Ethics in International Business
Importance of ethics in international business
International business ethics defined
- A cereal manufacturer’s ethical standards prevent it from making unsubstantiated health claims about its products, even if its competitors make such unproven assertions in their marketing.
- An electronics manufacturer must halt production after defects are found during quality control checks of several batches even though the delay will cause it to miss the shipping date.
- An employee who learns of a financial shortfall at a confidential internal meeting is prevented by law and by the company’s ethics policy from profiting from the information in any way.
Two approaches to enforcing ethical business practices overseas
- The argument in favor of applying a single code of ethics throughout an international organization emphasizes the company’s responsibility to abide by a high ethical standard regardless of where it does business, asserting that adopting a host country’s ethical practices is a mistake because ethics should transcend cultural differences.
- Organizations that take a “when in Rome” approach to ethical standards argue that in certain situations bending ethical rules is necessary to accommodate cultural differences in business practices, as long as activity is legal in both the company’s home country and in the host country.
International business laws and regulations
- Public and private firms pursue international business deals for profit, while governments do so for political reasons.
- Transactions may involve the transfer of capital, skills, assets, or employees required to produce goods and services for domestic and foreign markets.
- International corporations are also called multinational enterprises; they take a worldwide approach to marketing and sales.
International Labour Organization standards
- The ILO’s Decent Work Agenda is designed to reduce poverty by creating jobs that are productive, pay a fair wage, and provide employees with a secure workplace. Other goals include protecting families’ social fabric, promoting personal development and social integration, and ensuring workers are free to organize and express their concerns about decisions and policies that affect their lives.
- The organization’s international labor standards includes eight fundamental conventions and four governance (priority) conventions, which include the following:
- Freedom of association and the right to organize
- Right to collective bargaining
- Abolition of forced labor
- Minimum age requirements and abolition of child labor
- Equal remuneration
- Elimination of discrimination in employment and occupations
- Labor inspection of industrial workplaces
- Promotion of full, productive, and freely chosen employment
- A tripartite approach to enforcement of the conventions that includes representatives of member governments, employers, and workers
World Trade Organization standards
- Section 321 of the Tariff Act of 1930 applies a duty and tax on shipments of qualified imports with a fair retail value greater than $800.
- Foreign Trade Zones (FTZ) located in or near CBP ports of entry serve as free-trade zones where the normal entry procedures and payment of duties are not enforced.
- The CBP enforces export regulations for various other U.S. government agencies via export licenses issued as part of the Automated Export System that exporters use to file information with the CBP and the Census Bureau.
- The Enforce and Protect Act of 2015 empowers the CBP to investigate attempts by companies to evade anti-dumping and countervailing duties, which are fees added to goods that exporters have underpriced in an attempt to gain an unfair competitive advantage (a practice known as dumping).
Global ethics standards
- The Global Alliance Code of Ethics is a set of principles and statements regarding ethics in international business communication and public relations. Among its guiding principles and principles of professional practice are the following:
- Obey laws and respect local customs.
- Work in the public interest.
- Engage in honest, truthful, and fact-based communication.
- Practice transparency and disclosure.
- Honor privacy.
- Act with integrity.
- Recognize freedom of speech, assembly, and media.
- Avoid conflicts of interest.
- The IMA’s Statement of Ethical Professional Practice was initially created in 2005 in the wake of a series of global financial scandals that shook public confidence in corporate practices. It describes standards in four areas.
- Competence includes maintaining a level of professional leadership and expertise.
- Confidentiality extends beyond legally required confidentiality to cover informing partners of their duty of confidentiality.
- Integrity encompasses avoiding conflicts of interest, acting in ways that promote the profession, and contributing to a positive ethical culture.
- Credibility requires that information is communicated fairly and objectively, and that all relevant information is communicated to partners and stakeholders in a timely manner.
Intellectual property regulations
Resources on international business laws and regulations
- Business & Human Rights Resource Centre, UNGPs Guidance & Implementation — The U.N.’s Guiding Principles on Business and Human Rights for ensuring companies act responsibly and respect human rights, explained using an interpretive guide and other resources
- S. International Trade Administration, Foreign Import Regulations — The regulations, testing, labeling, and licensing requirements imposed on U.S. exporters by foreign countries, presented along with information on U.S. export regulations and trade agreements
International communication and cultural barriers in business
What are cultural barriers in business?
- Forms of address: In the U.S. and the United Kingdom, business associates commonly address each other by their first names even if they have just met. However, in Germany, Japan, China, and many other countries, addressing a business colleague by their first name is perceived as a sign of disrespect. In such nations, it is more common to address a colleague by their title and surname.
- Public criticisms: In most business organizations in Europe and North America, employees are encouraged to respectfully express their business-related opinions, even if they contradict those of their managers. Doing so in many Asian countries and other parts of the world would be seen as a challenge to the senior manager’s authority.
- Indirect communication: Voicing a contrary viewpoint is common in the U.S., but other cultures prefer an indirect approach that hints at the response through gestures or figures of speech. Simple actions such as loosening a tie, rolling up one’s sleeves, or taking the wrong seat in a meeting can be perceived as offensive in some business settings.
- Forms of agreement: For most business people in the U.S., the goal of negotiations with another company is a formal signed agreement. Other cultures measure progress in negotiations incrementally by establishing trust and mutual understanding through a series of meetings and other interactions prior to signing a final contract.
How culture affects establishing trust in business dealings
- Patience is key to staying open to the various ways other cultures build a trusting relationship. In some countries, such as the U.S., people tend to trust one another more readily than they do in others, including Argentina and Brazil, for example.
- For some, the best approach to earning another person’s trust is to ask them questions about their background, beliefs, and culture. However, some cultures discourage people from opening up to their superiors, so such conversations should take place in casual, one-to-one settings.
- Earning trust requires demonstrating through actions and accomplishments that the business can be counted on to deliver results and be true to its word. Businesses build credibility by making good on small promises and being courteous and respectful in all their interactions within and outside the organization.
Barriers to business communication
- Low-context cultures are prevalent in Europe and North America. They are characterized by direct and precise communication, but negative feedback tends to be delivered indirectly.
- High-context cultures include Russia and much of Asia. In these countries, communication is more subtle and implicit, but negative feedback is usually direct.
Anticipating and overcoming language and cultural miscommunication
- Social organization: An example of miscommunication due to social differences is the approach to hiring relatives, which is generally frowned upon in much of Europe and North America but is common in the Middle East and many parts of Africa and Latin America.
- Concepts of authority: Countries such as Israel and Sweden have relatively decentralized management structures in which participation in management is encouraged, while other countries, including France and Belgium, rely on authority-based decision-making that discourages staff’s active participation.
- Nonverbal communication: Body language, choice of apparel, eye contact, touching, and concepts of personal space vary widely from culture to culture. Businesses can avoid cultural miscommunication by observing and learning about how people conduct business and interact in their trading partners’ countries.
Resources on overcoming cultural barriers in international business dealings
- Forbes, “Does Your Presentation Leap Cultural Barriers?” — Tips for ensuring that business presentations communicate the intended message to non-Western audiences
- Emerging Europe, “Uncovering the Value of Effective Cross-Cultural Communication for Tech Businesses” — An examination of the cultural communication challenges faced by technology companies, including differences in leadership styles and management approaches in the tech sector
Outsourcing and offshoring for business
- Outsourcing is the transfer of parts of a company’s operations to outside suppliers or other third parties, typically to reduce costs and minimize internal infrastructure. It is popular for accounting and legal activities, as well as software development and tech support.
- Businesses benefit from outsourcing through lower labor costs, the savings from which can be used to reduce the price of their products.
- Offshoring is often associated with the use of financial services outside the U.S. as a means of evading taxes or profiting from less stringent regulations. However, the term also applies to the partners in a firm’s global supply chain.
- In addition to saving money, offshoring expands the potential talent pool for jobs requiring the skills in greatest demand.
- Some businesses create captive offshore units rather than entering into contracts with overseas third parties.
Safe working conditions for overseas employees
- Complying with workers’ rights and providing healthy, culturally sensitive working conditions
- Following diversity guidelines in hiring practices
- Operating in an environmentally sustainable manner
International standards and regulations for protecting workers
- In 2020, the ILO initiated an effort to improve working conditions in global supply chains. The goal of the project is to bring together governments, employers, and trade union representatives to assess standards for safe working conditions among supply-chain partners around the globe.
- The Fair Labor Association’s Code of Conduct for supply chains is based on ILO standards and on good labor practices accepted in countries around the world. The code covers employment relationships, nondiscrimination, harassment and abuse, forced labor, child labor, compensation, work hours, and health and safety.
- The International Organization for Standardization (ISO) has issued guidance for employers and workers to manage the risks of operating during the COVID-19 pandemic. The guidance covers planning, risk assessment, leadership, worker participation, working from home, working from mobile locations, and emergency preparedness and response.
Ethical international outsourcing
- Patagonia recreated its entire global supply chain to make it eco-friendly and safe for workers. The company offers health insurance and other benefits to all of its employees.
- Starbucks sells 100% sustainably sourced coffee and pays fair prices for all of the coffee it buys to ensure all parts of the coffee-growing process are performed ethically.
- Clothing retailer H&M’s dedication to transparency is shown in its list of nearly all suppliers’ names and addresses, which it updates quarterly. The company plans to use only recycled or sustainably sourced materials in its products by 2030.
- The Pepper Snapple Group publishes its ethical policies on its website, including the code of conduct the company expects all suppliers to adopt. It is working to reduce its use of water and its packaging waste.
Vetting the values and ethics of potential international business partners
- The Foreign Corrupt Practices Act applies to a company’s suppliers, which means the company is liable for any violation of the act by suppliers, such as a bribe to local government officials.
- Shell companies sometimes operate as legitimate businesses that redirect business to firms the U.S. government forbids U.S. companies to contract with.
- Remote assessment tools and mobile cameras allow virtual visits to supplier sites and interviews with a diverse group of the suppliers’ employees.
Resources on outsourcing and offshoring for business
- The Balance Careers, “Offshoring: The Pros and Cons” — An examination of trends in offshoring since the 1980s and the benefits and costs of the practice
- SmartAsset, “The Pros and Cons of Outsourcing” — A look at the economic gains from outsourcing contrasted with the social and environmental costs and the potential risks to companies