BBA Study Material Ethical Issues in Global Business

BBA Study Material Ethical Issues in Global Business

BBA Study Material Ethical Issues in Global Business

BBA Study Material Ethical Issues in Global Business

BBA Study Material Ethical Issues in Global Business
BBA Study Material Ethical Issues in Global Business


GE, Coca-Cola, and Land Tetc. are some of the most successful global firms that operate in other countries. While operating globally, MNC’s encounter number of ethical issues. This chapter examines some of these issues.

Multinational Company-An Overview

Multinational Companies are companies that have significant investments in several countries, which derive a substantial part of their income from foreign operations. Some theorists argue that a business becomes truly international only when it has a substantial number of shareholders in more than one country. Others hold that a firm is truly multinational, only when top senior mangers are recruited from different countries. According to some analysis, an MNC is accompany that has subsidiaries in many countries.

Reasons for companies Going Global

One of the reasons for companies going global is that this helps them to reduce sourcing and distribution costs. Other advantages being :

Lower wage rates Reduced transportation cost The opportunity to be closer to the suppliers Saturation of local markets To maintain growth rate To exploit opportunities in new markets Recession or domestic completion

According to some analysis, MNC’s are agents of change and process, helping to create a worldwide economic order based on rationality, efficiency, and the optimal use of resources. They bring in plant and equipment into a country that would have otherwise found difficult to acquire along with these, MNC’s also bring with them skills and technology required to run their operations. They also bring in ideas and practices that improve the research and development infrastructure of the host country.

Ethical issues in multi-national companies

The view that MNC’s allocate resources across the globe in an optimal manner rests on the proposition that the World’s resources are best utilized through the integrity of unfettered market forces. But at the same time it distorts market free mechanism in some areas that upset the entire worldwide resource allocation process. BBA Study Material Ethical Issues in Global Business

MNC’s have been accused of indulging in unethical practices in several areas. Following are the areas:

  1. Political Activities: MNC’s have been accused of:
  • Supporting repressive regimes
  • Paying bribes to secure political influence
  • Not respecting human rights
  • Paying protection money to terrorist groups .
  • Establishing national governments of which they do not approve.
  1. Sales, Marketing and Advertisement
  • The practices of MNC’s in these areas raise the following ethical issues :
  • Their advertising and marketing methods sometimes undermine ancient cultures and
  • Some MNC’s engage in misleading and deceitful advertising in third World countries.
  • Some of the marketing practices promote goods that waste valuable resources in poorer nations.
  • Many MNC’s provide products that are inappropriate to local needs.
  • MNC’s do not always accept responsibility for unsafe products.
  • Environmental degration.
  1. Environmental : Environmentalists criticize multinational companies for:
  • Depleting natural resources.
  • Polluting the environment Not paying compensation for environment damage.
  • Causing harmful changes in local living conditions.
  • Paying little regard to the risks of accidents and causing major environmental
  1. Technology: Most MNC’s do not develop technologies that are relevant to the needs of host nations. They find it cheaper to transfer an-existing technology to a foreign country than to devise a new one that is better suited to local conditions. Other unethical practices in this area include:
  • Not encouraging in research and development in host countries.
  • Encouraging brain drain from poorer countries.
  • Making host countries technologically dependent on the home country.
  • Not giving local employees access to information about key technologies.
  • Not training local national in the use of imported technologies,
  • Not transferring latest technology
  • Dumping old or outdated technologies to earn revenues.
  1. Economic Activities: MNC’s have impeded rather than facilitating economic development of many poorer countries, through concentrating economic activity in few countries instead promoting balanced economic development among developing countries across the world. MNC’s operations in underdeveloped countries have led to dual economic structures with foreign-owned capital -intensive high-technology high-productivity industry sectors operating in parallel with labour-intensive low-productivity industries. BBA Study Material Ethical Issues in Global Business

The foreign-owned sectors exported most of their outputs at lower price. The technical progress not only resulted in higher incomes for local residents, but also lowered the process, which favor consumers in developed nations. And lower import prices for advanced countries further stimulates their economic development, enabling them to dominate he world.

MNC’s sometimes choose to import raw materials for their foreign subsidiaries rather than procure them locally. Scarce foreign exchange is used to pay for the imports and the host country’s balance of payments suffers.

  1. Personnel Management and Industrial Relations : Some of the unethical practices of MNC’s in the area of Human Resource Management include:  
  • Refusal to recognize trade unions who engage in collective bargaining.
  • Not ensuring equal opportunity policies for all in the workplace.
  • Using expatriate staff for all significant managerial positions.
  • Ignoring the occupational health and safety needs of local workers.
  • Exploiting host country labor.
  • Not involving local employee’s in management decision-making.
  • Trade Unions in some Western countries have criticized MNC’s for:
  • Exporting jobs through investment in foreign production.
  • Exploiting low-paid foreign workers.
  • Transferring skills to other nations and enabling the latter to compete more fiercely in the home country market.
  • Taking advantage of the benefit of the tax advantage, investment grants and subsidies offered by foreign governments.
  • Circumventing home country laws on business competition, labour relations, etc., through shifting production among countries.

Regulatory Actions In Acquisitions Of Ethical Business

The US has been able to attract many MNC’s to invest in US business. MNC’s of all countries have to obtain formal approval before acquiring a US company. The Inter agency Committee on Foreign Investment supervises the process of granting approval. The committee was set up with the aim of preventing foreign firms from gaining control of US businesses. Many other countries also require MNC’s to obtain government clearance before establishment a new operation or purchasing on ongoing business. This kind of regulation ensures that the government remains in control of the economy.

A few European countries are limiting the business transactions of MNC’s. The European Community is imposing new regulations on MNC’s, making it difficult for them not to locate Europe as a business community. For instance, the new regulations do not encourage Japanese auto manufacturers to enter the EC, as there is likelihood that Japanese would dominate.

Social Obligations In Global Business

Countries such as the US and Japan are making an effort to carry out their social obligations. For instance, the US is developing a ethical code for its global operations and Japan is helping third-world countries deal with their economic problems.

The bribery scandal of the 1990s in the US led to the development of the Foreign Corruption Practices Act. According to this act, it is illegal to influence foreign officials through personal payment or political contributions. The objective of the act was to prevent US MNC’s from initiating corruption in foreign government and to upgrade the image of business within the US and outside the US.

Detractors argued that this act would decrease in international business, especially in those countries where bribery is viewed as a way of doing business. But this controversy had a little or no affect on the US Government.

Japan assists underdeveloped countries by providing food, machinery and equipment. Many third world countries that borrowed huge amounts to improve their economic conditions are now finding it difficult to repay their debts. The US and Japan have taken a lead in providing assistance to those countries that are unable to pay their debts. The assistance includes debt

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