NCC Ethical Implications from Turnkey Decision Case Study

Turnkey CorpYou are the financial vice-president of Turnkey Corp, a large manufacturer of consumer durables that is
considering expanding into two developing countries. Azmenistan and Turgistan recently split off from the
former Soviet Union and may provide opportunities for both manufacturing and sales for your company.
While the two countries have similar backgrounds and current GDPs, they differ substantially in economic
policies. Because of limited resources, your company can only expand into one country.
You would like to invest in a country that will be growing rapidly so that the citizens will be able to afford
to buy your products. Your job is to assess the prospects for investing in the two countries.
In making your decisions, you have met with the Minister of Commerce for Turgistan, Mr. Boris, and the
Minister for Development for Azmenistan, Mr. Volkov. Your company has also sent a number of
representatives to the two countries to gather data to help you make your decision.
Azmenistan
Azmenistan has had a democratic and populist tradition. This has resulted in the people enjoying
substantial civil rights after independence, including free speech and popular elections. However, the
government has an inefficient civil service and a mixed record of enforcing property rights. Investment in
education and physical capital is low even though public spending and the federal deficit are high.
Turgistan
Turgistan is run by a generally peaceful one-party government. The government budget has been
balanced, with taxes and tariffs at a level typical for a developing country. Government spending has
focused on education with the goal of universal primary education. The legal system is well developed
and has been effective in supporting property rights (although less effective for political rights). Corruption
is low.
Unlike Azmenistan, Turgistan is more restrictive in terms of civil rights and democracy. There are no
prospects for elections in the near future and a number of opposition leaders have been jailed. All
television and radio are run by the government. Newspapers have a close relationship with the
government and generally follow a pro-government line.
Required:
You have been asked by the president of your firm to report on the expansion possibilities of Azmenistan
and Turgistan. Write a report using the report guidelines found on the course web site.
In answering your questions, you may wish to review macroeconomics concepts 2 and 3 and statistics
concepts 1, 2, 6, and 8.
TURNKEY CORP – QUESTIONS
Write your report to the President of Turnkey Corp using the report guidelines found on the
course web site and incorporating answers to the five questions below.
Q. 1.
Q. 2.
Statistics provided by developing countries are not always reliable. Data can be hard to
gather and is sometimes reported incorrectly. From your analysis of Turgistan, you
conclude that citizens there average $1,000 per month in household disposable income.
The Minister of Development for Azmenistan says that disposable income is the same in
his country. To see if the data supports this, your company has sampled 100 households
from Azmenistan and obtained data on household disposable income. Use the Excel file
ngi-data.xls, found on the course website to:
a.
Derive a frequency distribution of income
b.
Create a histogram of income
c.
Obtain and interpret the sample mean and standard deviation
d.
Test the hypothesis, at the 5% significance level, that Azmenistan also has a
mean of $1,000
Suppose Azmenistan’s government now reports that its population mean disposable
household income is $900 per month, with a standard deviation of $100. Turgistan’s
population mean is $1,000, with a standard deviation of $300.
a.
Which country has more variation in income? Explain using popular phrases,
such as “gap between rich and poor.”
b.
Each country defines the poverty level to be $750. If you assume that income
has a normal distribution, find the probability that a household’s income is below
the poverty level in
i. Turgistan
ii. Azmenistan
Does it seem reasonable to assume a normal distribution? Is income symmetric
or skewed?
Q. 3.
In explaining why their country is an attractive place to invest, the Minister of Commerce
from Turgistan has argued that the political problems have been exaggerated and that
fewer people have been imprisoned for political reasons than you have been led to
believe. However, Amnesty International reports that one third of the prisoners in
Turgistan are political prisoners. A representative from your company visited a prison
and sampled 500 prisoners in Turgistan, concluding that 90 of them are political
prisoners. Test the hypothesis, at the 5% significance level, that one third of the prisoners
in Turgistan are political prisoners. Does this data support the Minister of Commerce or
Amnesty International? What other issues might be important when evaluating this data?
Q. 4.
Based on their economic policies, evaluate the potential for growth in the two countries.
Q. 5.
If you find that economic prospects are better in Turgistan, should you invest there? Or,
does your company have an obligation to support the more democratic political regime of
Azmenistan, even if it turns out that the returns to your firm will be lower? Be sure to
include the ethical implications.
Questions 4 and 5:
Factors Determining GDP/Capita




Physical Capital
Human Capital
Level of Technology
Efficiency
Question 5:
Ethical Considerations
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
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Who benefits and who loses from the
firm’s decision?
Who does the firm have a responsibility
to?
What are those responsibilities?
How to Resolve Ethical
Dilemmas in Business
1
1
Identify relevant facts
• Identify relevant issue(s)
Identify primary stakeholders
Identify possible solutions
Evaluate each possible solution
• Compare and assess consequences
. Decide on solution
Take action