Legal and Ethical Issues in International Business

Prepared By: Nirmita B. Patel Student of MBA Final Year, Late Smt. S.G. Patel Institute of Management Studies, Dharmaj Abstract International business ethics is a particularly complex issue as ethical standards are different depending on where you are. Corporate governance, bribery, corruption, working conditions and targeted marketing are all issues that require organisations to establish an ethical standpoint from which they can work on. 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. Thus, the aim of this paper is to review ethical management and corporate performance with a theoretical point of view, also with comprising the international business dimension of ethics and its significance for businesses. Key Words: business ethics, ethical dilemma, corporate governance, corruption, International business cultural relativism

Introduction
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. Meaning & Concept of Business Ethics In any organization from top executive to bottom line employees, ethics is considered as everybody business. It is not just only achieving high level of economic performance but also to conduct one of businesss most important social challenges, ethically at the same time. Here what we get a combination of two familiar words-Ethics & Business in Business Ethics. Different meaning is given to business as follows: Business ethics are the application of general ethical rules to business behaviour. Business ethics are rules of business by which propriety of business activity may be judged.

By Cater Mc NamaraBusiness ethics is generally coming to know what is right or wrong in the workplace and doing what is right- this is in regard to effects of products/ services and in relationship with stake holders.
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According to John Donaldson, business ethics in short can be desired as the systematic study of ethical matters pertaining to business industry or related activities, institutions and beliefs. Business ethics is the systematic handling of values in business and industry. Issues and subfields include:

The search for universal values as a basis for international commercial behaviour. 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., bio prospecting and bio piracy in the pharmaceutical industry; the fair trade movement; transfer pricing.

Issues such as globalization and cultural imperialism. Varying global standardse.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.

Objectives of the Study: 1. Identifying the major sources of ethical issues in Multinational companies. 2. Identify the legal issues in International business. 3. Suggesting possible solutions to minimize the ethical issues for Multinational companies.

Major Sources of Ethical Issues in International Business

Many of the ethical issues and dilemmas in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation. Consequently, what is considered normal practice in one nation may be considered unethical in others. Because they work for an institution that transcends national borders and cultures, managers in a multinational firm need to be particularly sensitive to these differences and able to choose the ethical action in those circumstances where variation across societies creates the potential for ethical problems. In the international business setting, the most common ethical issues involve employment practices, human rights, environmental regulations, corruption, and the moral obligation of multinational corporations.
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1. Employment Practices: Ethical issues may be associated with employment practices in other nations. When work conditions in a host nation are clearly inferior to those in multinationals home nation, companies must decide which standards should be applied? Those of the home nation? Those of the host nation? Or something in between?

Firms should establish minimal acceptable standards that safeguard the basic rights and dignity of employees and audit the foreign subsidiaries and subcontractors on a regular basis. 2. Human Rights: Basic human rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are by no means universally accepted. Basic human rights are still not respected in many nations. Many rights are not universally accepted such as freedom of: association, speech, assembly, movement, political expression. 3. Role of the Multinational Firm: It is often argued that inward investment by a multinational firm can be a force for economic, political, and social progress that ultimately improves the rights of people, but there is a limit to this argument because some governments are so repressive that investment cannot be justified on ethical grounds. 4. Environmental Pollution: When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise. The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals resulting in its degradation. Ethical issues arise when environmental regulations and/or enforcement are inferior to those in the home nation. This might result in higher levels of pollution from the operations of multinationals than would be allowed at home. 5. Corruption: In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business. The Organization for Economic Cooperation and Development (OECD) adopted a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1997 which obliges member states to make the bribery of foreign public officials a criminal offense. Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good These economists believe that in a country where pre-existing political structures distort or limit the workings of the market mechanism, corruption in the form of black-marketing, smuggling, and side payments to government bureaucrats to speed up approval for business investments may actually enhance welfare.

Legal issues for Multinational firms in India

India is the second most populous country on earth with some 1.1 billion people, and the 12th largest economy in the world measured by nominal US dollars. It rises to fourth-largest when measured at purchasing power parity exchange rates, according to the Economist Intelligence Unit. India gained independence from British colonial rule in 1947, and has been a democracy ever since. At the time of independence the country welcomed multinationals, and until the 1970s the regime was conducive to foreign investment. A spate of nationalisations in that decade and a strong socialist approach resulted in big names like IBM and Coca-Cola retreating from India. In 1991, India's foreign reserves were at an all-time low, and with the country close to defaulting on its sovereign debts, the government decided to open up the economy. Since then, it has liberalised the exchange control regulations, and moved from a strict regime allowing investments only in particular sectors, to a much more free approach. India's New Industrial Policy, of 1991, has a stated objective of inviting and facilitating foreign investments, and it approves investments through either an automatic route, that requires no prior approval, or through the government approval route, where applications must be made to the Foreign Investment Promotion Board. One-hundred per cent foreign ownership is permitted in most activities under the automatic route. Such ownership is subject to compliance with certain conditions, except inter-alia in certain sectors such as airports, asset reconstruction companies, atomic minerals, broadcasting, postal services, courier services, print media, single brand retail, and telecoms. In these sectors there are specified sectoral caps/ thresholds on foreign ownership. Foreign direct investment is prohibited in agriculture, atomic energy, retail trading (except single brands up to 51%), lottery, betting and gambling.

Possible solutions for ethical issues in International Business

The seven moral principles or guidelines advocated by De George (15) should be considered by multinational corporations as the general moral norms that could be respected and practiced to escape the legitimate criticism contained in the dilemmas they are said to face. These principles are as follows

1. Multinationals should do no intentional direct harm. Any company, whether they are multinational corporations or not, that does produce intentional direct harm clearly violates a basic moral norm. 2. Multinationals should produce more good than bad for the host country. Essentially a general utilitarian approach, this principle suggests that multinational corporations will do more good only if they help the host country more than they harm it. 3. Multinationals should contribute by their activities to the host countrys development. If the presence of the multinational corporation does not help the host countrys development, the multinational corporation
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can be correctly charged with exploitation, or using the host country for its own purposes at the expense of the host country. 4. Multinationals should respect the human rights of their employees. All multinational corporations should do so whether or not local companies respect those rights as this principle will preclude gross exploitation of workers, set minimal standards for pay, and prescribe minimum standard for health and safety measures. 5. Multinationals should always pay their fair share of taxes. Multinational corporations should not take pure advantage of transfer pricing aimed at benefiting from the different tax laws of the different countries that they operate in. To the extent that it is engaged in to avoid legitimate taxes, it exploits the host country, and the multinational corporation does not bear the fair share of the burden of operating in that country. 6. To the extent that local culture does not violate normal norms, multinationals should respect the local culture and work with it, not against it. Rather than simply transferring their home countrys ways into the host country, multinational corporations should consider changes in operating procedures, plant planning, and such likes, which take into account local needs and customs. 7. Multinationals should cooperate with the local government in the development and enforcement of just background institutions. Instead of fighting a tax system that aims at appropriate redistribution of incomes, instead of preventing the organization of labor, and instead of resisting attempts at improving the health and safety standards of the host country, multinational corporations should be supportive of such measures. Conclusion International business ethics is a particularly complex issue as ethical standards are different depending on where you are. Corporate governance, bribery, corruption, working conditions and targeted marketing are all issues that require organisations to establish an ethical standpoint from which they can work on. There is an increasing emphasis on the corporate responsibility of large organisations from developed nations and the way they operate in third world countries. Many nations now impose their ethical standards on developing countries even though they themselves have been guilty of arguably unethical practices in the past. For example, the poor working conditions suffered in the third world were commonplace during the industrialisation of many western economies. Corporate governance is the trend towards large organisations developing their own systems of dealing with ethical issues and setting strategic direction. Ethical corporate governance is concerned with encouraging organisations to be transparent in their operations, finances and behaviour in domestic and international markets. It is believed that this transparency forces organisations to act in a way that is popular with the wider consumer market rather than just the stakeholders in a company.

References: 1. http://en.wikipedia.org/wiki/Business_ethics#International_issues 2. "Small Business Ethics." http://www.businessethics.net/ 3. "Business ethics." http://en.wikipedia.org/wiki/Business_ethics#Functional_business_areas. 4. De George, R.T. (15). Business Ethics, 4th Edition, Prentice Hall, Eaglewood Cliffs, New Jersey.