MGT 6233 - 02

Managing International Economy MGT 6233 Module 2
Into the 21st. century

No: 1. 2. 3. 4. 5. 6. 7. 8.
MGT6233 Timetable
Date May 12 May 19 May 26 June 09 June 09 June 16 June 16 July 07 July 07 July 14 July 21 August 04 Module 1: Nature of International Business 2 : Foundations of Multinational Management 3 : Theories of International Trade 4 : Strategic Marketing Management of Multinational Business 4 : Strategic Marketing Management of Multinational Business 5 : Export & Import Practices Assignment No: 1 6 : International Human Resources Management 7 : Differences Across Countries 8 : Leadership Perspectives in Multinational Management Group Presentation Assignment No: 2
MGT 6233
Managing in the International Economy Module 2 Theory of International Trade
9. 10.
May 9, 2012
KM Loi & Associates
Break 1
Challenges of International Management - Globalization

Key concepts in the challenges of
Foundations of Multinational Management
globalization:

Global Economy Globalization International Management Global Manager

Europe

The Americas
European Union (EU)
Political and economic alliance European countries that agreed to support mutual economic growth Expanding to at 27 member countries with > 400 million consumers
North American Free Trade Agreement (NAFTA)
Agreement for free flow of goods and services between the Canada, Mexico, and United States
Free Trade of the Americas (FTAA) Alaska to Chile is a possibility
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Asia and the Pacific

Africa Increased attention to stable countries Beckons international business South African Development Community (SADC) links 14 countries in trade and economic development
Rim Economic power of China and Japan Growth in other Pacific Rim countries Asian countries represent a third of the global marketplace
Opportunities of International Business

Reasons for engaging in international
International Strategy Opportunities & Outcomes

Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic
Competitiveness
Outcomes Management Problems, Risk, and First Steps Higher Performance Returns
business:
Profits Customers Suppliers Capital Labor
Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage
International
Strategies International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy
Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.
Innovation
Management Problems, Risk, and First Steps
Benefits of International Strategies

International Strategy Opportunities & Outcomes

Increased market size. Greater returns on major capital investments or new products or processes. Greater economies of scale, scope or learning. A competitive advantage through location.
Competitiveness
International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy
Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.
Innovation
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International Strategies

Four Strategies
International Business Level Strategies International Corporate Level Strategies

International Strategy Multi-domestic Strategy Global Strategy Transnational Strategy
International Strategy
International Strategy
International Multinational Global Transnational
Create value by transferring valuable core competencies to foreign markets that indigenous competitors lack Centralize product development functions at home Establish manufacturing and marketing functions in local country but head office exercises tight control over it Limit customization of product offering and market strategy
Goal Market conceptualization Strategy International functions Managers
Support domestic operations One market
Home country strategy + local strategies Sales, Supplies
Strategy effective if firm faces weak pressures for local responsive and cost reductions
Remote control
International Corporate-Level Strategy
International Corporate-Level Strategy
Multi-domestic Strategy
Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market. Assumes more standardization of products across country markets The firm seeks to achieve both global efficiency and local responsiveness
Global Strategy
Transnational Strategy
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Multidomestic Strategy

Multidomestic Strategy
International Multidomestic Global Transnational
Main aim is maximum local responsiveness Customize product offering, market strategy including production, and R&D according to national conditions Generally unable to realize value from experience curve effects and location economies Possess high cost structure
Goal Market conceptualization Strategy International functions Managers
Maximize international operations New markets Corporate strategy = local strategies
Sales, supplies, production
Local entrepreneurs
Global Strategy
Global Strategy
Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies Production, marketing, and R&D concentrated in few favorable functions Market standardized product to keep costs low Effective where strong pressures for cost reductions and low demand for local responsiveness
Goal
Maximize productivity of all structure Rationalize network Take advantages of similarities among countries N markets, emphasis on similarities, synergies Joint-strategy, coordination Dispersed. Geographical concentration by function International career path
Market conceptualization Strategy International functions Managers
Semiconductor industry
To meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness Global learning

Goal
Get advantages of being global and local at the same time One market when it is possible, pay attention to differences Global when possible. Learn from everywhere Dispersed. Geographical concentration by function International career path, continuos rotation
Valuable skills can develop in any of the firms world wide operations Transfer of knowledge from foreign subsidiary to home country, to other foreign subsidiaries
Market conceptualization
Strategy International functions Managers
Transnational strategy difficult task due to contradictory demands placed on the organization
Example : Caterpillar
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Four Strategies

Competitiveness
International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy
Modes of Entry
Exporting Licensing Global Sourcing JV/Alliances Establishment of New Sub.
Innovation
Mode of Entry

Market entry strategies involve the sale of
goods or services to foreign markets but do not require expensive investments.

Types of market entry strategies: Exporting / Importing Licensing agreement Global Sourcing JV / Alliances Foreign Subsidiaries
Choice of International Entry Mode

Exporting
Exporting
Advantages No need for operational facilities in host country Economies of scale Internet facilitates exporting opportunities Disadvantages Lost location advantages Dependence on export intermediaries Exposure to trade barriers Transportation costs
Common way to enter new international markets. No need to establish operations in other nations. Establish distribution channels through
contractual relationships.
May have high transportation costs. May encounter high import tariffs. May have less control on marketing
and distribution.
Difficult to customize product.
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Licensing
Firm authorizes another firm to manufacture & sell its products Licensing firm is paid a royalty on each unit produced and sold. Licensee takes risks in manufacturing investments. Least risky way to enter a foreign market. Licensing firm loses control over product quality & distribution. Relatively low profit potential.
Licensing
Advantages Contractual source of income Limited economic and financial exposure Disadvantages Difficult to identify good partner Loss of competitive advantage Limited benefits from host nation

Strategic Alliances
Enable firms to shares risks and resources to expand into international ventures. Most joint ventures (JVs) involve a foreign corp. with a new product or technology & a host company with access to distribution or knowledge of local customs, norms or politics. May experience difficulties in merging disparate cultures. May not understand the strategic intent of partners or experience divergent goals.
Joint Ventures and Alliances

Advantages Shared investment risk Complementary resources May be required for market entry Disadvantages Difficult to find good partner Relationship management Loss of competitive advantage Difficult to integrate and coordinate

Acquisitions
Enable firms to make most rapid international expansion. Can be very costly. Legal and regulatory requirements may present barriers to foreign ownership. Usually require complex and costly negotiations. Potentially disparate corporate culture.

New Wholly-Owned Subsidiary
Greenfield Venture Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing
and distribution.
May need to acquire expertise & knowledge

that is relevant to host country.
Could require hiring host country nationals or consultants at high cost.
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FDI / Greenfield
Advantages Full control Integration and coordination possible Rapid market entry through acquisitions Greenfield investments Disadvantages Substantial investment and commitment Acquisitions may create integration/ coordination issues Greenfield investments are time consuming and unpredictable
Motives for FDI

New MNCs do not pop up randomly in foreign nations. It is the result of conscious planning by corporate managers. Investment flows from regions of low anticipated profits to those of high returns. Growth motive: A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets.
Motives for FDI
Motives for FDI

1. Market competition
The most certain method of preventing actual or potential competition is to acquire foreign businesses. GM purchased Monarch (GM Canada) and Opel (GM Germany). It did not buy Toyota, Datsun (Nissan) and Volkswagen. They later became competitors.
Protection in the importing countries Foreign direct investment is one way to expand bypassing protective instruments in the importing country EU: imposed common external tariff against outsiders. US companies circumvent these barriers by setting up subsidiariesDell in Ireland etc. Japanese corporations located auto assembly plants in the US, to bypass non-tariff barriers
Motives for FDI

2. Cost reduction
United Fruit has established banana-producing facilities in Honduras. Cheap foreign labour.
International Joint Ventures

An IJV is a business organization established by two or more companies that combines their skills and assets.
A JV is formed by two businesses that conduct business in a third country. (French firm + Japanese firm jointly operate in the Central Europe - TPCA) Joint venture with a local firm (Copirisco [POR] + Cautor [CZ] Joint venture includes local government (Messerschmitt-Boelkow-Blom, Germany => Iran Oil Investment Company + National Iranian Oil Company
3. Labour costs
Cost tend to differ among nations. MNCs can hold down costs by locating part of all their productive facilities abroad. (Maquiladoras)
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Aera Energy The State of Californias leading oil and gas producer with joint venture with affiliates of Exxon Mobil and Royal Dutch Shell. Omega Navigation Enterprises Inc. Omega Navigation Enterprises Inc. is an international provider of marine transportation services formed an equal partnership joint venture company with Topley Corporation, namely Megacore Shipping Ltd. Japan Nuclear Fuel Co., Ltd. (JNF) JNF, a nuclear fuel manufacturing joint venture with General Electric Company (US); Toshiba Corporation and Hitachi Limited.

Why?
Large capital costs - costs are too large for a single company Protection - LDC governments close their borders to foreign companies Bypass protectionism. e.g.: US workers assemble Japanese parts. The finished goods are sold to the US consumers. Share know-how
Problems.Control is divided. The venture serves "two masters"

Welfare Effects of IJVs
Strategic Competitiveness Outcomes
The new venture increases production, lowers prices to consumers The new business is able to enter the market that neither parent could have entered separately Cost reductions (otherwise, no joint ventures will be formed) increased market power => not necessarily good
International diversification facilitates innovation in the firm. Provides larger market to gain more and faster returns form investments in innovation. May generate resources necessary to sustain a large-scale R&D program.
Strategic Competitiveness Outcomes

Complications in the global business environment:
Environment is complex, dynamic, and highly
Generally related to above-average returns, assuming effective implementation and management of international operations. International diversification provides greater economies of scope and learning.
competitive.
Global business executives must deal with
differences in the environment of business in different countries.

World Trade Organization resolves trade
and tariff disputes among countries.

Protectionism can complicate global
trading relationships.
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Break 2
Multinational Corporation (MNC)

A multinational corporation (MNC) is a
Nature of Multinational Company
business with extensive international operations in more than one foreign country.
A corporation that owns and operates
production facilities in two or more countries A corporation with power to coordinate and control operations in two or more countries without owning them.

Horizontal MNCs Firms replicate production process at home and abroad Most common between equally developed countries Vertical MNCs Firms divide production into stages and undertake each stage where it is relatively cheaper Most common between countries at different levels of development Intra-firm trade Trade between affiliates of the same MNC Accounts for one-third of total world trade
Multinational Corporations (MNCs) are economic organisations engaged in productive activities in two or more countries. Typically have Headquarters (HQ) in the country of origin Build or acquire affiliates or subsidiaries in other countries (the host nation) This kind of expansion is referred to as Foreign Direct Investment (FDI)
International Presence of Selected MNCs

Company Nokia Audi Clarion Apple eBay Papa Johns Country Finland Germany Japan USA USA USA Products Cell phones Cars Audio Gadgets Online Actions Pizza Total Sales 37,031 29,378 1,540 8,279 2,165 917 Sales Domestic 1 32 52 59 65 96 Sales Foreign 99 68 48 41 35 4

Mutual benefits for host country and MNC:

Shared growth opportunities Shared income opportunities Shared learning opportunities Shared development opportunities
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Host country complaints about MNCs:

MNC-host country Relationships
Excessive profits Domination of local economy Interference with local government Hiring the best local talent Limited technology transfer Disrespect for local customs

MNC complaints about host countries:


Ethical issues for MNCs:
Profit limitations Overpriced resources Exploitative rules Foreign exchange restrictions Failure to uphold contracts
Corruption illegal practices that further ones business interests. Sweatshops employing workers at low wages for long hours and in poor working conditions. Child labor full-time employment of children for work otherwise done by adults. Sustainable development meeting current needs without compromising future needs.
Culture : Global Diversity

Culture The shared set of beliefs, values, and patterns of behavior common to a group of people. Culture shock Confusion and discomfort a person experiences in an unfamiliar culture. Ethnocentrism Tendency to consider ones own culture as superior to others.

Stages in adjusting to a new culture:

Confusion Small victories The honeymoon Irritation and anger Reality
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Popular dimensions of culture:

Values and National Cultures (Hofstede):

Language
Low-context
Power distance Uncertainty avoidance Individualism-collectivism Masculinity-femininity Time orientation
cultures and high-context cultures
Interpersonal space Time orientation
Monochronic
cultures and polychronic cultures
Religion Contracts and agreements
Hofstede: studied the relationship between national cultures and organizational cultures.
Hofstedes Dimension of National Culture

Understanding cultural differences
(Trompenaars):
Relationships with people:

Universalism versus particularism Individualism versus collectivism Neutral versus affective Specific versus diffuse Achievement versus prescription
Attitudes toward time sequential and synchronic views. Attitudes toward environment inner-directed and outer-directed cultures.
Management Practices & Cultures

Comparative Management

Planning and controlling
How management systematically differs among countries and/or cultures.
Complexity of international environment makes global planning and controlling challenging. Planning and controlling risks:

Global Managers
Currency risk Commercial risk Country risk Cross-culture risk
Need to successfully apply management functions across international boundaries.
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Organizing and Leading

Are management theories universal?
Multinational organization structures

U.S. management theories may be ethnocentric.

Participation
Global area structure Global product structure
and individual performance are
Staffing international operations

not emphasized as much in other cultures.
Competent locals Expatriates
Not all Japanese management practices
can be applied successfully abroad.

Global organizational learning:
Break 3
Companies can and should learn from each other. Readiness for global organizational learning varies based on managerial attitudes.

Globalization
Ethnocentric attitudes Polycentric attitudes Geocentric attitudes
Be alert, open, inquiring, but always cautious.
Globalization
Globalization Forces
Economic Globalization
is the international integration of goods, technology, labor, and capital. refers to the implementation of global strategies which link and coordinate a firms international activities on a worldwide basis. definition continues to broaden to include
There are five major kinds of drivers that are leading international firms to the globalization of their operations.

political, social, environmental, historical, geographical, and cultural implications
Political Technological Market Cost Competitive
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Globalization Forces - 1
Political
Technological
There is a trend toward the unification and socialization of the global community. Preferential trading agreements
NAFTA European
Advancements in computers and communication technology are permitting an increased flow of ideas and information across borders.
The Internet and network computing enables small companies to compete globally. Business to business commerce is experiencing significant savings by using the Internet for business exchanges.

Union
Web is used to find suppliers Web is used to process purchase orders
Market
Cost
As companies globalize, they also become global customers.
Economies of scale to reduce unit cost are always a management goal.

Globalizing
Companies follow customers abroad Saturation of the home market Customer tastes and lifestyles are converging
product lines can reduce development, production, and inventory costs can help achieve economies of scale. can also locate production in countries where production costs are lower.
Companies
The Globalization Debate
Competitive
Supporting
Globalization Concerns
Competition continues to increase in intensity.

Newly
Free trade advances economic development Expanded trade creates more and better jobs
produces uneven results across nations and people has negative effects on labor and labor standards contributes to decline in environment and health conditions
industrialized and developing countries
Companies are defending their home markets from competitors by entering the competitors home markets to distract them.
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Break 4
Origins of the Internet

ARPRNET funded by the U.S. Advanced Research Projects Agency in the late 1960s. Expansion in the academic community in the 1980s as a result of NSFNET. Open to the private sector in the early 1990s and becoming commercial.
Impact of Internet
Origins of the World Wide Web
Origins of the World Wide Web
Vannervar Bush developed a system called memex (memory extension) in 1945. Ted Nelson coined the term hypertext in 1965. Berners-Lee of Switzerland proposed a system for information sharing at the Conseil Europeen pour la Recherche Nucleaire (CERN) in 1989. In late 1990, an operating prototype of the Web ran on a NeXT computer in CERN.
In 1991, the CERN team spread the word about their www system. In 1993, a young undergrad at the University of Illinois, Urbana-Champaign, named Marc Andressen, developed a browser called Mosaic. In 1994, the Netscape Communications Corporation was established. Web server Growth
ITUs Statistic
80 60
(Years)
CNNICs Statistical Survey on the Internet Development in China

32.00
25.72 20.83
74
Up to June 30, 2003,
24.00
40 20 0
38
16.00
12.54 8.92 6.50 3.50 1.46 0.30 0.54 0.75 10.02
16.13
16
8.00
to the same period of last year, the increase is 59.5 . it is 86 times of that in October, 1997
13 4
0.00
/9 7 10 98 99 99 00
03 1/
00
01
1/
1/
7/
7/
7/
02
01
02
Years for Reaching 50 Million
Computer Host in China (Million)
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7/
7/
7/
1/
1/
03

500.0 400.0 300.0
265.4 24 2.7 17 9.5 99. 7 71.7 122. 11 28.4127. 3126.1 277.1 29 3.2 250.6 371 .6 473.9

8 0.0
68.0
6 0.0
59.1 45.8
200.0 100.0 0.0

10
4. 1 1.5 9.4 3.7 48.7 18.4 29. 0 5. 3 9.9 1 5.2
.CN WWW
4 0.0
33.7 22.5 16.9 8.9 2.1 4.0 26.5
2 0.0
8 1 2 3 9 9 0 0 1 2 3 7 / 9 7 /9 1 / 9 7 /9 1 / 0 7 / 0 1 /0 7 / 0 1 /0 7 / 0 1 / 0 7 /0
0.0
10 7 /9
0.6
1.2
.CN domain names and WWW websites in China (Thousand)
8 /9
9 /9
7/
99
1/
00
7/
00
1/
01
7/
01
1/
02
7/
02
1/
03
7/
03
Internet Users in China (Million)

Male
100 .0 80 .0 60 .0 40 .0 20 .0 0 .0
10 /9 7 7/ 98 1/ 99 7/ 99 1/ 00 7/ 00 1/ 01 7/ 01 1/ 02 7/ 02 1/ 03 7/ 03
87.7 92.8 86.0 85.0 79.0 74.7 69.6 12.3 7.2
Break 5
Female
14.0 15.0 21.0 25.3 30.4
38.7 40.0 39.1 40.7 39.9
Rise of Global Standards
61.3 60.0 60.9 59.3 60.1
Proportion between Male and Female
ISO Membership
International Organization for Standardization Promotes the development of technical standards, standardization and related activities in the world. Established on Feb. 23, 1947 Geneva, Switzerland. Total : 163* country members. 190 Technical Committees.
*At December 2011
KM Loi 89
Full Members 105
Subscriber Members 10
Developing countries Developing Correspondent Members Countries 42 95% Developed countries 5%
Developing countries 68%
Developed countries 32%
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ISO Structure
1906 1926 Technical Committees Subcommittees Working Groups Ad hoc Study Group 190 544 - 2188 30
Birth of ISO
International Electrotechnical Commission (IEC) was established. International Federation of the National Standardizing Associations (ISA) was set up. Delegates from 25 countries met in London and decided to create a new international organization, of which the object would be "to facilitate the international coordination and unification of industrial standards". ISO officially began operations on 23 February 1947 in Geneva, Switzerland.
1946 -
1947 -
Who develops ISO standards?

Technical Committees comprising experts on loan from the industrial, technical and business sectors which have asked for the standards, and which subsequently put them to use. These experts may be joined by others with relevant knowledge, such as representatives of government agencies, testing laboratories, consumer associations, environmentalists, and so on. These experts participate as national delegations, chosen by the ISO national member institute for the country concerned. These delegations are required to represent not just the views of the organizations in which their participating experts work, but of other stakeholders too. Workgroups
Technical Committee
Since 1947, some 229 Technical Committees were established starting with TC 1 Screw Threads until TC 267 Facility Management When a technical committee is dissolved its number is not allocated to another technical committee. Technical committees have been dissolved: 3, 7, 9, 13, 15, 16, 32, 40, 49, 50 , 53, 55, 56, 57, 62, 64, 65 , 66, 73, 75, 78, 80, 88, 90, 95, 97, 99, 103, 124, 125 , 139, 140, 141, 143, 151, 169, 187 and 200.
Technical Committee
Subcommittees
Technical Committee
Each technical committee nominates a permanent chairman, he/she need not be a national of the country holding the secretariat. Chairmen are normally appointed for a three-year term by the ISO Technical Management Board. Each technical committee shall has a secretariat assigned to an ISO member body DSM, AFNOR, ANSI, DIN, SIS, BSI, etc.
TECHNICAL COMMITTEE
Stages of ISO standards

The national delegations of experts of a technical committee meet to discuss, debate and argue until they reach consensus on from a working draft to committee draft to an agreement where it is then circulated as a Draft International Standard (DIS) to ISO's membership as a whole for comment and balloting. Many members have public review procedures for making draft standards known and available to interested parties and to the general public.
International Standard
Final Draft International Standard
Subcommittees
Draft International Standard
Workgroups
Committee Draft
Working Draft
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Stages of ISO standards

The ISO members then take account of any feedback they receive in formulating their position on the draft standard. If the voting is in favour, the document, with eventual modifications, is circulated to the ISO members as a Final Draft International Standard (FDIS). If that vote is positive, the document is then published as an International Standard.
Any other ISO standards?

For some users of standards, particularly those working in fastchanging technology sectors, it may be more important to agree on a technical specification and publish it quickly, before going through the various checks and balances needed to win the status of a full International Standard. Therefore, to meet such needs, ISO has developed a new range of "deliverables", or different categories of specifications, allowing publication at an intermediate stage of development before full consensus: Technical Specification (TS), Technical Report (TR), Publicly Available Specification (PAS), International Workshop Agreement (IWA).
Final Draft International Standard
Technical Specification
Technical Report
Draft International Standard
Public Available Specification
Committee Draft
Working Draft
International Workshop Agreement
Structure of ISO/TC 176 Technical Committee TC176

Responsible for developing and maintaining ISO 9000 family of standards. Secretariat Standards Council of Canada. 63 participating and 19 observer countries. About 200 experts from various industrial, technical, business and governmental sectors.
Evolution of Quality Mgt. System

1959

1974
MIL-Q-9858 - Quality Program. MIL-I-45208 - Inspection System. MIL-C-45662 - Calibration System.
BS 5179 - Operational Evaluation of QA System.
1979

1968

NATO-AQAP 1 - QC System. NATO-AQAP 4 - Inspection System. NATO-AQAP 6 - Measurement & Calibration. NATO-AQAP 9 - Basic Inspection.
BS 5750 - Quality System BS 5781 - Measurement & Calibration. Revised BS 5750
1984
1987
1970
ISO 9001 : 1987
UK MOD - 05-08 (AQAP 1).
1994
1972
ISO 9001 : 1994
BS 4891 - Guide to Quality Assurance.
2000
ISO 9001 : 2000
Structure of ISO/TC 207

Responsible for developing and maintaining ISO 14001 family of standards. Secretariat Standards Council of Canada. 63 participating and 16 observer countries; 43 internal & external liaison organizations. About 300 experts from various industrial, technical, business and governmental sectors.
ISO 14000 Series of Standards

ISO 14001 & 14004 : EMS ISO 14010 to 14015 :Environmental Auditing ISO 14031 : Environmental Performance Evaluation (EPE) ISO 14021 - 25 : Environmental Labeling ISO 14040 - 43 : Life Cycle Assessment (LCA) ISO 14050 : Terms and Definitions ISO 14060 : Environmental Aspects in Product Standards
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ISO 26000 Social Responsibility
ISO 26000 Social Responsibility

Early SR Standards
Reporting to Society Dialogue
ISO 26000 Guidance on Social Responsibility

Conformity Principles
Sustainability Concept
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103
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104
ISO 26000 SR Concept Building

Sustainable Development
Break 6
Business Ethics
Global Warming Triple Bottom Line
Carrolls Pyramid of CSR Friedman and The business of a business is business. Howard Bowen KM Loi
The Stakeholder Theory
Social Responsibility
Human Suffering 105
Ethical Behaviour
Is there such a thing as Business Ethics? Oxymoron a concept that combines opposite or contradictory ideas. Ethics Resource Center survey 1,324 US employees
48% 16% 14% 11% 9% engaged in one or more unethical / illegal actions cutting corners on quality covering up incidents abusing or lying about sick days lying to or deceiving customers
Ethical Decision Making

Corporate practices Massive write-downs and restatements of profit Misclassification of expenses as capital expenditures Pirating corporate assets for personal gain
56% pressured to act unethically or illegal on the job.
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Reason for Unethical Behaviour

Provocative Question -Why are businesspeople perceived to be acting unethically?
What is considered in one country to be bribe to expedite service is sometimes considered in another country to be normal business practices? Tipping !

Perceptions caused by -Not aware of impropriety Cultural norms and values vary Governance systems based on rule or relationships Differences in values between businesspeople and key stakeholders

Allport-Vernon-Lindzey Study of Values Aesthetic Economic Political Religious Social Theoretical

Most common reasons for bending rules
Organizational performance required it Ambiguous or out of date rules Pressure from others everyone else does it
Moral Relativism
Morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.
Kohlbergs Level of Moral Development

1. Preconventional level
Characterized by a concern for self Personal interest Avoidance of punishment
2. Conventional level Characterized consideration of societys values External code of conduct 3. Principled level Characterized by adherence to internal moral code Universal values or principles
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Encouraging Ethical Behaviour

Codes of Ethics
Encouraging Ethical Behaviour
Approaches to Ethical Behavior
Specifies how an organization expects its employees to behave on the job.
Utilitarian
Guidelines for Ethical Behavior

Judged by consequences
Ethics Morality Law
Individual Rights
Fundamental rights in all decisions
Justice
Distribution in equitable fashion
Ethics
A set of moral values and principles which form the standards guiding the code of conduct of individuals, professions and organizations.
Ethics of Individual
Individual ethics consists of a set of values that guide the conduct and behaviour of individuals, enabling them to differentiate between right and wrong, good and bad, and between what should and can be done, and what should not and cannot be done. These options will always be present in the course of carrying out ones duties daily life, or in the course of interactions with others.
Professional Ethics
Professional ethics is a code that provides guidelines for practitioners in various professionals. Professionals with their code of ethics include medicine, law, accountancy, engineering and others.
Ethics of Organization
For those working in organizations, organizational ethics serves as guidelines in the conduct of duties. These includes adherence to the principles of honesty, competency, trustworthiness, truthfulness, transparency, accountability and justice. Since organizations continuously interact with the public, organizational ethics also demands staff of the organization to uphold the Clients Charter.
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Ethics in Business
1. What is the corporations responsibility? Does it have any responsibilities to society to produce goods of high quality? Does the corporation reduce its volume of production in order to create an artificial shortage and in doing so it create a reason to raise the price of product? Should taxi-operators permit their drivers to tamper with their taxi-meters so that they will run fast and collect more from passengers? Has management the right to look into the private lives of its employees? 5.
Ethics in Business
Does a company has a moral responsibility to inform public of how they dispose their wastes which may be throw away discriminately? Is it ethical for transport facilities to charge their passengers exhorbitant fares during festival seasons or during times of emergency? Is it ethical for agri-business corporation to dispose or destroy surplus commodities in order to stabilize the prices? Should a company get away without install antipollution devices through political connections or greasing the palm?
2.
6.
3.
7.
4.
8.
Malaysian Code of Business Ethics

Rukuniaga 1. Sincerity in Business Dealings 2. Conscious of Responsibility towards Customers, Society and Environment 3. Geniality towards Fellow Humans 4. Moderation in Business Dealings 5. Fair treatment of Customers 6. Zeal in Business Building

1. Sincerity in Business Dealings
O you who believe! Keep your duty to Allah and fear him and speak (always) the truth (in all matters). Al-Quran, Surah Al-Ahzaab 33:70) The honest and trustworthy tarder will be with the prophets, the truthful and the martyrs (in the Hereafter) Narrated by At-Tirmidhi and Al-Hakim. Lord, who may dwell in your sanctuary? He whose walk is blameless and who does what is righteous, who speaks the truth from his heart who keeps his oath even when it hurts and does not accept a bribe against the innocent. He who does these things shall never be shaken. The Bible, Psalm 15:1 5.

1. Sincerity in Business Dealings
One commodity mixed with another must not be sold (as pure), nor a bad one (as good), nor anything that is not at hand or that is concealed. One who commits any of these is deemed a sinner. The Laws of Manu - Ch 8 Verse 203. One who keeps his life free of greed and ignorance finds true and everlasting peace. Dhammapada verse 36. Deal in the true trade, O trader, and your merchandise shall be safe in the Court of the Lord. Guru Arjun-Sukhmani Psalm of Peace. As for the wise, when they aspire wealth they acquire it by honest and ethical means. Confucius.

2. Conscious of Responsibility towards Customers, Society and Environment
Allah burdens not a person beyond his scope. He gets rewarded for that (good) which he has earned, and he is punished for that (evil) which he has earned. Al-Quran, Surah Al-Baqarah 2:286. Your God has a right over you, your body has a right over you and your familiy has a right over you. Therefore you must give those entitled their rights. Narrated by Al-Bukhari and At-Tirmidhi. Who may ascend to the hill of the Lord? Who may stand in His holy place? He who has clean hands and a pure heart, who does not lift up his sould to an idol or swear by what is false. The Bible, Pslam 24:3, 4.
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2. Conscious of Responsibility towards Customers, Society and Environment
He truly lives who knows and rightly discharges his obligations towards a society; he who does this not will be reckoned among the dead. Thirukkural : Kural 214. Before doing something or saying words or making a decision one must first consider whether such act or word or thought would endanger oneself, any other person or both. If it would lead to suffering refrain from doing it. Majjhima Nikaya page 416 420. Do not practise deception God is the Assayer of all. Those who practice falsehood and deceit are reincarnated in the world to pay back their evil. Guru Arjun-SGGS page 461. whatever you do, do it with full responsibility neglect of duty has dire consequences. Taoism

3. Geniality towards Fellow Humans
And if the debtor is in difficulty, grant him time till it is easy for him to repay. But if you remit it by way of charity, that is best for you if you only knew. Al-Quran Surah AlBaqarah 2:280. May Allah show mercy to a man who is considerate when he sells, when he buys and when he demands payment. Narrated by Bukhari and Ibnu Majah. He has showed you, O man, what is good; and what does the Lord require of you? To act justly and to love mercy, and to walk humbly with your God. The Bible, Micah 6:8.

3. Geniality towards Fellow Humans

4. Moderation in Business Dealings
To incline to neither side, but to rest impartial as the even fixed scale is the ornament of the wise. Thirukkural : Kural 118. May all beings be happy and at ease. Metta Sutra verse 3 & 5. Do not harbour evil intentions against others within your heart, and you shall not be troubled. Guru Arjun SGGS page 386. Mutual greetings should be exchanged with warmth of heart for unrefined behaviour is the bane of business. Taosim
O you who believe! Make not unlawful the good things which Allah has made lawful for you, but commit no excess: for Allah loves not those given excess. Al-Quran Surah Al-Maaidah 5:87. The Prophet, peace be upon him, said: Allah loves gentleness in all matters.. But godliness with contentment is great gain. For we brought notihing into the world and we can take nothing out of it. But if we have food and clothing we will be content with that. The Bible, 1 Timothy 6: 6-8.

4. Moderation in Business Dealings
Sri Krishna is opposed to the amassing of wealth by irresponsible means and the hoarding of merchandise with intent to gain undue profit at the expense of the societys needs. Bhagavd Geeta : Chapter 3 verse 13. Practise moderation in all aspects of living without over zealousness, especially in matters concerning religion. Samyutta Nikaya. All trade is good if conducted with compassion and uprightness. Guru Amardass SGGS page 568. Practise moderation in all things, do not overzealous adopt moderation as your life principle. Confucianism

5. Fair treatment of Customers
And give full measure when you measure, and weigh with a balance that is straight. That is good (for you in this world) and better in the end (as you will be rewarded in the Hereafter. Al-Quran Surah Al-Israa 17:35. It is unlawful for a person to sell any article unless he discloses its condition and it is unlawful for those who know about its condition to conceal it. Narrated by AlHakim and Baihaqi. Simply let your Yes be Yes and your No, (be) No; anything beyond this come from the evil one. The Bible, Matthew 5:37.
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5. Fair treatment of Customers
A trader who always give priority to his customers interests will eventually propser and be successful in his business. Thirukkural : Kural 120. When each member of a society is happy and contented, social differences disappear; good character, loft virtues and mutual respect are its fruits. Suvarnaprabhasa Sutra 12. No one is my enemy, and no one is a stranger. I getalong with everyone. Guru Arjun SGGS page 1299. Do not unto others as you would not have them do unto you. Confucianism : Chapter 12.

6. Zeal in Business Building
Then when the prayer is finished, then may you disperse through land, and seek of the Bounty of Allah ; and celebrate the Praises of Allah often (and without stint) ended, ; that you may prosper. Al-Quran Surah Al-Jumuah 62:19. Allah loves to see his slave striving to seek halal subsistence. Narrated by Aisyah and Kuliab. All hard work brings a profit, but mere talk only leads to poverty. The Bible, Proverbs 14:23.

6. Zeal in Business Building
An ambitious businessman who charts his course and sincerely and honestly pursues it with full determination is sure to succeed. Thirukkural : Kural 666. Attention leads to immortality. Carelessness leads to death. Those who pay attention will not die, while the careless are as good as dead already. Dhammapada verse 21. Look ahead with hope; do not despair. Guru Arjun SGGS page 1096. Be attentive and firm in business, for laziness and lack of enthusiasm ruins everything. Taosim.
Malaysian Institute of Corporate Governance

MICG was established in March 1998 by the High Level Finance Committee on Corporate Governance. It is a non-profit public company limited by guarantee, with founding members consisting of :(i) Federation of Public Listed Companies (FPLC) (ii) Malaysian institute of Accountants (MIA), (iii) Malaysian Association of Certified Public Accountants (MICPA), (iv) Malaysian institute of Chartered Secretaries and Administrators (MAICSA), and (v) Malaysian Institute of Directors (MID).
Integrity
Integrity is a quality of excellence that manifested in a holistic and integral manner in individuals and organizations. Integrity is based on ethics and noble values and their concrete manifestation in daily lives.
Integrity of Individual
Integrity of individual is the harmony between what an individual says and does. His or her actions are in accordance with moral and ethical principles as well as laws and regulations and do not go against public interest. They also reflect promptness, correctness and quality.
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Integrity of Organizations
Integrity of organization is reflected in the formulation and implementation of its code of ethics, clients; charter, and system or work procedures, as well as compliance with best practices. The organizations code of ethics is constantly reiterate, internalized and upheld by members of the organization until it becomes second nature, and ultimately transforms into the culture for the organization as a whole.
Integrity of Public Officials

For holders of public office, integrity means carrying out the trust and responsibilities bestowed upon them in line with public interest. They are not allowed to misuse their power for their self interest, or for the interest of their family or relatives. Should a conflict of interest occurs, public interest overrides personal interest. Holders of public office must be transparent, sincere, accountability to their superiors and subordinates, as well as to their clients.
Integrity
In looking for people to hire, you look for three qualities:INTEGRITY, INTELLIGENCE, and ENERGY. And if they dont have the first, the other two will kill you.
Lastly but hardly the least
Warren Buffet
May 9, 2012
Dr. Kheng Min LOI kmloi@kmloi.com

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