ETHICAL DIMENSION OF INTERNATIONAL BUSINESS

2. INTRODUCTION: The international business environment, through its cultural and

economic diversity, often puts international managers in great difficulty as it generates a
large variety of ethical issues. On a short term, finding a solution and respecting the
organizational principles of business ethics could generate an increase of the
organizational costs and, thus, a decrease of efficiency. But, on a long term, even though
there is the possibility that the ethical management practices are not related to the specific
indicators of financial profitability, there is no inevitable risk between the ethical
practices and the profit. This is demonstrated by the well-known corporations that are
respected by the consistency with which they assume ethical responsibilities and obtain,
at the same time, superior financial results. Consequently, the profit and the ethics can be
considered two essential parts in the process of evaluating the organizational activity
results as, while the profit reflects the organizational results from a quantitative point of
view, the ethics reflect the quality of these results. 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. The
ethics fulfills, from this perspective, the managers catalyst role to take fair actions from a
social point of view and it represents a guide in making and evaluating the business
decisions, appreciated in most countries of the world. The importance of international
business ethics has been rising steadily along with the growth of international business.
Technologies like the Internet have made international business all the more viable, and
many companies can only find the desirable growth and profit they seek by expanding
into new markets. This means that just as business ethics domestically have grown in
importance along

with the power and significance of major businesses, so must international business
ethics take center stage as a major concern of the modern era.The primary problem of
international business ethics lies in the fact that most cultures and nations hold entirely
different standards of both law and ethics. In America, business ethics can be employed

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because, in general, the disagreement between what actions are ethical and what actions
are unethical in a single culture will be lesser than the disagreement between two entirely
different cultures with different values and cultural practices. As a result, one business
might believe it is acting perfectly in accordance with international business ethics, while
another would view that first business as acting in a completely unethical fashion. Many
businesses adopt the policies of cultural relativism, in which they attempt to take on the
business ethics exhibited by the nation in which the business is working a particular deal,
as opposed to attempting to carry any of their own business ethics across cultural
boundaries. However, this practice is not without its own flaws. For more information on
the basic issues and problems facing any attempts to form coherent international business
ethics codes, click the link. One of the biggest problems facing any international business
code of ethics is that standards for employment practices are not constant between
nations participating in international business. An unethical practice that might be banned
in a developed country might then be perfectly legal in a different, less developed
country, allowing an international company to then set up its own division in the less
developed country in order to take advantage of the legality of such profitable, yet
unethical, employment practices.As a result, in order for international business ethics to
have any kind of strength or enforcement beyond the companies' own decisions to obey
such ethical standards, there must be some kind of legal agency that can investigate and
prosecute any breaches of ethical employment standards.The United Nations has an
organization within it that might qualify, but the International Labor Organization does
not have the necessary force of strength behind it to ensure that unethical employment
practices in foreign nations are eliminated.Nations are only bound to the standards
established by the International Labour Organization if they choose to ratify its
conventions. While those standards are still considered to be the international labor
standards, there is no way to successfully investigate and enforce those standards in
countries that have not signed on to those standards. To find out more about the problems
of unethical employment practices and how they relate to international business, follow
the link.

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The Foreign Corrupt Practices Act (FCPA) was originally implemented in 1977 in order
to prevent the questionable practices discovered by many American companies in
international business dealings. These American companies were often bribing foreign
officials in order to illegitimately gain business from foreign governments.
Such corrupt practices had been outlawed in America since the Government's inception,
but because these companies were bribing in foreign nations, they were not violating
American law. The FCPA changed all that, as it made it illegal for American companies to
bribe foreign officials in order to obtain foreign business.
The original flaw of the Foreign Corrupt Practices Act was that it did not enforce
international business ethics in any kind of uniform way. Only companies operating in
America were subject to the Foreign Corrupt Practices Act; many other companies would
still bribe foreign officials in order to obtain business, and thus, would have an unfair
advantage against American businesses. As a result, America sought the creation of the
Organization of Economic Cooperation and Development Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions.
The Convention had a number of different countries sign on to it, all of which agreed to
pass domestic legislation akin to the Foreign Corrupt Practices Act in order to prevent
such practices in international business. This Convention represents some of the strongest
support for an international business ethics code uniformly agreed upon by member
nations. To find out more about the Foreign Corrupt Practices Act and its effects upon
American and international business, follow the link.
Bribery is one of the practices which is most difficult to deal with in terms of
international business ethics, as there are as many different views on bribery as there are
cultures. Some cultures do not believe bribery is much of an issue at all and do not see
the need to seek its prosecution. Other cultures view bribery as something to be expected,
a common courtesy and gesture of standard polite practice. Yet other cultures view even
such activities as tipping and leaving gratuities to be a form of unacceptable bribery.
Bribery is even more difficult to deal with because not all countries have statutes that ban
the bribery of government officials. Thus, in some countries, bribery of government

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officials in business dealings would be considered highly unethical and illegal, while in
other countries bribery of government officials would be perfectly accepted. Navigating
this mass of cultural landmines is the major difficulty of any kind of dealings with a focus
on international business ethics.
While companies could simply adopt the ethics of the society in which they are dealing,
the problem is that this would allow them to act in ways both unethical and damaging to
most forms of business. After all, if one company can get an illegitimate advantage by
bribing government officials, then it upsets the basic nature of capitalism. International
business ethics, then, needs to be used to somehow deal with multiple cultures in a
uniformly ethical fashion. To find out more about the difficulties and nature of bribery,
click the link. The enforcement of international business ethics is just as difficult as the
establishment of any kind of coherent uniform set of international business ethics codes
and rules. Different nations do not have power over each other. As one nation may have a
culture that believes bribery is an acceptable practice, it does not have to obey the laws of
another nation where bribery is outlawed. This is the primary problem of enforcing any
kind of international business ethics code.
The only body which can legitimately exert some kind of power over international
governance is the United Nations, but its power is very much limited. Other than that, no
government can implement some kind of law to enforce international business ethics and
then expect that law to be obeyed by all other nations.
Indeed, most nations' laws end at their borders and, as a result, so does any power behind
enforcing each nation's international business ethics code. Follow the link for more
information on the problems facing the enforcement of international business ethics.

2.1 CONNOTATIONS OF BUSINESS ETHICS:

Global business is a complex fabric of intercultural human and economic

relationships created by the exchange of goods and services. It is also
encompasses moral relationships.

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 Questions concerning profit, growth, and technological advances in business have
ethical dimensions. Some of these include the effects of pollution and depletion of
natural resources on society at large, the quality and character of the environment,
safety of customers, and overall well-being of the global community.

2.2 ETHICS, RELATIVISM, AND OTHER ISSUES:

Relativism with respect to ethics is the position which maintains that moral codes
are the relative standards of a particular culture or society. But there are some
normative issues concerning human rights, fairness, and justice that be applicable
throughout the world.

Normative issues cannot possibly be reduced to questions of statistically

interpretable facts or to the determination of maximally efficient strategies for
reaching ethical goals. They concern questions of human rights, fairness, and
justice. Donaldson (1989) has identified ten universal human rights (more or less
in line with the charter of human right promulgated by the United Nations) that
both the multinational and domestic corporations should respect:

o The right of freedom and physical movement.

o The right of property ownership.

o The right of freedom from torture.

o The right to a fair trial.

o The right to nondiscriminatory treatment (e.g. freedom from discrimination

on the basis of race or sex).

o The right to physical security.

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 o The right of freedom of speech and association.

o The right to minimal education.

o The right to subsistence.

Assume that a large tract of land in a developing country is used for growing rice. The
bulk of the land is owned by wealthy landowners. Poorer members of the community
work the land and receive a share of the crop, barely sufficient to meet their nutritional
needs. The owners intend to sell the property, in exchange of a handsome amount of
money, to a construction company who wants to build a cement manufacturing plant in
order to meet the cement requirement for a project they been commissioned to do in the
country. If the company knows that a significant number of people in the community will
suffer from malnutrition as a result of this event, then the company may be said to have
failed in its correlative duty to protect the 'right to subsistence' of those people.

The issue of questionable payments (QP) is very relevant in case of global

business.

o Some researchers use the theory of ethical relativism to explain the issue. It
is often said that QPs in some cases are socially useful by helping to
remove obstacles that themselves distort equity or inefficiency in a society.
It is difficult to substantiate this position.

o In general, QPs induce public officials to ignore established social

priorities, or distort these priorities by allocating resources to purchases that
are not the best, appropriate, or least expensive. The payments thus result in
higher prices, lower level of responsiveness to consumers, and lower
quality of goods and services (I have got scores of anecdotes to illustrate
this point). It may finally result in deterioration of balance of payments and
increased foreign borrowing (by developing countries).

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 o Higher levels of corruption fosters broader levels of lawlessness.

o QPs pave the way for authoritarian regimes, military takeover, and finally,
totalitarianism.

o Use of QP in a competitive setting may indicate that the company is too

lazy or too inefficient to compete on the basis of price, quality, and service.

o It definitely undermines the foreign policy of a country.

2.3 FOREIGN CORRUPT PRACTICES ACT (FCPA):

The Foreign Corrupt Practices Act (FCPA) promulgated by the US government

covers corrupt practices involving foreign officials. It is applicable to all U.S.
citizens and all U.S. corporations and their employees. While the Act does not
apply to foreign corporations, U.S. corporations and their employees may be held
accountable under the Act for the actions of their non-U.S. affiliates. In addition,
U.S. corporations and their employees may be accountable where the illegal
payment is made by a third party, such as a sales representative or distributor.

The act is a by-product of the Watergate investigations into illegal political

contributions and money-laundering. The revelation of questionable payments by
U.S. corporations to foreign officials to gain business advantages was the driving
force behind passage of the FCPA in 1977.

The Foreign Corrupt Practices Act prohibits payment if the purpose of the
payment is to obtain or retain business.

There are some exceptions. "Facilitating" or "expediting" payments to a

government official or other prohibited payee are specifically permitted if the
purpose of the payment is "to expedite or to secure the performance of a routine

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 government action." Routine government action includes obtaining permits,
licenses or the like to qualify to do business, processing visas and work orders,
obtaining services such as police protection, mail pick-up and delivery, phone
service, power and water, loading and unloading of cargo, protection of perishable
products or the like.

The Foreign Corrupt Practices Act also makes an exception for expenditures
incurred by or on behalf of a foreign official that are related to the promotion,
demonstration or explanation of products or services, or that are related to the
execution or performance of a contract with a foreign government. Thus, it is
permissible to pay the expenses of bringing officials to the United States for plant
tours, production demonstrations, and business meetings. Reimbursed expenses
may include the reasonable cost of an official's meals and lodging and a reasonable
amount for entertainment.

Violation of the Foreign Corrupt Practices Act can result in severe criminal and
civil sanctions:

o For corporations, the maximum criminal penalty is a $2,000,000 fine.

o For individuals, the maximum criminal penalty is $100,000 fine and five
years imprisonment.

o For corporations and individuals, civil fines of up to $10,000 may be

imposed.

One doesn't have to actually make the bribe to be in violation of the Foreign
Corrupt Practices Act - offering, promising or authorizing a bribe is sufficient. The
illegal bribe can be money or anything of value. Bribes can take many forms, such
as purchase of a foreign official's property or services at inflated prices,

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 extravagant entertainment, or payment to a designated person or entity if the
ultimate beneficiary of the payment will be a foreign official.

The Foreign Corrupt Practices Act defines "foreign official" as "any officer or
employee of a foreign government or any department agency or instrumentality
thereof, or any person acting in an official capacity for or on behalf of any such
government or department, agency or instrumentality." The definition of "foreign
official" includes persons who are not employed by a government but are merely
acting "for or on behalf of" a government. Such persons could include
private architects, engineers or consultants retained by a government to assist
with specific projects.

Individuals or corporations will be held liable for payments, or promises of

payments, made to third parties if the payments or promises are made "while
knowing that all or a portion" of the payment will be given or promised to a
foreign official, to a foreign political party or an official thereof, or to a candidate
for foreign political office.

References

www.tamu.edu.ethics.com

http://www.seap.usv.ro

http://business.laws.com

www.scribd.com

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