CHAPTER 10 -Globalization of Ethical Decision Making PDF

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CHAPTER 10 - Globalization of Ethical Decision Making 1 TABLE OF CONTENT  Summary  Global Culture, Values, and Practices  Economic Foundations of Business Ethics  Multinational Corporations (MNCs)  Global Cooperation to Support Responsible Business  Global Ethics Issues  The Importance of Eth...

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CHAPTER 10 - Globalization of Ethical Decision Making

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TABLE OF CONTENT       

Summary Global Culture, Values, and Practices Economic Foundations of Business Ethics Multinational Corporations (MNCs) Global Cooperation to Support Responsible Business Global Ethics Issues The Importance of Ethical Decision making in Global Business

SUMMARY  Advances in communication, technology, and transportation have further minimized the world’s borders, creating an ever more interconnected global economy.  This chapter discusses how transactions across international boundaries define global business, and how the variety of cultures and expectations around the globe complicates the topic of business ethics. International businesspeople must understand the values, cultures, and ethical standards of his or her home country, as well as every country in which his or her firm conducts business.  Formal codes of conduct are less common internationally, and the topics of principle concern shift between countries and across time. Major concerns today involve global risks, legal approaches to business ethics, and compliance measures. Insufficient understanding of the complexity of global business can destroy trust and do lasting damage to a firm.

SUMMARY  This chapter examines these topics, as well as the role of international organizations like the IMF, the UN, and the WTO in shaping international business. It will help students to learn about the cultural differences between nations and how they can affect common business practices, as well as to gain a general awareness of global ethical issues.  This chapter aims to help students understand, and possibly avoid, the ethical quagmires that exist in the global business environment.

GLOBAL CULTURE, VALUES, AND PRACTICES

GLOBAL CULTURE, VALUES, AND PRACTICES Global Business  Global business is a practice that brings together people from countries that have different cultures, values, laws, and ethical standards.  Country cultural values are specific to groups, sects, regions, or countries that express actions, behavior, and intent.

Next, a video on Scott Szwast: The global business next door

GLOBAL CULTURE, VALUES, AND PRACTICES National culture National culture consists of everything in our surroundings that is made by people—both tangible items and intangible things such as concepts and values.  Each nation has a distinctive culture and distinctive beliefs about what business activities are acceptable or unethical.  Many nations also have distinct subcultures.

GLOBAL CULTURE, VALUES, AND PRACTICES National culture

 Geert Hofstede identified four cultural dimensions that can have a profound impact on the business environment.  Individualism/collectivism refers to how self-oriented cultural members are in their behavior  Power distance refers to the “power inequality” between superiors and subordinates  Uncertainty avoidance refers to how members of a society respond to uncertainty or ambiguity.  Masculinity/femininity

Power distance

Uncertainty avoidance

Individualism/collectivism

Masculinity/femininity

Cultural Dimension

Next, a video on Hofstede's Cultural Dimensions Theory

GLOBAL CULTURE, VALUES, AND PRACTICES National culture  The self-reference criterion (SRC) is the unconscious reference to one’s own cultural values, experiences, and knowledge.

Cultural Values

Experience

Knowledge

Self Reference Criterion

GLOBAL CULTURE, VALUES, AND PRACTICES National culture  Businesspeople tend to fall into the thinking of cultural relativism, the concept that morality varies from one culture to another and that “right” and “wrong” are defined differently. In other words: “When in Rome, do what the Romans do.”

Concept of What is Right

Cultural Relativism Concept of What is Wrong

GLOBAL CULTURE, VALUES, AND PRACTICES  Global common values are shared across most cultures.  Although divergent religious values and other aspects of culture can create ethical issues in international business, many cultures share desirable and undesirable common values such as  Desirable common values: Integrity, family and community unity, equality, honesty, fidelity, sharing and unselfishness  Undesirable common values: Ignorance, pride, egoism, selfish desires, lust, greed, adultery, theft, deceit, lying, murder, hypocrisy, slander and addiction

Undesirable common values

Desirable common values

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS  The last economic recession highlighted the fact that firms were taking extreme risks, bending rules, and engaging in unethical activity.  A major part of the problem was an excessive focus on rewards and the bottom line that pervaded the global financial industry.

Excessive Focus on Profit

Extreme Risk Taking

Economic Calamities Rules Bending

Unethical Activities

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS 2008 Global Economic Crisis  Risk compartmentalization occurs when various profit centers within corporations are unaware of the consequences of their decisions on the organization as a whole. No one person can be blamed, as problems were systemic.  Economic and social disasters intensify the risks and challenges global businesses will encounter.  National disasters can also destabilize economies and affect the economic system.  The world is still coping with the after effects of the last global recession, which caused massive distrust in the stability of governmental institutions as well as the responsibility of those who manage the money of individuals, corporations, and countries.

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems  An economic system (also economic order)[1] is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community.  As such, an economic system is a type of social system. The mode of production is a related concept.[2] All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities and who receives the output of production.  https://en.wikipedia.org/wiki/Economic_system

Next, a video on Types of Economic Systems

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems  Main types Capitalism

 Capitalism  Socialism  Mixed Economy  To understand capitalism and what people are beginning to perceive as its shortcomings, one needs a historical review of key figures and concepts.

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems Capitalism Capitalism

 To understand capitalism and what people are beginning to perceive as its shortcomings, one needs a historical review of key figures and concepts.

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Capitalism Key Figures and Concept  Adam Smith was a 19th century professor of logic and moral philosophy and is considered the father of modern free market (laissez-faire) capitalism and economics. Smith believed that the market has its own internal set of checks and balances that help the system to self-regulate. Smith believed, in order for the market to work properly, ethical people must guide businesses.

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Capitalism Key Figures and Concept  John Maynard Keynes is the father of the second incarnation of capitalism that gained traction in the 1930s. Keynes believed that the private sector, in order to stimulate growth and improve stability, occasionally needs help from government intervention. Keynesian economic policies were widely employed during the 1930s and into the 1940s.

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Capitalism Key Figures and Concept  Milton Friedman represents the most recent form of capitalism, which represented a swing to the right politically. Friedman stood for a return to the selfregulating free- market capitalism espoused by Smith. Friedman called for widespread deregulation. His ideas took off during the 1980 Reagan years in the United States.

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Capitalism Key Figures and Concept  Both Keynes and Friedman believed that  People have rational preferences among outcomes that can be identified and associated with value  Individuals seek to maximize utility, and firms seek to maximize profits  People act independently on the basis of full and relevant information

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems - Socialism  Socialism refers to economic theories advocating the creation of a society in which wealth and power are shared and distributed evenly based on the amount of work expended in production.

Capitalism

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Socialism

 Modern socialism was a working-class political movement that emerged in the 19th century

Capitalism

 Karl Marx was one of socialism’s most famous advocates  Social democracy formed in the 1940s as an offshoot of socialism. It allows for private ownership of property, but also has a large government that provides a wide range of services to citizens.

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Mixed  Theoretically, it refer to an economic system that combines one of three characteristics: public and private ownership of industry, market-based allocation with economic planning, or free markets with state interventionism.

 In practice, "mixed economy" generally refers to market economies with substantial state interventionism and/or sizable public sector alongside a dominant private sector. Actually, mixed economies gravitate more heavily to one end of the spectrum.

Capitalism

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economic Systems – Mixed  Notable economic models and theories that have been described as a "mixed economy" include the following:  American School  Dirigisme  Indicative planning, also known as a planned market economy  Japanese system  Nordic model  Progressive utilization theory  Social corporatism  Social market economy, also known as Soziale Marktwirtschaft  Socialist market economy  State capitalism

Capitalism

Types of Economic System Mixed

Socialism

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Bimodal Wealth Distribution

Large multinational corporations have created unprecedented concentrations of wealth and power that lie, not with states, but with private corporations.  This has led to bimodal wealth distribution, which occurs when the middle class shrinks, resulting in highly concentrated wealth amongst the rich and large numbers of poor people with very few resources.

Rich and Middle Wealthy Class Class

Next, a video on Income and Wealth Inequality

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economics School of Thought  There are two main schools of economic thought  Rational economics is based on the idea that people are rational and will base their decisions on maximizing their utility based on the amount of resources available to them. It also assumes that people act independently on the basis of full and relevant information.

Rational

Behavioural

Economic School of Thought

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS Economics School of Thought  Behavioral economics assumes that humans may not act rationally because of a variety of influences such as genetics, learned behaviors, and heuristics (rules of thumb).

Rational

Behavioural

Economic School of Thought

Next, a video on Behavioral Economics

ECONOMIC FOUNDATIONS OF BUSINESS ETHICS United States Style of Capitalism  Capitalism is one of the United States’ many cultural exports.  The United States practices one kind of capitalism, but there are many forms.  The last recession, combined with the collapse of some of the world’s largest financial firms has dampened global enthusiasm for capitalism in general.  There is a general consensus that corporations should practice corporate social responsibility as a means of improving performance and reputation along with avoiding some of the pitfalls of capitalism.

MULTINATIONAL CORPORATIONS (MNCS)

MULTINATIONAL CORPORATIONS (MNCS)  Multinational Corporations (MNCs) are public companies that operate on a global scale without significant ties to any one nation or region.  They represent the highest level of international business commitment and are characterized by a global strategy of focusing on opportunities throughout the world.

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism Because of their size and financial power, MNCs have been the subject of much ethical criticism, and their impact on the countries in which they do business is controversial.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  Critics believe that the size and power of MNCs create ethical issues related to the exploitation of both natural and human resources. Critics also accuse MNCs of exploiting the labor markets of host countries.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  Some countries refuse outright to allow MNCs in.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  The activities of MNCs may also raise issues of unfair competition.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  Some MNCs strive to be good global citizens with strong ethical values.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism Exploitation by MNCs

 Because of increased stakeholder scrutiny and growing pressures to be sustainable and socially responsible, many corporations belong to Business for Social Responsibility, which is a globally based research system that tracks trends and issues and provides resources for corporations.  https://www.bsr.org/

MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  Although MNCs are not inherently unethical, their size and power often seem threatening to less-developed countries.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization MNCs vs. Less Developed Nation US MNCs vs World MNCs

MULTINATIONAL CORPORATIONS (MNCS) Subjects of Ethical Criticism  The U.S. model of the MNC is fading over time as countries such as China, India, Brazil, and South Korea continue to grow.

 Regardless of the MNC model, ethics and social responsibility are always important— particularly in MNCs because of their strong international presences.

Exploitation by MNCs MNCs refused entry to market Unfair competition MNCs as global citizen BSR Non Profit Organization

MNCs seem threatening US MNCs vs World MNCs

Next, a video on Chinese Multinationals

GLOBAL COOPERATION TO SUPPORT RESPONSIBLE BUSINESS

GLOBAL COOPERATION TO SUPPORT RESPONSIBLE BUSINESS  Global organization agencies and their roles in supporting ethical and responsible business

International Monetary Fund

 International Monetary Fund  United Nations Global Compact Global Agencies

 The World Trade Organization (WTO) The World Trade Organization (WTO)

United Nations Global Compact

GLOBAL COOPERATION TO SUPPORT RESPONSIBLE BUSINESS  The International Monetary Fund emerged from the Bretton Woods agreement of 1944, where a group of leaders decided that the responsibilities for the regulation of monetary relationships among nations should be carried out by an extra-national body. Member states provide funds for IMF through quotas that are proportional to the size of their economies.  The IMF makes short-term loans to member countries that have deficits and provides foreign currencies for its members.

International Monetary Fund

Global Agencies The World Trade Organization (WTO)

United Nations Global Compact

Next, a video on International Monetary Fund

GLOBAL COOPERATION TO SUPPORT RESPONSIBLE BUSINESS  Its main function is to regulate monetary relationships between national economies. The organization has also taken steps to promote responsible global business conduct.  The concept of risk and IMF bailouts took on significant importance during the last global recession. Because of a massive amount of debt, the European countries of Greece, Ireland, Portugal and Spain required major bailout packages from the IMF.

International Monetary Fund

Global Agencies The World Trade Organization (WTO)

United Nations Global Compact

GLOBAL COOPERATION TO SUPPORT RESPONSIBLE BUSINESS United Nations Global Compact

 It is a set of 10 principles that promote human rights, sustainability, and the eradication of corruption.  The purpose is to create a collaborative arrangement between businesses, governments, nongovernmental organizations, societies, and the United Nations to overcome challenges and advocate for positive economic, social, and political change.

International Monetary Fund

Global Agencies The World Trade Organization (WTO)

United Nations Global Compact

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