Business Ethics in the Global Environment

ethical issues could be related to “individual decision-making, organizational design, the structures and the rules of the industry, or societal and legal
aspects, or have a global dimension".

Privatization and deregulation of trade policies, elimination of trade barriers among countries, along with rapid development of information and communications technologies, facilitated globalization especially after World War II. As a result of these developments, the borders among countries are minimized creating a new global economy.

It was first defined by Theodore Levitt in 1983, since then has become an ongoing worldwide phenomenon.

Globalization is in short “action at distance” as defined by Giddens (1994); or the spread of resources and connections among individuals as defined by Scholte (2008). According to Friedman (1999), the world became a global village with  globalization which he defined as “the integration of capital, technology and information across national borders, creating a single global market and to some extent a global village”.

According to Friedman (2005) Globalization 1.0 started with discovery of the New World by Columbus; covering the era from 1492 to about 1800, this period was characterized by nationalism and religion so the focus was on industrial production of companies. Starting from 1800, Globalization 2.0 continued until  the beginning of the 21st century. This period is characterized by the development of multinational corporations. Globalization 3.0 began in 2000 and the period since then is characterized by advancements in technology and communications. Recently, it has been discussed that the fourth period of Globalization (4.0) began with the automation and smart services in every aspect of life. These ongoing developments will continue to make the world more flatter by removing the borders

Globalization provides opportunities for companies. The main benefits of globalization in general is about increasing international trade and provision of alternative goods and services, foreign direct investments, flow of capital among nations, contribution to employment by providing job opportunities  internationally, and advancement of technology. As well as nations, companies also benefit from globalization by outsourcing their operations and gaining cost advantages, accessing to different resources that are not owned in their home
countries and besides having the opportunity to sell their products/services to a larger market.

Such companies are named as multinational enterprises (MNEs); they are also
called either as multinational companies (MNCs) or transnational corporations (TNCs).

The first MNE is often considered as ‘British East India Trading Company’ which
was founded in 1600. The motivation of the first MNEs in the 17th century was trading activities and territorial acquisitions in Asia, Africa and Americas. Later in the late 19th century following the industrial revolution, modern MNEs started to
emerge, and their activities grew especially after the Second World War (OECD Policy Note, 2018).

The main reasons for MNEs extension to other countries are to increase their profits with access to international markets; to gain cost advantages by benefiting from low cost of natural, human and financial resources. MNEs prefer to locate their activities especially in developing countries in order to benefit from low-cost advantages and resources and to access a large market for promoting their products since these countries have high population rates.

Weiss (2014: 544) summarizes the criticisms for MNE practices in host countries as follows;
• MNEs can dominate and protect their core technology and research and development (R&D), thus keeping the host country a consumer, not a partner or producer.
• MNEs can destabilize national sovereignty by limiting a country’s access to critical capital and resources, thereby creating a host-country dependency on MNE’s governments and politics.
• MNEs can create a “brain drain” by attracting scientists, expertise, and talent
from the host country.
• MNEs can create an imbalance of capital outflows over inflows. They produce but  emphasize exports over imports in the host country, thereby leaving local economies dependent on foreign control.
• MNEs can disturb local government economic planning and business practices by exerting control over the development and capitalization of a country’s infrastructure. Also, by providing higher wages and better working conditions, MNEs influence and change a country’s traditions, values, and customs. “Cultural imperialism” is imported through business practices.
• MNEs can destroy, pollute, and endanger host-country and environments and the health of local populations in less developed countries.

Ghemawat (2001) suggested that the world is not flat but it is semi-globalized and multidomestic. The author indicates the importance of national differences, and identified barriers for cross-border economic activity under the framework named CAGE, which stands for distance among countries in terms of Culture,
Administration (refers to administrative similarity among countries), Geography (represents distance also including transportation, time zones, shared borders), and Economics (indicates differences of demographic and socioeconomic conditions, such as income level).

Relativism is simply the belief that ethical values and beliefs of one culture are not better than others. In accordance, it had been difficult to develop global standards for the conduct of businesses, due to such differences between countries. Since no universal standards exist to judge decisions as ethical or not,
according to the relativist view, businesses should obey the moral standards of the host country where they have their operations. This arises as an important disadvantage of relativism, due to possible conflicts between individual and corporate standards. MNEs often use common corporate standards all throughout their global operations; but it is difficult for local managers to adopt such standards since they have different values due to economic development and socio-cultural background of their home countries.

Absolutism is the opposite view of relativism, which indicates that depending on universal ethical standards, the companies should conduct the behavior of their home countries while they operate in host countries. Because of this, Fisher and Lovell (2003) defined ethical absolutism as ethical colonialism. Since, businesses act on their own values when taking their decisions in other countries; they face important challenges because it will be probably difficult to adapt their values  and standards to other cultures.

The global ethical issues Ast (2018) classified are; labour standards, environmental standards, human rights, cultural diversity and corruption.

Most of the time, the facilities that employ child labour is defined as sweatshops, which are usually factories that abuse their workers, by making them work in immoral and inhumane working conditions including long working hours and  unsafe environments, and paying them much less than minimum wages. Nike was one of the MNEs accused of using sweatshops to produce its footwear and apparel products in developing countries such as China, Taiwan, Pakistan. The company faced boycotts from consumers for company goods produced in the sweatshops in which most of the employees were children.

The UN defines human rights as “rights inherent
to all human beings, regardless of race, gender,
nationality, ethnicity, language, religion, or any other
status”. Human rights include the right to life and
liberty, freedom from slavery and torture, freedom
of opinion and expression, the right to work and
education, and many more. Everyone is entitled to
these rights, without discrimination. Fundamental
human rights to be universally protected for the
first time were set by The Universal Declaration of
Human Rights (UDHR). This Declaration which
is regarded as a milestone document in the history
of human rights, was proclaimed by the United
Nations General Assembly in Paris on 10 December
1948, as a common standard of achievements for
all peoples and all nations (http-13). In June 2011,
in order to prevent, address and remedy human
rights abuses committed in business operations,
the UN endorsed Guiding Principles on Business
and Human Rights, as a set of guidelines for
states and companies. The guideline consists of 31
principles under three pillars that are, state duty to
protect human rights, corporate responsibility to
respect, and access to remedy if these rights are not
respected (http-14).

Human Rights: Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 make sure that they are not complicit in human rights abuses.
Labour :Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 the elimination of all forms of forced and compulsory labour Principle 5 the effective abolition of child labour; and Principle 6 the elimination of discrimination in respect of employment and occupation.
Environment: Principle 7 Businesses should support a precautionary approach to environmental challenges; Principle 8 undertake initiatives to promote greater environmental responsibility; and Principle 9 encourage the development and diffusion of environmentally friendly technologies.
Anti-Corruption : Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery.

With the increasing interest towards social entrepreneurship, new business models putting people at the center were also developed, which are in general called sharing-economy; online platforms like Uber and AirBnB are wellknown examples.

A social entrepreneur is defined as “a person who pursues novel applications that have the potential to solve community-based problems”; these individuals are willing to take on the risk and effort to create positive changes in society through their initiatives (http-23).

Social entrepreneurship become popular when founder of Grameen Bank, Professor Muhammad Yunus was awarded Nobel Peace Prize for 2006 for the work to “create economic and social development from below”. Grameen Bank’s
objective which is founded by Muhammad Yunus, since its establishment in 1983 has been to grant poor people small loans on easy terms, which is called as ‘micro-credit’ (http-25). Over the last two decades, Grameen Bank has loaned out over 6.5 billion dollars to the poorest of the poor, while maintaining a repayment rate consistently above 98%. The innovative approach to poverty
alleviation pioneered by Professor Yunus in a small village in Bangladesh has inspired a global microcredit movement reaching out to millions of poor women from rural South Africa to inner city Chicago (http-26).

The concept of ‘corporate social entrepreneurship’ is introduced to describe MNEs socially entrepreneurial behavior.Corporate social entrepreneurship refers to “embracing an economic and social mission (solving a social problem and
offering solutions for the unmet needs of the disadvantaged groups) as the primary mission; employing corporate entrepreneurial activities to achieve the mission and creating social value”.