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Econ 310, Week 4

by: Tori Notetaker

Econ 310, Week 4 Eco 310

Tori Notetaker
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About this Document

Detailed outline of chapter 5 from text and ideas discussed in class. Includes a link to key terms on quizlet.
Issues in the Global Economy
Mary Reed
Class Notes
ECO 310, Murray State University, MSU, Global Economics
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This 6 page Class Notes was uploaded by Tori Notetaker on Monday February 22, 2016. The Class Notes belongs to Eco 310 at Murray State University taught by Mary Reed in Spring 2016. Since its upload, it has received 15 views. For similar materials see Issues in the Global Economy in Economcs at Murray State University.


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Date Created: 02/22/16
Week 4, Chapter 5 (excluding pages 137-144) Key Terms Key Concepts (Taken from text) Understand the ethical issues faced by international business.  Ethical Issues in International Business o Many of the issues are rooted in the fact that political systems, law, economic development, and culture vary significantly between countries. o Employment Practices  As demonstrated in the Nike case on page 130, it is not okay for a multinational firm to tolerate poor working conditions in its foreign operations or those of subcontractors.  Ways to safeguard against ethical abuse:  Establishing the basic rights and dignity of employees  Auditing foreign subsidiaries and subcontractors on a regular basis to make sure minimal acceptable standards are being met o Human Rights  South Africa before 1994  The apartheid system denied basic political rights to the nonwhite population and mandated segregation between whites and nonwhites  Exclusive positions were given specifically to whites and blacks were prohibited from management positions where whites would be under their employment.  Multinational investors began to question the ethics of operating in this country concluding that their operations were growing the South African economy and supporting the apartheid.  Confronting the issue, GM adopted Sullivan Principles: 1. The company should not obey the apartheid laws in its South African operations 2. The company should do everything in its power to openly promote the abortion of the Apartheid  Other U.S. firms quickly followed suit  However, the companies following the principles was not enough effort to stop the apartheid and many of the investors backed out of South Africa  In 1994 the lack of investors finally contributed to the abandonment of white rule, improving human rights in the country  It’s argued that inward investment by a multinational can be a force for economic, political, and social progress that ultimately improves the rights of people in repressive regimes.  Therefor the thought is that if democratic countries with protected human rights continue business in China, it will create inward pressure from the people of china for more participative government, political pluralism, and freedom of expression and speech. o Environmental Pollution  Tragedy of the commons  When a resource held in common by all, but owned by no one is overused by individuals, resulting in its degradation  The book uses the oceans and atmosphere as an example. No one can own either of these, however everyone can pollute and abuse them.  Is it ethical for companies to produce in countries where emissions restrictions and regulations are free?  No, by doing this companies are adding more pollution to the atmosphere and oceans, while simultaneously increasing global warming in order to save a dime or two. o Corruption  The FCPA that was passed in 1997 was amended later to allow for grease payments after businesses complained that without any sort of bribe, they would be put at a global disadvantage  Grease Payment- not payments to secure contracts that would not otherwise be secured, nor are they payments to obtain exclusive preferential treatment. They are payments to ensure receiving the standard treatment that a business ought to receive from a foreign government, but might not due to obstruction of a foreign official.  The OECD followed the US lead and grease payments were allowed in the Convention on Combating Bribery of Foreign Public Officials in International business  Are Grease payments ethical?  If it’s legal, and the price of creating the greater good and increasing economic growth, sure! Why not? Recognize an Ethical Dilemma.  Ethical Dilemmas o What is and is not ethical depends on one’s cultural perspective  For example, in many Asian Culture’s “gift-giving” between parties at a business negotiation is considered the proper behavior, however, many westerners see this practice as bribery and unethical  The book also gives an example of a little girl who works for an American foreign subsidiary. This is of course against the company’s ethical code and the girl is replaced with an adult. Unbeknownst to the executive who implemented the switch, the little girl had no other way to support herself or her little brother that she was taking care of, sold herself into prostitution and died of AIDS two years later.  Had the exec known of how bad the conditions for the girl were, what could he have done differently? Allowed her to continue working, which would violate his company’s ethics, or would he have still replaced her, which would violate his own?  There are no easy answers to situations like this, and doing what’s right is never a clear answer. Explain how managers can incorporate ethical considerations into their decision making.  Making Ethical Decisions Internationally o Seven actions International Businesses and their managers can take to make sure ethical issues are considered in business decisions: 1. Favor hiring and promoting people with a well-grounded sense of personal ethics 2. Build an organizational culture and exemplify leadership behaviors that place a high value on ethical behavior 3. Put decision-making processes in place that require people to consider the ethical dimension of business decisions 4. Institute ethical officers in the organization 5. Develop moral courage 6. Make corporate social responsibility a cornerstone of enterprise policy 7. Pursue strategies that are sustainable o Hiring and Promotion  If you’re hiring unethical employees, once people realize that your business is unethical (or you), they will no longer trust you  In order to prevent this, businesses can give potential employees psychological tests  Check with prior employers regarding someone’s reputation  References o Organization Culture and Leadership  Three things are particularly important in building an organization culture that emphasizes ethical behavior  The businesses must explicitly articulate values that emphasize ethical behavior  Companies do this by drafting a code of ethics  Unilever has a code of ethics that includes:  An employee environment that is committed to diversity where mutual trust and respect and where everyone is responsible for the performance and reputation of the company  They also believe in a business integrity that does not allow for bribes or other improper advantages for business or financial gain  Having articulated values in a code of ethics or some other document, leaders in the business must give life and meaning to those words by repeatedly emphasizing their importance and then acting on them  Many companies hire independent auditors to make sure they’re behaving in a manner that’s consistent with their ethical codes  Building an organization culture that places a high value on ethical behavior requires incentive and reward systems  Promotions that reward people who engage in ethical behavior and sanction those who do not o Decision-Making Processes  According to some experts a decision is ethical on these grounds is a business can answer yes to these questions:  Does my decision fall within the accepted values or standards that typically apply in the organizational environment?  Am I willing to see the decision communicated to all stakeholders affected by it?  By having it reported in newspapers, television, or social media  Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other businesses, approve of the decision?  Other experts have recommended a five-step process to think through ethical problems  Business people should identify which stakeholders a decision would affect and in what ways  All stakeholders are in an exchange relationship with the company providing the organization with important resources in exchange for their interests to be satisfied  Judging the ethics of the proposed strategic decision, given the information gained in step 1  Managers need to establish moral intent  The company needs to engage in ethical behavior  The business need to audit its decisions, reviewing them to make sure they were consistent with ethical principles, such as those stated in the company’s code of ethics. o Ethics Officers  To make sure that a business behaves in an ethical manner, firms now must have oversight by a high-ranking person or people known to respect legal and ethical standards → Ethics Officers  They are typically responsible for:  Assessing the needs and risks that an ethics program must address  Developing and distributing a code of ethics  Conducting training programs for employees  Establishing and maintaining a confidential service to address employees questions about issues that may be ethical or unethical  Making sure that the organization is in compliance with government laws and regulations  Monitoring and auditing ethical conduct  Taking action as appropriate on possible violations  Reviewing and updating the code of ethics periodically  Acts as an internal resource for any member of the company, with the responsibility for handling confidential inquiries, investigating complaints, reporting findings and making recommendations for change o Moral Courage  Enables managers to walk away from a decision that is profitale but unethical  Gives an employee strength to say no to a superior who instructs them to pursue unethical actions  Unilever “Our Principles statement on page 149, gives permission to employees to exercise moral courage  Companies can also set up ethics hotlines o Corporate Social Responsibility  Noblesse oblige – honorable benevolent behavior that is considered the responsibility of people of high birth  Or in this case, it’s the responsibility of large successful businesses to give back to their communities where they operate  Power is morally neutral and can be used in a way that is either ethical and can be used in a positive way (increasing social welfare), or in a negative way and unethical o Sustainability  An organization, through its actions, does not exert a negative impact upon the ability of future generations to meet their own economic needs and that its actions impart long-run economic and social benefits on stakeholders  This organization would not deplete the environment for short-run economic gain  Tries to ensure that they do not participate in scenarios such as the Tragedy of the commons  An example of a sustainable company would be Starbucks, whose farmers from which it purchases its coffee beans use farming methods that won’t harm the environment and Starbucks in turn, pays them fairly. 


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