International Business - Types of Moral Dilemmas Flashcards
When did International Business Ethics become an important topic?
The rise of globalisation after WWII has brought to light moral dilemmas faced by businesses. These moral dilemmas span across 5 areas - (1) labour standards, (2), environmental standards, (3) Human Rights, (4) Cultural Diversity, (5) Corruption.
How does one classify something as a moral dilemma?
The decision or actions taken will affect the welfare of an individual, society, or nation.
Ethical dilemmas are complex problems
The problem is multidimensional - which aspect of the issue should be start with? Problems are dynamic - what should we do if a new law comes into place? There is no solution - what can we do in this moment that is the most ideal step forward? Decisions have unintended consequences - what are the alternative scenarios that might take place if we implement this solution? How should we respond?
What supported the rapid expansion of multinational corporations (MNCs)?
Globalisation (increasing interconnectedness of nations; more trade, more information flows, more people & investment flows), deregulation (the removal of government controls over a particular industry or sector), & technological change (internet enhancing digital communication, e-commerce, online banking & digital currency, data analytics).
Market globalisation
The internet, along with social media, television, & low costs of transporting goods has created a space for a convergence of consumer preferences & tastes.
Production
Innovations in production has increase global supply chain efficiency.
Global value chains
With offshore manufacturing & outsourcing, MNCs operate their global value chains in a structured way that made certain business functions cheaters, faster, & better (streamline internal activities through outsourcing non-core business activities).
Key differences of purchasing & procurement
Purchasing is more transactional – it’s how goods or services are ordered. On the other hand, procurement is an umbrella term that includes purchasing but also involves identifying company needs, selecting suppliers, establishing payment terms, and managing supplier relationships
A large reason MNCs engage in unethical behaviours is..
MNCs are trying to increase profits by conducting overseas operations in countries with subpar regulatory frameworks & tax mechanisms. Some choose to take advantage of regulatory arbitrage & relocate to low-tax jurisdictions, & areas with loose regulations governing labour & environment.
Should MNCs have an ethical obligation towards individuals, society, & nations? (Yes - but remember, this course is about how international businesses can operate ethically - so we are focusing on what firms can do to be seen as ethical).
MNCs are expected to adhere to international law. They are powerful actors in society with money, influence, and resources. Once an MNC invests in foreign operations in a developing country & that firm can develop strong linkages with the institutions in the host country - the developing country economy benefits, bringing increases in wage levels, decreases in inequality, & increased standards of living overall (Climb to the Top theory). Yet, on the other hand, MNCs are also looking out for themselves, seeking to get the best “bang for their buck”, & history shows MNCs engage in unethical business behaviours, harming the society, people, and independence of the developing country (race to the bottom theory).
Interestingly, some developing countries pursue an Import Substitution Industrialisation (ISI) development strategy, which is…
An ISI strategy is pursued to insulate domestic businesses & limit or even prohibit the entry of MNCs (*race to the bottom theory).
In FDI, the institutional framework (apparatus) constructed around the market, is crucial to how players will operate. The HUKOU system in China is a key example of the existence of “Race to the Bottom” theory (proposed by Marxist-supporting academics). What is the relationship between HUKOU system & MNCs operating in China?
The HUKOU system restricts where workers are legally allowed to live, preventing them from relocating to find adequate or better paying jobs. Anita Chan (2003) claims that MNCs are a large reason for the continued existence of this law. MNC manufacturing companies have bargaining power & influence over Chinese policy, & their support for this law guarantees them a steady supply of non-migratory labourers. The Chinese government reduces minimum wages to keep provinces attractive for Foreign Capital (e.g, Chan believe rural income will be even lower than the current average income . The negative relationship between rural wages & the presence of manufacturing MNCs is distinct to the Race to the bottom theory).
What are these international issues?
- labour standards (sweatshops used in outsourcing where employees are overworked & underpaid, use of child labour)
- Environmental standards improper (toxic waste disposal to reduce tax on disposals & improper use of natural resources, such as soil degradation, deforestation, biodiversity loss, water and air pollution)
- Human Rights (operating in countries whereby governments are seen to be violating human rights i.e., McDonald’s Israel caused controversy by giving free meals to Israeli soldiers during the ongoing conflict with Hamas).
- Cultural Diversity ( loss of community values when an MNC begins to operate in a host country; confusion arises because traditional values go against global norms e.g., MNCs are important political actors, who through lobbying, can influence foreign policy decisions &
- Corruption (bribery in foreign operations is allowed in some countries e.g., up until 1997, German Corporate Law considered foreign bribes to be tax deductible expense, Bribes are common in China etc,).
Ethics deals with moral dilemmas
so dumping (predatory pricing) is less of a moral dilemma, but more so an outcome of the competitiveness of the international market. MNC’s choosing to enter foreign markets try to earn money as quickly as possible (to make back what they invested & paid for to reach this new market), hence the firm may try to sell their products below the cost for a little while, in order to attract locals, which puts existing (smaller competitors)/ local companies at a disadvantage.
