Do countriess with lower ethical views and social responsibility standards attract businesses?
(Ethical working environment: wages, safety regulations, supervision, breaks, benefits, etc.)
When considering the topic of ethics and social responsibility within the context of
International Business, debates over foreign direct investment (FDI) frequently arise. The rise
of globalisation and the birth of an integrated, international marketplace has introduced a series
of unique ethical dilemmas. These dilemmas are faced by both the businesses that take part in
investments abroad, as well as the countries that dictate the environmental, social and economic
environment that attracts these investments. In considering the latter, countries hold a
responsibility towards their citizens to provide a high standard of living such as proper
employment rights and regulations. However, the enforcement of these standards through, for
example, high minimum wage and worker safety/ benefit regulations, is often considered
detrimental to the country’s attractiveness to foreign investment due to increased costs. Poor
working conditions, low wages and unethical views are hence overlooked and permitted by
governments that desire foreign investment. Nevertheless, many countries’ governments
monitor and maintain high standards and ethics for local employees. It is these countries that
challenge traditional methods of foreign business, raising the question: Do countries with lower
ethical views and social responsibility standards attract businesses?
The emergence of a presumed correlation between poor employment ethics and
increased foreign investment, originates from the fact that corporations make decisions with
incurred costs as a major consideration. Decisions such as whether or not to outsource, and
what country to outsource to, are made by taking into account a number of factors such as
economic stability, social differences, etc. A number of business decision making tools are
utilised by investors to rank these factors by significance, and it is the job of investees to predict
this ranking and attract investments accordingly. In the past, countries have predicted that the
lower costs associated with lower ethical views and social responsibility standards would
greatly increase their attractiveness to foreign investors. Numerous economic reports support
this hypothesis, such as Tsai’s (1994) numerical analysis of the deterrent effects of high wages
during the 1980’s. Moreover, a study conducted on investor information from the OECD –
Organisation for Economic Co-operation and Development – reveals a sensitivity towards
wages displayed by the investors serving China’s market (Liu, Lovely and Ondrich, 2005).
This study concludes that markets with lower wages are viewed as more attractive for labour
intensive activities, especially those to be conducted by unskilled labour.
Studies such as these have driven certain governments to avoid the improvement of
local work ethics and standards. On the contrary, these studies have caused an opposite reaction
