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Legal and Ethical Issues in International Business

Prepared By: Ritesh H. Patel

Shri D.N. Institute of Business Administration, Anand
Nirmita B. Patel
Student of MBA Final Year,
Late Smt. S.G. Patel Institute of Management Studies, Dharmaj

International business ethics is a particularly complex issue as ethical standards are
different depending on where you are. Corporate governance, bribery, corruption,
working conditions and targeted marketing are all issues that require organisations to
establish an ethical standpoint from which they can work on. International managers
carry the heavy task of formulating organizational policies and standards by combining
the law, the ethical business principles, the local cultural values and the organizational
standards. Thus, the aim of this paper is to review ethical management and corporate
performance with a theoretical point of view, also with comprising the international
business dimension of ethics and its significance for businesses.
Key Words: business ethics, ethical dilemma, corporate governance, corruption,
International business cultural relativism

While business ethics emerged as a field in the 1970s, international business ethics did
not emerge until the late 1990s, looking back on the international developments of that
decade. Many new practical issues arose out of the international context of business.
Theoretical issues such as cultural relativity of ethical values receive more emphasis in
this field. Other, older issues can be grouped here as well.
Meaning & Concept of Business Ethics
In any organization from top executive to bottom line employees, ethics is considered as
everybody business. It is not just only achieving high level of economic performance but
also to conduct one of businesss most important social challenges, ethically at the same
time. Here what we get a combination of two familiar words-Ethics & Business in
Business Ethics. Different meaning is given to business as follows:
Business ethics are the application of general ethical rules to business behaviour.
Business ethics are rules of business by which propriety of business activity may
be judged.
By Cater Mc NamaraBusiness ethics is generally coming to know what is right or
wrong in the workplace and doing what is right- this is in regard to effects of products/
services and in relationship with stake holders.
According to John Donaldson, business ethics in short can be desired as the systematic
study of ethical matters pertaining to business industry or related activities, institutions
and beliefs. Business ethics is the systematic handling of values in business and
Issues and subfields include:
The search for universal values as a basis for international commercial behaviour.
Comparison of business ethical traditions in different countries. Also on the basis of
their respective GDP and [Corruption rankings].
Comparison of business ethical traditions from various religious perspectives.
Ethical issues arising out of international business transactions; e.g., bio
prospecting and bio piracy in the pharmaceutical industry; the fair
trade movement; transfer pricing.
Issues such as globalization and cultural imperialism.
Varying global standardse.g., the use of child labour.
The way in which multinationals take advantage of international differences, such as
outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage
The permissibility of international commerce with pariah states.
Objectives of the Study:
1. Identify the legal issues in International business.
2. Identifying the ethical issues faced by Multinational companies.
3. Suggesting possible solutions to minimize the ethical issues for Multinational
Major Sources of 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.
1. Employment Practices: Ethical issues may be associated with employment practices
in other nations. When work conditions in a host nation are clearly inferior to those in
multinationals home nation, companies must decide which standards should be
Those of the home nation?
Those of the host nation?
Or something in between?
Firms should establish minimal acceptable standards that safeguard the basic rights
and dignity of employees and audit the foreign subsidiaries and subcontractors on a
regular basis.
2. Human Rights: Basic human rights taken for granted in the developed world such as
freedom of association, freedom of speech, freedom of assembly, freedom of movement,
and so on, are by no means universally accepted. Basic human rights are still not
respected in many nations. Many rights are not universally accepted such as freedom of:
association, speech, assembly, movement, political expression.
3. Role of the Multinational Firm: It is often argued that inward investment by a
multinational firm can be a force for economic, political, and social progress that
ultimately improves the rights of people, but there is a limit to this argument because
some governments are so repressive that investment cannot be justified on ethical
4. Environmental Pollution: When environmental regulations in host nations are far
inferior to those in the home nation, ethical issues arise. The tragedy of the commons
occurs when a resource held in common by all, but owned by no one, is overused by
individuals resulting in its degradation. Ethical issues arise when environmental
regulations and/or enforcement are inferior to those in the home nation. This might
result in higher levels of pollution from the operations of multinationals than would be
allowed at home.
5. Corruption: In the United States, the Foreign Corrupt Practices Act outlawed the
practice of paying bribes to foreign government officials in order to gain business. The
Organization for Economic Cooperation and Development (OECD) adopted a Convention
on Combating Bribery of Foreign Public Officials in International Business Transactions
in 1997 which obliges member states to make the bribery of foreign public officials a
criminal offense. Some economists suggest that the practice of giving bribes might be
the price that must be paid to do a greater good These economists believe that in a
country where pre-existing political structures distort or limit the workings of the market
mechanism, corruption in the form of black-marketing, smuggling, and side payments to
government bureaucrats to speed up approval for business investments may actually
enhance welfare.

1. http://en.wikipedia.org/wiki/Business_ethics#International_issues
4. DeGeorge, R.T. (15). Business Ethics, 4th Edition, Prentice Hall, Eaglewood Cliffs, New Jersey.
6. Donaldson, T. (18). The Ethics of International Business, Oxford University Press, NY,