Describe typical ethical problems that firms encounter in international business.

When markets in foreign countries offer a higher profit potential than your home market, it makes sense to expand internationally. As you prepare your expansion and research target markets in other countries, you will often find that the legal structures and ethical frameworks differ substantially from those in the United States. You have to address the legal and ethical issues of your entering these markets to make your expansion a success.

Differences in Employment Laws

Wages and the working environment in overseas locations are often inferior to those in the United States, even when you fulfill all local legal requirements. If you hire workers there, you face the issue of what pay levels and working conditions are acceptable. Applying U.S. standards is usually not realistic and often simply disrupts the established market.

An effective approach is to develop company standards which protect workers while fitting into the local economy. Your standards have to guarantee a living wage, protect the safety of your workers and establish a reasonable number of hours for the work week.

The Challenges of Corruption

Companies making payments to secure business that they would not otherwise obtain are guilty of illegal actions under the U.S. Foreign Corrupt Practices Act. The payments, even if they seem to be customary, are usually illegal under local laws as well. When your company makes such payments, it is encouraging a local system of corruption through unethical behavior. Smaller gifts, of a size that would not normally influence a major decision, are considered ethical in some societies and may be legal under local and U.S. laws.

If you find that large sums are routinely required to do any business in a country, you may want to reevaluate your decision to enter that market.

Human Rights Laws

The country into which you are expanding may not respect basic human rights. The ethical issue facing your company is whether your presence supports the current abusive regime or whether your presence can serve as a catalyst for human rights improvements. If you find that you are supporting a regime that oppresses its citizens, engages in discrimination and does not recognize basic freedoms, the ethical action is to withdraw from the market. If you find that the regime allows you to observe human rights within your organization and that your presence moderates human rights abuses, you may actively work to improve local conditions.

Pollution and Environmental Concerns

Not all foreign countries have environmental legislation that makes it illegal to pollute. Companies may discharge harmful materials into the environment and avoid costly anti-pollution measures. An ethical approach to your expansion into such markets is to limit your environmental footprint beyond what is required by local laws. An ethically operating company ensures its operations don't have harmful effects on the surrounding population.

Since your company has the knowledge and expertise to operate within U.S. environmental regulations, it is ethical to apply similar standards in your new locations.

Companies are always looking for new ways to become more competitive by providing better quality products at lower prices to its customers. Outsourcing production jobs to countries with cheaper labor costs is one way to do that. However, doing business in other countries presents US companies with ethical issues to face before opening a foreign operation.

Outsourcing Production Jobs

Wages in the US are extremely high compared to labor rates in countries such as China, India, Phillippines and Mexico and major corporations are taking advantage of these wage differentials and moving jobs overseas. Rexnord, a Milwaukee-based manufacturer of machine parts, is an example of this trend.

According to Time Inc., Rexnord announced that it was closing its Indianapolis plant and moving the operations to Mexico, where labor rates average $3 an hour compared to $25/hour for top union employees in Indiana. Three hundred workers will lose their jobs.

This trend to move jobs to low-wage countries has been followed by other major U.S corporations such as IBM, General Electric, Carrier, AT&T, Verizon and Microsoft.

Working Conditions and Standards

While outsourcing production work may result in lower labor costs, it brings social and ethical issue for management to face.

Generally, working conditions in foreign countries are worse than in the United States. Laborers often work longer hours in uncomfortable and hazardous environments with inadequate protection.

The United States created the Occupational Safety and Health Administration in 1970 to set standards for safe and healthy working conditions. Since its inception, OSHA has reduced workplace injuries and fatalities and improved safety on job sites. The downside to OSHA is that it cost money to meet and comply with these government rules and regulations.

Does an international company try to implement its home country OSHA standards or apply and accept the inferior work conditions of the host country? Compromises must often be made to have successful foreign operations.

Bribery and Corruption

Not all companies in the international marketplace play by the same rules. Take bribing public officials and foreign corporate managers. In several Latin American countries, for example, bribery and kickbacks are normal and expected as a normal part of doing business.

In the United States, the Foreign Corrupt Practices Act prohibits US companies from paying bribes to foreign government officials to gain business favors and advantages. Other developed countries don't have similar restrictive laws, and their companies are perfectly free to pay such bribes, putting US companies at a disadvantage. Germany, for example, recognizes bribes paid to foreign government officials and allows these payments as tax deductions.

As a result, managers of US corporations, who are under pressure to produce profits, sometimes resort to other means, maybe unethical, to influence foreign government officials. They may not directly violate the Corrupt Practices Act, but they might come close to it. If they do pay bribes, they have to find ways to hide the payments in the financial statements.

The pressure to produce profits strains the ethics codes of these managers to get results and keep their jobs.

Gifts and Favors

Most US corporations have standard written policies regarding the acceptance and amount allowable of gifts. Managers of foreign operations would like to have clear guidelines, but, unfortunately, no such standard can be created that crosses the culture and accepted practices of all foreign countries. Each nation is different.

Gift-giving is acceptable in most cultures, but in others, it may be considered unethical. In most European countries and Canada, giving a gift gets attention because it isn't expected. A German colleague will be particularly appreciative of a small, well-selected gift.

On the other hand, Asian counterparts do expect to receive a gift and will examine it closely for appropriateness. Certain colors of wrapping should be avoided, and, if a reciprocal gift is presented, it should never be opened in front of everyone. That's considered as greedy. A Japanese businessman expects to be impressed with a gift that reflects the level of his position. A $25,000 watch would not be unusual for a Japanese executive, whereas, in the US, a gift of this amount would likely be considered a bribe.

Understanding the local customs of gift-giving is important to doing the right thing instead of being embarrassed with an inappropriate offer.

Using Child Labor

According to data from UNICEF, over 150 million underage children in the world are working long hours in hazardous conditions. Because they live in highly impoverished countries, these children are forced to work to provide income for their families. The worst offenders are Somalia, Pakistan, India, Nigeria and Bangladesh.

Large garment manufacturers are some of the largest users of child labor because many of the tasks in the supply chain are better done by children rather than adults. Therefore, the large corporations have an economic incentive to use child labor, and they pretend they are unaware that the foreign suppliers and subcontractors are employing underage children.

Garment retailers put pressure on suppliers to keep costs down and improve shipping dates. Suppliers respond by paying low wages to the children and making them work excessive overtime hours.

Human Rights Issues

Children are not the only ones working in deplorable conditions; adults are also affected.

Unlike the United States, many foreign countries deny their citizens the right to assembly, collective bargaining, strike and even to negotiate for better wages and working conditions. Many of these countries have weak or no laws for enforcing employee rights, and workers have few avenues in which to address their grievances for unsafe work conditions.

International businesses face the dilemma of complying with work standards of their home country versus the lack of such rights in the host countries. Does a corporation try to impose its own human rights policies on the host country or accept the deplorable conditions?

In an attempt to establish global standards for human rights related to business activities, the United Nations created the Guiding Principles on Business and Human Rights.

Work Standards and Conditions

An absence of human rights policies can lead to difficulty in imposing work standards and creating acceptable work conditions.

Performance and quality standards that are well-defined and expected in the US can be difficult to apply in foreign countries. Incentives for better performance may not exist in places where employees have little or no hope for receiving higher wages or achieving better living conditions.

Workplace Diversity and Equal Opportunity

Even though much progress has been made in the US in creating a more diverse workforce and equal opportunity, the same is not true in foreign countries.

Attention has been paid in the United States to create workforces made up of different races, genders and backgrounds. Corporations work with local schools and colleges to educate and develop students with the skills needed to fill the jobs demanded in the workplace. Equal opportunity is a policy offered to anyone who wants to earn a raise or a promotion.

Foreign countries are not as concerned with employee diversity and equal opportunity. Policies brought by US companies to overseas operations will not always be well-received.

Social and Cultural Considerations

Understanding the cultural differences can make the difference between success and failure in a global market. Each nation has its own distinct customs, history, traditions and code of ethics.

One barrier is language. Businesses must often rely on translators when communicating with foreign contacts. Unfortunately, words don't always carry the same meanings through a translation, leading to a misunderstanding or misinterpretation of ideas, expressions and feelings.

Gender is another issue. While the US has more women now in higher business positions, the same is not true in other countries. Women don't always receive the same degree of attention and respect. International companies need to pay attention to the gender hierarchy in other nations when arranging meetings or designating managers for foreign subsidiaries.

The Role of Religion

Religion can play a major role in foreign countries.

Business practices and social customs that would be common and accepted in a Christian-dominated country might be considered offensive and totally unacceptable in Islamic countries.

While Americans like to have a discussion and "cut to the chase," this would be considered extremely rude in Islamic cultures. Muslims like to engage in telling long, meandering stories to get their points across. This requires patience and more patience,

Understanding the role and depth of a religion's influence on business practices is key to reaching successful agreements.

Political and Legal Issues

When operating globally, businesses must comply with the host nation's rule and regulations. Google's attempt to enter the Chinese market is an example of this type of problem.

Quite simply, the Chinese government has restrictions on freedom of speech, and Google's presence would open up free expression to the people of China. The government was not going to allow that to happen. As a result, Google had to discontinue its version designed for mainland China and divert Chinese users to its Hong Kong version.

International companies must identify and asses the type of government that a country has. Is it communist, socialist, a dictatorship or an open democracy? Who's in charge, and who makes the decisions?

Risk of Foreign Governments

Being on top of the political winds in a host country is necessary to be allowed to operate or run the risk of having the company's assets, plant and equipment confiscated. What will happen if a new party takes over?

US companies have more freedom to operate and, ultimately, they have a legal system to pursue for protection and recourse. However, some foreign governments can just decide to seize a company's properties at a whim, and there is nothing the company can do about it. Consider Venezuela's recent confiscations of US oil companies assets, as an example.

The Impact on the Environment

Impact on the environment is another ethical issue faced by American businesses in the international arena.

Just about every country in the world is concerned about the environment, some more than others. US companies have been working to comply with EPA regulations for years, but other countries do not have these requirements and are far behind.

When a US company sets up a foreign operation, it will more than likely try to implement the environmental standards of the US. Unfortunately, the host country may not have such strict environmental regulations. So, does the US corporation take advantage of the more lax environmental requirements and not spend the money needed to meet US standards? Certainly the US company is tempted to conserve its money, but this might seem that the company is not being a good corporate citizen, and its global image could suffer.

Following good environmental practices is another ethical issue for companies with foreign operations. Money or the environment; which will it be?

Different Views on Business Practices

Business practices that are illegal or frowned upon in the United States are often allowed or tolerated in many foreign countries. However, companies that enter global markets with an established code of ethics have a better chance of achieving a positive international image that results in a stronger market share and higher profits.

The list of social and ethical issues and marketing ethics in foreign trade that companies face in the global stage is long and complex. Each country is different in culture, laws, politics, workers' rights, child labor and diversity. A company considering a foreign operation must carefully examine all of these issues before making a commitment.

What are the 5 biggest ethical issues facing businesses?

What are the 4 basic types of ethical problems?

What are typical ethical issues?

What are the 8 common ethical issues in business?