THE ENVIRONMENT OF

INTERNATIONAL BUSINESS (I)

• MARIA CARMELA F. FRANCISCO
• ARMANDO DEL MUNDO
• LU FENG

TM-624 : International Business

Management
ETHICS IN INTERNATIONAL
BUSINESS

Topic Presenter:

ARMANDO DEL MUNDO

 Introduction
 Ethics - accepted principles of right or wrong that
govern the conduct of a person, the members of a
profession, or the actions of an organization
 Business ethics are the accepted principles of
right or wrong governing the conduct of business
people
 Ethical strategy is a strategy, or course of action, that
does not violate these accepted principles
Importance of ethics in international business
 First of all,
Ethical behavior combined with skills and professionalism is able to
ensure sustainable development, rather than a short- term profit,
which brings disastrous results after a certain period of time. Ethical
behavior ensures awareness and concern for the future and for the
right way of action in each particular situation.
 Secondly,
Ethical behavior establishes a healthy and pleasant cooperation
climate for all the parties involved in a deal, making them feel
comfortable with each other.
 Thirdly,
Acting in accordance with moral values is crucial for deserving
clients' attention and support and achieving a significant competitive
advantage in a particular market segment.
Ethical Issues in International Business
A normal practice may be ethical in one country but unethical in another.
Multinational managers need to be sensitive to these varying differences
and able to choose an ethical action accordingly.

The most common ethical issues in business involve

 employment practices
 human rights
 environmental regulations
 corruption
 the moral obligation of multinational companies
Employment Practices:
If work conditions in a host nation are
clearly inferior to those in a multinational’s
home nation, should companies apply:
• Home country standards
• Host country standards
• Something in between
Many may suggest that pay and work
conditions need to be similar across
nations, but no one actually cares about
the quantum of this divergence.
Examples: 12-hour workdays, minimal pay, and indifference in protecting
workers from toxic chemicals are common in some developing nations.
Human Rights:
In developed countries, basic human rights such as freedom of
association, freedom of speech, freedom of assembly, and freedom of
movement, are taken for granted. In other countries, these rights may not
exist
South Africa during the days of white rule
and apartheid is an example. It lasted till
1994. The system practiced denial of basic
political rights to the majority non-white
population of South Africa, segregation
between whites and nonwhites was
prevalent, some occupations were
exclusively reserved for whites, etc.
Environmental Pollution:
Ethical issues arise when environmental
regulations in host nations are far inferior to those
in the home nation. Environmental questions take
on added importance because some parts of the
environment are a public good that no one owns,
but anyone can despoil.
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. foreign public officials a criminal
offense
Developing nations may not be so strict, and according to critics, it results in
much increased levels of pollution from the operations of multinationals in
host nations.
Corruption
Corruption is an issue in every society in history,
and it continues to be so even today. Corrupt
government officials are everywhere. International
businesses often seem to gain and have gained
financial and business advantages by bribing
those officials, which is clearly unethical.
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
Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions adopted by the Organization for Economic Cooperation
and Development (OECD) obliges member states to make the bribery of
foreign public officials a criminal offense
Moral Obligations:
Social responsibility refers to the idea that business people should
take the social consequences of economic actions into account
when making business decisions, and that there should be a
presumption in favor of decisions that have both good economic
and good social consequences .
People argue that businesses need to recognize their noblesse
oblige and give something back to the societies that have made
their success possible.

BP supports this notion, and has made it company policy to give

back to the community. For example, in Algeria the company
built two desalination plants to provide drinking water to
residents in Salah.
Ethical Dilemmas
 Managers often face situations
where the appropriate course of
action is not clear
 Situations in which none of the
available alternatives seems
ethically acceptable
 They exist because real world decisions are complex,
difficult to frame, and involve various consequences that
are difficult to quantify.
The Roots of Ethical/ Unethical Behavior

DECISION
PERSONAL MAKING
ETHICS PROCESS

UNREALISTIC
PERFORMANCE
LEADERSHIP EXPECTATIONS

SOCIETAL
ORGANISATION ETHICAL CULTURE
CULTURE BEHAVIOUR
Philosophical Approaches to Ethics
Straw men approaches
There are four common straw men approaches:

 The Friedman doctrine suggests that the only social responsibility of

business is to increase profits, so long as the company stays within the rules
of law.
 Cultural relativism argues that ethics are culturally determined and that firms
should adopt the ethics of the cultures in which they operate, or in other words,
“when in Rome, do as the Romans do”.
 The righteous moralist approach claims that a multinational’s home
country standards of ethics should be followed in foreign countries.
 The naïve immoralist asserts that if a manager of a multinational sees that
firms from other nations are not following ethical norms in a host nation, that
manager should not either .
Utilitarian and Kantian Ethics
Utilitarian

• Approaches to ethics hold that the moral worth of actions or practices is

determined by their consequences.
• Actions are desirable if they lead to the best possible balance of good
consequences over bad consequences
• Problems with utilitarianism include measuring the benefits, costs, and
risks of an action, and the fact that the approach fails to consider
justice.
Kantian
• Ethics are based on the philosophy of Immanuel Kant who argued that
people should be treated as ends and never purely as means to the
ends of others. People have dignity and need to be respected, they are
not machines.
Rights theories
Rights theories recognize that human beings have fundamental
rights and privileges which transcend national boundaries and
cultures .

Rights theories establish a minimum level of morally acceptable

behavior.

Moral theorists argue that fundamental human rights form the basis for
the moral compass that managers should navigate by when making
decisions which have an ethical component.
The Universal Declaration of Human Rights specifies the basic
principles that should always be adhered to irrespective of the
culture in which one is doing business.
The declaration was prompted by the idea that some fundamental
rights transcend national borders and cultures.
Justice theories
Justice theories focus on the attainment of a just distribution
of economic goods and services. A just distribution is one
that is considered fair and equitable.

One theory of justice that is particularly important was

proposed by John Rawls who argued that all economic
goods and services should be distributed equally except
when an unequal distribution would work to everyone’s
advantage.
Legal foundations of ethical behavior
Laws varies from country to country as moral values varies from
country to country.
EXTRATERRITORIALITY:
Home country governments may impose domestic legal and
ethical practices on the foreign subsidiaries of companies
headquartered in their jurisdictions.

LEGAL JUSTIFICATION THEORY:

An individual or a company can do anything that isn't illegal.
Pro: The law is a good basis for ethical behavior as it embodies
cultural values
Con: legal justification for behavior may not be
sufficient because not everything that is unethical is
illegal.
 United National Global Compact, or the older UN Universal
Declaration of Human Rights, would be put forward as an
appropriate conduct guide for international business ethics. The
United Nations Global Compact encourages business
everywhere to advance and honor the internationally accepted
human rights, to uphold the right of collective bargaining, to
avoid being involved with human rights' abuses, to have no part
in compulsory human labor, to do away with child labor, to
support a caring and cautious approach to the environment, to
reduce any kind of employment discrimination, to encourage the
creation of technologies that are friendly to the environment, to
encourage more significant personal environmental
responsibility, and to work to stamp out corruption in all of its
many ugly guises, such as bribery and extortion.
Ethics and
Corporate
Bribery
Corruption & Bribery
 The word corruption is derived from the Latin word “corruptus,”
which means “corrupted” and, in legal terms, the abuse of a
trusted position in one of the branches of power (executive,
legislative and judicial) or in political or other organizations with
the intention of obtaining material benefit which is not legally
justified for itself or for others.

 Corruption was referred to as a great sin already in the Bible:

“Do not accept a bribe, for a bribe blinds those who see and
twist the words of the innocent.”
Corruption & Bribery
 Corruption is defined by the World Bank (2005) as ‘the extent to
which public power is exercised for private gain, including petty
and grand forms of corruption, as well as “capture” of the state
by elites and private interests.’
 Corporate corruption generally takes two forms: engaging in
bribe-making, usually as a supplier of bribes, and violations of
ethical and professional standards with the intent to deceive or
defraud investors. With respect to bribes, corporate corruption
could consist of a representative of the firm receiving bribes in
order to make a decision advantageous to the bribe-maker, or
as a bribe-giver, either to another private party or to a
representative of a domestic or foreign government.
Bribery
• Bribery is widespread, especially in the developing and
transition countries; there are, however, significant differences
between and within regions.
• Bribery increases transaction costs and creates insecurity in
the economy.
• Bribery usually leads to ineffective economic results, in the long
term impedes foreign and domestic investments, reallocates
talents due to income and distorts sectorial priorities and
technology choices (for example, it creates incentives for
contracting major defense projects or unnecessary
infrastructure projects, but does not encourage investments in
rural specialist health clinics or in preventive health care).
Bribery
• Bribery is unfair, as it imposes a regressive tax, which
heavily burdens in particular commercial and service
activities performed by small businesses.

• Corruption destroys the legitimacy of the state.

Causes of corruption
Personal
 Personal greed
 Decline of personal ethical sensitivity,
 No sense of service when working in
public or private institutions
 Low awareness or lack of courage to
denounce corrupt behavior
 Cultural
 Cultural environments that
condone corruption
 Lack of transparency, especially at
the institutional level
Institutional
 Regulations and inefficient controls.
 Slow judicial processes.
Organizational
 Lack of moral criteria in promotions
 Downplaying or reacting mildly to
corruption charges
Corruption in the world
Whats being done about corruption??
1. Hofstede scale : Low masculinity – less corruption.
Cultures that are high on masculinity ( assertiveness,
ambition, power etc) tends to be more competitive and
ambitious.
2. High economic development- less corruption
3. High political and economic freedom- less corruption
4. Corruption tends to decline when information including
internet communication becomes more accessible.
 Transparency International- ‘Corruption is the abuse of
entrusted power for private gain. It hurts everyone whose
life, livelihood or happiness depends on the integrity of
people in a position of authority’ - Business principles
for Countering Bribery
OECD Convention
 Organization for Economic Cooperation and Development- Initially
signed in 1977- In 2007 SA became the 37th signatory and the first
African member to enact anti bribery laws based on this convention.
 It targets the supply side of corruption(activities of bribe seekers)
in cross border deals.
Eg: Suppose a European supplier of pharmaceuticals does a deal with
a minister of health from a developing country that
has received emergency funds from an aid agency to purchase urgently
required medicines. Instead of agreeing on a purchase of new drugs,
the minister and the supplier conspire to use the aid funds to purchase
out-of-date drugs, which are far cheaper. The supplier consequently
makes a handsome profit and places a portion of it in an offshore bank
account set up by the minister. Many of those in the minister's country
who are sick receive the old, less effective drugs and die
 Countries that have signed the convention are required to put in
place legislation that criminalizes the act of bribing a foreign public
official.
 The OECD has no authority to implement the convention, but
instead monitors implementation by participating countries.
 Countries are responsible for implementing laws and regulations
that conform to the convention and therefore provide for
enforcement.
 The OECD performs its monitoring function in a two-phased
examination process.
 Phase I consists of a review of legislation implementing the
conventions in the member country with the goal of
evaluating the adequacy of the laws. with which the
 Phase 2 assesses the effectiveness legislation is applied.
International Chamber of Commerce
 Private sector and demand side of cross border economics, where
extortion by public officials is a favorite criminal practice

 Tools:

 ICC Ethics and Compliance Training Handbook

 ICC Rules on Combating Corruption : The Rules assist enterprises to comply with
their legal obligations and with the numerous anti- corruption initiatives at the
international level.

 ICC Guidelines on Gifts and Hospitality : The ICC Guidelines on Gifts and
Hospitality provide guidance for companies on how to establish and maintain a
policy relating to Gifts and Hospitality, based on the most recent international,
regional and national rules, as well as on commercial best practice.
 ICC Third Party Guidelines : ICC Guidelines on Agents,
Intermediaries and Other Third Parties voluntary guidelines
provide companies with advice on how to choose and manage
third parties.

 Whistle blowing guidelines : ICC established a task force on

this issue in order to prepare ICC guidelines in addition to the
Whistle blowing chapter of the ICC Handbook

 ICC Fighting Corruption Handbook : Fighting Corruption lays out the

problems and offers practical solutions on how to attack commercial
dishonesty at its source

 ICC Anti-corruption Clause : The Anti-corruption Clause is a tool

which will preserve trust between parties, deter corruption in the
negotiation and performance of a contract, and preserve the sanctity
of contracts.
UN Convention against Corruption
 December 4, 2000 : The General Assembly recognized that an
effective international legal instrument against corruption was
desirable. United Nations Convention against Corruption entered
into force on 14 December 2005.
 The purposes of this Convention are:

 To promote and strengthen measures to prevent and combat

corruption more efficiently and effectively;
 To promote, facilitate and support international cooperation
and technical assistance in the prevention of and fight
against corruption, including in asset recovery;
UN Convention against Corruption
 Develop and implement or maintain effective, coordinated anti-
corruption policies that promote the participation of society and
reflect the principles of the rule of law, proper management of
public affairs and public property, integrity, transparency and
accountability

 Collaborate with each other and with relevant international and

regional organizations through participation in international
programmes and projects aimed at the prevention of corruption.
US Foreign  Outlaws bribery payments by US firms to foreign officials,
political parties, party officials and political candidates.
Corrupt  Includes bribery by foreign firms operating in US territory.
Not only companies registered in US but also any foreign
company quoted on any stock exchange in the US.
Practices  FACILITATION PAYMENTS/speed money/grease money :
Act  A facilitating payment is a payment made to a public
or government official that acts as incentive for the
official to complete some action or process
expeditiously, to the benefit of the party making the
payment.
 The FCPA provides a narrow exception for facilitation
payments. The exception applies only to payments
made to foreign officials with the purpose to 'facilitate
or expedite routine governmental action'.
 The exception focuses on the purpose of payment
rather than on its value. If not properly documented,
it may violate the FCPA’S accounting provisions.
Industry Initiatives
 In 2005, 50 multinational construction and natural
resources companies signed “Zero tolerance pact” against
extortion by bribery- World Economic Forum
 Partnering against Corruption Initiative
 the Partnering Against Corruption Initiative (PACI) was
established to level the playing field among industry
players and help consolidate industry efforts on the
issue.
 Today, PACI brings together over 140 companies from
multiple industries and global locations, including
industry leaders from multiple sectors, regardless of
their size or affiliation with the World Economic Forum,
to fight bribery and corruption.
PACI signatory companies include:
 Accenture
 Alcatel-Lucent
 Deloitte
 Deutsche Post DHL
 Ernst & Young
 SAS
 Godrej & Boyce
 KPMG International
 Kuwait Petroleum Corporation
 Microsoft Corporation
 PricewaterhouseCoopers
 Coca Cola
 Thomson Reuters
ETHICAL DIMENSIONS OF LABOUR CONDITIONS

Individual investors Consumers

Corporate
Pressures for
Media investors(eg-
ethical behavior
pension
with respect to
funds
workers

Trade unions
NGOs
Governments
OBJECTIVES OF ETHICAL TRADING
INITIATIVE
Employment is freely chosen
Freedom of association and the right to
collective bargaining are respected
Working conditions are safe and hygienic
Child labour shall not be used
OBJECTIVES OF ETHICAL TRADING
INITIATIVE
Living wages are paid
Working hours are not excessive
No discrimination is practiced
Regular employment is provided
No harsh or inhumane treatment is
allowed
 CHILD LABOR
There are two arguments for use of
children in Indian carpet industry
*There were better suited than adults
*If they weren’t employed, they’d be
even worse off

*In 1990s Bangladesh was pressured to stop

employing child workers
*ILO guidelines
What MNEs Can & Can’t Do
 Swedish retailer IKEA
*Helped working mothers
*Bridge schools
 In Thailand, the law permits people to work
84 hours a week in seven 12 hour shifts
*Nike instituted a maximum workweek of 60
hours
 Improvement in Chinese labour practices
CORPORATE CODE OF
ETHICS
Motivations for Corporate responsibility
 Unethical and irresponsible behavior can result in legal
headaches
 Customer actions such as boycotts
 Unethical behavior can affect employee morale
 Bad publicity is going to cost the sales
Developing a code of conduct
 External code of conduct is a set of “guidelines,
recommendations and rules issued by entities within
society with the intent of affect the behavior of
international business entities within society in order to
enhance corporate responsibility

 Internal code of conduct

What Makes a Good Internal Code of
Conduct ?
It sets global policies with which everyone working
anywhere for the company must comply
It communicates company policies not only to all
employees but to all suppliers and sub-contractors as
well
It ensure that the policies laid out in the code are
carried out
It reports the results to external stakeholders
References :
Ayswarya B and Baywarya B et al. (2015). Ethics in International Business.
Retrieved July 1, 2019 from the https://www.slideshare.net/ayanawithyou/

Anonynous. (2019). International Business Management. Retrieved July 2, 2019

from the https://www.tutorialspoint.com/

Sumah, Stefan. (2017). Corruption, Causes and Consequences. Retrieved July 2,

2019 from the https://www.intechopen.com/books/trade-and-global-market/.

Mele, C. (2014). Corruption: 10 Possible Causes. Retrieved July 2, 2019 from the
https://blog.iese.edu/.