Chapter 05 – Ethics in International Business
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Ethics in International Business
Learning objectives
• Understand the ethical
issues faced by
international businesses.
• Recognize an ethical
dilemma.
• Identify the causes of
unethical behavior by
managers.
• Describe the different
philosophical approaches
to ethics.
• Explain how managers can
incorporate ethical
considerations into their
decision making.
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 decision-
making are examined. Finally, the roots of unethical
decision-making and how to make ethical decisions are
addressed.
The opening case explores the substandard working
conditions in a Chinese factory that supplies, directly
and indirectly well-known computer companies
including Dell, Lenovo, and Microsoft. The closing
case explores the efforts of Knights Apparel to establish
a successful factory using a “fair labor” model.
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Chapter 05 – Ethics in International Business
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OUTLINE OF CHAPTER 5: ETHICS IN INTERNATIONAL BUSINESS
Opening Case: Working Conditions in a Chinese Factory
Introduction
Ethical issues in International Business
Employment Practices
Human Rights
Environmental Pollution
Corruption
Moral Obligations
Management Focus: Making Apple’s IPOD
Management Focus: Unocal in Myanmar
Management Focus: Corruption at Daimler
Ethical Dilemmas
The Roots of Unethical Behavior
Personal Ethics
Decision Making Processes
Organizational Culture
Unrealistic Performance Expectations
Leadership
Societal Culture
Philosophical Approaches to Ethics
Straw Men
Utilitarian and Kantian Ethics
Rights Theories
Justice Theories
Implications for Managers
Hiring and Promotion
Organization Culture and Leadership
Decision-Making Processes
Ethics Officers
Moral Courage
Summary of Decision-Making Steps
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Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Knights Apparel
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: Working Conditions in a Chinese Factory
Summary
The opening case describes the deplorable working conditions at the Metai factory in
China that supplies computer parts directly to U.S. computer maker Dell, and indirectly
to Hewlett Packard and Lenovo. Workers at the factory work long hours doing
monotonous tasks and have just two days per month off. Wages are very low, and
employees are forbidden to converse, listen to music, or even take bathroom breaks while
on the job. When alerted to the conditions at the factory in early 2009, all three
companies expressed dismay and promised prompt investigations and appropriate action,
however, by 2011, no efforts to improve the situation for workers at the factory had been
made. Discussion of the case can revolve around the following questions.
1. Why do companies like Dell and Lenovo contract out to factories like the one in
China? Discuss the advantages and disadvantages of outsourcing to developing
countries.
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2. Should Dell as a direct receiver of goods made in the Metai factory be held responsible
for its working conditions? Does your answer differ when considering Lenovo or
Hewlett Packard? Why or why not?
3. How do consumers and companies like Dell contribute to the harsh working conditions
found at facilities like the Metai factory? Now that you are aware of the conditions at the
Metai factory would you continue to buy products from Dell? Explain your response.
Another Perspective: To learn more about Dell go to the company’s web site at
{http://www.dell.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 5-3 What is Ethics?
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 5-4 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 5-5-5-6 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 5-7-5-8 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 5-9 Environmental Pollution
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.
Slides 5-10-5-11 Corruption
The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to
foreign government officials in order to gain business.
Slide 5-12-5-13 Moral Obligations
Social responsibility refers to the idea that business people should take the social
Slide 5-14 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
Slides 5-15-5-18 The Roots of Unethical Behavior
The causes of unethical behavior are complex and reflect:
• 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.
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Home country managers working abroad in multinational firms may experience more
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?
The term organization culture refers to the values and norms that are shared among
employees of an organization.
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.
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. Societal culture
can also influence behavior.
Slide 5-19 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.
Slides 5-20-5-21 Straw Men
Straw men approaches to business ethics are approaches that are raised by business ethics
Slides 5-22-5-23 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
Slide 5-24 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.
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Slide 5-23 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.
Slides 5-24-5-34 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 an organizational culture that places a high value on ethical behavior
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.
To foster ethical behavior, businesses need to build an organization culture that places a
high value on ethical behavior.
Business people need a moral compass to help determine whether a decision is ethical.
Slide 5-35 Summary of Decision Making Steps
Not all ethical dilemmas have an obvious solution. In the case of a true dilemma,
managers need to make as balanced a decision as possible.
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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
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
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
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QUESTION 4: Are facilitating payments ethical?
ANSWER 4: Students will probably be divided on this question, and a lively debate
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” in question is involved in
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
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
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CLOSING CASE: Knights Apparel
Summary
The closing case explores how Joseph Bozich, founder and CEO of Knights Apparel, a
maker of athletic clothing, is promoting strong ethical values in his company. Bozich’s
operation in the Dominican Republic, the Alta Gracia factory, pays workers more than
three and half times what most workers in the area earn. In addition, Bozich has made an
effort to ensure that working conditions are safe, and that workers are free to unionize.
Bozich hopes that his business model will resonate with colleges and universities in
particular and help the company build volume. Discussion of the case can revolve
around the following questions.
QUESTION 1: The case states that higher wage rates at the Alta Gracia factory have
raised the cost per item by 20 percent. Can you see any way in which the philosophy
with regard to pay and working conditions at Alta Gracia might lower costs in the long
run?
ANSWER 1: Wages at the Alta Gracia factory are roughly three and a half times what
other workers in the area earn and also higher than the industry standard making Knights
Apparel’s costs per unit about 20 percent higher. Most students will probably agree
QUESTION 2: Do you think Joseph Bozich would have been able to try the Alta Gracia
experiment if Knights Apparel was a publicly traded enterprise?
ANSWER 2: Many students will probably agree that Bozich’s goal of creating a
company like Knight’s Apparel, and specifically the Alta Gracia operation, would have
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QUESTION 3: What do you think might stand in the way of Alta Gracia becoming
successful? What strategies might Bozich adopt to minimize the risk of failure while still
adhering to his high ethical standings?
ANSWER 3: So far, Alta Gracia seems to be following a very successful strategy. The
“fair labor” model used at the factory should help achieve a loyal workforce and has
resonated well with target markets. However, Bozich’s business is built on the notion
QUESTION 4: Alta Gracia serves a niche market, colleges, where there is higher
awareness of ethical issues in apparel production. Do you think the strategy would work
if the company tried to sell to the mass market through retailers like Wal-Mart?
ANSWER 4: Many students will probably suggest that the Alta Gracia approach would
not work if the company is trying to sell through retailers like Wal-Mart. Wal-Mart has
built its organization by offering consumers a wide range of products at deeply
QUESTION 5: Is it ethical for apparel companies to move production around the world
in pursuit of the lowest possible labor costs, even if this means paying wages that are
below a living wage? What if the alternative is not to produce at all?
ANSWER 5: Many students will probably take a stand against companies that
continually shift production around the world in search of lower costs. Students sharing
this perspective will probably agree that companies have a moral obligation to pay at
QUESTION 6: To what extent does the Alta Gracia experiment suggest that good ethics
are also good business practice?
ANSWER 6: The publicity and support that the Alta Gracia experiment has generated is a
clear indication that good ethical practices are good for business. Knights Apparel has
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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: In China, Factory Workers Allege Poisoning From iPhone Production
Run Time: 7:53
Abstract: This video explores the alleged human rights violations at a factory in China
that supplies products to many well-known multinational companies including Apple,
Nokia, and Garmin.
Key Concepts: labor abuse, human rights, ethics, corporate social responsibility,
globalization, global supply chain, global economy, global production
Notes: Questions over the treatment of workers in a factory in China made headlines
recently after some employees complained that they had been poisoned by their
employer. The workers, who use chemicals to clean the screens of the iPhones produced
at the factory, are employed by Wintek Corporation. In addition to making the screens
for the iPhone, Winteck also produces a number of other LCD display products and sells
to many multinational companies including Apple, Nokia, and Garmin. According to the
workers, their jobs required them to come into direct contact with n-hexane, a toxic
chemical made from crude oil. Now, some of the employees are suffering from
neurological disorders including dizziness and paralysis.
Claims of worker abuse are not new in China, however, this time the claims seem to have
struck a nerve, perhaps because they seemed to have been ignored to some degree by the
companies involved. While Wintek did respond to the concerns of its workers by