Ethical Issues in International Business

Globalisation Context

•          We are interested in these things because of:

•          Impact of Globalisation

•          Growth of international operations of MNEs and the number of countries they operate in

•          MNE approaches to local cultures

Michael Hopkins ‘Corporate Social Responsibility Around the World’.

•          ‘The notion of corporate social responsibility differs from country to country’.

•          ‘….local cultures affect how consumers expect companies to behave as does the response and type of product that a company will sell in a given country’.

•          ‘In a similar way, the interpretation of social responsibility differs from country to country’

Corporate Social Responsibility Around the World http://www.stthom.edu/Public/getFile.asp?isDownload=1&File_Content_ID=497
(Journal of Online Ethics, Vol. 2, No.2, Oct., 1997)

Blowfield M & Murray A – Corporate Responsibility – a critical introduction, OUP, 2008, p71

•          “Corporate responsibility  has … become an important means for addressing what Stiglitz (2002) sees as the fundamental problem with contemporary globalization – a system of global governance without global government”

Profits and Poverty

•          Prahalad (2005) refers to “the fortune at the bottom of the pyramid”

•          GE – Financial Services for poorer consumers

•          Citigroup adopt microfinance model pioneered by NGOs and aid agencies in Bangladesh to finance small entrepreneurs

Blowfield M & Murray A (2008) p79

•          Global competition made US and Australian politicians abandon multilateral environmental agreements like the Kyoto Protocol

•          But globalisation gives us rapid access to film of rainforest clearance, tsunamis etc all of which influence how we think about our interconnectedness on the planet

2. MNE action

•          Against that context the scale and scope of MNE activity is enormous

MNE RESPONSES

•          3 categories:

–        Adopt standards of the host country

–        Adopt standards of the home country

–        Find a middle way

CULTURAL IMPERIALISM

•          “Herbert Schiller in his 1976 work "Communication and Cultural Domination" proposed the use of the term "cultural imperialism" to describe and explain the way in which large multinational corporations, including the media, of developed countries dominated developing countries.” http://www.tbsjournal.com/Archives/Spring01/white.html

•          ‘There is our way and the wrong way’.

•          Do not change business practice to suit the changing environment.

•          Sometimes termed “universalism” – see Carroll 2004 in Academy of Management Executive

CULTURAL RELATIVISM

•          Morality varies culture to culture, country to country.

•          Business practices defined as right or wrong in terms of the particular culture.

•          ‘When in Rome do as the Romans do’.

Puffer & McCarthy(1995)
ethically acceptable behaviour

Rachels J (1998) “The Challenge of Cultural Relativism from his book The Elements of Moral Philosophy, McGraw Hill

•          Callatians eat their dead whereas Greeks believe it wrong

•          Eskimos see no wrong in infanticide whereas Americans believe it is immoral

•          Rachels warns that cultural relativism encourages us to conclude from these 2 statements that these practices are neither objectively right or wrong, and that opinions differ from culture to culture

•          He says cultural relativism wouldn’t allow us to criticise an anti-Semitic or an Apartheid society or one which allowed slavery

•          Iraq under Saddam Hussein?

•          Zimbabwe under Robert Mugabe?

•          He suggests some universal values: care for the young, importance of telling the truth and prohibition of murder

•          Don’t assume that because customs differ that there is fundamental disagreement about values

•          Eskimo values may not be that different - but the harshness of their life forces upon them choices which we don’t have to make

Rachels, however, notes 2 benefits of cultural relativism

•          It warns us “about the danger of assuming that all our preferences are based upon some absolute rational standard….” He notes that many of are practices are peculiar to our society

•          It is always good to keep an open mind

So how does this translate into strategic options for MNEs?
Galbreath J (2006) CSR strategy: strategic options, global considerations, Corporate Governance Vol 6 No 2 pp175-187

•          First pick a base strategy for “home” country:

•          1 – Shareholder Strategy based on Friedman (1970)- economic responsibilities only

•          2 – Altruistic Strategy – giving back in the form of money for good causes

•          3 – Reciprocal Strategy – more strategic approach to CSR – happy to improve societal benefits but also benefits for the Co

•          4 – Citizenship Strategy – identifies and dialogues with stakeholders as part of general strategy formulation

•          Suggests further 4 issues to take into account:

•          Culture – different values espoused by different cultures – will the “base strategy” adopted (see previous slide) adapt to international strategy – may need mixture

•          Regulatory Environment – do you adopt a universal approach to compensate for deficiencies in local laws?

•          NGO impact in different countries needs to be taken account of

•          Global standards – over 400 to choose from – form external benchmarks

The Motivation of MNEs

•          MNEs aim to make profits

•          Basis of profit lies overseas – either resources eg mining or market seeking

•          Take advantage of : lower costs in terms of set-up; labour; raw materials etc. Outsourcing a popular strategy in recent years

Abuses of MNE Power

•          MNEs can wield considerable power in some economies

•          Certain crises have raised international concern over the ethical conduct of MNE’s in host and other countries :

•          Union Carbide : Bhopal : India -’alarmed other nations over questionable safety standards and controls of MNE foreign operations’.

•          Nestle : powdered instant milk formula -’raised questions about the lack of proper product instructions issued to indigent, less-educated consumers’.

•          Presence of MNEs in South Africa ‘raised criticisms over the role of large corporations in actively supporting apartheid or government-supported racism. Because MNEs have to pay taxes to the South African government, and because apartheid is a government-supported policy, MNEs - it is argued - support racism’.

•          Long-term moral issue :’the practice of MNEs not paying their fair share of taxes in countries where they do business and in their home countries’.

WHERE DOES THE FAULT LIE?

•          MNEs ?

•          Host Governments?

–        Current ethical consumer and ethical investor movements may put pressure on the MNEs

–        Host Governments need the political will to change – but it is arguable that the sheer scale of some MNEs make them hard for small or poor countries to resist.

MNEs As Agents of Change

•          Capital investment

•          Facilitate less-developed countries to access international markets.

•          Employment

•          Infrastructure development

•          Education and training etc.

CRITICISMS OF MNEs

•          Financial power to control economic, social and political nature of a country.

•          Pay low wages compared to home.

•          Buy raw materials cheaply.

•          Build and operate cheaply and below international standards.

•          MNEs protect technology so that host remains consumer.

•          MNEs destabilise national sovereignty by limiting host’s access to local capital and resources.

•          MNEs set up brain drain.

•          MNEs create import/export imbalance

•          MNEs disturb local government economic planning eg. by paying above average wages.

•          MNEs destroy and pollute environment.

Faced With Complications

•          Host countries can :

–        limit the return on MNE assets and earnings.

–        require that MNE’s use local parts and materials.

–        require a percentage of profit to be re-invested in host country.