BUSINESS ETHICS

Chapter – 5 ( FINAL )

Globalization and Business Ethics

Topic:

1. GROWTH OF GLOBAL CORPORATIONS

2. FACTORS FACILITATING GLOBALIZATION
3. BENEFITS OF MNCs TO THE HOST NATION
4. DISADVANTAGES OF MNCs TO THE HOST COUNTRY
5. CAUX PRINCIPLES FOR INTERNATIONAL ETHICAL BUSINESS
 GROWTH OF GLOBAL CORPORATIONS

International business has become an important economic force during the second half of the 20th century.
Today few countries, if any, can claim to be economically self-sufficient. India, even with her vast human and
natural resources, cannot insulate herself from the world economy. Though there was tremendous political
opposition from within, India was constrained to open up her economy and join the World Trade Organization
(WTO). In every country, developing or developed, international business touches people’s lives.

Today, most business enterprises, big or small, are drawn to doing business across national borders. They may
purchase raw materials from foreign suppliers, assemble products from components made in several countries,
or sell finished goods or services to customers in other nations. With time and with more countries reducing
trade barriers, the number of firms affected by international competition keeps on increasing every day. In our
day-to-day life we consume goods and services that have an international character about them—clothes, books,
CDs, computers and soft drinks. Many MNCs have subsidiaries, affiliates and joint venture partners in most of
the developing countries so much so that, in some cases, the number of foreign employees of these corporations
may exceed that of the home country.

FACTORS FACILITATING GLOBALIZATION

In recent times, many factors play a facilitating role to promote and foster international trade. Many developing
countries adopted protectionist policies and raised huge tariff barriers for decades to protect their vulnerable
home industries from foreign goods. Global business opportunities were also limited by poor communication
facilities, slow development of infrastructure, inordinate delays in travel and shipping and a host of non-tariff
trade barriers raised by many countries. Today, people can reach any place on the globe in one day and
international communication is instantaneous. ‘Business operations can be managed effectively
simultaneously’. Increasingly, global corporations set up production units in developing countries having better
factor endowments and plentiful human resources with a view to exploiting them for their benefit and profit.

At the beginning of the 21st century, nations are more closely linked to one another than ever before through
trade in goods and services, flows of capital, movement of labour—though to a limited extent—and through
investments in each other’s economies. There are several factors that have played a key role in promoting
international trade. These are

1. Falling Trade Barriers: Liberalization of trade has been recently accelerated as a result of free trade
agreements, emergence of trade blocs and the facilitating roles played by international organizations
such as the WTO, International Monetary Fund (IMF) and the World Bank.

2. Political Reforms Have Opened up New Frontiers: As pointed out by James Post et al. the former
communist nations of Eastern Europe are now open to doing business around the world. Millions of
people in these countries are now able to take advantage of goods and services that global commerce
provides in an open and free market. There have been other factors such as the reunification of East and
West Germany, and the enormous growth in global tourism, transport and communications that have
added to this stupendous growth in world trade.
 3. More Developing Nations Joining the Bandwagon of Global Business: Several countries such as
Taiwan, Thailand, Malaysia, Singapore and Indonesia have been growing rapidly in recent years in
addition to the industrial prowess of Japan and South Korea in the Asia-Pacific region. China, India,
Brazil and Russia have recently emerged as successful global players and have invited business from
across the world to invest in them.

4. Emergence of New Technologies and Businesses Spanning Continents: New technologies and
business based on them such as computer hardware and software, pharmaceuticals, and communications
that have worldwide investments and markets, have brought about a tremendous transformation in
fostering world trade. Likewise, business process outsourcing (BPOs) and several information
technology enabled services (ITES) have widened the horizons of international business opportunities.

BENEFITS OF MNCs TO THE HOST NATION

Better access to worldwide markets: We have seen earlier that MNCs are huge in terms of their business and
reach, and they cater to worldwide markets. Manufacturers like Nike and traders like Wal Mart can provide
access to very large markets. This leads to production of quality goods at low prices because of economies of
large-scale production and compulsions of fierce world competition.

Best access to capital investment: MNCs that are headquartered in developed countries have access to a large
quantum of capital. Their stocks are listed in international stock exchanges. Apart from their own capital, they
can also bring in considerable amounts from pension funds.

Transfer of advanced technology: Many MNCs because of their large presence worldwide bring in several
benefits as in R&D. With their heavy investment in technology and R&D, they transfer superior technology to
production units located in poor countries. Poor countries and developing nations cannot afford heavy
investments in R&D. India, for example, spends hardly 0.5 per cent in this vital area of technology
development.

Encouragement of local supplier development: Multinationals because of their large needs, encourage local
suppliers. For instance, MNCs like Ford and Hyundai outsource their spare parts and components to small
Indian companies, which flourish and provide employment to thousands of people.

New jobs for labour: With a worldwide market to serve, MNCs prefer to establish their manufacturing units in
low income countries like China and India, and would use the cheap labour in these countries with a view to
reducing cost of production and increasing their profits. This increases employment opportunities in these
countries.

Advanced training for labour: MNCs offer immense opportunities for advanced training of their labour force,
to suit their requirements.
Better access to managerial talent: Big corporations with worldwide business interests scout for managerial
talents from wherever such talents are available. For instance, many MNCs recruit their future managers from
IIMs and IITs and train them not only for their operations in India but also to work in their offices abroad.

New products for consumers: Consumers are the greatest beneficiaries when MNCs are allowed to operate in
their countries. They are able to enjoy all the amenities and appurtenances available to their counterparts in
advanced countries. They get the latest technologically superior products at affordable prices. Besides, they get
to choose from a wide array of products.

Low-cost products and/or better products: Due to increase in efficiency, MNCs can produce goods on a large
scale, get materials from cheapest sources, and enjoy economies of scale. Thus, they can bring down prices.

Exports contribution to the hostnation: Exports contribute favourably to the host nation’s balance of
payments position, additional taxes and payments for the public exchequer. This is of great help to poor nations.
For instance, MNCs like Hyundai8 and Nokia export thousands of their cars and mobile phones respectively
every month, and this brings in considerable amount of foreign exchange to the country offsetting unfavourable
balance of payments that arise due to heavy bills for importing petrol, etc. When a country has several big
MNCs, the coffers of the government are enriched by direct and indirect taxes paid by them.

Two of the most significant benefits of MNCs:

 Access to world-wide market (host country will produce for a larger market).
 Broad access to capital (which may be in short supply in the host nation).

DISADVANTAGES OF MNCs TO THE HOST COUNTRY

 Loss of national sovereignty, as the host nation cannot control what an MNC does in other nations,
which may be inimical to its interest.
 Political interests of MNCs may mirror the political interest of their respective home nations, and this
may be detrimental to the host nation. For instance, an American MNC may serve the interest of
America, while operating in India.
 The host nation may lose control over its own economy.
 Negative impact on the host’s balance of payments because of heavy imports of spares and components.
 Exploitation of the hosts’ irreplenishable natural resources leading to the dwindling of these.
 Exploitation of labour of the host when the country needs it.
 Indulgence in harmful environmental acts.

The host nation’s industries may be destroyed due to unfair competition by MNCs. They may not be able to
compete in an uneven playing field. MNCs have their industries established much earlier, have developed
expertise and are in a position to sell qualitatively superior products at cheaper prices. It has been the practice of
MNCs to acquire popular brands of products of host countries and kill them to ensure that their own products
survive in the market place. For example, Coca Cola acquired several popular Indian soft drinks and gradually
destroyed them.
Much can be said on the positive and negative sides of MNCs operating in several countries. The ethics in
MNC’s actions lies in making their activities beneficial both to them and the natives.

CAUX ROUND TABLE: PRINCIPLES FOR BUSINESS

In the context of promoting world trade in a principled manner, the Caux Round Table (CRT) has done yeoman
service. The CRT, an international network of principled business leaders working to promote a moral
capitalism was founded in 1986 by Frederick Phillips, former President of Phillips Electronics and Oliver
Giscard d’Estaing, former Vice-Chairman of INSEAD, as means of reducing escalating trade tensions. In due
course of time, the CRT began focusing attention on the importance of global corporate social responsibility in
reducing social and economic threats to world peace and stability.

The CRT believes that business has a crucial role to play in helping to identify and promote solutions to issues
that impede the development of a society that is more prosperous, sustainable and equitable. The CRT
advocates implementation of the CRT Principles for Business through which principled capitalism can flourish
and be sustainable, socially responsible prosperity can become the foundation for a fair, free and transparent
global society. The goal of CRT is to diffuse its suggested principles, standards, benchmarks, management
concepts and practices, and understanding of a moral capitalism as widely as possible.

At the company level, the CRT advocates implementation of the CRT Principles for Business (Box 5.2) as the
cornerstone of principled business leadership. The CRT principles apply fundamental ethical norms to business
decision making. A specially designed process for incorporating the CRT Principles into the culture of a
corporation, the self-assessment and improvement process, is available for companies to use. Ethical training
for corporate boards of directors and new ethics curriculum for business schools are being developed.

To promote better outcomes for globalization, the CRT is working to raise the level of awareness of senior
business leaders, and to gather elitist opinion from around the world about new opportunities to attack global
poverty. These include legal and regulatory changes in developing countries that will improve the environment
for productive investment of foreign and domestic equity capital. The CRT is working in alliance with global
business leaders, international institutions and policy makers to improve investment environments in selected
developing countries by suggesting certain principles for governments and advocating the adoption of the 12
core ‘best practice’ standards for transparent management of national financial institutions.

The formation of the CRT was a significant step taken by senior business leaders from Europe, Japan and North
America to address global issues arising from the performance and conduct of international business. Deeply
concerned with the issue of promoting solutions to the tensions arising from trade imbalances, the CRT has
monitored the continuing changes in the economic and political landscape, and its influence has grown through
the formulation and wide circulation of its Principles for Business. The CRT Principles for Business are
recognized by many as the most comprehensive statement of responsible business practice ever formulated by
business leaders for business leaders. The CRT Principles for Business were formally launched in 1994, and
presented at the United Nations World Summit on Social Development in 1995. These principles articulate a
comprehensive set of ethical norms for business operating internationally or across multiple cultures. The
principles emerged from a series of dialogues catalysed by the CRT during the late 1980s and early 1990s. They
are the products of collaboration among executives from Europe, Japan, and the United States, and were
fashioned in a document called ‘The Minnesota Principles’.
CAUX PRINCIPLES FOR INTERNATIONAL ETHICAL BUSINESS:

In the context of ever-growing international business with its attendant problems affecting physical, social and
economic environments, there is a need to create certain ethical benchmarks to reduce potential conflicts
amongst various stakeholders and promote sustainable and equitable solutions to the problems. The CRT
Principles seek to serve a global society by offering guidelines for ethical principles for worldwide business.

Towards Worldwide Business

1.The responsibilities of business are beyond shareholders and towards stakeholders

2.Economic and social impact of business to world community
3.Beyond the law and towards a spirit of trust
4.Respect for rules
5.Support for multinational trade (GATT/WTO)
6.Respect for environment
7.Avoidance of illicit operations, for example, bribery, money laundering, support for terrorists, gun running,
drug trafficking

Stakeholders:

8.Provide highest quality of products, services, etc. at reasonable prices

9.Remedy customer dissatisfaction
10.Health and safety of customer and quality of his or her life not impaired by ‘the’ work
11.Ensure human dignity in goods or service offered
12.Respect the integrity and culture of customers

Employees:

13.Work conditions to be fair and improved consistently

14.Health and dignity of worker to be borne in mind
15.Open in dealings, share all but classified information
16.Listen to and
17.In the event of conflicts, engage in good faith negotiation where possible, act on employee suggestions,
ideas, requests and complaints and not legal wrangle
18.No discrimination on any ground
19.Put the principles of ergonomics in practice
20.Update the skills and knowledge of employees
21.Sensitive problems of employees to be tacked amicably
Owners/investors:

22.Fair and competitive return on capital by efficient management

23.Disclose all relevant information except those in the ‘classified’ list
24.Conserve, protect and increase owners’ assets
25.Respect their complaints for solutions

Suppliers:

26.Pricing to be fair
27.No coercion or litigation
28.Long-term stability

Community:

29.Human rights respected and maintained

30.Good corporate citizen through charitable donations to educational, cultural and civic needs of society

Globalization has facilitated free movement of people, capital, jobs and enabled trade and information and
businesses to operate in a borderless manner. Consequently the role of nation states has become less important
leading to the development of ‘soft’ laws, that is, the effect of international conventions and bilateral treaties
being used by NGOs as representing society’s expectations of conduct, in advance of their adoption into the
laws of individual nation states. Reluctant as some corporations have traditionally been to go beyond their
operational objectives, the time has come for the roles of corporations, governments and other institutions to be
significantly redefined—a time for new partnerships and greater cooperation at a global level.