Business Ethics - Corruption in International Business - Coursework Example

Name Course Name Instructor’s Name Date Business Ethics- Corruption in International Business Abstract Corruption in International business affects the local economies as well as the overall business environment. Continuous efforts have been made from many decades globally to curb this problem by improving regulations and codes of conduct; however, not much success has been achieved in eradicating this problem completely. In this paper, attempt has been made to take a closer look at the real root of the problem of corruption, from where it emerges, its possible causes and overall effect and impact on the business scenario and national and international economy. It has been recognized that it would not be an easy task to eradicate the problem of corruption completely but can definitely be reduced to make international business scenario more efficient. Introduction Corruption is found in all walks of life. One of the fields which is adversely affected by rising corruption is international business scenario. It affects all aspects of international business from the cost of operation, business relationship, and government-to-government and country to country relationship. Many studies and data have established the adverse effect of corruption in the international business scene. Main Body Business Ethics With the end of communalism and coming of modern era and growing developments in technology and growing economies, world has become a global platform and opportunities for companies to expand business world-wise has increased manifold. However, with increasing modernization and globalization many obstacles for business activities have increased too. Some of the obstacles that are surrounding businesses worldwide are organized crime, and corruption. Increasing corruption and criminalization cast a negative influence not only on the country itself but also at other organizations and multinational corporations from other countries that intend to do business with the country. Let us try to first analyze the definition of corruption in the context of International business. Corruption- Various writers and scholars have given various definitions of the term- “corruption.” The simplest definition of corruption states it as an alleged mis-use of public office for private profit motives. Various authors have distinguished business corruption into three broad compartments- commercial, political, and personal. Examples of political corruption include bribery, gaining personal motives by using government office, and changing norms of public decision making for meeting personal needs. Examples of personal corruption include insider duty, violation of fiduciary duty and so on. Examples of commercial include bribing the purchasing agent by supplier to grow sales, bribing the newspapers to get favorable business reports, or bribing the top-management of an organization to get inside financial information. As we can see from above examples that corruption in business ethics is always aimed at using illicit or anti-social behavior for gaining personal profit motives. Corruption in context of international business can be seen or divided into three factors or actors, primarily: The principal or primary authority that has the power to grant or approve projects for example government agencies or high profile ministry office. Second, is intermediatery agent that represents the principle and help the customer or client get required permissions from the principle. Third, one is the client or customer that who seek favors from the principal in the form of some permit for projects or investments (Klitgaard, 1991). Key Actors in Business Corruption Corruption occurs when the agent representing the principal, betrays the principle and grant some undue favors to the client in return of some gift or financial gains. Therefore corruption in business scenario include all the three actors that work together to form the vicious cycle of corruption in the business scenario. United Nation defines corruption as commission or omission of an act in performance of duties in return of some incentives, favors, or gifts. According to Organization for Economic Cooperation and Development, corruption is the giving, receiving of any valuable thing to influence actions of public offices for procurement or execution of some projects. Now let us see some causes of corruption in International Business setting. It is impossible to associate corruption with one single specific factor. There are number of factors that lead to corrupt practices in international business. Despite various studies, it has been difficult to ascertain whether corruption arises out of country’s cultural traits, its economic or political system, social patterns, poverty, moral apathy, or attitude of people or unethical behavior of people in large organizations. It has been noted that corruption is widespread in countries where the administrative powers are concentrated among few individuals and when the laws of the land are not transparent (Tanzi, 1998; LaPalombara, 1994). Corruption in internal business arises because of lack of rigid rules to prevent or discourage bribing of officials. Corruption in international businesses can be classified into three main categories- environmental, individual, and organization related. Environmental factors are the default factors that exist within country and outside the control of any individual. Some of the environmental variables that act as catalyst to support corruption in international business environment are: Unclear distinction of what is private and what is public leaves an open room for misuse of public resources for private motives. Concentration of administrative and discretionary power in the hands of few people Lack of transparency in handling of public finances that provide an ample opportunity for mis-appropriation of funds Shortage or lack of independent agencies to oversee corruption Over regulations and norms for getting approval for projects that, instigate officials to indulge in unfair means to get work done Lack of economic development or competition where people do not have enough employment opportunities resort to illegal means and corruption to make their end meets Individual Variables Greed- be it official, government leaders or management executives lead to corruption Dishonest- Some people are dis-honest by nature and prone to resort to illegal activities In-sufficient wages and salaries- In countries that are not economically developed are not capable of providing sufficient salaries to government officials or management executives. As a result they are not able to take care of their family needs and they end up taking bribes to augment their finances International Organizational Variables Participating in corruption activities is often considered by international organizations as an easy way out to expand their business in international markets. By bribing officials, organizations tend to receive permits to set up and establish their expansion plans. Organizations tend to enter market with less competition and economic growth by bribing the officials to reach their profit targets. By resorting to corrupt means, organizations get an opportunity to enter countries with plenty of resources availaible at cheaper prices. Some real-time examples of corruption in International business scenario: Pharmaceutical companies are most vulnerable to corruption because of high regulations and norms followed to govern these organizations. Government imposes regulations to ensure that market is not threatened by sub-standards drugs or medicines and to ensure that the framework of industrial framework strengthen the economic competitiveness of economic sector. However, too many regulations lead to too much pressure that ultimately leads to compromise in the health objectives. According to a survey taken by State pharmaceutical agency, Georgia is one of the top-most country producing superior-quality drugs. However, the situation is different when analyzed in terms of the volume of drugs imported in the country. The survey establishes that most part of drugs imported in the country come from countries producing low-quality drugs like Poland, Bulgaria, Turkey, Ukraine, Russia, and India Not only the pharmaceutical industries, but also the relationship with drug companies and physicians is also vulnerable to corrupt practices. It has been often observed that physicians prescribe a particular drug from a specific company in return of come commission or financial gains from the drug company. Data reveals that in the US alone, more than $ 16 billion is spent annually by pharmaceutical, device and biotechnology industries on marketing to physicians. Corruption in pharmaceutical industry also occurs during clinical trials. Physicians are paid by the pharmaceutical companies to recommend clinical trials to patients in return of returns and financial gains. Effect of Corruption The effect of corruption not only impacts the monetary aspect of businesses but even the social and political factors. Monetary effects of corruption are directly proportional to economic effects in the international business scene. A corrupt economic system does not provide a fair and equal opportunity market to all the organizations. Bribes that do not have a market value invariably affect the overall cost of operation. This can be prevented by providing equal opportunities to all organizations to compete in the market. High level of corruption has a direct impact on the economic growth and development of an organization (Rose-Ackerman, 1975; Shleifer and Vishny, 1993). Corruption can be seen as a big hindrance or obstacle of economic growth of nation by not allowing operations of free market that further worsen the poverty situation of the country. A study conducted by Habib and Zurawicki (2002) on foreign direct investment is a serious hindrance for investment in which lead to reduced flow of FDI’s (Wei, 2000) Reduction in flow of capital due to corruption effects the GDP growth of the country. Data reveal that between the years 1995 and 2005 countries like India, China, and Nigeria have contributed more than half of the world’s total GDP growth but unfortunately, these countries are the most corrupted nations leading to inefficiency in the world economy. In countries where there is high-level of corruption, price and quality of goods is invariably affected. Because of bribes and unofficial sources of income, there is a demanding pressure on setting up the prices and quality higher than the normal. Countries that are not able to curb the corruption are adversely affected by its impact. A study conducted by Asian development bank in 1998 reported that: The Philippines has lost $48 billion over the last 20 years to graft and in Africa, at least $30 billion in stolen aid money ended up in foreign bank accounts. Moreover, corruption in Italy inflated its national debt by $200 billion There are various other negative effects of corruption including a marginal reduction in tax revenues. Even though there is exact data availaible to indicate the total losses, however, it is estimated that every country loses almost millions US $ annually to corruption. Social costs of corruptions Some of the social costs of corruptions that are detrimental to any nation’s economic development are health, education, and hygiene. It has been observed, that in countries where high-levels of corruption exists, the amount spent on public services is considerably lower to other comparable countries with lower corruption levels (Buscaglia, 2001). Paul Mauro (1995) using regression analysis demonstrated a nation by improving its CPI by 2 percent ends up increasing its education budget by almost 1 percent of its GDP. Conclusion International business corruption is a global phenomenon that is impacting nations worldwide. It has some damaging effects on local economies and a country’s overall growth. Many nations are working towards curbing corruption by standardizing codes and improving regulations. However, all these measures have been reportedly of no avail with corruption increasing every year, globally. Through this paper, an attempt has been made to determine the definition of corruption, its possible causes and damaging effects on the local economy and the international business scenario. The overall web of corruption with its entities included, considering its underlying causes, context, make the corruption problem all the more complex and tough. Principal, agent, and client are three main actors in the complex cycle of corruption. Unless an attempt to bring these elements in control is initiated, it is tough to control corruption. All the three components need to be judiciously handled if the issue of corruption has to be tackled and controlled successfully. Thesis Statement Corruption has a huge impact on the international business environment and the economies of nations where the business operate. Antithesis Resorting to unfair means and misusing power and authority in return of financial gains or gifts lead to corruption. Synthesis Corruption happens when people resort to unfair means to get some personal profits. Corruption at any level of business has an adverse effect on the international business environment. References Robert Wynter, “The futility of anti-Corruption legislation” November 5, 2006, 25th October 2007, http://www.jamaica-gleaner.com/gleaner/20061105/focus/focus2.html Igor Osyka,” international business transactions and Corruption“, 25th October 2007, http://64.233.183.104/search?q=cache:VgwXzW0zPVAJ:www.univd.edu.ua/_projects/ezloch_kor/docs/eng/1.doc+Corruption+in+an+international+business+setting&hl=en&ct=clnk&cd=9&gl=in Klitgaard, Robert “Controlling Corruption”, 1991, 25th October, Bekley, CA. University of California Press LaPalombara, Joseph, “Structural and Institutional Aspects of Corruption,” 1994, 25 October, Social Research, 61 (2), pp: 325-350 Rose-Ackerman, Susan, “The Economics of Corruption,”1975, 25th October, Journal of Public Economics, 4, pp: 187-203 Habib, Mohsin, and Leon Zurwaicki, “Corruption and Foreign Direct Investment,” 2002, 25th October, Journal of International Business Studies, 33 (2), pp: 291-307 Shleifer, Andrei and Robert Vishny, Corruption,” 1993, 25th October, Quarterly Journal of Economics, 108 (3), pp: 599-617 Buscaglia, Edgardo, “An Analysis of Judicial Corruption and its Causes: An Objective Governing-based Approach,” 2001, 25 October, International Review of Law and Economics, vol. 21 (2) pp: 233-249 Mauro, Paul, “Corruption and Growth,” 1995, 25th October, The Quarterly Journal of Economics, August, pp: 681-712 Read More