Case Study 10
Mexico, Mitsubishi, and the gray whale:
A case study of law, ethics, and environmental issues in international
business
Suggested case discussion questions
Q1
Analyse the configuration of the joint venture company, Exportadora de Sal,
S.A. de C.V. (ESSA), established by the Mexican government and Mitsubishi
The Mexican government owned 51 per cent of ESSA, while Mitsubishi owned 49 per cent.
While Mitsubishi was the minority partner, it had the greater practical control of ESSA
because it had access to a greater source of funds, which could be used for general operations
and expansion plans. Mexican law of the late 1990s dictated that a foreign interest could not
own more than 49 per cent of a company in an industry of this nature. ESSA’s existing
facilities in Baja California Sur provided no more room for growth and demand was expected
to exceed supply by 2007. Mexico’s Secretary of Commerce chaired the ESSA Board of
Directors. Projected annual revenue from the new salt works was $100 million. The federal
government of Mexico would received direct revenues from the taxes paid by ESSA, and
would also receive revenue from profits received from the sale of salt. In addition, the salt
works would create 208 jobs, half of which would be available to Mexican nationals.
EESA’a chair (Secretary of Commerce, Mexico government) would oversee SEMARNAP’s
(Environment, Natural Resources, and Fisheries department, Mexico government) review of
the proposal to build the proposed plant. This demonstrates how a global MNC incorporates
important government members into its own activities as a means of gaining insider
knowledge and leverage over government departments whose approval is necessary for such
contentious schemes to go ahead.
Q2
Explain the anticipated relationship between the proposed plant in Laguna San
Ignacio and other related subsidiaries within the Mitsubishi group
Mitsubishi expected a number of benefits from the location of a solar salt mine in Laguna San
Ignacio. It anticipated direct profits from a commodity for which demand was soon expected
to outstrip demand, but also other financial incentives were expected. The existing salt works
in Baja California Sur supplied fifty per cent of Mitsubishi Chemical’s demand for salt.
Mitsubishi Chemical was one of Mitsubishi’s main subsidiaries. By producing more of the
salt it needed from within its own subsidiaries its need to source salt from the open market
would be reduced. The estimated seven million annual tons that the salt works would
produce translated into a three- to four-percent increase in the world supply of salt. Accepted
economic theory would suggest a supply increase of this amount onto a market would have a
significant downward effect on the price of salt. If this were the case, Mitsubishi, the group,
would benefit twice over; it would find a ready market for the salt it could produce, and it
would lower the cost of salt for Mitsubishi Chemical. This provides an illustration of an
MNC using its geographical scope to create economies of scope for its own subsidiaries.
Effectively, by creating a cheaper source of product through the activities of one of its
subsidiaries, another of its subsidiaries benefits.
Q3
Explain the role of customary international law in the activities of Mitsubishi
and the Mexican government
International treaties require voluntary participation and while there are incentives to cooperate, the penalties for violation of international law are not as hard as violations of
domestic law. For this reason, punishment tends to be in the form of condemnation by other
members of the actions of the country responsible for the violation. Customary international
law serves as an important indicator of acceptable behaviour, deviations from this could draw
negative worldwide attention. Relevant for the case is the custom throughout most of the
world to protect whales through a global moratorium on whaling (noticeable exceptions to
this are Japan and Norway who draw international criticism for their activities). Mexico
publicly supported a global ban on whaling well before one was established. The gray whale
was listed on CITES Appendix I, which indicates that it is considered a species under threat
of extinction and trade in it was severely restricted. The United Nations Convention on the
Law of the Sea provided that whales must be conserved. This affected ESSA’s proposal as it
could be accused of indirectly pursuing the gray whale and customary international law
indicated that human-caused whale mortality was unacceptable. The international
community was interested in the Vizcaino Reserve’s gray whale’s case because they are
considered to be a trans-boundary resource, not simply a Mexican resource. Therefore, the
actions of the Mexican government have an impact outside of its own borders. This example
highlights the strength and power of customary international law, which can be a powerful
voice about what is considered acceptable behaviour by nations and firms. Strong
condemnation of the activities of a country or an MNC, whose actions are deemed to violate
customary international law, can result in adverse publicity leading to companies being
reluctant to locate their activities in that country, or for customers and stakeholders being
wary of any association with the firm, negatively affecting its ability to trade.