1. Global Business Today 6e
by Charles W.L. Hill
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Ethics in International Business
Chapter 4
Ethics in
International Business

3. Introduction
Ethics refers to 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
Internet Extra: Consumers International { an organization dedicated to protecting the rights of consumers worldwide. In doing so, it promotes ethical behavior on the part of companies.
Go to the site and click on one of the organization’s current efforts. What are the issues that are being raised?
How do they affect companies? Do you agree with the organization’s position? Why or why not?

4. Ethical Issues in International Business
The most common ethical issues in business involve
employment practices
human rights
environmental regulations
corruption
the moral obligation of multinational companies

5. Employment Practices
Question: When work conditions in a host nations are clearly inferior 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 {

6. Human Rights
Question: What is the responsibility of a foreign multinational when operating in a country where basic human rights are not respected?
Basic human rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are by no means universally accepted

7. Environmental Pollution
Question: Should a multinational feel free to pollute in a developing nation if doing so does not violate laws?
When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise
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
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 {

8. Classroom Performance System
Multinational companies are concerned with ethics is all of the following areas except
Employment practices
Human rights
Environmental regulations
Trade regulations
Classroom Performance System Answer: d

9. Corruption
Question: Is it ethical to make payments to government officials to secure business?
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

10. Corruption
Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good
In countries where preexisting political structures distort or limit the workings of the market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments may actually enhance welfare
However, other economists have argued that corruption reduces the returns on business investment and leads to low economic growth

11. Moral Obligations
Question: Do multinationals have a responsibility to give back to the societies that enable them to grow and prosper?
The concept of 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
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 {

12. Ethical Dilemmas
Managers often face situations where the appropriate course of action is not clear
Ethical dilemmas are 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

13. 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
Unrealistic performance expectations
Leadership

14. The Roots of Unethical Behavior
Determinants of Ethical Behavior

15. Personal Ethics
Business ethics reflect personal ethics (the generally accepted principles of right and wrong governing the conduct of individuals)
Expatriates 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

16. 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

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

18. Unrealistic Performance Expectations
Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior

19. 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.

20. Classroom Performance System
Which of the following does not contribute to unethical behavior by managers?
Unrealistic performance goals
Leadership
Organizational culture
Restrictions on bribes
Classroom Performance System Answer: d

21. Philosophical Approaches to Ethics
There are several approaches to business ethics including
Straw men
The Friedman doctrine
Cultural relativism
The righteous moralist
The naïve immoralist
Utilitarian and Kantian
Rights theories
Justice Theories

22. Straw Men
Straw men approaches to business ethics are raised by business ethics scholars primarily for the purpose of demonstrating that they offer inappropriate guidelines for ethical decision making in a multinational enterprise
Four such approaches are
the Friedman doctrine
cultural relativism
the righteous moralist
the naïve immoralist

23. Straw Men The Friedman Doctrine
Economist’s Milton Friedman’s suggests that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law
Friedman does not believe that companies should undertake expenditures beyond those mandated by law and those required for the efficient running of a business

24. Straw Men Cultural Relativism
Cultural relativism is the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate
“when in Rome, do as the Romans do”

25. Straw Men The Righteous Moralist
The righteous moralist claims that a multinational’s home country standards of ethics are the appropriate ones for companies to follow in foreign countries
This approach is common among managers from developed countries

26. Straw Men The Naïve Immoralist
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
Actions are ethically justified if everyone else is doing the same thing

27. Utilitarian and Kantian Ethics
Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences
Actions have multiple consequences, some good, some not
Actions are desirable if they leads to the best possible balance of good consequences over bad consequences
Problems with this approach include measuring the benefits, costs, and risks of a course of action, and the fact that the philosophy fails to consider justice

28. Utilitarian and Kantian Ethics
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

29. Rights Theories
Rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and culture
Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component
The idea that some fundamental rights transcend national borders and cultures was the underlying motivation for the UN’s 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)

30. Justice Theories
Justice theories focus on the attainment of a just distribution (one that is considered fair and equitable) of economic goods and services
John Rawls argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone’s advantage
Impartiality is guaranteed by the veil of ignorance (everyone is imagined to be ignorant of all his or her particular characteristics)

31. Justice Theories
Question: What system would people design under a veil of ignorance?
A system where people would agree that each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others
Once equal basic liberty is assured, inequality in basic goods social goods are to be allowed only if they benefit everyone
the difference principle suggests that inequalities are justified if they benefit the position of the least advantaged person

32. Classroom Performance System
Which philosophy claims that a company’s home-country standards of ethics are the appropriate ones to follow in foreign countries?
Cultural relativism
Righteous moralist
Friedman doctrine
Naïve immoralist
Classroom Performance System Answer: b

33. Implications for Managers
Question: How can managers ensure that ethical issues are considered in business decisions?
Managers should
favor hiring and promoting people with a well grounded sense of personal ethics
build an organizational culture that places a high value on ethical behavior
makes sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric
put decision making processes in place that require people to consider the ethical dimension of business decisions
develop moral courage

34. Hiring and Promotion
Businesses should strive to identify and hire people with a strong sense of personal ethics
Prospective employees should find out as much as they can about the ethical climate in an organization

35. Organization Culture and Leadership
Businesses need to build an organization culture that places a high value on ethical behavior
the business must explicitly articulate values that place a strong emphasis on ethical behavior, perhaps using a code of ethics (a formal statement of the ethical priorities a business adheres to)
leaders in the business should give life and meaning to the code of ethics by repeatedly emphasizing their importance, and then acting on them
the business should put in place a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not

36. Decision-Making Processes
A moral compass can help determine whether a decision is ethical. If a manager can answer “yes” to the following questions, the decision is ethically acceptable.
does my decision fall within the accepted values of standards that typically apply in the organizational environment?
am I willing to see the decision communicated to all stakeholders affected by it?
would the people with whom I have significant personal relationships approve of the decision?

37. Decision-Making Processes
A five-step process can also help managers think through ethical issues
1. How would a decision affect stakeholders (the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company)
Internal stakeholders are people who work for or who own the business such as employees, the board of directors, and stockholders.
External stakeholders are the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

38. Decision-Making Processes
2. Managers need to determine whether a proposed decision would violate the fundamental rights of any stakeholders
3. Managers need to establish moral intent (the business must resolve to place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated)
4. The company should then engage in ethical behavior
5. The business must audit its decisions, reviewing them to make sure that they were consistent with ethical principles

39. Ethics Officers
To encourage ethical behavior in a business, a number of firms now have ethics officers
Ethics officers ensure that
employees are trained to be ethically aware
ethical considerations enter decision-making
the company’s code of ethics is followed

40. Moral Courage
Employees in an international business may need significant moral courage
Managers need to be able too walk away from decisions that are profitable, but unethical
Employees need to be able to say no to actions that are unethical

41. Classroom Performance System
A company’s formal statement of ethical priorities is called its
Mission statement
Code of ethics
Code of values
Organizational culture
Classroom Performance System Answer: b

42. Summary of Decision-Making Steps
International businesses should
strive to hire and promote people based on ethical considerations as well as other metrics of performance
establish an ethical culture within the organization
appoint ethics officers
create an environment that facilitates moral courage
Even so, it is important to recognize that not all ethical dilemmas have a clear and obvious solution

43. Critical Discussion Question
1. A visiting American executive finds that a foreign subsidiary in a poor nation has hired a 12-year old girl to work on a factory floor, in violation of the company’s prohibition on child labor. He tells the local manager to replace the child and tell her to go back to school. The local manager tells the American executive that the child is an orphan with no other means of support, and she will probably become a street child if she is denied work. What should the American executive do?
Answer: This question, illustrating a potentially very real ethical dilemma facing managers working in subsidiaries located in developing countries, is designed to stimulate class discussion. Students should recognize that neither alternative—violating the company’s position on child labor, nor putting the child out on the streets—seems acceptable. In the end, many students may agree that allowing the child to continue to work in the factory is the lesser of the two evils.

44. Critical Discussion Question
2. Drawing upon John Rawls’ concept, the veil of ignorance, develop an ethical code that will
(a) guide the decisions of a large oil multinational towards environmental protection, and
(b) influence the policies of a clothing company to outsource its manufacturing process.
Answer: According to John Rawls, a decision is just and ethical if people would allow for it when designing a social system under a veil of ignorance. Rawls’ veil of ignorance is a conceptual tool that can contribute towards the moral compass that managers can use to help them navigate through difficult ethical dilemmas. This question can produce some interesting responses particularly in a class with a diverse group of nationalities.

45. Critical Discussion Question
3. Under what conditions is it ethically defensible to outsource production to the developing world where labor costs are lower when such actions also involve laying off long-term employees in the firm’s home country?
Answer: This question is likely to stimulate some lively discussion, particularly if students have personally felt the impact of this practice. Many American companies are outsourcing not only blue collar work, but also white collar positions to the developing world. Students are facing a tenuous job market where positions that they may have sought when they began their college degrees are being “shipped abroad.” Some students will argue that companies have to do what is best for all stakeholders, and if that means taking advantage of cheaper labor costs elsewhere, then that is the appropriate strategy. Others however, will probably argue that companies owe a social debt to their home countries, and that loyalty from long-term employees should be rewarded.

46. Critical Discussion Question
4. Are facilitating payments ethical?
Answer: Students will probably be divided on this question, and a lively debate should ensue. Certainly, the notion of when in Rome, do as the Romans do could be argued. However, those taking this perspective should recognize that it may be difficult to draw the line on exactly what is acceptable under this guise, and when bribery goes too far.

47. Critical Discussion Question
5. A manager from a developing country is overseeing a multinational’s operations in a country where drug trafficking and lawlessness are rife. One day, a representative of a local “big man” approaches the manager and asks for a “donation” to help the “big man” provide housing for the poor. The representative tells the manager that in return for the donation, the “big man” will make sure that the manager has a productive stay in his country. No threats are made, but the manager is well aware that the “big man” heads a criminal organization that is engaged in drug trafficking. He also knows that the big man does indeed help the poor in the run down neighborhood of the city where he was born. What should the manager do?
Answer: Many students will probably suggest that the manager should not accept the assistance of the “big man”, nor make the recommended “donation”. Students taking this perspective are likely to suggest that doing so would be unethical, and that if the manager really wants to help poor people it can give a more legitimate donation. Other students however may point out that the “big man” could make life very difficult for the manager, or he could really help the manager. Some students may argue that, in order to satisfy stakeholders, the managers should meet the demands of the ‘big man”. Still other students will probably point out that if conditions in the country are so poor, the company should simply take its investments elsewhere.
Lecture Note: Mexico’s drug trafficking problem is currently prompting many foreign companies to rethink their investments in the country. To learn more, go to {

48. Critical Discussion Question
6. Reread the Management focus feature on Unocal and answer the following questions:
a) Was it ethical for Unocal to enter into a partnership with a brutal military dictatorship for financial gain?
b) What actions could Unocal have taken, short of not investing at all, to safeguard the human rights of people impacted by the gas pipeline project?
Answer: Many students will probably agree that it was unethical for Unocal to partner with Myanmar’s military dictatorship. Students taking this perspective will probably point out that at the time of the investment many American companies were actually leaving the country in protest of the political situation there. Other students however may note that the partnership offered Unocal the opportunity to generate significant returns, and that the company had an obligation to its shareholders to make profits. Students taking this point of view may also indicate that in addition to the profits that the project generated for shareholders, it also helped Myanmar’s economic situation, and therefore the country’s 43 million people. Some students may suggest that if Unocal decided to form the partnership, it should have done so only with a clear policy in place to protect the human rights of the Myanmar people. Students may suggest for example, that the partnership should only have gone ahead if plans were in place to help the villagers who lost their homes, and that certainly the villagers should not have been used as slave labor. Most students will probably agree that Unocal’s claims of ignorance of the situation are weak at best. Students will probably suggest that in a country where other companies are leaving because of the brutal political situation, Unocal had an even greater obligation to be aware of how its presence might affect the population.