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IB - ETHICS AND

INTERNATIONAL BUSINESS

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Outline
Learn about the field of ethics.
Gain a general understanding of business
ethics.
See why business ethics might be more
challenging in international settings.

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Introduction
A very complex and controversial issue is that of
ethics.
Business ethics refers to the system of moral
principles and rules of conduct applied to
business.
That there should be business ethics means the
business should be conducted according to
certain self-recognized moral standards.
There is, however, no unanimity of opinion
regarding what constitutes business ethics. An
international marketer often finds that the norms
of ethics vary from country to country.
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A Framework for Ethical Decision Making
The relationship between ethics and international
business is a deep, natural one.
Definitions of ethics and ethical behavior seem to
have strong historical and cultural roots that vary by
country and region. The field of ethics is a branch of
philosophy that seeks virtue.
Ethics deals with morality about what is considered
right and wrong behavior for people in various
situations. While business ethics emerged as a field in
the 1970s, international business ethics didnt arise
until the late 1990s.
Today, those who are interested in international
business ethics and ethical behavior examine various
kinds of business activities and ask, Is the business
conduct ethically right or wrong?
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While ethical decision making is tricky stuff, particularly regarding
international business issues, it helps if you start with a specific
decision-making framework, such as the one summarized from the
Markkula Center for Applied Ethics at Santa Clara University.
1. Is it an ethical issue? Being ethical doesnt always mean
following the law. And just because something is possible,
doesnt mean its ethical, hence the global debates about
biotechnology advances, such as cloning. Also, ethics and
religion dont always concur. This is perhaps the trickiest stage
in ethical decision making; sometimes the subtleties of the
issue are above and beyond our knowledge and experience.
Listen to your instincts, if it feels uncomfortable making the
decision on your own, get others involved and use their
collective knowledge and experience to make a more
considered decision.
2. Get the facts. What do you know and, just as important, what
dont you know? Who are the people affected by your
decision? Have they been consulted? What are your options?
Have you reviewed your options with someone you respect?
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3. Evaluate alternative actions. There are different ethical approaches that
may help you make the most ethical decision. For example, here are five
approaches you can consider:
a) Utilitarian approach; Which action results in the most good and least
harm?
b) Rights-based approach; Which action respects the rights of everyone
involved?
c) Fairness or justice approach; Which action treats people fairly?
d) Common good approach; Which action contributes most to the quality
of life of the people affected?
e) Virtue approach; Which action embodies the character strengths you
value?
Test your decision. Could you comfortably explain your decision to your
mother? To a man on the street? On television? If not, you may have to
rethink your decision before you take action.
Just do itbut what did you learn? Once youve made the decision,
implement it. Then set a date to review your decision and make
adjustments if necessary. Often decisions are made with the best
information on hand at the time, but things change and your decision
making needs to be flexible enough to change too. Even a complete
about-face may be the most appropriate action later on.
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What Ethics Is Not
Two of the biggest challenges to identifying ethical
standards relate to questions about what the
standards should be based on and how we apply
those standards in specific situations.
Experts on ethics agree that the identification of
ethical standards can be very difficult, but they have
reached some agreement on what ethics is not. At the
same time, these areas of agreement suggest why it
may be challenging to obtain consensus across
countries and regions as to what is ethical?
Lets look at this five-point excerpt from the Markkula
Center for Applied Ethics at Santa Clara University
about what ethics is not:
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Ethics is not the same as feelings; Feelings provide
important information for our ethical choices.
Some people have highly developed habits that
make them feel bad when they do something
wrong, but many people feel good even though
they are doing something wrong. And often our
feelings will tell us it is uncomfortable to do the
right thing if it is hard.
Ethics is not religion; Many people are not
religious, but ethics applies to everyone. Most
religions do advocate high ethical standards but
sometimes do not address all the types of
problems we face. LIU - IBR 8
Ethics is not following the law; A good system of law
does incorporate many ethical standards, but law can
deviate from what is ethical. Law can become ethically
corrupt, as some totalitarian regimes have made it.
Law can be a function of power alone and designed to
serve the interests of narrow groups. Law may have a
difficult time designing or enforcing standards in some
important areas, and may be slow to address new
problems.
Ethics is not following culturally accepted norms;
Some cultures are quite ethical, but others become
corruptor blind to certain ethical concerns (as the
United States was to slavery before the Civil War).
When in Rome, do as the Romans do is not a
satisfactory ethical standard.
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Ethics is not science; Social and natural science can
provide important data to help us make better
ethical choices. But science alone does not tell us
what we ought to do. Science may provide an
explanation for what humans are like. But ethics
provides reasons for how humans ought to act. And
just because something is scientifically or
technologically possible, it may not be ethical to do
it.

Many would argue that international business ethics can


have a strong foundation in national culture. Some argue
that ethics shouldnt follow culturally accepted norms.
However, business managers should have a good
understanding of which norms their ethical standards are
based on and why and how they believe they should apply
in other national contexts.
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INTERNATIONAL BUSINESS ETHICS
AND ETHICS OF ECONOMIC SYSTEMS
The issues here are grouped together because they involve a
much wider, global view on business ethical matters.
International business ethics
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.
Issues and subfields include:
The search for universal values as a basis for international
commercial behaviour. LIU - IBR 11
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., bioprospecting and biopiracy 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 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 countries.
The permissibility of international commerce with pariah states.
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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. John
Rawls and Robert Nozick are both notable contributors.
Law and business ethics
Very often it is held that business is not bound by any
ethics other than abiding by the law. Milton Friedman is
the pioneer of the view. He held that corporations have
the obligation to make a profit within the framework of
the legal system, nothing more.
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Friedman made it explicit that the duty of the business
leaders is, "to make as much money as possible while
conforming to the basic rules of the society, both those
embodied in the law and those embodied in ethical
custom". Ethics for Friedman is nothing more than abiding
by 'customs' and 'laws'. The reduction of ethics to
abidance to laws and customs however have drawn
serious criticisms.
Counter to Friedman's logic it is observed that legal
procedures are technocratic, bureaucratic, rigid and
obligatory where as ethical act is conscientious, voluntary
choice beyond normativity. Law is retroactive.
Crime precedes law. Law against a crime, to be passed,
the crime must have happened. Laws are blind to the
crimes undefined in it. LIU - IBR 14
Further, as per law, "conduct is not criminal unless
forbidden by law which gives advance warning that such
conduct is criminal. Also, law presumes the accused is
innocent until proven guilty and that the state must
establish the guilt of the accused beyond reasonable
doubt. As per liberal laws followed in most of the
democracies, until the government prosecutor proves the
firm guilty with the limited resources available to her, the
accused is considered to be innocent. Though the liberal
premises of law is necessary to protect individuals from
being persecuted by Government, it is not a sufficient
mechanism to make firms morally accountable.

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ETHICAL PRACTICES

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MOST IMPORTANT ETHICAL ISSUES
As political, legal, economic, and cultural norms vary
from nation to nation, various ethical issues rise with
them.
A normal practice may be ethical in one country but
unethical in another.
Multinational managers need to be sensitive to these
varying differences and able to choose an ethical
action accordingly.
In an international business, the most important
ethical issues involve employment practices, human
rights, environmental norms, corruption, and the
moral obligation of international
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Employment Practices and Ethics
Ethical issues may be related to employment practices in
many nations. The conditions in a host country may be
much inferior to those in a multinationals home nation.
Many may suggest that pay and work conditions need to
be similar across nations, but no one actually cares about
the quantum of this divergence.
12-hour workdays, minimal pay, and indifference in
protecting workers from toxic chemicals are common in
some developing nations. Is it fine for a multinational to
fall prey to the same practice when they chose such
developing nations as their host countries? The answers
to these questions may seem to be easy, but in practice,
they really create huge dilemmas.
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Human Rights
Basic human rights are still denied in many nations.
Freedom of speech, association, assembly, movement,
freedom from political repression, etc. are not universally
accepted.
South Africa during the days of white rule and apartheid is
an example. It lasted till 1994. The system practiced denial
of basic political rights to the majority non-white
population of South Africa, segregation between whites
and nonwhites was prevalent, some occupations were
exclusively reserved for whites, etc. Despite the odious
nature of this system, Western businesses operated in
South Africa. This unequal consideration depending on
ethnicity was questioned right from 1980s. It is still a
major ethical issue in international
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Environmental Pollution
When environmental regulation in the host nation is much
inferior to those in the home nation, ethical issues may arise.
Many nations have firm regulations regarding the emission of
pollutants, the dumping and use of toxic materials, and so on.
Developing nations may not be so strict, and according to
critics, it results in much increased levels of pollution from the
operations of multinationals in host nations.
Is it fine for multinational firms to pollute the developing host
nations? It does not seem to be ethical. What is the
appropriate and morally correct thing to do in such
circumstances? Should MNCs be allowed to pollute the host
countries for their economic advantage, or the MNCs should
make sure that foreign subsidiaries follow the same standards
as set in their home countries? These issues are not old; they
are still very much contemporary.
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Corruption
Corruption is an issue in every society in history,
and it continues to be so even today. Corrupt
government officials are everywhere. International
businesses often seem to gain and have gained
financial and business advantages by bribing those
officials, which is clearly unethical.

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Moral Obligations
Some of the modern philosophers argue that the power
of MNCs brings with it the social responsibility to give
resources back to the societies. The idea of Social
Responsibility arises due to the philosophy that business
people should consider the social consequences of their
actions.
They should also care that decisions should have both
meaningful and ethical economic and social
consequences. Social responsibility can be supported
because it is the correct and appropriate way for a
business to behave. Businesses, particularly the large and
very successful ones, need to recognize their social and
moral obligations and give resources and donations back
to the societies. LIU - IBR 22
ETHICAL ISSUES ARISING FROM THE
NATURE OF MARKETS
The 18th Century economist Adam Smith
demonstrated how in a free market the self
interest of producers and consumers will produce
an outcome desirable to all concerned
But the market can also lead to inequality of
income, wealth and market power:
Monopoly suppliers can exploit consumers
Monopsony buyers can exploit supply firms
World wide inequality of income can result in
unethical practices such as the child labour
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ETHICAL ISSUES AND SOCIETY - EXAMPLES
Involvement in the community
Honesty, truthfulness and fairness in marketing
Use of animals in product testing
Agricultural practices e.g. intensive faming
The degree of safety built into product design
Donation to good causes
The extent to which a business accepts its alleged
responsibilities for mishaps, spillages and leaks
The selling of addictive products e.g. tobacco
Involvement in the arms trade
Trading with repressive regimes
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ETHICAL ISSUES ARISING FROM INTERNAL AND
INDUSTRY PRACTICES - EXAMPLES
Treatment of customers - e.g. honouring the spirit as
well as the letter of the law in respect to warranties
and after sales service
The number and proportion of women and ethnic
minority people in senior positions
The organisations loyalty to employees when it is in
difficult economic conditions
Employment of disabled people
Working conditions and treatment of workers
Bribes to secure contracts
Child labour in the developing world
Business practices of supply firms
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UNETHICAL PRACTICES

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UNETHICAL PRACTICES IN MARKETING - EXAMPLES
Pricing lack of clarity in pricing
Dumping selling at a loss to increase market share and destroy
competition in order to subsequently raise prices
Price fixing cartels
Encouraging people to claim prizes when they phoning premium rate
numbers
Bait and switch selling - attracting customers and then subjecting them
to high pressure selling techniques to switch to an more expensive
alternative
High pressure selling - especially in relation to groups such as the elderly
Counterfeit goods and brand piracy
Copying the style of packaging in an attempt to mislead consumers
Deceptive advertising
Irresponsible issue of credit cards and the irresponsible raising of credit
limits
Unethical practices in market research
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UNETHICAL PRACTICES RELATING TO
PRODUCTS - EXAMPLES
Selling goods abroad which are banned at home
Omitting to provide information on side effects
Unsafe products
Built in obsolescence
Wasteful and unnecessary packaging
Deception on size and content
Inaccurate and incomplete testing of products
Treatment of animals in product testing
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ETHICS AND THE SUPPLY CHAIN
It would be hypocritical to claim to be a ethical
firm if it turned a blind to unethical practices by
suppliers in the supply chain. In particular:
The use of child labour and forced labour
Production in sweatshops
Violation of the basic rights of workers
Ignoring of health, safety and environmental
standards
An ethical producer has to be concerned with what
is practiced by all firms (upstream and
downstream) in the supply chain.
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BRIBERY
This is a key ethical issue in business
It first needs to be stated that bribery to secure a
contract (especially a contract with a public sector
body) is against the law and severe penalties can
result
However, it is sometimes seem (wrongly) as a
victimless crime and is often rationalised in terms
of if we dont offer a bribery, others will
From a moral or ethical perspective it should be
approached not in terms of can we get away with
it but is it right to offer a bribe to secure a contract
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INSTITUTE OF BUSINESS ETHICS SUGGESTIONS
FOR GOOD PRACTICE
The Institute recommends that organisations issue statements of
ethical practice in respect of:
Relations with customers
Relations with shareholders and other investors
Relations with employees
Relations with suppliers
Relations with the government and the local community
The environment
Relations with competitors
Issues relating to international business
Behaviour in relations to mergers and takeovers
Ethical issues concerning directors and managers
Compliance and verification LIU - IBR 31
WHAT IS AN ETHICAL CODE?
This is a set of principles governing morality and
acceptable behaviour.
It is likely to cover:
Personal behaviour e.g. when dealing with
customers and suppliers
Corporate behaviour e.g. when negotiating deals
Behaviour towards society e.g. when recruiting
Behaviour towards the environment e.g. when
deciding on process

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ETHICAL AUDIT
This is an audit of all the firms activities
Purpose:
To check that ethical principles are being
pursued
To check the extent to which actions are
consistent with the organisations stated
ethical intentions
And to establish action plans if they are not .

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THANK YOU!!!

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