Ethical issues in international

business

BY
R.DURGADEVI
Ethical issues in international business
There are several important social issues in
international business. We are going to see business
ethics, social responsibility, environmental factors and
standards.
 Business ethics
The term business ethics refers to the system of moral
principles and rules of conduct applied to business. Business
ethics is influenced by the societal ethics.
An international marketer often finds that the norms of
ethics vary from one country to country. What is ethically
wrong in one nation may not be so in another.
Bribery, pay-offs or kickbacks are common in business in
many countries. However, the extent and intensity of it vary
from country to country. In some countries, it is a common
practice with government officials and other employees. The
law in respect of such practices also varies among countries.
According to the regulations in some countries, while bribing is
illegal within the country, bribing by the nation’s firm in foreign
markets to get or conduct business is not illegal because of the
feeling that this inevitable in some markets. The position
appears to be that “morality only exists within a culture. And it
is not for us to say what is moral in someone else’s culture”.

Whatever may be the legal position regarding bribing, it is

basically a question of the moral values and self-regulations.
Some people, who hold that bribing politicians and top officials
to get business is unethical, feel that paying the lower level is
not unfair if the papers do not move normally otherwise.
Another issue is whether it is ethical to sell products which
are banned in some countries, because of their harmful
effects, in other countries. One issue is that if the
Government of a country permits the marketing of such a
product, should a company give up the sale of the product on
its own? If the harmful effects of a product outweigh the
benefits, a company with sound ethics will not do business in
that product even if there is no legal obligation.
 SOCIAL RESPONSIBILITY IN BUSINESS:

Social responsibility of business refers to what the business

does, over and above the statutory requirement, for the benefit
of the society. The word responsibility connotes that the
business has more obligations to the society.
The term corporate citizenship is also commonly used to refer
to the moral obligation of business to the society. This implies
that, just as individuals, corporate are also an integral part of
the society and that their behavior shall be guided by certain
social norms.
A responsible company has certain objectives.
To enhance labour welfare
To enhance customer service and goodwill
To assist in developing and promoting the amenities in
the locality
To assist in developing the industry of which the firm
is a member
To contribute to national goals.
According to steiner and steiner, a reasonable approach to social responsibility it as
follows
Each business must take into the account the situation in which it
. finds itself in meeting stakeholder expectations.
Business is an economic entity and cannot jeopardize its profitability
meeting social needs.
Business should recognize that in the long run, the general social
goods benefits everyone.
The social responsibility expected of a business is directly related to
its social power to influence outcomes.
Social responsibility is related to the sizew of the company and to the
industry it is in.
A business should tackle only those social problems in which it has
competence.
Business must assume its share of the social burden and be willing to
absorb reasonable social costs.
 Social orientation of business:

There are some models which endeavour to describe the evolution

and extent odf social orientation of companies. Notable one
include Carroll’s model, Halal’s model, and Ackerman’s model.
Archie B.Carroll, who defines corporate social responsibility as
the entire range of obligation business has to society, has proposed
a three-dimensional conceptual model of corporate performance.
According to Carroll, a firm has the following four categories
obligatios of corporate performance
Economic
Legal
Ethical
Discretionary.
Social orientation of business:

Efficient operations to satisfy economic needs of the society

and generation of surplus for rewarding the investors and
further development.
Legal responsibilities are also fundamental in nature because a
company is bound to obey the law of the land.
Ethical responsibilities are certain norms which the society
expects the businesss to observe they are not mandated by law.
Discretionary responsibilities refer to the voluntary contribution
of the business to the social cause, like involvement in
community development or other social programmes.
These terms are value-free and they may be interpreted
differently by different people.
Social orientation of business:

William E. halal’s return-on-resources model of

corporate performance recognizes the fact that no
corporate social posture will be value-free, and this
makes corporate social responsiveness tremendously
difficult task. He points out that a firm can only
attempt to unite the diverse interests of various groups
to form a workable coalition engaged in creatin value
for distribution among members of the coalition.
Social orientation of business:

According to Ackerman’s model, there are three

phases in the development of the social responsibilities
of a company.
The 1st phase is one when the top management
recognizes the existence of a social problem
The 2nd phase is characterized by the company
appointing staff specialists or external consultants.
The 3rd phase involves the implementation of the social
responsibility programmes.
Extent of social orientation and involvement:
Anti-social: business may even contribute a part of their ill-gotten money
for social purpose to mask their real or because of some compulsion to
which they yield for fear of some reaction or for getting some favors or
goodwill.
Indifferent: the attitude is that going by the rules and regulations is good
enough; there is the Government and other organizations to work for the
social cause and it is not the business of the business.
Peripheral: these companies are slightly a shade better than the indifferent
category. They have a little bit of social orientation, often for the name sake.
Socially oriented: companies in this category have a high level of social
orientation but their real involvement is constrained by limitations of
resource.
Committed and very active: these companies characterized by high level of
social orientation and real involvement in the societal welfare programmes.
Factors affecting social orientation:’

Promoters and top management

Board of directors
Stakeholders and internal power relationship
Societal factors
Industry and trade associations
Government and laws
Political influences
Competitors
Resources
Ethical influences
Responsibilities to different sections

Responsibility to shareholders
The fact that the shareholders have taken a greater risk
in making investment in the business should be
adequately recognized. To protect the interests of the
shareholders and employees, “the primary business of
a business is to stay in business”. To safeguard the
capital of the shareholders and to provide a reasonable
dividend, the company has to strengthen and
consolidate its position. Hence it should develop and
improve its business and build up its financial
independence.
Responsibility to employees:
The responsibility of the organization to the workers
include:
The payment of fair wages
The provision of the best possible of the best possible
working conditions
The establishment of fair work standards and norms
The provision of labor welfare facilities to the extent
possible and desirable.
The installation of an efficient grievances handling system.
Responsibility to consumers
To improve the efficiency of the functioning of the business so as
to (a)increase productivity and reduce prices, (b) improve quality,
and (c) smoothen the distribution system to make goods easily
available.
To do research and development, to improve wquality and
introduce better nand new products.
To provide requires after-sales services
To ensure that the product supplied has no adverse effect on the
consumer
To avoid misleading the customer by improper advertisements or
otherwise
To provide an opportunity for being heard and to redress genuine
grievances
Responsibility to community
Taking appropriate steps to prevent environmental
pollution and to preserve the ecological balance.
Assisting in the overall development of the locality
Improving the efficiency of the business operation
Contributing to research development
Development of backward areas
Contributing to the national effort to build up a better
society.
Economic growth, globalization and environmental problems
Environmental issues:

There is a close association with the pattern of economic growth

and environment problems.

Globalization, by accelerating certain types of economic

activities, causing unscrupulous exploitation of natural resources
and using ecologically unfriendly technologies and operations,
makes the problem more serious.
Rostow’s theory of economic growth tells us after a certain stage
growth will become self-sustaining. But the trends of ecological
damages associated with economic growth seems to tell us that if
the present style of growth is pursued for long, economic growth
will become self-defeating and non self-sustaining. The seeds of
destruction are present in the process of growth itself.

Destruction of ecological balance seems to have become a

concomitant of rapid growth. The environment problems become
more acute with increase in the level of industrialization,
urbanization and intensification of agricultural activities with the
modern pollution-prone technology.

Population explosion and modern technology are upsetting the

ecological balance.
The Stockholm conference on human environment, held decades
ago, suggested a number of measures towards this end. The
following are the main principles of the Stockholm declaration.
The natural resources of the earth including the air, water, land,
flora and fauna and especially representative samples of natural
ecosystem must be safeguarded for the benefit of present and future
generations through careful planning or management appropriate.
The capacity of the earth to produce vital renewable resources must
be maintained and wherever practicable restored or improved.
Rational planning constitutes an essential tool for reconciling any
conflict between the needs of development and the needs to protect
and improve the environment.
States shall ensure that international organizations play a
coordinated, efficient and dynamic role for the protection and
improvement of environment.
Disadvantaged developing countries:

As in the case of some other social issues in the fore, the
environmental issues raised are mostly which disadvantage
the developing countries, ignoring or relegating to the
background several serious issues which hold the developed
nations or firms from such nations guilty.

Some countries prohibit the import of goods which cause

ecological damage. For example, the US has banned the
import of shrimp harvested without turtle excluder device
because of its concern for the endangered sea turtles.
Countries like India are affected by it.
Trade and environment:

The debate has intensified in recent years on the links

between trade and the environment, and the role the WTO
should play in promoting environment friendly trade. Three
main arguments are forwarded as to how this might occur.

1st, trade can have adverse consequences on the environment

when property rights in environmental resources are ill-
defined or prices do not reflect scarcity. This situation results
in production or consumption externalities and can lead to
the abuse of scarce environmental resources and
degradation, which is exacerbated through trade.
2nd argument linking trade and the environment is related to
the first one. If some countries have low environmental
standards, industry is likely to shift production of
environment-intensive or highly-polluting products to such
so-called pollution havens.

3rd concern by environmentalists about the role of trade

relates more to social preferences. Some practices may
simply be unacceptable for certain people or societies, so
they oppose trade in products which encourage such
practices.
 Labor issues
One of the important social issues in the developed countries in
respect of business with the developing countries pertains to ill-
treatment of labor and children.
Child labor used in the manufacture of exports from the
developing countries is widely criticized by people in their
developed countries. There is protest against this in the
developing countries too.
A similar issue is the sweat labor. The argument here is that
goods are manufactured by labor working in inhuman/unhealthy
working conditions not getting fair wages should be banned or
boycotted. Certain important developing country exports, like
garments, are alleged to be suffering from such problems. Some
multinationals are critics for sourcing products from developing
countries benefiting from the sweat labor.
According to an ILO report, it is regrettable feature of many
exports processing zones that both male and female workers are
trapped in low wages and low skill jobs and labor relations and
human resource development remain two of the most
problematic aspects of zone functioning.
Another important issue is trade union rights. Absence of trade
union rights in some countries provides them a cost advantage. It
may be noted that many multinationals are taking advantage of
the absence of trade union rights in some countries.
According to the WTO, the debate on the interaction between trade
and labor standards is in many ways similar to the debate on trade
environment standards. The Singapore ministerial concluded that
a) Members are committed to the observance of internationally
recognized core labor standards
b) These standards should be addressed in the ILO, whose work the
members support
c) Standards are promoted by growth and development, fostered
through trade liberalization
d) Members reject the use of labor standards for protectionist
purposes, and agree that the comparative advantage of countries
must in no way be put into question.
Trade can have both positive and negative effects on
labor welfare.

The WTO also points out that empirical studies do not

provide support for the claim that trade undermines labor
standards; most evidence suggest a positive link between
trade and labor standards, mainly through trade’s
positives effect on income.