Chapter 04 - Ethics in International Business
Ethics in International Business
Learning objectives

Be familiar with the ethical
issues
faced
by
international businesses.

Recognize an international
dilemma.

Discuss the causes of
unethical behavior by
managers.

Be familiar with the
different
philosophical
approaches to ethics.

Know what managers can
do to incorporate ethical
considerations into their
decision making.
4
This chapter looks at ethics in international business.
Ethics becomes an issue across nations because of
differing political systems, economic systems, legal
systems and cultural values. What is acceptable
behavior in one nation may be considered unethical in
another.
First, some of the more common areas where ethical
issues arise in international business such as
employment practices, human rights, environmental
pollution, corruption, and moral obligations are
explored. Then the discussion moves to the straw men
approaches to ethics. Next, the basic philosophical
theories that offer a foundation for ethical decisionmaking are examined. Finally, the roots of unethical
decision-making and how to make ethical decisions are
addressed.
The opening case on Apple’s iPod production explores
the ethical issues involved in offshore production.
Apple Computer, which outsources its iPod production
to a plant in China, was forced to investigate allegations
of unethical behavior by managers at the Chinese plant.
The closing case explores Google’s decisions regarding
its presence in the Chinese market. Google has always
made ethics a priority, but had to compromise its
position in order to expand in China.
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Chapter 04 - Ethics in International Business
OUTLINE OF CHAPTER 4: ETHICS IN INTERNATIONAL BUSINESS
Opening Case: Apple’s iPod Plant
Introduction
Ethical issues in International Business
Employment Practices
Human Rights
Environmental Pollution
Corruption
Moral obligations
Management Focus: Unocal in Myanmar
Management Focus: News Corporation in China
Ethical Dilemmas
The Roots of Unethical Behavior
Personal Ethics
Decision Making Processes
Organizational Culture
Unrealistic Performance Expectations
Leadership
Management Focus: Pfizer’s Drug Testing Strategy in Nigeria
Philosophical Approaches to Ethics
Straw Men
Utilitarian and Kantian Ethics
Rights Theories
Justice Theories
Ethical Decision Making
Hiring and Promotion
Organization Culture and Leadership
Decision-Making Processes
Ethics Officers
Moral Courage
Summary of Decision-Making Steps
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Chapter 04 - Ethics in International Business
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Google in China
CLASSROOM DISCUSSION POINT
Create a hypothetical business scenario, then ask students to consider the ethics involved.
For example, suppose a British manager pays a Saudi prince 1% of the contract he helps
negotiate in the Kingdom of Saudi Arabia.
Ask students whether the British manager acted ethically. Jot the responses of students
on the board according to whether students believe the action was ethical or unethical,
and the reasoning behind the argument.
Now, ask students about the following scenario. A U.S. law firm has box seats at all the
major professional games (baseball, hockey, basketball) and season tickets to the nearest
Big-10 conference university games. The partners take their prospective clients to these
games, wine and dine them, and play golf together at the firm’s expense at posh courses.
In ethical terms, what are the differences in these behaviors?
Do cultural differences influence responses?
OPENING CASE: Apple’s iPod Plant
Summary
The opening case explores the reaction to allegations of unethical labor practices at
Hongfujin Precision Industries, a Chinese factory that makes Apple’s iPod. When reports
of abuse first surfaced in 2006, Apple promptly launched an investigation. Upon finding
that the allegations were true, Apple took steps to correct the situation. Hongfujin,
however, responded to the allegations by filing a lawsuit against the reporters involved.
Only after Apple intervened, was the suit dropped. Discussion of the case can revolve
around the following questions.
1. In your opinion, did Apple respond appropriately to allegations of unethical behavior
in the Hongfujin plant? What, if anything, would you have done differently? What does
your response tell you about ethics at Apple?
2. When allegations of potential unethical behavior initially surfaced, Apple responded
by launching an in-house investigation. Hongfujin responded by filing a lawsuit against
the reporters involved. What do these very different reactions suggest about ethical
behavior in the U.S. as compared to China?
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Chapter 04 - Ethics in International Business
3. The labor practices used in the Hongfujin plant did not actually break the law, but
rather were simply viewed as being unethical, at least by some standards. Using rights
theories discuss the ethical issues involved in this case.
Another Perspective: To learn more about Apple’s international operation’s go to the
company’s web site at {http://www.apple.com}
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view”, then on “notes”. The following provides a brief overview of each
Power Point slide along with teaching tips, and additional perspectives.
Slide 4-3 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.
Slide 4-4 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
Another Perspective: The Carnegie Council on Ethics and International Affairs maintains
a very substantive and thought-provoking website at {http://www.cceia.org/}. This site
contains publications that comment on many of the ethical issues that surround
globalization and international business.
Slide 4-5 Employment Practices
Often employment practices differ among nations. What is the MNC’s obligation?
Should home standards be followed, even in less developed countries? Should local
standards be embraced? What is the right basis for employment-related ethical
decisions?
Slide 4-6 Human Rights
The idea of what constitutes human rights varies considerably across national borders.
How can the tensions that this reality fosters be reconciled?
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Slide 4-7 Environmental Pollution
Ethical issues arise when environmental regulations in host nations are far inferior to
those in the home nation.
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.
Another Perspective: Consumers International
{http://www.consumersinternational.org/}is 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 explore some of the organization’s current efforts.
Slides 4-8-4-9 Corruption
The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to
foreign government officials in order to gain business.
Slide 4-10 Moral Obligations
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.
Slide 4-12 Ethical Dilemmas
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
The ethical obligations of a multinational corporation toward employment conditions,
human rights, corruption, environmental pollution, and the use of power are not always
clear cut
Slide 4-13-4-14 The Roots of Unethical Behavior
The causes of unethical behavior are complex and reflect:
 Personal ethics
 Decision-making processes
 Leadership
 Unrealistic performance expectations
 Organizational culture
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Slide 4-16 Personal Ethics
Business ethics reflect personal ethics (the generally accepted principles of right and
wrong governing the conduct of individuals). The personal ethical code that guides our
behavior comes from a number of sources, including our parents, our schools, our
religion, and the media.
Home country managers working abroad in multinational firms may experience more
than the usual degree of 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.
Slide 4-17 Decision-Making Processes
Business people sometimes do not realize that they are behaving unethically simply
because they fail to ask the relevant question—is this decision or action ethical?
Slide 4-18 Organizational Culture
The term organization culture refers to the values and norms that are shared among
employees of an organization.
In a company with an organizational culture that de-emphasizes business ethics, all
decisions are reduced to the purely economic.
Slide 4-19 Unrealistic Performance Expectations
When there is 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,
unethical behavior may result.
Slide 4-20 Leadership
Leaders are vital in helping a firm establish its organization culture, and setting examples.
If leaders are not acting ethically, other employees may not act ethically.
Slide 4-21 Philosophical Approaches to Ethics
There are several approaches to ethics including the straw men (the Friedman doctrine,
cultural relativism, righteous moralist, and the naïve immoralist), the Utilitarian
approach, the Kantian approach, and rights and justice theories.
Slide 4-22 Straw Men
Straw men approaches to business ethics are approaches that 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, and the
naïve immoralist.
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Slide 4-24 Utilitarian and Kantian Ethics
In contrast to the straw men, most moral philosophers see value in utilitarian and
Kantian approaches to business ethics. The utilitarian approach to business ethics dates
back to philosophers such as David Hume, Jeremy Bentham, and John Stuart Mill.
Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences. An action is judged to be desirable if it leads to the
best possible balance of good consequences over bad consequences.
Slides 4-25-4-26 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.
Slides 4-28-4-29 Justice Theories
Justice theories focus on the attainment of a just distribution of economic goods and
services. A just distribution is one that is considered fair and equitable. There is no one
theory of justice, and several theories of justice conflict with each other in important
ways. One important and influential theory of justice was set forth by John Rawls who
argued that all economic goods and services should be distributed equally except when an
unequal distribution would work to everyone’s advantage.
Slide 4-31 Ethical Decision Making
Five things an international business can do to make sure that ethical issues are
considered in a business decision are:
(1) favor hiring and promoting people with a well grounded sense of personal ethics
(2) build and organizational culture that places a high value on ethical behavior
(3) make 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
(4) put decision making processes in place that require people to consider the ethical
dimension of business decisions
(5) develop moral courage
Slide 4-32 Hiring and Promotion
Not only should businesses strive to identify and hire people with a strong sense of
personal ethics, but it is also in the interests of prospective employees to find out as much
as they can about the ethical climate in an organization.
Slide 4-33 Organizational Culture and Leadership
To foster ethical behavior, businesses need to build an organization culture that places a
high value on ethical behavior.
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Slides 4-35-4-37 Decision-Making Process
Business people need a moral compass to help determine whether a decision is ethical.
Slide 4-38 Ethics Officers
To ensure ethical behavior in a business, a number of firms now have ethics officers.
Slide 4-39 Moral Courage
It is important to recognize that employees in an international business may need
significant moral courage.
Slide 4-40 Summary of Decision Making Steps
In the end, there are clearly things that an international business should do, and there are
things that an international business should not do, but there are also actions that present
managers with true dilemmas.
CRITICAL THINKING AND DISCUSSION QUESTIONS
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 1: This question, which illustrates a potentially very real ethical dilemma
facing managers working in foreign subsidiaries, 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.
QUESTION 2: Drawing upon John Rawls’s concept of the veil of ignorance, develop an
ethical code that will (a) guide the decisions of a large oil multinational toward
environmental protection, and (b) influence the policies of a clothing company to
outsourcing of manufacturing process.
ANSWER 2: John Rawls suggests that 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.
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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 3: 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 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.
QUESTION 4: Are facilitating payments ethical?
ANSWER 4: 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. 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.
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 5: Students will probably approach this question in very different ways. Some
students will probably argue that because the “Big Man” involved is involved in
unethical behavior like drug trafficking, the manager should not even consider making
the “donation.” Other students may take the perspective that because drug trafficking is a
fact of life in some countries, this needs to be viewed differently. If the “Big Man” is
actually using his muscle to provide assistance to help the pool, then perhaps the manager
should consider making the donation.
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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 6:
a) 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.
b) Students will probably be familiar with the notion that even if something is not
explicitly forbidden, it does not mean it is right. This idea 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. 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 against villagers, Unocal did have a
responsibility to oversee what was going on and ensure that people were treated fairly.
CLOSING CASE: Google in China
Summary
The closing case explores the ethical challenges faced by Google, the Internet search
engine. Google is committed to providing unbiased results to its users. In fact, its mantra
“don’t be evil” was originally intended to send the message that Google should never
compromise the integrity of its results. This philosophy has proved to be difficult in
China, where censorship by the government threw a wrench in the company’s strategy.
Discussion of the case can revolve around the following questions.
QUESTION 1: What philosophical principle did Google’s managers adopt when deciding
that the benefits of operating in China outweighed the costs?
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ANSWER 1: When Google established a direct presence in China, it vowed to give
Chinese users “the greatest amount of information possible”. Because the Chinese
government censored politically sensitive material, Chinese users frequently were given
access to only limited information. Google, using self-censorship, blocks information as
requested by the Chinese government, but also includes a notation indicating it has done
so. Google is forced to work within the constraints of the Chinese government, but feels
it had a social responsibility to let Chinese users know that other information was
available, but that it was censored.
QUESTION 2: Do you think that Google should have entered China and engaged in selfcensorship, given the company’s long-standing mantra” Don’t be evil”? Is it better to
engage in self-censorship than have the government censor for you?
ANSWER 2: Most students will probably agree that Google made the right choice to
enter the Chinese market and censor its own site, rather than allowing the Chinese
government to do so. Unlike other search engines, Google makes it clear to Chinese
users that more information is available, but that it is being blocked by the government.
By censoring the material itself, Google has greater control over its product.
QUESTION 3: If all foreign search engines companies declined to invest directly in
China due to concerns over censorship, what do you think the results would be? Who
would benefit most from this action? Who would lose the most?
ANSWER 3: Most students will probably recognize if all companies were to decline to
invest in China because of concerns over censorship, the biggest losers would be the
Chinese people. The main beneficiary of this type of action would probably be the
Chinese government which would then maintain complete control over what information
was available to Chinese users.
Another Perspective: For more information on Google’s international operations, go to
the company’s web site at {http://www.google.com/corporate/index.html}.
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Drug Companies Conduct Research in India
Conducting Drug Trials in India
Abstract: This video explores the ethics of using India as a source of subjects for clinical
trials by multinational pharmaceutical companies.
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Key Concepts: economic development, investment, ethics, new product development,
location-specific advantages
Notes: With its vast number of sick people, India is becoming an important destination
for multinational pharmaceutical companies. Unlike traditional investment that is driven
by a search for low cost labor or materials, or a bigger market however, pharmaceutical
giants like Pfizer and Glaxo are attracted to India because of the country’s large number
of scientists, doctors, and most importantly, patients. Yet, Pfizer and Glaxo are not trying
to sell products designed to help the population get well, instead, they see the country as a
laboratory of sorts.
India has more than 30 million people that suffer from heart disease, a similar number of
diabetics, and tens of millions of other people that have been diagnosed with cancer or
psychiatric problems. Because of the poverty in the country many of these people are in
advanced stages of their illnesses and have never been medically treated making them
ideal candidates for clinical trials of new drugs. For companies, the clinical phase is one
of the most tedious, expensive, and critical steps in the development of a new drug.
Companies like Glaxo and Pfizer can shorten this stage and make it less expensive by
completing it in India where according to Dr. Vijai Kumar of Neeman Medical
International, companies can include one third more people in one third less time. The
pharmaceutical companies believe that by conducting their clinical trials in India, drugs
will eventually be more affordable everywhere.
However, concerns have been raised that the pharmaceutical giants might be taking
advantage of the situation in India. Jeffery Kahn of the University of Michigan Medical
School has suggested that some people might participate in clinical trials simply because
it is the only way they can get any sort of treatment. Kahn is concerned that many of the
study participants will not get the benefit of the new drugs. Instead, the new products
will only benefit people in richer nations. There are also concerns that the studies could
be unreliable if people lie about their medical histories because they are so desperate for
treatment. For now however, it appears that the trials will continue. Experts anticipate
that by 2010, some 2 million Indians will be involved in some sort of trial, up from just
2,000 three years ago.
Discussion Questions:
1. Why are so many pharmaceutical companies attracted to India? What are the
advantages of conducting clinical trials in India as compared to countries such as the
U.S.? Can a company in today’s hyper-competitive market afford to continue clinical
trials in its domestic market?
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Chapter 04 - Ethics in International Business
2. Consider the ethics of using India as a test market for new drugs. Should companies
like Pfizer be prohibited from conducting clinical trials in a country where many
participants may be illiterate and extremely poor? Should clinical trials be limited to only
those participants who can demonstrate a certain level of literacy and/or income?
3. The clinical trial phase of new product development is one of the most expensive and
arduous stages of getting a drug to market. If companies are criticized for moving this
process to places like India where they believe they can conduct this step in less time for
less money what will be the effect on new product development? Who are the winners
and who are the losers in the new trend of conducting clinical trials in India?
4. Concerns have been raised that the clinical trials being conducted in India may be
compromised because people are lying about their medical histories just to be included.
What are the dangers of conducting clinical trials in a nation where people are desperate
to get medical treatment of any sort, experimental or not? What are the implications of
using such trials to quickly and cheaply get a product to market?
INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following:
Title 6: The Politics of Trade in Steel
Summary: Nucor, one of America’s largest steel manufacturers/recyclers, never
supported tariffs to protect its business until recently. With 32 companies on the verge of
bankruptcy, low cost imports were forcing companies out of business, prompting a cry
for help. In 2002, in an attempt an attempt to rescue an industry that had been shrinking
for years, but still provided 160,000 jobs in the U.S., President Bush signed a law that
applied a 30% tariff to imported steel. The tariffs were scheduled to remain in place until
March 2005.
However, in 2004 the steel tariffs were dropped. Rather than saving jobs as originally
intended, the high cost of domestic steel negatively affected the domestic manufacturing
industry that consumes steel. In fact, estimates show that as a result of tariffs, job losses
among steel users exceeded those employed in the entire steel industry. Some 200,000
jobs were lost among steel users, more than the total number of jobs (187,000) in the
whole steel industry. Furthermore, because of the tariffs, other American industries such
as textiles were negatively affected thanks to the retaliatory tariffs imposed by the
European Union.
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Discussion Questions
1. Consider the pressure on President Bush to impose tariffs on imported steel. Did he
make the right decision? Did politics enter the decision?
2. The EU threatened to make retaliatory moves if the U.S. imposed barriers on steel.
Discuss the actions of the EU. Were their actions successful? Why or why not?
3. How would Adam Smith and David Ricardo respond to the pleas for help from the
companies being threatened by cheap imports? Do you agree with their response?
4. Some 200,000 jobs were lost among steel users as a result of the tariffs. Did anyone
benefit from the imposition of the tariffs? In addition to the steel users, who lost out as a
result of the tariffs?
globalEDGE™ Exercise Questions
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
Promoting respect for universal human rights is a central dimension of many countries’
foreign policy. As history has shown, human rights abuses are an important concern
worldwide. Some countries are more ready to work with other governments and civil
society organizations to prevent abuses of power. Begun in 1977, the annual Country
Reports on Human Rights Practices are designed to assess the state of democracy and
human rights around the world, call attention to violations, and – where needed – prompt
needed changes in U.S. policies toward particular countries. Find the annual Country
Reports on Human Right Practices and provide information on how the reports are
prepared.
Exercise 2
The level of perceived corruption varies from culture to culture. The Corruption
Perceptions Index (CPI) is a comparative assessment of a country's integrity performance
based on research done in Germany. Provide a description of this index and its ranking.
Identify the five countries with the lowest as well as the highest CPI scores. Do you
notice any similarities or differences in each group of five countries?
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Answers to Exercises
Exercise 1
The report can be accessed by searching for the term “Country Reports on Human Rights
Practices” at {http://globaledge.msu.edu/ResourceDesk/}. The Country Reports on
Human Rights Practices is the only source in this search, and is published by U.S.
Department of State. This resource is found under the globalEDGE category “Research:
Multi-Country”. Be sure to check the “Resource Desk only” checkbox of the search
function on the globalEDGE website.
Search Phrase: “Country Reports on Human Rights Practices”
Resource Name: U.S. Department of State: Country Reports on Human Rights Practices
Website: {http://www.state.gov/g/drl/rls/hrrpt/}
globalEDGE™ Category: “Research: Multi-Country”
Exercise 2
The report can be accessed by searching for the term “Corruption Perceptions Index” at
{http://globaledge.msu.edu/ResourceDesk/}. The Corruption Perceptions Index (CPI) is
a study posted by The Internet Center for Corruption Research. This resource is found
under the globalEDGE category “Research: Multi-Country”. Be sure to check the
“Resource Desk only” checkbox of the search function on the globalEDGE website.
Search Phrase: “Corruption Perceptions Index”
Resource Name: Internet Center for Corruption Research
Website: {http://www.icgg.org/}
globalEDGE™ Category: “Research: Multi-Country”
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