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11: International Business and Ethics

Issues and Subfields;


Ethics of Economic Systems;
Theoretical Issues in Business Ethics;
Ethics in an International Context;
Ethical Absolutism and Ethical Relativism;
The Growing Need for Global Ethics Initiative;
Business Ethics Activities in a Global World

11.1.1 Issues and Subfields


The issues here are grouped together because they
involve a much wider, global view on business
ethical matters.
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.

11.1.2 Issues and Subfields Listed


The search for universal values as a
basis for international commercial
behavior.
Comparison of business ethical
traditions in different countries.
Comparison of business ethical
traditions from various religious
perspectives
Ethical issues arising out of
international business transactions;
e.g. bio-prospecting (searching for,
collecting and deriving genetic
materials from samples of
biodiversity that can be
commercialized) and bio-piracy in
the pharmaceutical industry; the fair
trade movement; transfer pricing.

Issues such as
globalization and cultural
imperialism.
Varying global standards e.g. the use of child labor.
The permissibility of
international commerce
with pariah states.
The way in which
multinationals take
advantage of international
differences, such as
outsourcing production
(e.g. clothes) and services
(e.g. call centers) to lowwage countries.

11.1.3 Dumping: A Special Issue


Foreign countries often use dumping as a
competitive threat, selling products at prices lower
than their normal value.
This can lead to problems in domestic markets. It
becomes difficult for these markets to compete
with the pricing set by foreign markets.
In 2009, the International Trade Commission has
been researching anti-dumping laws.
Dumping is often seen as an ethical issue, as larger
companies are taking advantage of other less
economically advanced companies.

11.2 Ethics of Economic Systems


This vaguely defined area, perhaps not part of
but only related to business ethics, is where
business ethicists venture into the fields of
political economy and political philosophy,
focusing on the rights and wrongs of
various systems for the distribution of
economic benefits.

11.3. Theoretical Issues in


Business Ethics
Conflicting interests: from whose perspective
to look at employee, or the company
Ethics a strong basis for CSR
What to give priority profit maximization or
the stakeholders interests?
Ethics in an international context how home
grown values play in international market
ethical absolutism and ethical relativism

11.3.1 Conflicting Interests:


from whose perspective to look at
employee, or the company?
Business ethics can be examined from various perspectives,
including the perspective of the employee, the
commercial enterprise, and society as a whole.
Very often, situations arise in which there is conflict
between one or more of the parties, such that serving the
interest of one party is a detriment to the other(s).
For example, a particular outcome might be good for the
employee, whereas, it would be bad for the company,
society, or vice versa. Some ethicists (e.g., Henry
Sidgwick) see the principal role of ethics as the
harmonization and reconciliation of conflicting interests.

11.3.2 Ethics a Strong Basis for CSR


Ethics encourages ethical behavior worldwide
Ethical behavior helps organizations adopt
external expectations
Ethics are grounded in a moral philosophy that
helps people discern between right and wrong
Ethics is the study of morally appropriate
behavior and decisions examining what
should be done.

11.3.3.1 Profit Maximization or


the Stakeholders Interests?
Some take the position that organizations are not capable of moral
agency. Under this, ethical behavior is required of individual
human beings, but not of the business or corporation.
According to these people, the principal purpose of a business is to
maximize returns to its owners, or in the case of a publiclytraded concern, its shareholders and therefore, only those
activities that increase profitability and shareholder value should
be encouraged, because
(a) any other activities are a tax on profits and
(b) the only companies that are likely to survive in a competitive
marketplace are those that place profit maximization above
everything else.
However, some point out that self-interest would still require a
business to obey the law and adhere to basic moral rules, because
the consequences of failing to do so could be very costly in fines,
loss of licensure, or company reputation.

11.3.3.2 Profit Maximization or the


Stakeholders Interests?
Other theorists contend that a business has moral duties that
extend well beyond serving the interests of its owners or
stockholders, and that these duties consist of more than
simply obeying the law.
They believe a business has moral responsibilities to so-called
stakeholders, people who have an interest in the conduct of
the business, which might include employees, customers,
vendors, the local community, or even society as a whole.
Stakeholders can also be broken down into primary and
secondary stakeholders. Primary stakeholders are people that
are affected directly such as stockholders, where secondary
stakeholders are people who are not affected directly such as
the government. They would say that stakeholders have
certain rights with regard to how the business operates, and
some would suggest that this includes even rights of
governance.

11.3.4 Social Contract Theory of Business


Some theorists have adapted social contract theory to business,
whereby companies become quasi-democratic associations, and
employees and other stakeholders are given voice over a
company's operations.
This approach has become especially popular subsequent to the
revival of contract theory in political philosophy, which is largely
due to John Rawls' A Theory of Justice, and the advent of the
consensus-oriented approach to solving business problems, an
aspect of the "quality movement" that emerged in the 1980s.
Prof. Thomas Donaldson and Prof. Thomas Dunfee proposed a
version of contract theory for business, which they call
Integrative Social Contracts Theory. They posit that conflicting
interests are best resolved by formulating a "fair agreement"
between the parties, using a combination of (a) macro-principles
that all rational people would agree upon as universal principles,
and, (b) micro-principles formulated by actual agreements among
the interested parties.
Critics say that the proponents of contract theories miss a central
point, namely, that a business is someone's property and not a
mini-state or a means of distributing social justice.

11.3.5 Comply with Multiple Standards


Ethical issues can arise when companies must comply with multiple
and sometimes conflicting legal or cultural standards, as in the case
of multinational companies that operate in countries with varying
practices.
The question arises, for example, ought a company to obey the laws
of its home country, or should it follow the less stringent laws of
the developing country in which it does business? To illustrate,
United States law forbids companies from paying bribes either
domestically or overseas; however, in other parts of the world,
bribery is a customary, accepted way of doing business. Similar
problems can occur with regard to child labor, employee safety,
work hours, wages, discrimination, and environmental protection
laws.
It is sometimes claimed that a Gresham's law of ethics applies in
which bad ethical practices drive out good ethical practices. It is
claimed that in a competitive business environment, those
companies that survive are the ones that recognize that their only
role is to maximize profits.

11.3.6 Ethics in an international context


how home grown values play in
international market
International business is in fact interaction of nations.
Crossing border means that the organizational leaders need to
manage more difference, incorporate more diverse values into
decision making process and take care of values of wider
groups of stakeholders and diverse moral philosophy. These
require that an organization going international needs to have
strong ethical corporate culture.
It is not right to assume that with accompany going
international its values also automatically cross borders. They
do cross but they may not be accepted. Ethical values and
norms of one country cannot be expected to be treated well in
another country.
Firms often need to follow adaptive ethical paths when they
go international. These paths are grouped as ethical
absolutism and ethical relativism.

11.3.7 Ethical Absolutism


This approach means they adapt to us an
approach that puts home company interests
first; employees of the host country/culture are
to adapt to the cultural norms and values of the
employer; such firms are called ethnocentric
firms and ethical problems with ethnocentrism
become noticeable when and host country
cultures differ.

11.3.8 Ethical Relativism


This approach means the company adapts i.e., when
you are in Rome, do as the Romans do; sometimes
may go extreme, if it is a standard practice in a host
country (e.g., pay bribes or speed money);
Ethical relativism increases costs especially
(a) to prepare and disseminate formal ethical guideline,
(b) to implement the ethical guideline, and
(c) to monitor behavior or organize compliance efforts
through assigned agencies.

11.3.8.1 Problems of Adopting


Ethical Relativism
Ethical relativism have some challenges and problems:
(a) managerial transfers requiring managers to develop
culturally relative values that change depending on place; a
true sense of ethics at one place may appear false in
another one;
(b) the burden to write new rules that often requires a dense set
of compliance statements and specialized legal language of
each country; and
(c) one may adapt to rules and laws of a host country but
adaptation may not help managers understand or learn
about the culture and its underlying values; legal
compliance offers too little managerial insight; cultural
ignorance prevent mangers from tracking activities in a
nation.

11.4 The Growing Need for


Global Ethics Initiative
International organization may sometimes like to
operate in an out of sight out of mind context.
But business are no more invisible now and there is
a growing public concern about how businesses
contribute to global problems, what the businesses
can and should do to address the problems,
including even those which they did not create.
Public now increasingly demand that businesses be
socially responsible and ethical.

11.5 Business Ethics Activities


in a Global World
Global businesses respond to global shifts and
demands through a mechanism of internal
integration.
Managers search for principles for action that
transcend national borders and the cultural values
and modes of operation that will achieve the broad
purposes of the company on a long-term and
sustainable basis.
However, universal ethical principles are not thick on
the ground because people share few values
worldwide i.e., values vary widely.