The growing importance of business ethics

This essay discusses the growing importance of business ethics in today’s business world. It identifies and analyses the dilemma the multinational corporations are facing and the standards and principles they need to apply when facing these situations. It also identifies how a company’s code of conduct can help it to achieve its ethical standards in its global market and create an image of a responsible company providing fair working environment and high ethical standards. In addition, It critically discusses the role and responsbilities that how an MNC can encourage ethical business practice in today’s complicated and competitive business environment.

The business world is becoming a global village. Various countries’ markets are becoming available to foreign investors and companies, this allows companies to go across the international borders to do business. It also results in greater competition and opportunities. Many companies become multinational corporations in this process. Multinational corporations are active and important players in today’s international business. MNC refers to firms that have extensive and intensive involvement in global market, it also refers to firms that engage in foreign direct investment and own or control resources and activities in more than one country

MNC generally coordinate their activities from a central headquarters, but may also allow their affiliates or subsidiaries in foreign markets considerable latitude in adjusting their operations to local circumstances.

Businessmen nowadays are not merely satisfied with their home country’s markets and will go overseas to gain a market share in its global business. This leads to globalisation. Globalisation is defined as the expansion and deepening of ties across national borders, has gained ground in all aspects of the business environment. (Morrison, J 2006, p448) It enables individuals, corporations and organisations to reach around the world farther, faster, deeper and cheaper than ever before. It is the product of a particular form of governance rooted in the domestic political economies of the early industrialisers. (Prakash, A & Hart, J 2000, p32)

Some people argue that globalisation enables firms from developed countries to increase unemployment rate from their home countries by transferring job opportunities to a foreign country with low labour cost and serious environmental protection issue. According to the law of comparative advantage, the citizens of each nation can gain by spending more of their time and resources doing those things where they have a relative advantage. (Carbaugh, R, 2007, p14)

Success in international trade comes from the interaction of four country-and firm-specific elements.

Porter’s national competitive advantage

Porter’s Diamond

– Factors conditions

Includes not only land, labour, capital factors, also include factors such as educational level of workforces and infrastructure of a county

Demand conditions

A large and complicated domestic consumer demand would enable the country and companies to compete more effective and more competitively advantaged with other countries.

-Related and supporting industries

This includes industries supporting the main industry of the country. For instance, Sweden’s strong paper industry enables its country to have a strong truck manufacturing industry such as Scania.

-Firm strategy, structure, rivalry

This factor recognises the positive aspect of competition. Thus government might establish an environment that fosters such factors.

The problem of international resource allocation, determinants of the pattern of world trade, and gains from trade, all relate to trade, profits and benefits. (Meier, G 1998, p417)

However, when a MNC explores its foreign markets, there are cultural and ethical barriers. A MNC will have to encounter a variety of business practices, moral behaviour, ethical standards and cultures which are quite different from their home country. .

The main dilemma is MNC are required to use more than their corporate code of conduct, they are also encouraged to apply a higher standard level of ethical business practice.

Ethics are defined as the process of distinguishing the right and good from the wrong and bad, and they imply a moral duty to pursue the good and the right.

Business ethics is the good or bad behaviour companies carry on in their business. It shows that business should act responsible rather than just seeking profit and economic gains. It forces the companies to adapt themselves in a more ethical and morally correct behaviour and enable companies not only consider profits also have to take the whole society into consideration such as environmental issue.

A company’s code of conduct sets out what a company can do and what a company cannot do. It establishes a level of business ethics when it operates both in host and home country. A MNC’s ethical behaviour should be consistent in its global market.

MNC should apply laws and ethical standards at home country and foreign markets where they operate. It should be followed consistently anywhere the MNC has its international business. A universal business ethics standard should be enforced for a MNC to the all the counties where it operates. Its ethical values and integrity should not be changed or damaged to pursue an economical gain or profit.

The most important thing is that right ethical vales must be applied in anywhere in the world where the corporate operates its business no matter where it is.

A good corporate code of conduct should have the following characteristics:

a uniform standard of ethics in its global market

set it as high and as practical as possible

apply the code of conduct strictly and consistently

employees should be fully aware of the code

A strong code of conduct would assist a company to gain respect and support from its customers, local authorities even its competitors. To achieve success in today’s competitive environment, a MNC should adopt a global standards and a common set of values which it can apply to everywhere it operates business.

Besides establishing an ethical culture of a company, a good conduct code will also help the company to create an image of responsible and fairness in its global market.

Moral principles might become a minor issue when a company explores its opportunities in a country where laws are not strong enforced and a fragile legal system exists. MNC might adopt a lower standard of moral behaviour in foreign countries where laws are not restrictive as in their home countries. The questions for MNC might be:

– Are we still going to stick into our principles?

– Are we going to accept and adapt ourselves to principles and standards that are lower than ours?

A recent case is that Levi Jeans. It exited China’s jean market a few years ago because of its notorious human rights records. The violation of human rights in China makes Levi in a dilemma whether it continues to operate in China or not. However, its global high standard of business ethics make it exited this major market because they cannot lower their moral standards so as to gain pure economic profits in China.

In the world of business ethics today, the impact of ethical standards on MNC activities is becoming more and more important.

As business ethics becomes more integrated into activities, we must pay attention to the risk of applying ethical standards from the home country to host country where MNC operates.

For example, should an American company apply the same ethical behaviour and standard to a developing country such as Thailand?

MNC also have to consider how to respect the local culture and apply to the ethical standards of the host country.

An important problem for corporations is how to define ethical and unethical behaviour in a variety of countries. In today’s world, the behaviour seems difficult to define and distinguish. If MNC apply correct behaviour, it would increase its image and reputation of good corporate governance, otherwise they will damage their reputations in its global market. As differences in the nature, methods, and scope of regulation highlight variations in models of economic organization, these can tighten trade tensions (Pollack, M & Shaffer, G 2001p179)

The more MNC interacts in a foreign market and country, the more they are going to testify whether their own values and moral judgment are right and absolute since the standards varies from one country to another. However, MNC should be aware that cultural differences and local traditions can be so different that they are contrary to MNC standard in their home country to a large extent.

An MNC is usually expected to find itself unprepared in dealing with ethical behaviour in a foreign country. Even if the problems are the same in a foreign country, the ways to solve it might be different.

A typical example here is gift-giving. In many countries and cultures, gift giving is allowed and tolerated. For example, in Japan, give giving is not unethical and often encouraged. It represents a kind of relationship between business and business or business and governments. This is quite different from the perspective of western society or ethical standards.

This clearly illustrates the importance of nature of differences between different counties and cultures when evaluating different practices, while MNC have to consider whether it complies with its global ethical standards and principles.

The main ethical dilemma here is what kind of ethical behaviour should MNC adopts when values conflict with another. Should a company invest in a country where weak labour laws exist or environmental issues are not considered seriously? Or should a company invest in a country where bribery is a common practice?

Business ethics can help employees to be prevented from exploitation by profit seeking companies. It is quite clear that some activities are unethical and would not be tolerated no matter where it happens. For instance, forced labour should not be allowed in anywhere in the world. A recent case is that in Thailand, almost 200 people were killed in an international toy manufacturing factory. The cause of the deaths not only pointed to the ineffective sprinkler system, it also because the management level the facotory locked employee in the factory and eventually caused 200 deaths. This kind of behaviour should not be allowed and tolerated in any ethical standards and norms.

Responsibilities of MNS to encourage ethical business practice

Bribery issue

There are two kinds of corruptions:

State Capture

Individuals, organizations, corporations exercise their power to influence the formation of regulations and policies to benefit themselves to some extent, usually achieved by bribing government officials

Administrative corruption

Government official use their power and influence to force companies, individuals, groups to pay certain fees by distorting laws and regulations.

MNC will often encounter different practices, standards of business behaviour and cultures. They might face the situation that whether to bride a local government official in order to obtain a business contract or deal.

A major and common problem in today’s international business is how MNC can deal with bribery. In theory, there is no any country on this planet would allow businessmen to bribe government officials and officials are not allowed to take bribe offered by a businessman. However, in practice, this happens quite often. Corruption is a mutual mechanism. Corruption will never happen without demand and supply.

Many MNC said that they would not accept and tolerate any kind of bribery. They would prefer not to compete for the business contracts if bribery has to be taken in the whole process.

In many developing and less developed countries (LDC), a main problem is that the rising of corruption and bribery in local governmental bodies is leading to both politital and social instability. This problem is more prevalent and serious in these developing or less developed countries law enforcements are not so strong or undeveloped.

– Child labour issue

Another main unethical practice facing MNC is the use of child labour. The labour market difficulties in developed countries are important and deserve full consideration (Michie, J 2003, p194)

In most developed countries, use of child labour morally not allowed and more importantly it is prohibited by legislation. Hence, MNC operates in developing and LDC countries are expected to apply the same standards and rules.

However in some countries in the world, use of child labour are often allowed and sometimes encouraged. Children are often expected to help their parents to sustain financial problem. This has been a culture or tradition in those countries. This is mainly because of the poor education provided by the local government and insufficient funds to help those children to be well educated. In this instance, children would not be able to survive if they do not work. MNC have to face these situations when they operate in these countries. In these countries, child labour is encouraged to have economical gains. Further, because these societies often do not have the finance, facilities and manpower to provide necessary and appropriate education, children would not be able to survive if they do not work. In Europe, it is concerned with the ‘upheaval’ caused by globalisation. It must determine ‘how best to use education and training to commit European countries to a process of job creation, whilst taking control of the globalisation and economy. (Prakash, A & Hart, J 2000 p90)

However, for MNC, they should not employ children without assessing the consequences. A detailed analysis should be conducted by MNC to assess whether children are suitable to conduct work for them. In addition, they should also provide a fair and safe working environment for those children. Another effective way is to work and cooperate with the local government to provide necessary education and ensure children have necessary education and training before they can start in the workforce.

Conclusion:

Multinational corporations have become an important and active role in today’s globalisation. They have strong power and influences on a foreign country’s policies, regulations even legal issues. The way how they perform in a foreign market has become quite important for both the home country and host country it operates. The moral and ethical standards and principles MNC applies overseas should be consistent with those standards in their home countries. They have a strong responsibility to encourage, promote and apply a globally consistent ethical standards and principles.