tribe’’ if new sources for

private and public income are established through prudent

FDI projects (Kennedy 2011).

NGOs also increasingly acknowledge the need for the

resources and scale of MNEs to accomplish their mission.

This recognition of mutual dependence changes often bitter

and adversarial relationships and is quietly engendering

collaboration (Prahalad 2006).

Exhibit 2 summarizes various arguments for how FDI

impacts on social changes in emerging nations (EMs).

The primary limitation to this interdependence firstly is

the magnitude of financial returns on FDI in an EM: At

least in the short run, the business results are not deemed to

be sufficiently robust for sustaining additional expenses on

social improvement. This short-term view obstructs that it

is in the enlightened self-interest of the investors to include

into their decisional processes all the nontangible conse-

quences which arise from their actions. Especially when

acting in a foreign environment where value systems differ

from their home-market, investors must carefully consider

the effects of present actions on future conditions of action

(‘‘incentive compatibility‘‘). The outcome of FDI may

often be jeopardized by this short-term view and by the

misconception of how local conditions interfere with the

intentions of the investor.

Contributing to Change: Some Evidence

Business Adaptation and Innovation

Prahalad (2006) suggests foreign investors should ‘‘stop

thinking of the poor as victims or as a burden and start

recognizing them as resilient, creative entrepreneurs, and

value conscious consumers.’’ Some two to five billion

underserved consumers have enormous collective spending

power. Affordable, world-class products and services are

needed to include these consumers in the global economy.

The mobile phone business has had enormous impact. In

India, five million new subscribers are added per month.

Similar growth is found in China, sub-Saharan Africa, and

Latin America. All the major global mobile operators and

manufacturers participate in this business. Innovations

are evident in products, services, and business models.

Examples include unorthodox, low-cost distribution and

pricing, new features such as phones with a torch light for

rural populations, and SMS-based financial transactions.

Not only do these innovations make connection and par-

ticipation in the community accessible, affordable, and

available, they also contribute to social progress. Copeland

(2009) reports on programs at Stanford University, teach-

ing a new generation of entrepreneurs to use their business

and engineering skills for profitability, designing, and

selling products to the developing world.

When foreign businesses target low-income markets, they

can achieve more win–win rewards by recognizing that

Western-style patterns of economic development do not occur

in these business environments: Business strategies that rely

on leveraging the strengths of the existing market environ-

ment outperform those that focus on overcoming weaknesses.

These strategies include developing relationships with non-

traditional partners, co-inventing custom solutions, and

building local capacity (London and Hart 2004).

Exhibit 2 Contributing to change through FDI and CSR—some

arguments

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 changing the institutional framework

(institution-building) and inducing local governments to

upgrade the national legal frameworks to further business

operations

Developing human capital (training) and providing new

knowledge and technological transfer

Increasing economic success

Hence, the following actions should be envisaged:

1. FDIs should not try to transfer Western notions of moral

(underpinnings) to less-developed countries, but rather deal

cautiously with the enormously fraught issue of inter-cultural

ethics by harmonizing with local notions and by reciprocally

negotiating what is to be understood by cultural norms

2. FDIs could contribute to ethical and socially responsible norms

by insisting on a level playing field (appropriate rules,

monitoring, and sanctioning mechanisms in the host countries)

for all operating companies, both national and foreign

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

unclear (legal or governing framework), it is in the enlightened

self-interest of the FDI (profit motive, ethical and social

responsibility) to engage in discourse on the necessity for such

rules, as for example in the Global Compact

4. FDIs, in collaboration with supranational bodies, need to set up

voluntary rules for engagement in less-developed countries—

especially those with inadequate legal frameworks. An example

would be the international self-regulation on deforestation

(United Nations Environment Programme 2010)

5. Since the abilities and capacities of many government actors in

less-developed countries to develop global competitive

frameworks to attract FDIs are very limited, pertinent support

should be given on a broader scale (as is done by UNCTAD, but

only in selected cases)

6. FDIs have the capacity to worsen the existing ethical and social

environment (see for example: Siemens Scandals in Nigeria,

BBC 2007), and therefore better surveillance is required both by

local and foreign overseers

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Democratizing Commerce

Many hundreds of efforts are being made to mobilize micro-

producers, often with foreign investors playing a prominent

role. The original idea comes from rural cooperatives, such

as in milk farming. Amul is a cooperative in Gujarat, India,

with a membership of 2.2 million farmers, spread over

10,000 villages and 3,000 collection centers. By effectively

organizing subsistence farmers, the output is now about 6.4

million liters of milk per day, and sales of US$ 850 million,

up from less than 1 million liters (Prahalad 2004). This

model of sustainable economic integration has been repro-

duced by several others, including Malaysia-based Sime-

Darby Investment Group (http://www.simedarby.com) and

Swiss-based agro-chemicals producer Syngenta (www.

syngenta.com) through the Syngenta Charitable Founda-

tion. Sime-Darby is the world’s largest plantations company,

with business in Malaysia and abroad. The group’s projects,

as well as those of Syngenta, reach out to subsistence farmers

in remote areas, providing finance, knowledge, training,

access to technology, housing, education, and healthcare.

This is provided by systematically attaching what might be

called ‘‘soft investments’’ to the hard-core FDI in real estate

or agrochemicals. These combine social responsibility and

sustainable development with a long-term growth perspec-

tive. Benefits come to both farmers and investors. Public–

private partnerships based on treaties between local and/or

national governments and investors are also powerful

mechanisms for development.

Indigenous knowledge can be used to create and exploit

business opportunities. This knowledge may be based on

centuries of observation, continually developing in

response to changing social and environmental conditions.

An example is the increasing market for nontimber forest

products, such as Prunus africana, Harpagophytum proc-

umbens (devil’s claw), and Kigelia africana (African sau-

sage tree). Trade in devil’s claw, a traditional medicinal

plant, now supports a US$ 100 million industry. In the

beginning only a fraction of the benefits went to domestic

producers, while the bulk went to processors and distrib-

utors. However, some prudent low investment in improving

community skills and gaining access to relevant informa-

tion is now slowly changing that pattern of benefits

(Katerere and Mohamed-Katerere 2005).

Transportation and communications infrastructure is

vital for rural development in poor countries in order to

access healthcare and bring agricultural products to market.

Public funding may be lacking and private investment

inhibited by weak prospects for profitability. However,

some far-sighted private institutions are now stepping

forward to build roads, bridges, and hospitals, such as

the Development Bank of Southern Africa (http://www.

dbsa.org). This bank is now fully engaged in infrastructure

financing, such as of the Gautrain project and the Maputo

corridor project in the Republic of South Africa proper, as

well as more distant projects such as the Lesotho hospital

project and the North–South-Corridor Road project reach-

ing into Zambia and Tanzania. The bank’s interest is cer-

tainly financial, as it often acts as the lead investor

combining its own money with a consortium of private

capital from investors outside the region. The investment

model is a private–public partnership and thus a rigorous

approach to project appraisal is employed. However,

analysis also extends to the impacts which the projects

deliver on the lives of the communities and areas they will

serve. There is no contradiction, because there what is

socially responsible and environmentally sustainable has

proved to also be financially and economically viable

(Karani and Gantsho 2007).

The poor in rural areas face a triple burden when it

comes to finance. Firstly, there may be limited access to

credit on competitive terms, especially for women, to

finance agricultural and other income-generating activities.

Secondly, appropriate low-risk savings instruments may be

unavailable. Thirdly, access to risk-reduction instruments

such as crop insurance may prevent rural households from

innovating or expanding into new activities.

Micro-financing has evolved in response to the

inability of traditional financial institutions to address

these issues, the predations of unscrupulous informal

institutions, and the failures of state subsidized agricul-

tural finance schemes in the 1970s and 1980s (Interna-

tional Labour Office 2008). As is now well-known,

micro-finance began with Dr. Muhammad Yunus, who

first demonstrated the commercial viability of the concept

in Jorba, Bangladesh, and subsequently founded Grameen

Bank. There is now a proliferation of micro-financing

schemes supported by foundations, corporations, or indi-

viduals, both local and foreign. Quite a few US charitable

funds have been engaged here for many years (Lyman

2000). These financing schemes are often loaded with

complex legal issues which, however, seem to be indis-

pensable for enabling sustainable development (Kiweu

2009, refers to due diligence, legal expenses, and custo-

dial arrangements which may reduce returns but are a

prerequisite for profit sharing to investors). Micro-finance

has now evolved to include other lending products such as

housing and educational loans. This is a story of

democratizing finance as a part of social dialog, shared

decision-making, and change.

Large transnational corporations have also achieved

success with social responsibility projects. Major pharma-

ceutical companies such as Roche, Aventis, Novartis, and

GlaxoSmithKline have funded and supported crucial pro-

jects in developing countries and won many awards for

their work. As a result, many communities in poorer

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countries have received much assistance in their healthcare

and fight on disease. However, these companies have also

attracted criticisms because they often either fail to prop-

erly balance their global policies with their local endeavors

to overcome political neglect of health problems in some

developing countries or they fail to properly disclose what

those endeavors are about (Hielscher and Pies 2011).

Doing business in the least developed countries will always

put a quandary on the pharmaceutical industry since the

general expectation often is that they should give away

their know-how and intellectual property for the sake of

charity and philanthropy (Boldrin and Levine 2008). While

it is true that that much of the population in least developed

countries still lacks access to much needed medicines,

despite impressive gains in the availability of certain

medicines in the last decade, relying on subsidies and

receiving aid continuously would further disconnect them

from markets and market economics (Pogge 2009). At least

for some of the countries, e.g. Cameroon, Kenya, and

Tanzania, it makes to scale up local production of medi-

cines through FDI combined with technical assistance. In

those three countries, local production will soon become

compliant with good manufacturing practices assisted by,

among others, the German Agency for International

Cooperation. They will also be able to export to neigh-

boring regions, and thus, in the longer run, poorer countries

may no longer be able to rely on China and India to be the

‘‘pharmacy for the developing countries’’ (UNCTAD

2011b). Local production of pharmaceutical products

should not be seen as an end in itself. If undertaken, it

should be cost effective and sustainable, and the develop-

ment dimension needs to be properly appreciated by all

domestic stakeholders and incorporated into the investment

deal negotiations from the outset. This would help to open

up the sector to various opportunities, including access to

credit, tax incentives, export-concessions, and a range of

other tools that support local firms in becoming profit-

able. Pursuing local pharmaceutical production would then

not only be connected to achieving public health goals, but

also to improve living conditions in general (UNCTAD

2011b).

The latest report of UNCTAD on FDI in less-developed

countries (UNCTAD 2011a) offers the vision that LDCs

have significant untapped potential to attract beneficial

FDI, including because of reforms to the business climate

at home, and that FDI can make a significant contribution

toward the goal of LDCs to pull out of poverty. Still, as will

be demonstrated by cases of some sub-Saharan countries,

in order to ‘‘untap’’ the potential, recipients of FDI together

with some lead investors will have to jointly revert the

negative perception the business community has of this

region.

Cases from Sub-Saharan Countries

In the Republic of South Africa, quite a few investments

have been directed at the specifics of this region’s con-

sumers and producers. One of the biggest FDI deals of

2001 was Saudi Oger’s USD180 million investment in Cell

C, the new cellular operator. Also in 2001, Malaysian

Resources Corporation announced a USD 200million

property development. Global Environment Fund acquired

forestry assets worth USD150 million billion from Mondi

and formed Global Forest Products, signaling its intention

to bid for state-owned forestry assets. These ventures not

only contribute to improving the base for follow-up

investments that broaden the opportunities for local small

businesses, they are also directed toward improving com-

munication throughout rural areas and providing new skills

to hitherto unskilled labor (Akinboade et al. 2006).

The second case is from Uganda, which in the past was

shunned by investors, but has over the past 20 years

attracted a significant number of investors mainly in

response to the implementation of far-reaching economic

and structural reforms. Privatization of state enterprises and

the return of confiscated enterprises and properties to the

Asians who had been expelled form the country during the

Idi Amin dictatorship, have positively affected the attrac-

tion of FDI. But a major impact on social development

stems from the services sector FDI which has grown rap-

idly in Uganda. Typical of this is accounting and computer

services, warehousing, transportation and communication,

and other services to support the manufacturing sector. In

addition, the liberalization of the economy coupled with

local demand for services like mobile telephony has

attracted investments from big players on both the regional

and international scene, such as Vodafone and MTN. This

has produced income growth and technological which in

turn have boosted the provision of additional services,

including management and franchise contracts in hotels

restaurants and car rentals, as well as joint ventures in some

recreational and civil engineering services in which a local

partner is required for marketing and distribution. The

government has reacted to the demands of its new business

partners by introducing universal primary education—not a

common practice in Africa—which has contributed to

massive enrolment and the reduction in gender differences.

Significant progress has also been made through public and

private efforts in improving some health indicators such as

the continuing decline of the prevalence of HIV/AIDS and

successful efforts to eradicate polio. Uganda also presently

produces about 10,000 university graduates annually with

varied skills in finance, management, engineering, medi-

cine, and other areas vital to the development of the

country (Obwona 2006).

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Another example for positive FDI effects is the agro-

business investments in various sub-Saharan states. In

recent years, agriculture is being perceived as a sector that

not only offers investment opportunities for the private

sector but also a drives local development of agriculture-

related industries and the rural nonfarm economy (World

Bank 2007). In East Africa, fisheries are an expanding sub-

sector due to the presence of some of the largest fresh water

lakes in the world. Lake Victoria, half of which is in

Uganda, is the second largest freshwater lake in the world.

Similarly, Ghana, Cote d’Ivoire and Cameroon have

attracted investments in cocoa processing as a result of

suitable agro-climatic conditions for cocoa production.

Recent land purchases have also been driven by availability

of excess arable land and water (Mhlanga 2010). From this

type of investments, the low-skilled labor force which is

employed in subsistence farming purposes is being con-

verted into skilled labor with processed foods gaining

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

mobile phone interface to link smallholder farmers to

banks, farm input suppliers and agricultural buyers. The

project’s premise is that information on the market is one

of the key elements that keeps farmers from getting the full

market value for their products. This lack of information

keeps the farmers in a disadvantageous financial position,

making it difficult for them to obtain the financing and

resources they need to grow their business. DrumNet pro-

vides marketing, financial, and informational services

aimed at stimulating wealth creation and the economic

integration of smallholder farmers. After the success of the

pilot project in central Kenya, DrumNet is now moving

into a beta phase in other parts of the country (Rausch

2010). In Mozambique, where agriculture, fisheries, and

industry head the list of economic development priorities in

the Government of Mozambique’s Action Plan for the

Reduction of Absolute Poverty (PARPA), great emphasis is

placed on entrepreneurial initiatives to foster social

development. Investors and the state cooperate in rural

infrastructure development (irrigation, storage, and roads),

dissemination of market information, rural financing, the

promotion and capacity building of farmer organizations,

and value-chain development. On the part of the state, this

is facilitated by the ongoing transfer of competencies and

financial resources to provincial and district authorities

through decentralization (FANRPAN—Food, Agriculture

and Natural Resources Policy Analysis Network 2009).

To conclude this list of examples, reference shall be

made to private sector participation in agricultural water

development, which has been developing over the last

decade in e.g. Kenya, Niger, and Cameroon. Private

investment here uses increased technologies for in-field

rainwater management for dryland crops, the objective of

which is to increase the effectiveness of rainfall to stabilize

and enhance yields. The most promising of these are the

various types of conservation farming, including deep

tillage, reduced tillage, zero tillage, and various types of

planting basins, all of which have been successfully dem-

onstrated in many parts of the region, both in the semi-arid

and dry sub-humid zones. The results have been impres-

sive, particularly when the technology input has been

combined with what is called ‘‘Farmers’ Field Schools’’.

These consist of a community-based, practically oriented,

field study program, involving a group of farmers, facili-

tated by extension staff (public or private) or, increasingly,

by other farmers, in which farmers learn together and test

and adapt practices, using practical, ‘‘hands-on’’ methods

of discovery learning that emphasize observation, discus-

sion and analysis to combine local indigenous knowledge

with new concepts (Peacock 2007).

Summary and Trends

The current wave of globalization has intensified the

competition for FDI among developing countries, and all

actors share responsibility to make changes in attitudes,

policies, and structures (Dupasquier and Osakwe 2005).

International organizations, national governments, busi-

ness, labor, civil society, and the media each have impor-

tant roles to play.

Opportunistic and short-term ventures driven only by the

profit motive are becoming less acceptable, bringing cor-

porations pursuing such strategies into disrepute, and making

them targets for a technology-enabled global community of

activists and NGOs. Strategies that not only add to business

value but also lead to long-term economic and social

improvements are increasing in significance. Profit seeking

by, e.g., selling luxury goods or high-end eco-tourism des-

tinations to an elite of wealthy customers and using parts of

the profit to address social inequality issues, will not be

sufficient. Serving the needs of customers at the top of the

pyramid is becoming less important than meeting the needs

of those at the bottom of the pyramid and the increasing ranks

of the middle classes with similar ambitions to their coun-

terparts in developed nations. It also seems the world has

started to commit itself to a number of principles and values.

Fair globalization means making these values an integral part

of the process of global economic integration.

This paper has highlighted the complexity and challenges

of moving to a more socially responsible vision of capitalism

across borders. There is a wide body of theoretical and

empirical literature on the economic effects of FDI. However,

studies addressing the links between cross-border business

and ethical considerations are less abundant. This paper

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describes a growing body of study and evidence relating FDI,

ethics, CSR, and poverty alleviation. We have addressed

poverty alleviation as a key question for global ethics and in

particular sub-Saharan Africa.

Up on the reference to the incentive- and advance-based

ethics-approach, a number of trends should be mentioned

which shape future agendas for research and change, as

follows.

Nations

Due to deep and systemic financial crises in Western

nations, institutions and individuals have retrenched, and

budgets for aid are under stress. Western governments and

institutions risk being distracted by internal political and

structural change, and may focus less on urgent global

issues. Growth of new emerging market MNES and state-

run companies doing business overseas may have poten-

tially significant social and economic impacts in many

Sub-Saharan African nations.

Companies and Organizations

There is an increasing evidence from recent research that

there are positive returns to CSR, especially in emerging

countries such as China (Qu 2007). MNEs increasingly

adopt cross-boundary team-working, appoint international

top teams, and CEOs from emerging nations. There is

increasing realization of the importance of intercultural

differences and how this impacts on perceptions, decision-

making, ethical orientations, and the success of CSR in

companies. A new generation of young managers with very

diverse interests and attitudes toward ethics and CSR is

emerging across the globe. This has become a topic of

interest for changes to business school programs, and to

criteria of business school accrediting agencies. For

example, the AACSB International (2011) has recently

issued an influential report on the globalization of business

education and advocates MBA program redesign to help

students gain a more global mindset (Datar et al. 2010).

Limitations and Suggestions for Further Research

No research is without limitations. This paper has presented a

review of selected primary and secondary literature,

informed by expert discussions. Interesting information

sources may inadvertently have been overlooked, and space

limitations have prevented a full exploration of relevant

aspects of contemporary business ethics theories and CSR.

Within the academic community, interest in CSR is

increasing, as evidenced by the theme of the recent 2010

Academy of Management Annual Meeting in Montreal:

‘‘Dare to Care: Passion and Compassion in Management

Practice and Research.’’ Therefore, it is timely to propose

an agenda for further cross-disciplinary research:

• Problems of CSR and economic development are often

addressed by multiple agencies with different goals,

cultures and values, working together in networks.

Further research into how to lead and manage such

networks more effectively could be helpful. More

efforts could also be made to integrate management

tools into the practice of CSR, for example, strategic

planning and balanced scorecards.

• There are many frameworks for ethics and social

responsibility arising in traditions outside North America

or Europe. Scholars and practitioners could pay further

attention to how these can be linked to business and CSR

in developing countries. This should include the notion

that politics is an integrative constituent in the interplay

between economics and ethics (Becker 2009).

• Future research could explore the mechanisms linking

CSR, ethics, and poverty alleviation. Further attention

could be paid to the significance of intercultural factors,

leadership and values in institutions, and MNEs when

crafting CSR strategies for emerging markets.

• Topical case studies are needed that integrate issues

of CSR, business ethics, and FDI, to help promote

understanding of the complexity of the issues in

business school programs. It would be interesting to

examine the disappointments and failures as well as

popular stories of success. This could be a valuable area

for student projects and field studies.

These are vital challenges to nations and societies.

Politicians, scholars, managers, organizations, and com-

munities can all contribute and collaborate in these efforts.

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