Ethical issues in international business Essay
Ethical issues in international business
Many of the ethical issues and dilemmas in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from Nation to nation. Consequently, what is considered normal practice in one nation may be considered unethical in others. Because they work for an institution that transcends National borders and cultures, managers in a multinational firm need to be particularly sensitive to these differences and able to choose the ethical action in those circumstances where variation across societies creates the potential for ethical problems. In the international business setting, the most common ethical issues involve employment practices, Human rights, environmental regulations, corruption, and the moral obligation of multinational Corporations.
As we saw in the opening case, ethical issues may be associated with employment practices in other nations. When work conditions in a host nation are clearly inferior to those in a multinational’s home nation, what standards should be applied? Those of the home nation, those of the host nation, or something in between? While few would suggest that pay and work conditions should be the same across nations, how much divergence is acceptable? For example, while 12-hour workdays, extremely low pay, and a failure to protect workers against toxic chemicals may be common in some developing nations, does this mean that it is OK for a multinational to tolerate such working conditions in its subsidiaries there, or to condone it by using local subcontractors?
Beyond employment issues, questions of human rights can arise in international business. Basic human rights still are not respected in many nations. Rights that we take for granted in developed nations, such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, freedom from political repression, and so on, are by no means universally accepted. One of the most obvious examples was South Africa during the days of white rule and apartheid, which did not end until 1994.
Among other things, the apartheid system denied basic political rights to the majority nonwhite population of South Africa, mandated segregation between whites and nonwhites, reserved certain occupations exclusively for whites, and prohibited blacks from being placed in positions where they would manage whites. Despite the odious nature of this system, Western businesses operated in South Africa. By the 1980s, however, many questioned the ethics of doing so. They argued that inward investment by foreign multinationals, by boosting the South African economy, supported the repressive apartheid regime.
Multinational corporations have power that comes from their control over resources and their ability to move production from country to country. Although that power is constrained not only by laws and regulations, but also by the discipline of the market and the competitive process, it is nevertheless substantial. Some moral philosophers argue that with power comes the social responsibility for multinationals to give something back to the societies that enable them to prosper and grow.
The concept of social responsibility refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences. In its purest form, social responsibility can be supported for its own sake simply because it is the right way for a business to behave. Advocates of this approach argue that businesses, particularly large successful businesses, need to recognize their noblesse oblige and give something back to the societies that have made their success possible. Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth.
In a business setting, it is taken to mean benevolent behavior that is the responsibility of successful enterprises. This has long been recognized by many businesspeople, resulting in a substantial and venerable history of corporate giving to society and in businesses making social investments designed to enhance the welfare of the communities in which they operate.
•Work conditions: hot weather – around toxic chemicals – number of hours and pay salaries in developing countries.
•Freedom is not universally accepted. South Africa white rule until 1994 – investment in China – Nigeria and Shell
•The emission of pollutants, the dumping of toxic chemicals •Amoral management might move production to a developing nation precisely because costly pollution controls are not required. •No one owns the atmosphere or the oceans, but polluting both, no matter where the pollution originates, harms all
•Economic advantages by making payments to corrupted government officials. •$12.5 million payment to Japanese agents and government officials •MORAL OBLIGATIONS
•BP, one of oil companies, has made “social investments” in Algeria, the desert town of Salah. it built two desalination plants to provide drinking water for the local •Ethical Dilemmas
•In a poor nation, a 12-yearold girl works in a factory.
Philosophical Approaches to Ethics
–The Friedman Doctrine
–The Righteous Moralist
–The Naive Immoralist
Asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either
UTILITARIAN AND KANTIAN ETHICS
Utilitarian approaches to ethics: the moral worth of actions or practices is determined by their consequences. Utilitarianism is committed to the maximization of good and the minimization of harm.
Kantian ethics are based on the philosophy of Immanuel Kant (1724–1804). Kantian ethics hold that people should be treated as ends and never purely as means to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such
The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut. There may be no agreement about accepted ethical principles. From an international business perspective, some argue that what is ethical depends upon one’s cultural perspective.18 In the United States, it is considered acceptable to execute murderers, but in many cultures this is not acceptable—execution is viewed as an affront to human dignity and the death penalty is outlawed.
Many Americans find this attitude very strange, but many Europeans find the American approach barbaric. For a more business-oriented example, consider the practice of “gift giving” between the parties to a business negotiation. While this is considered right and proper behavior in many Asian cultures, some Westerners view the practice as a form of bribery, and therefore unethical, particularly if the gifts are substantial.
Bribery in International Business
Transnational bribery consists in offering or giving of money, valuable goods or other benefits as favors, promises or advantages to foreign government’s official for procuring that official do or omit any action addressed to influence on economic or business transaction which has relationship with his public function.” Most countries have in their domestic law stipulation that it is an offence to bribe their own public officials. Notwithstanding, only in the Interamerican Convention Against Corruption, in 1996, and in the OECD Convention, in 1997, did nations assume the commitment to punish bribery of foreign officials.
The point here is that until recently, it was against the law to bribe people in your own country, but there was nothing in Canadian law to make it illegal to bribe someone in another country – the only thing that stops you from bribing someone else in another country is the bad publicity you may receive if you are caught, and the media find out. Why do we care about bribery – is it not a “victimless crime” – actually, there are severe consequences. “In the early 1990s, scandals involving extortion and bribery were a significant factor in toppling governments in many parts of the world. This situation, if allowed to continue, could undermine the most promising development of the post Cold-war era, i.e., the spread of democratic governments and of market economies worldwide.” Ethical Dilemmas and Social Responsibility
There are a number of examples we can look at to discuss ethical topics in International Business management – we will consider the case of •a mining company in the Sudan
•an engineering firm in Lesotho
•Being in a leadership position, as mining and exploration grows worldwide, has put companies in an economically advantageous situation. This success in mining has helped economies, but the increasingly risky and challenging locations in which mining companies operate, create situations which necessarily include dealing with contentious ethical issues.
Ethics, as effected by the Environment
The circumstances which effect Ethical considerations in the new millennium are circumstances caused by drastic changes in the; •Competitive environment which is causing companies to make decisions in a global context and resulting in actions which sometimes negatively effect their employees or customers •Political environment (regional, national and international) and the consequent laws and regulations that are established
•Social-Cultural environment which has been influenced by immigration patterns worldwide and a continued movement of populations from rural to urban areas
•Technological environment which has effected communications regionally and globally and also effected the work environment and productivity
•Economic environment which sees currency fluctuations and international NGO’s like the IMF and World Bank playing a more significant role in national and regional economies.
•Stress to maintain corporate economic competitiveness also influences corporate objectives and has consequences for consumer priorities. Approaches to Social Responsibility
A number of textbooks and websites discuss Social Responsibility, in the context of how companies are behaving ethically, in terms of Four general approaches •Obstructionist Stance
oWhen a company places barriers to customers complaining about ethical situations, or makes it difficult for ethical circumstances to be resolved. Companies typically do this by requiring customers to fill out forms, or have certain versions of receipts or go through particular processes. Of they can make it difficult to get action from a complaint by taking to long to reply, or having no specific information on how to complain, or to whom. •Defensive Stance
oWhen a company avoids blame, or says “it wasn’t our fault”, or tries to make the customer belief nothing can be done at all. Sometimes managers insist their job is to make money for the company and anything that takes away from that objectives is not important. Companies are also defensive when they say “we are obeying the law” to the exact letter, and not taking into account “fairness” or being compassionate” – some recent examples include situations where travel agencies and airlines go bankrupt and leave vacationing people stranded overseas. •Accommodative Stance
oFirms who not only meet the standards expected, but go further, often receive the reward of repeat customer purchases and good PR which helps in branding in a competitive environment. Some examples include companies allowing customers to exchange items for products that are not exactly the same, but similar, or allowing customers to return items for warranty even if they do not have the original receipt. •Proactive Stance
oWhen companies reach out to customers to tell them, in advance, some information they need – such as letting a customer know a warranty period may expire several weeks in advance, or that a product will soon be withdrawn so they have the option to buy spare parts. Preface to 1999 Edition of ICC Rules of Contract. ICC is extremely pleased to note that the “1996 revisions to the ICC rules were punished; substantial progress has been made in addressing extortion and bribery in international business transactions.
Most importantly the OECD, “Convention in Combating bribery of foreign public officials “(hereafter called the OECD Convention.)Was signed by 34 countries in Paris in Dec 17, 1997 and entered into force on Feb 1999. The OECD has established a monitoring programming to assure effective and consistent implementation and enforcement of the convention. The monitoring programme also concerns the compliance with the “revised OECD Recommendations”, which among other subjects, urges the OECD member countries to disallow tax deductibility of bribes to foreign public officials.
International price fixing Diamonds
DeBeers, a giant South African diamond supplier, which has vertical and horizontal monopoly over much of the diamond mining and diamond distribution industry, has agreed to 1/4 of a billion dollars ($250 M) to settle an outstanding lawsuit in the U.S. Many years ago, DeBeers was sued by American jewellery retailers, manufactures, and other people in the business, who claimed that DeBeers had been guilty of fixing prices – thus artificially inflating the price of diamonds and diamond jewellery. DeBeers did not settle this giant lawsuit – instead, they avoided it by refusing to do direct business in the U.S. Now that the U.S. diamond market has become very large (55% of global retail sales), DeBeers wants into the U.S. again and in order to do that they agreed to settle this old lawsuit.
The U.S. judge reviewing the case approved the conditions based on DeBeers agreeing to comply with U.S. anti-trust laws. This lawsuit settlement follows an action in 2004 in which DeBeers pleaded guilty to fixing prices of industrial diamonds and agreed to a $10 M USD fine International Company and Ethics
The issue of business ethics is engaging companies more and more – both domestically and internationally. This trend is accentuated by high-profile examples of breaches of accepted standards of ethical behavior. For example, the recent Enron case where inadequate checks and balances within the firm enabled unethical behavior to occur, a development made easier by the failure of the external auditor to fulfill its role properly. Assumptions about ethics and business are influenced inevitably by fundamental beliefs about the role of business in society. On the one hand, there are those who believe that the sole social responsibility of business is to generate profit. For some proponents of this view, profit generation itself takes on a moral dimension whereas others see profits as the key to wealth generation – the main way of addressing social issues (Davies, 1997, p. 88).
On the other hand, others believe that the role of business is much broader than that of profit generation and that all those who are affected by the way a company operates – shareholders, employees, customers, suppliers, the local community, future generations (especially in relation to environmental issues) – have a legitimate interest and stake in the way a company conducts itself. Levi Strauss is one of the world’s largest brand-name clothes manufacturers and also one of the first international companies to adopt a corporate code of conduct to apply to all contractors who manufacture and finish its products and to aid selection of which countries in which to operate (DeGeorge, 1993, p. 118). The Code of Conduct has two parts. 1. Business partner terms of engagement: Levi Strauss uses these to select business partners that follow workplace standards and practices consistent with its policies and to help identify potential problems.
In addition to meeting acceptable general ethical standards, complying with all legal requirements and sharing Levi Strauss’s commitment to the environment and community involvement, Levi Strauss’s business partners must adhere to the following employment guidelines: •Wages and benefits: business partners must comply with any applicable law and the prevailing manufacturing and finishing industry practices.
•Working hours: partners must respect local legal limits on working hours and preference will be given to those who operate less than a 60-hour working week. Levi Strauss will not use partners that regularly require workers to work in excess of 60 hours. Employees should also have at least one day off per week. •Child labor: use of child labor is not permissible in any of the facilities of the business partner. Workers must not be below 15 years of age or below the compulsory school age. •Disciplinary practices: Levi Strauss will not use business partners who use corporal punishment or other forms of physical or mental coercion. •Prison/forced labor: no prison or forced labor is to be used by business
•Discrimination: while respecting cultural differences, Levi Strauss believes workers should be employed on the basis of their ability to do their job •Health and safety: Levi Strauss undertakes to use business partners who provide a safe and healthy working environment and, where appropriate residential facilities 2. Country assessment guidelines: these are used to address broad issues beyond the control of individual business and are intended to help Levi Strauss assess the degree to which its global reputation and success may be exposed to unreasonable risk.
It was an adverse country assessment that caused Levi Strauss to cease its engagement in China in the early 1990s, largely on human rights grounds – a decision that has subsequently been reversed. In particular, the company assesses whether: •the brand image will be adversely affected by the perception or image of a country among customers;
•the health and safety of employees and their families will be exposed to unreasonable risk; •the human rights environment prevents the company from conducting business activities in a manner consistent with the global guidelines and other company policies; •the legal system prevents the company from adequately protecting trademarks, investments or other commercial Interests;
Levi Strauss is the example of the company that successfully combines doing business and following ethical practices. The political, economic and social environment protects the company’s commercial interests and brand corporate