1. Ethics in International Business
Chapter 4
Ethics in
International Business

2. Introduction
International business ethics attempts to deal with questions of :
What to do in situations where ethical morals come into conflict as a result of the differing cultural practices?

3. Example :
Should an international business pay bribes to corrupt government officials to gain market access to a foreign country?

4. How and whether it is possible to act ethically at international level?
International business ethics has a number of open questions and dilemmas. Today it is characterized by the following elements: • Every culture and nation has its own values, history, customs and traditions, thus it has developed own ethical values and understanding of ethical principles;

5. How and whether it is possible to act ethically at international level?
There is no international ethical code of conduct, accepted and followed by all the countries;
There is a lack of governments’ initiative to create ethical cooperation framework and thus to enhance ethical behavior in international business.

6. Ethical Issues in International Business
The most common ethical issues in business involve :
Employment practices.
Environmental regulations.
Corruption.
The Social Responsibility of multinational companies.

7. 1. Ethics and Employment Practices
Question: When work conditions in a host nations are clearly poorer to those in a multinational’s home nation, what standards should be applied?
The standards of the home nation?
The standards of the host nation?
Something in between?
Management Focus: Making Apple’s iPOD
Summary
This feature explores Apple’s experiences with employment practices at the Chinese factory that produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at Hongfujin Precision Industries where Apple’s iPODs are produced, were substandard. According to the report, not only were workers at the plant poorly paid, but they were also forced to work overtime. Apple immediately responded to the allegations and audited the factory in question. However, managers at the factory filed a defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually the Reporters Without Borders group took up the case for the two reporters and the lawsuit was dropped.
Suggested Discussion Questions
1. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to some degree for ensuring that the factories where it sources its products are safe. Some students may suggest that to knowingly buy products from a company with substandard working conditions is a violation of basic human ethics. Other students however, may argue that Nike cannot force suppliers to adopt specific practices and policies toward labor. Students taking this perspective might further suggest that pushing American practices on Chinese companies is ethnocentric, and that for many Chinese the prospect of having a job, even in poor working conditions, is better than having no job at all. Many students may be surprised that Apple did not already have an audit policy in place prior to the accusations by the Chinese reporters, but will probably agree that the company handled the situation appropriately.
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters. Discuss the implications of this for other Chinese companies.
Discussion Points: Most students will probably agree that the fact that the allegations against Hongfujin Precision Industries were made by Chinese reporters who work for China Business News, a state run newspaper, could have interesting implications for other companies. Some students will probably suggest that it should serve as a signal to other companies that poor working conditions are unacceptable, and that while in the past, it may have been possible to hide them, it is no longer the case. Other students may suggest that the allegations may force companies to rethink their production and look for new ways to increase productivity. Some students may note that the very fact that the report was published is startling in some regards, and that companies should anticipate further scrutiny.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing. To learn more about Apple’s policies go to {

8. 2. Ethics and Environmental Pollution
Question: Should a multinational feel free to pollute in a developing nation if doing so does not break up laws?
When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise.
Management Focus: Unocal in Myanmar
Summary
This feature explores Unocal’s actions in Myanmar. Unocal, an American, oil and gas enterprise, formed a joint venture with a French company to build a pipeline from Myanmar to Thailand. Unocal made that investment at a time when many other American companies were exiting the country in protest of the local government’s policy of brutally suppressing internal dissent.
Suggested Discussion Questions
1. Why did Unocal’s investment become so controversial? Did Unocal behave in an ethical manner?
Discussion Points: Unocal made its investment in Myanmar just as many other companies were leaving the country in protest of the nation’s brutal military dictatorship. The company had formed an agreement with the government that involved clearing a path for a new pipeline. The investment became controversial when, in order to fulfill the agreement, Myanmar’s army forcibly moved villagers and then forced them to work under slave-like conditions. Unocal claims it had no knowledge of what was occurring, but this claim was rejected by a judge who heard the case that was filed against Unocal on behalf of Myanmar villagers. Students will probably agree that the company failed to act in an ethical manner, and that while it may not have directly participated in the brutality, Unocal did have a responsibility to oversee what was going on and ensure that people were treated fairly.
2. A 1996 law suit against Unocal was dismissed on the grounds that the Unocal could not be held liable for the actions of a foreign government against its own people, although the judge noted that the company was aware of what was going on in the country. Discuss the difference between acting in an ethical manner and acting according to the law.
Discussion Points: Students will probably be familiar with the notion that even if something is not explicitly forbidden, it does not mean it is right. This concept would certainly seem to apply in this case. Ethical responsibility goes beyond the letter of the law to encompass the idea of behaving in a certain way simply because it is the right thing to do. It is worth noting that an appeal by the plaintiffs resulted in an out-of-court settlement in 2005, which would imply that Unocal was guilty at least to some extent.
Teaching Tip: Unocal is now part of Chevron. The company’s web page is {

9. 3. Ethics and Corruption
Question: Is it ethical to make payments to government officials to secure business?
In the United States, the Foreign Corrupt Practices Act forbid the practice of paying bribes to foreign government officials in order to gain business.

10. 4. Ethics and The Social Responsibility
Question: Do multinationals have a responsibility to give back to the societies that enable them to grow and succeed?
The concept of social responsibility refers to the idea that business people should take the social benefits into account when making business decisions, and that there should be a belief in decisions that have both good economic and good social benefits.
Management Focus: News Corporation in China
Summary
This feature explores the entry of News Corp’s, one of the largest media conglomerates in the world, entry into the Chinese market. According to critics, Robert Murdoch, head of News Corporation, gained preferential access to the Chinese media market by systematically suppressing media content that was critical of China, and publishing material designed to ingratiate the company with China’s leaders.
Suggested Discussion Questions
1. Consider the allegations against Robert Murdoch. Did he behave in an ethical manner if he suppressed media content that was critical of China?
Discussion Points: Students will probably have different views on this subject. Some will probably argue that new companies have an ethical responsibility to provide an unbiased, full report of events regardless of whether they represent values the firm endorses, or whether such a point could negatively affect the bottom line. Other students however, might suggest that News Corporation had no such responsibility, that it is a company out to make a profit, just like any other company. If this means omitting certain stories from its coverage, then so be it. Students taking this perspective might also add that in this day and age of 24/7 global communication, some burden for getting an accurate interpretation of events has shifted to the consumer.
2. Newspapers and news programs are frequently criticized for giving biased reports of events. What standards should these organizations hold to? Did News Corporation hold to these standards?
Discussion Points: Most students will probably agree that it would be difficult to set explicit standards for periodicals. They will probably suggest that companies must take the lead in establishing themselves as certain types of companies. So, if a newspaper wants to establish itself as a hardcore reporter of newsworthy events, it should be held to different standards than a gossip magazine.
Teaching Tip: To explore the company in more depth go to {

11. The Roots of Unethical Behavior
Question: Why do managers behave in an unethical manner?
Managerial behavior is influenced by:
Personal ethics
Decision making processes
Organizational culture
Leadership
Unrealistic Performance Expectations.

12. The Roots of Unethical Behavior

13. 1. Personal Ethics
Business ethics reflect personal ethics (the generally accepted principles of right and wrong leading the conduct of individuals).
Managers may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company .

14. 2. Decision Making Processes
Studies show that business people may behave unethically because they fail to ask the relevant question—is this decision or action ethical?
Decisions are made based on economic logic, without consideration for ethics.

15. 3. Organizational Culture
Unethical behavior may exist in firms with an organization culture (the values and standards that are shared among employees of an organization) that does not stress business ethics.
Values and standards shape the culture of a firm, and that culture influences decision making.

16. 4. Leadership
If a firms leaders fail to act in an ethical manner, other employees may not act ethically
Actions speak louder than words.
Management Focus: Pfizer’s Drug Testing Strategy in Nigeria
Summary
This feature raises questions as to whether pharmaceutical giant, Pfizer, acted ethically when testing a new drug. In 1996, Pfizer was seeking FDA approval for a new antibiotic. The company lacked the necessary test results to have the drug approved for children. The company saw an opportunity to quickly test the drug when an outbreak of bacterial meningitis hit a town in Nigeria. In 2003, two dozen Nigerian families sued Pfizer arguing that their children either died or were injured as a result of the drug testing. They allege that Pfizer did not take the appropriate steps to properly test the drug, and that the company acted in an unethical manner.
Suggested Discussion Questions
1. Was Pfizer irresponsible when it tested its experimental drug in Nigeria? How could the company have acted more ethically?
Discussion Points: This is a difficult issue with no clear answers. While Pfizer may have cut some corners in Nigeria in its haste to test the drug, some children who might have died without the drug, are alive today. Some students will probably suggest that Pfizer should have been more responsible with how it set up its trials. The company should have made the effort to clearly communicate the risks involved to parents. Other students however, may argue that many people have been saved by participating in experimental treatments. Students might add that the Nigerian government was desperate to halt the epidemic, and that in situations where time is critical, the benefits of overlooking some normal procedures may be worthwhile.
2. Pfizer saw the bacterial meningitis outbreak in Nigeria as a means of quickly getting a large pool of sick children on which to test its new antibiotic. Consider the dilemma facing pharmaceutical companies. In order to get FDA approval to introduce their new drugs, numerous studies must demonstrate the efficacy of the drugs, studies that, as the Pfizer example demonstrates, can be difficult to complete. Would you have been tempted to follow Pfizer’s strategy? If you waited, and completed the testing in the United States, what might be the effect on your company’s bottom line? Would you be acting in the best interests of your stakeholders by waiting, or by testing in Nigeria?
Discussion Points: Students may start by saying that hindsight is 20/20. In this case, perhaps Pfizer should have moved more slowly. With strong pressure to always develop new, profitable drugs, the company clearly thought the opportunity in Nigeria would be beneficial. Pfizer needed a large sample of sick children, something it was unlikely to find in the United States. Some students may raise the question that if Pfizer had waited, people who took the drug after it was approved would not have had that treatment option—and could be dead today.
Teaching Tip: Students can learn more about Pfizer by going to the corporate web site at {
Video Note: The iGlobe Experimental Malaria Vaccine Shows Promise in Africa is directly related to this case.

17. 5. Unrealistic Performance Expectations
Pressure from the parent company to meet performance goals that are unrealistic, and can only be achieved by acting in an unethical manner which cause unethical behavior.