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Ethical Dilemmas in International Business 1
MNGT 482
5/4/15
Professor Sapp
Lindsay Berk
Bradley Palmatary
Byung Park
Nicholas Rice
Brandon Snyder
Asma Alfandi
Ethical Dilemmas in International Business 2
When considering the type of ethical problem our group would choose to focus on
when observing a company or country, we realized that there was ethics behind every
decision that is made in the business world. We chose to talk about international business
as a whole rather than an overview of a particular corporation and the decisions that they
had to make. While it can prove to be very beneficial in expansion of a company both
from a size and financial standpoint, there is also harm behind the decisions made in
broadening your business and taking it beyond domestic markets. We reference China
frequently as a great example as to how expansion into international markets can have
negative affects on the environment and economy as a whole.
As a business, intervening in foreign markets is not an easy thing to do. A lot of
different factors and their long-term effects must be taken into consideration before
making any decisions. We evaluated the decisions and steps necessary to expand a
company internationally and realized who and what would be affected. First and
foremost, we researched the growth of a business going international. Opening it to new
markets where demanded can prove rapid success and profits, however we must take into
account how this is harming the smaller businesses. These larger corporations are
building factories, etc. in other countries creating jobs elsewhere, although they are
needed domestically. This raises the ethical question as to if it is right to create jobs
overseas and support their citizens before we help our small businesses and ourselves.
The next main problem that we must consider in moving our business internationally is
how it will affect human rights. Outsourcing our work creates many problems for the
international citizen’s rights. We move our manufacturing plants overseas because
Ethical Dilemmas in International Business 3
production costs are much lower and we can pay those in sweatshops, etc. much lower
wages than we would be forced to domestically.
Foreign countries tend to have different laws and regulations that we must take
into account before expanding internationally. This plays a big role with pollution and the
environment as a whole. As an example, it was statistically proven that the US is
responsible for 20% of China’s air pollution, which was caused from our production
plants. They are less proactive with the prevention of this type of pollution and we take
advantage of it. This is one of the ethical decisions we must make in deciding if it is right
or wrong to pollute foreign grounds for our financial gain. We, as businessmen, must
decide what is morally right or wrong while intervening into foreign markets. Small
businesses, the environment, human rights, and the economy as a whole are all important
factors we must consider before any final decisions are made.
International business has triggered much success throughout the years, while also
becoming a threat to many businesses in the United States. A major sector that needs to
be addressed would be the changes happening to small businesses across the United
States due to international business. Data collected in 2011 stated that there was an
estimated 28.2 million small businesses in the United States, as well as 17,7000
companies with 500 employees or more (Advocacy, 2014). A frequently asked question
is what percentage of these small businesses is actually affected by international
business? Is it ethical for businesses to order goods from foreign countries instead of
creating jobs in the United States by building factories on domestic grounds? Another
important topic here is should we really support other countries before we support
ourselves and crush small businesses domestically. Small businesses in the United States
Ethical Dilemmas in International Business 4
make up a larger percent than one would think. These companies are closing down daily
due to larger global companies opening up around them. A great example of this would
be Wal-Mart. An image shown below captures a picture from a protest with citizens
claiming that Walmart is in fact destroying local businesses, and supporting Chinese
markets instead of domestic factories:
Wal-Mart is an enormous, growing company that has gone international since
1991. With over 4,000 store locations in the United States alone, Wal-Mart has
dominated the market essentially taking out any small businesses that is within its
proximity. Large national companies such as Wal-Mart are very well connected and take
full advantage of the added benefits that come along with being a global company. Some
bonuses that companies who have gone international are able to benefit from are lower
exchange rates, outsourcing, and low margin volume sales, which makes it very hard for
small businesses to compete with (Sun, 2015). Outsourcing can be defined as obtaining
goods from a foreign market and bringing these goods into the United States, attempting
Ethical Dilemmas in International Business 5
to reduce costs for some companies. This practice could be considered unethical to some
individuals because we are essentially supporting foreign business over domestic
business. Many individuals would say that it is not ethical to give business to foreign
markets. The compelling argument in favor of outsourcing would simply state that it
saves money for companies regarding labor and operational costs.
When discussing international labor markets and how the United States benefits
from them, it is very obvious that most of our products are manufactured from foreign
countries. For example, many products that consumers purchase are stamped with the
logo “Made in China,” or another credible country. It is very uncommon for a product to
say “Made in the United States.” Due to the fact that purchasing products and materials
from a foreign country has remained cheaper, businesses have favored importing goods
from foreign markets in order to save money and make increasingly more amounts of
profit. The question might also be what steps small businesses have to take in order to
stay alive in today’s market? An option being businesses could choose to form alliances
with other competitors so they can all stay alive together. While it is true in some
situations that small businesses have to shut their doors after a well known, large,
successful corporation opens up around them. It is also likely that a small business could
benefit from when an international or larger company enters their area. Situations can
indeed arise if a neighboring larger company decides to close their doors. For example,
an article published in 2014 provided an example of how large international businesses
can both positively and negatively affect business.
A small thrift shop in Minnesota called “Nancy’s Nifty Thrifty” had reported
higher sales and an increase in customers once a Wal-Mart opened up in the nearby
Ethical Dilemmas in International Business 6
shopping center (Shaw, 2014). Nancy’s Nifty Thrifty retail shop experienced higher
volume and a variety of different clients that they had not been exposed to in the past.
The Wal-Mart had to unfortunately close its doors last April, which in effect forced
Nancy’s thrift shop to also have to close its doors shortly after. Nancy could no longer
bring in business even though she increased her efforts to gain customers and lowered her
prices on products in hopes to stay alive as a business. While Wal-Mart is perceived to be
a large threat to small businesses, it can sometimes help these small companies as well.
There are many stories such as Nancy’s where multinational companies can actually help
local businesses and contribute to their continued success.
Some people do not realize the impact that small business such as Nancy’s thrift
shop play in today’s economy. Small businesses are often said to be the “engines of job
creation” here in the United Sates (Bagley, 2012). Since unemployment rates have been
at a steady percentage of 5.5, it is our duty as Americans to help out this situation. While
unemployment rates have successfully decreased from 6.3% to 5.5% in the last year and a
half, we are still determined to condense that rate to an even lower percentage (United
States Unemployment Rate, 2015). First step to reducing the unemployment rate is to
keep small businesses alive and running so they can continue to provide jobs. In essence,
the more small businesses continuing to operate and open each year means that more jobs
will continue to be offered to qualified individuals. There have been thousands of
programs implemented all over the world in order to support small businesses. The
decision to support small businesses by creating these programs is a very smart ethical
endeavor. With this being said, since small businesses employees account for about 60%
to 80% of all United States jobs, it is very important that we care and do whatever is
Ethical Dilemmas in International Business 7
possible to support these businesses so that the citizens of the United States remain
employed (Bagley, 2012). One action that we could take in order to remain loyal to
United States small businesses would be to buy from local stores and companies instead
of shopping internationally which many people do.
Most international companies are available to United States consumers through ecommerce shopping websites. Shopping online has become very popular for consumers,
it is nearly impossible to avoid advertisements from foreign markets trying to persuade us
to purchase from their businesses. While some consumers might not trust international
companies with their money, there are still people who do place online orders and give
their business to foreign markets. It is simply impossible to control where people wish to
spend their money, but it would be more beneficial to shop domestically instead of
internationally in order to continue to support United States businesses. If you are a small
business anywhere in the world, having an online presence is very crucial in staying alive
since the Internet has become more and more popular each year. E-commerce is not the
only section of business that has been more heavily affected as time goes on, but there are
other areas in business that are impacted by larger corporations.
Some examples of various areas in business that are impacted would be
employees and other staff members, which can be heavily meddled with once a larger
business has opened. Meaning that if a larger, well-known company opens up, one might
find it harder to find candidates that would be willing to work for you (Johnston, 2015).
This would require you to possibly have to increase the wages for your employees. You
might also have to offer greater benefits that are now being offered to other employees
through larger companies that can afford to provide such benefits. Most small businesses
Ethical Dilemmas in International Business 8
do not have the capital to offer benefits, which could possibly cost them their best
employees. Most employees would rather work for a company that offers benefits to
secure them financially in the future. Another business category that could be affected
would be inventory. Multinational businesses are able to order in bulk because they have
more capital to do so. Small businesses might not order in bulk because they do not need
the added inventory and are more customized in their consumer’s needs. Larger
businesses are simply complying with generic tastes when placing product orders. Since
these larger companies are able to order in bulk, they can essentially afford to lower their
prices for their consumers and offer discounts. Most of the time smaller companies
cannot afford to lower their prices or offer discounts since they do not have as many
sales. Small businesses order their products based on each consumers needs and not the
general population.
Some advice would be for companies to express to the community that they are
running their business because they care about local market needs. Larger businesses
might not be interested in tailoring their business to individual consumers but more or
less trying to keep up with the franchises and standards expected of them. One other
subject that is commonly talked about in business is the working conditions. Larger
businesses are able to provide better working conditions for their employees simply
because they have the power to do so. For instance they might have a nicer office
building, break rooms, air conditioning and lighting, and updated technology available
for their employees. While small businesses might also have nice working conditions for
their employees, their buildings might not be as updated or cared for when compared to
larger companies. Small businesses need to make sure that they are providing safe and
Ethical Dilemmas in International Business 9
well-maintained working conditions for their employees to avoid their staff leaving them
for a more cared for environment. Businesses need to stay up to date on the latest
technology for their employees so that they can keep up with the ongoing shift in
technology (Johnston, 2015).
It can be viewed as unethical for a multinational company to open up next door to
a smaller company that has been doing business in a specific area for many years. These
companies might not be able to compete with the innovation of the larger newer
companies. While it would be nice to have the authority to stop these companies from
entering into your market, such actions are not possible. The best a small company can do
is to try and either benefit from the increased customer base that is about to enter into the
area, or increase efforts to stay alive by offering better benefits, forming alliances, or
expanding their products and lowering prices if possible. In the end, a company might
come to realize that international business is not necessarily a threat towards their
business, but can in some circumstances help them to become a more successful
company.
Nowadays, U.S. businesses are faced with the ethical dilemma of whether or not
to outsource the production of their goods to foreign countries that can produce them at a
cheaper price. One might ask why corporations in the U.S wouldn’t make their products
domestically and help support the U.S economy? The answer is quite simple: It costs less
to employ sweatshop workers in foreign countries than it does to employ U.S. citizens
earning at least minimum wage. Of course, when people hear the word sweatshop they
immediately think of workers being abused and underpaid. But, are sweatshops really as
bad as people commonly perceive them to be? Are they really that toxic to society or are
Ethical Dilemmas in International Business 10
they actually a benefit to society? Everyone is entitled to his or her opinion but the
surprising truth is that sweatshops tend to benefit all parties involved.
At the present times, companies use sweatshops as a means of increasing
profitability. The criterion that makes a factory a sweatshop is that the employees work
long hours and receive low compensation. While this is true, it is important to note that
all environments are different, therefore, working conditions/hours and compensation are
all relative to each environment. For example, minimum wage in the U.S is $7.50 so if
someone offered to pay a U.S. citizen $20 to do five hours of yard work, then that would
be considered menial pay. This is an acceptable belief to have in the U.S. since $4 an
hour is below the legal minimum wage laws and there are an abundance of opportunities
to do a job paying minimum wage. Let’s say hypothetically that Tanzania has a minimum
wage law of the equivalent to $3 an hour. Citizens of Tanzania would look at the
previous offer of $20 for five hours of work as a fair proposal.
In addition, there are some countries that don’t even have a minimum wage law.
In a lot of these countries, mainly countries in Asia, including China and Taiwan, there
are very few job opportunities that provide a steady income (Rivoli, 2005). Working in a
sweatshop producing electronics or clothing for 12 hours a day and earning 25 cents is
not frowned upon by Chinese sweatshop workers. The fact is that they have the option to
either work in sweatshops or live hundreds of miles in the countryside away from
civilization and produce a cash crop that will most likely provide even less income. Most
citizens say that they would prefer to work in the factory because it is more comfortable
than most other jobs (Powell, 2008). Working inside in a factory is more appealing to
them than working outside in the heat of the day. Would this opinion hold true in the
Ethical Dilemmas in International Business 11
U.S.? More than likely, it wouldn’t. But, these are two completely different cultures and
economies.
China’s population is over 5 times the population of the U.S. There just aren’t
enough jobs to go around without sweatshops in China. Unbeknownst to most naysayers,
the sweatshop industry in China is a primary source for economic stimulation as well as a
dominant source of jobs for china’s citizens. For the amount of people that populate the
cities of China, it would be impossible to find a desk job in the corporate world for all of
them. And while no one forces these people to live in the congested cities, most Chinese
sweatshop workers prefer it to the alternative. The alternative is to live in the rural
countryside in severe isolation producing cash crops (Nicholas, 2000). The opportunity
cost of this is obviously being able to make your own hours and work as much and as
hard as you want. However, rural workers lose the amenities of the big city life where
everything they could want or need is within a couple of city blocks. To stay and work in
the factories has its positives as well as the over exaggerated negatives.
From a macro level, the world needs sweatshops now more than ever. Apple, one
of the most valuable and arguably most powerful companies in the world, has recently
switched all of its manufacturing into foreign sweatshops. The main reason: Apple can’t
produce enough of its products domestically in a given time frame. A few years ago, the
Apple board of executives decided it was time to outsource their labor in order to be more
efficient and be able to supply their customers’ demand for goods such as iPads, iPhones
and Macintosh products (Arica, 2012).
Foxconn Technology Group is one of Apple’s largest manufacturers (Zhang,
2012). Located in near Chengdu, China, the factory employs a large number of
Ethical Dilemmas in International Business 12
employees. This company’s CEO claims that China employs about 1.2 million people to
work in these sweatshop factories. He firmly states that employees are allowed to come
and go as they please and are not subject to military like conditions, although certain
Hong Kong human rights groups have denied the truth to those statements. The truth is
that they will never know for sure, as with most people whom speculative on this subject.
People are not allowed to go into the factories except for very rare interviews that seem to
always display these factories in a “staged” light. It is equally important to understand
that this factory attracts regular college students who need extra money. Much like
someone getting a job working at McDonalds’ while being a full-time college student,
these jobs offer a fairly low wage in return for very elementary labor.
For those who wish they hadn’t stopped producing domestically, consider the
effects. For one, Apple wouldn’t be able to supply nearly the amount of goods that they
do now. In the first quarter of 2012, Apple sold three million iPads. They had no choice
in using sweatshops if they were going to be able to produce such a massive supply. In
addition, it is much cheaper for Apple to make these products in China and thus they are
sold for less, as well. Imagine an iPad costing $1,000. With the type of margins that
domestic production creates, that is approximately what the consumer would be paying.
People must understand that the consumer is the direct cause that Apple has
moved it operations to factories like Foxconn. The demand for products as lower costs
has a direct relationship with the creating of sweatshops. How can corporations be
blamed for this race to the bottom? With its 430,000 employees, Foxconn can produce an
outstanding number of Apple products. Do they work long days, yes? Are there few a
employees that are underage, most likely? The consumers are the ones to blame for this.
Ethical Dilemmas in International Business 13
As consumers, we demand Apple products more than any other products in the world.
People wait in the lines for hours in order to purchase the newest Apple devices. Foxconn
factory is only a product of the consumer frenzy Apple has ignited. It is hypocritical to
say that the Foxconn is bad and needs to be shut down. We, the consumer, need places
like this in order to fulfill our want for Apple products.
Similarly, apparel companies such as Nike have also switched to the sweatshop
manufacturing (Keady, 2009). Nike, just like Apple, has a tremendously loyal consumer
fan base that expects a plethora of products. Also, like Apple, Nikes is a worldwide
brand. Why would worldwide company make its good in the least cost-effective place?
Especially, when there are countries that literally court Nike to open up factories and
offer much cheaper costs for production. The fact that they choose places like China and
Taiwan to produce their goods is nothing more than a prudent business decision. In this
day and age, the most important corporate goal is maximizing shareholder wealth.
It simply isn’t fair to make judgments about sweatshops without knowing all of
the facts and actually seeing the point of view of various parties. There is no doubt that
the working conditions would not be acceptable in the U.S. but that is not a fair
argument. Sweatshops provide jobs for people that would otherwise essentially be
subsistence farmers. The growth in countries such as China and Taiwan has been heavily
influenced by the emergence of sweatshops. And, the number one reason that U.S.
consumers can’t argue against the use of sweatshops is because that would be one of the
most hypocritical stances that a consumer could make. Consumers love cheap products
made from foreign countries like China. Otherwise, Wal-Mart wouldn’t exist and Apple
products would be reserved for only affluent consumers. Are sweatshops a ethical? Yes.
Ethical Dilemmas in International Business 14
They provide a benefit to all parties and are a necessity for global economic growth.
Sweatshops epitomize the definition of international business and that isn’t such a bad
thing, after all.
International businesses have a huge effect on the United States economy. These
businesses that specialize in specific goods or services create huge value for companies in
the United States. Due to this value creation, United States businesses must remain a
huge participant in global trade in order to keep their products competitively priced.
Trading internationally with these businesses has its pros and cons and the way some
nations go about gaining an edge with regards to trading globally is ethically
questionable. Concerns that arise with regards to the effect of international businesses on
the domestic economy include trade deficit, loss of jobs, and overall loss of national
sovereignty.
A trade deficit can be defined as how much costs of a country’s imports surpass
the worth of its exports. With the rise in globalization it seems as if we are needing more
and more from foreign countries and foreign countries are needing less and less from us.
If this trend continues to hold true, the current trade deficit may become insurmountable
for the United States, which is a very bad for the domestic economy. A good example of
this is the United States and the trade deficit they have with China. Figure 1 displays the
trade statistics from 2001-present. At first glance it doesn’t seem too alarming. U.S
exports to China are increasing at a substantial rate of 534.9% compared to China’s
export growth rate of 329.3%. Both of these statistics are positive numbers for both
countries. The flipside is when you take a look at difference in the totals for exports and
imports for each country. Since 2001 China’s change in exports versus imports is more
Ethical Dilemmas in International Business 15
than double the United States. This figure of 100.7 billion compared the United States
46.9 billion is what should raise a few red flags. This huge deficit puts the United States
economy at a disadvantage.
Figure 1
Source: Authors' analysis of U.S. Census Bureau (2013), U.S. International Trade
Commission (USITC 2014), Bureau of Labor Statistics (BLS 2014b), and BLS
Employment Projections program (BLS-EP 2014a and 2014b).
Where this ties in ethically is how countries such as China go about gaining such
a competitive advantage in the global economy. It is well-known that the working
conditions in many ways are very poor in the Chinese factories that the United States
does so much business with. According to CBS news, the highest minimum wage is held
in Shanghai at $293.00 a month. This is by no means a figure that is easy to live off of.
It is believed that many factories that supply large organizations in the United States even
work around the minimum wage and pay employees less. These workers would likely
not be able to find work anywhere else and so they really don’t have much of a choice
Ethical Dilemmas in International Business 16
when it comes to working in these conditions. The benefit for Chinese businesses
themselves is that the extremely low labor costs, prolific efficiency, and abundance of
employees allow for organizations to charge United States organizations a price that they
can’t resist. It is impossible for United States businesses to not participate in this trade
because in order to stay competitive within the industry, they must. The only way these
domestic businesses could pull out of trading with the ethically questionable
organizations of China would be for all of the domestic businesses to do so at once.
However, this would cause prices of domestic goods to rise substantially and it is likely
that a large portion of the consumer base would be lost due to the increase. So who is
ethically wrong here? The Chinese government and businesses executives who allow for
the harsh labor conditions to continue in order for the trade benefits of China or the
United States domestic organizations that willingly import from the factories with harsh
conditions in order maintain a competitive advantage knowing full well what is going on
in these factories. There are many questionable actions going on but it is very clear that
the workers in these factories are in an unfortunate situation and something needs to
change.
With the United States suffering a trade deficit this also leads to more problems.
One of the consequences to having this trade deficit is a loss of domestic jobs. With so
many imports there becomes less of a need to have jobs in the United States that would
otherwise produce these imports.
In order to avoid confusion, China is yet again a great example to show the impact of the
deficit on job loss within the domestic economy. Figure 2 shows how job displacement
has substantially rose over the last decade.
Ethical Dilemmas in International Business 17
Figure 2
Source: Authors' analysis of U.S. Census Bureau (2013), U.S. International Trade
Commission (USITC 2014), Bureau of Labor Statistics (BLS 2014b), and BLS
Employment Projections program (BLS-EP 2014a and 2014b).
This is also due to China’s organizations ability to achieve such low cost on the
making of their exports. As I said before, these low cost tactics are very ethically
questionable but domestic United States organizations are contributing by participating in
trade with these organizations. The loss of these jobs due to this ethically questionable
behavior raises huge question marks for what the United States should do in regards to
dealing with international businesses that participate in ethically questionable behavior.
These ethical issues have a snowball effect. Once they start and gain traction and
momentum, they can be very hard to deal with especially when the concepts benefit
certain entities so greatly. This irresistible benefit along with the lack of repercussion for
Ethical Dilemmas in International Business 18
participating in such ethically frowned upon action makes for a dangerous situation.
Another negative affect of that ethically questionable international businesses have on the
domestic economy or United States in general, rather, is the loss of popular sovereignty.
With the increase in foreign jobs and foreign trade at a much higher rate than the
domestic economy, international businesses gain power and with power come a certain
degree of control. For example, our huge investment into China’s businesses due to their
specialization and low costs allows for China to have substantial leverage with regards to
our domestic economy. In reality, China has substantial control over certain portions of
the United States economy. This loss of popular sovereignty is a major concern for the
domestic economy. If these international businesses were to cease doing business with
our domestic organizations, the impact on our economy could be disastrous. Prices for
domestic goods would skyrocket. This could lead to multiple other problems, which
could be another discussion in itself. The entire situation is unfortunate due to the
circumstances that don’t leave domestic businesses with much ability to be able to make
a difference in the ethical issues that exist in many organizations in China. Also, China is
a small fraction of the cases where ethical issues exist with regards to labor. This is a
major ethical issue that has a direct tie to the domestic economy in the United States.
Whether these ethical issues will be addressed and can be resolved in the near future is
unclear.
After a lot of research and reviews of company’s attempts to globalize their brand,
we have come to the conclusion that there are four main things to look at and consider
ethically, before any expansion can take place. The four things that we feel are affected
by major businesses going international, are small businesses, the environment due to
Ethical Dilemmas in International Business 19
pollution, human rights, and the domestic economies. The goal of a company expanding
into foreign markets is to try to create a global brand image that can be recognized across
the world. In doing so you must maintain a positive relationship with the countries in
which you are intervening and prove your worth to the consumers within your target
market. The citizen’s human rights as well as the environment must not be taken
advantage of at any time otherwise it can put your brand in bad light. Respecting these
factors as well as their economy as a whole and its restraints is essential in earning the
following of the masses. In order to be successful as a business wishing to expand
globally, you must take these four factors into account and promote positive social
responsibility and ethics within your company.
Ethical Dilemmas in International Business 20
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