Bundoora Campus
MGT1IB
Introduction to International Business
Lecture 5: Ethics and International Business
INNOVATIVE | RESPONSIBLE | ENGAGED
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Lecture 4 - Objectives
1. Identify corruption and ethics in international business
2. Analyse corporate social responsibility (CSR) abroad
3. Explain sustainability’s role in international operations
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Corruption in International Business
The abuse of power in order to achieve illegitimate
• Corruption: personal or business gain. Bribery is one of the most
typical forms of corruption in business.
• How does the analysis of corruption differ between domestic and
international business?
• International firms operate under different regulatory and legal systems
• Options to counteract corrupt behaviour may be more limited
• Levels of corruption practices in business differ across countries
• Levels of acceptance of corruption practices differ across countries
• Stakes may be higher in the international marketplace
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Corruption in International Business
• How do more developed countries respond to corruption practices of their
MNEs?
• Foreign Corrupt Practices Act. Enacted in 1977 by US Government; makes it
illegal for individuals and firms to make payments to foreign government officials
to assist in obtaining or retaining business.
• Organisation for Economic Cooperation and Development (OECD)
• Adopted the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions (1997).
• Convention treats the bribery of foreign public officials as a criminal offence.
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Corruption in International Business
• How is corruption measured and compared across countries?
• Direct measurement. By collecting statistics of actual acts of corruption. For
example, number of cases in court, number of corruption experiences
collected by surveys, etc.
• Indirect measurement. By collecting statistics on perceptions of corruption.
• Corruption Perceptions Index. Compiled by Transparency International;
measures the perceived levels of public sector corruption in countries around the
world by surveying analysts, businesspeople and experts.
• 2011 Bribe Payers Index. Published by Transparency International; ranks 28 of
the world’s largest economies according to the perceived likelihood of companies
from these countries to pay bribes in foreign markets.
• Russian and Chinese companies more likely to pay bribes.
• Dutch and Swiss companies least likely to pay bribes.
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Corruption in International Business
Complete ranking 2020:
https://www.transparency.org/en/cpi/2020/index/aus
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Corruption in International Business
Source: https://issuu.com/transparencyinternational/docs/bribe_payers_index_2011?
mode=window&backgroundColor=%23222222
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Ethics in International Business
The moral principles and values that govern the
• Ethics: behaviour of people, firms or government regarding
what is right and what is wrong.
• Ethics broad concept that encompasses corruption. Other common ethical
issues in international business include:
• Outsourcing or importing from third parties
• Intellectual property
• Working standards and conditions
• Workplace diversity and equal opportunity
• Child labour
• Human rights
• Religion
• The natural environment
• The political arena
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Ethics in International Business
• The ethical challenges in international business
• Nations have their own history, customs, traditions and code of ethics. For
example:
• Gender equality issues, which are exacerbated in countries where women
do not have the same rights as men.
• Religion related issues that affect the way of doing business. For example,
holidays and other cultural events can prohibit trade at certain times.
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Ethics in International Business
• Global sourcing. The procurement of products or services from suppliers
abroad or by establishing own production facilities; raises public debate about
protecting the environment and ensuring human rights.
• Note that the ethical responsibility of what is imported also falls on consumers.
Do you know if the products you are purchasing, especially imported products,
were produced in compliance with ethical standards?
Checkout: https://www.fairtrade.net/ , which is a form of certification that helps
consumers identify products produced under fair conditions in developing nations
As part of the actions to achieve the Sustainable Development Goals (SDGs),
the UN is also working on an initiative to support fair trade
https://sustainabledevelopment.un.org/partnership/?p=26181
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Ethics in International Business
• Intellectual properties. Ideas or works created by individuals or firms—such as
inventions, industrial designs, books, music, art, films and software.
• Intellectual property rights. The legal claim that firms and individuals have to
the sole use of their proprietary assets, usually protected by patents,
trademarks and copyrights.
• World Intellectual Property Organization (WIPO). Established in 1967 by the
UN, WIPO membership consists of 185 countries; it includes the development
of international legal intellectual property framework among its activities.
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Ethics in International Business
•Different views on Ethics
• The best-managed companies incorporate ethical considerations into all
their international activities.
• Behaving ethically is not only required by law; it is simply the right thing
to do.
• But what happens when the view of what is “the right thing to do” varies
across nations?
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Ethics in International Business
•Different views on Ethics
• Relativism. The belief that ethical truths are not absolute but differ from group to
group.
• ‘When in Rome, do as the Romans do’.
• Normativism (or absolutist). The belief that ethical behavioural standards are
universal, and firms and individuals should seek to uphold them around the world.
For relativists, nothing is sacred and nothing is wrong. For absolutists, many
things that are different are wrong. Neither extreme illuminates the real world of
business decision making. The answer lies somewhere in between.
Thomas Donaldson.1996. Harvard Business Review.
https://hbr.org/1996/09/values-in-tension-ethics-away-from-home
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Ethics in International Business
•Approaches to Ethics
• Friedman doctrine (stockholder theory). The belief that the primary
responsibility of a business is to maximise profits for its shareholders.
• Utilitarian ethics. An approach in which a decision is considered ethical if the
benefits of the decision outweigh the costs of implementing it.
• Human rights. The fundamental rights that every individual should enjoy,
regardless of geographic location.
• John Rawls’ Justice theory. The theory that decisions should be made from
behind a veil of justice. This veil makes the people blind in issues such as
gender, age, nationality, language and social class, allowing them to be made
without discrimination.
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Ethics in International Business
• Ethical dilemma. A predicament with major conflicts between different interests,
where determining the most appropriate course of action is confounded by a set of
solutions that are equally justifiable, and perhaps equally imperfect.
• For example, think of a large investment decision in a small developing
country.
1. The investment will strengthen the local government as the investment will improve
economic conditions and will show the government’s capacity to attract investments.
2. The investment will benefit poor people in the country who need urgent economic
relief.
3. The government of the country does not respect civil and political rights and is
perpetuating in power.
Would you still invest?
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Corporate Social Responsibility (CSR) Abroad
• Pyramid of ethical behavior
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Corporate Social Responsibility (CSR) Abroad
A manner of operating a business that meets or
• Corporate Social exceeds the ethical, legal, commercial and public
Responsibility (CSR) expectations of stakeholders (customers,
shareholders, employees and communities).
• Implies a proactive perspective on ethical behaviour.
• Environmentally friendly policies are an important part of most CSR programs.
• Many CSR actions involved highly impactful pro-social and pro-community
initiatives. For example, firms building schools in local communities to support the
education of the most vulnerable children.
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Corporate Social Responsibility (CSR) Abroad
• Note: like ethical behaviour, CSR is simply the right thing to do.
• However, there is also a strong business case for CSR:
1. Behaving responsibly helps the firm to recruit and retain high-quality employees.
2. Strong CSR can help the firm to differentiate itself in the marketplace and enhance
its brand.
3. Laws and regulations vary from country to country, and having a strong sense of
CSR can help the firm to avoid increased taxation, regulation or other legal
actions by local government authorities.
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Sustainability’s Role in International Operations
• Sustainability Meeting humanity’s needs without harming
future generations.
Sustainable firms pursue three types of interests:
1. Economic impacts: In addition to ensuring its own profitability, firms should
examine how its activities and those of its suppliers and partners profit
society, especially local communities.
2. Social impact: work conditions and diversity in hiring, protecting human
rights and implementing pro-social initiatives.
3. Environmental interests: conserving natural resources, recycling and
reducing pollution, and providing to pro-environment R&D, manufacturing,
marketing and distribution.
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Ethics in International Business
Four-step framework for arriving at ethical decisions:
1. Recognise an ethical problem. Is there something wrong? Is an ethical dilemma
present? In international business, recognising the issue can be tricky because subtleties
of the situation may be outside your knowledge or experience.
2. Get the facts. Have all the relevant persons and groups been consulted? What
individuals or groups have a stake in the outcome? How much weight should be given to
the interests of each? Do some parties have a greater stake because they are
disadvantaged or have a special need?
3. Evaluate alternative courses of action. Your goal is to arrive at the best decision or
most appropriate course of action. Respect human values and rights, and respect local
traditions.
4. Implement and evaluate your decision. Implement your decision. Then evaluate it to
see how effective it was. How did it turn out? If you had it to do again, would you do
anything differently?
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