The Ethical Issues in Globalisation and International Business - Assignment Example

The Ethical Issues in Globalisation and International Business 1. Abstract/Summary of Report The ethical issues behind the globalization will be demonstrated in this report, especially in the global economy. The theoretical models of the globalization and ethics towards the globalization will be demonstrated as well as the critical analysis if multi-national companies seek to improve the institutional arrangement will be given. Moreover the research will try to find out if global economies have increase people’s well-being and provide wealth and happiness of the community. Finally, recommendation will be proposed for Multinational companies in how to be globally responsible. 2. Introduction/Rationale of Research Idea Because of the process of international economic integration, a lot of changes have happened to the world nowadays. According to studies, some economists believed that economic integration means, greater international trade, greater market integration in commodity prices and means, greater interdependency among countries, as well as more extensive flows of revenues and investment. There are many factors that have been incorporated from the process of globalization such as: 1) the enlarged mobility of capital throughout liberalized financial markets; 2) the expansion of international trade; 3) the expansions of activity that affect environment quality in the developing world; 4) the growth of technology; 5) the enlargement of foreign direct investment in developing economies; and 6) the extension of manufacturing into global labour markets. Many critics and questions have been highlighted towards the effects of globalization, in recent years. These questions include the following: Does globalization engaging in the exploitation of poor countries by rich countries? Do Multinational Corporations obtain too much power in an increasingly globalize world? Does the rapidity of globalization create economic process that lead to environment damage disproportionately in poor countries? Do these processes promote condition of labour throughout the world incompatible with reasonable standard of human development as well as well-being? And does the process of globalization deepen inequality between rich and poor countries and between the industrialised and developing countries? Some have criticized globalization based on its development on local condition as well as the local culture for commercial advantages. Moreover, these criticisms begin to converge on a general critique of the goals of modernization and material improvement which underline the whole project of economic development. 3. Personal Ethics/Perspectives The researcher has decided this time to focus the discussion from the suffering in other countries such as poverty, violence, starvation, inequality and oppression. It is morally critical for the researcher to remain sensitive to the human circumstances of people in other parts of the world, to recognise their human reality, to give moral importance to their suffering, and to assume both motive and responsibility to support. Although it is very difficult for the researcher to understand their situation because the researcher has never experienced the situation that they are into, for instance the researcher have never experienced of being exploited, or one of the researcher’s family have died from starvation. But the researcher believe that by understanding the dynamics of these process as well as by being aware of it can help somehow to minimize the harm to those people when the researcher would extend help to other consumers to be aware of these issues to use their power to influence the decision makers to take action. 4. Literature Review of Subject Globalisation and the Theory of Free Trade McLuan & Power (1989) have defined the globalization as the process which is bringing society that were previously economically, politically and culturally diverse into convergence in order to make the good and people to convey all over the world easily, growth of foreign direct investment , growth of IT as well as communication to make the such communication between countries more easier. (Fisher,C. And Lovell, A., 2006. p460) Figure 1.Showing the Continuum of Business Ethics (Source: Fisher, C. and Lovell, A., 2006. p42). A lot of academics and other people have questioned the reason of business ethics in society. They have suggested that the purpose of the business is to maximize profits as well as returns to shareholders, and racing to take the lead in completive marketplace, these benefits above anything else. Milton Friedman in 1970 “claimed that there are no ethical obligations on a private companies other than to obey the law and meet the demand of their shareholders”. (Fisher, C. and Lovell, A., 2006). On the other hand, Solomon’s in 1993 argued that “the purpose of business is to provide for prosperity and happiness of the community” (Fisher, C. and Lovell, A., 2006). Figure1 shows continuum of business ethics, which exemplify how we can come up to the level of ethics in business and to see from the range if the company is socially responsible and caring or showing disengagement as well as irresponsibility towards society and environment. The theory of free trade depends on the idea of comparative advantage in which it reflects that each nation has a specific configuration of economic characteristics such as industrial knowledge, agriculture lands, skilled labour, as well as natural resources. These benefits enable the nation economy to produce certain goods more efficiently. The theory holds that both countries are better off of each produces the good to satisfy the need of consumers in both countries as well as to maximize the standard of living in both countries (http://www.tutor2u.net/economics/content/topics/trade/comparative_advantage.htm) However, how harmful the theory is, if when we apply it to reality and how much truth in it? We will see it in the analysis, afterwards. Utilitarianism: Utilitarianism is an ethical principle wherein the moral worth of an action is only determined by its participation to over all utility and happiness. It often assumed, in the business context, that maximizing the happiness is the same as maximizing the profit or return on capital invested. “However to apply the utilitarian principle properly one must consider that possibility that pleasure derived from increased profitability has been achieved at the cost of a greater pain of other people”. (Fisher, C. And Lovell, A., 2006: p128). In the corporation, “the cost-benefits analysis is a natural tool of utilitarian approach for the reason that it measures not only the direct cost and benefits to organization but also it measures the externalities as social costs benefits that are not reflected on the price of the product because they do not accrue directly on the organization concern. This cost analysis is design to address if the organization seeks to maximize a good rather than the good” (Fisher, C. And Lovell, A., 2006:p128) by using this principle one will see afterwards if globalization will favourably give harm than good. 5. Research Approach Utilised The researcher has used secondary research (summary of collection of existing data). In order to undertake the research the researcher has used books, websites, and electronic resource such as Business Source Premier to cover this topic. 6. Findings and Discussions of Findings What the Researcher have Found in General and the Researcher’s Personal Judgment with What the Writer have said A lot of people argue that Global economic and freeing international trade will add something valuable to the people’s life because it encourages countries to produce better products and services in the global competitive market which increase the maximize benefits and the world’s wealth. On the other hand, some people state that Global market has lacks that create barriers for the benefit and happiness to reach the people all over the world equally. One of the charges that free trade faced is the advantages which vary from company to another or country to another. Moreover the stronger you are, the more benefits you will get from it. In addition to that, industrialized countries demand the developing countries not to make barriers on international trade. At the same time European Unions, makes it difficult for the food from developing countries to export their produces to Europe. Lastly, the global institution such as WTO (World Trade Organization) respond more to industries country in any regulation suggested on international trade and not responding to the developing countries. (Fisher, C. And Lovell, A., 2006) Based on the report of the World Bank made by Hertl & Martin on the book World poverty and Human Rights, Rich country cut their tariffs by less than poor one did and they are particularly protectionist in many of the sectors where developing countries are best able to compete. Also, “rich country average tariffs on manufacturing imports from poor countries are four times higher than those import from rich countries” (Pogge, T. , 2004). And this clearly shows the inequality between the industrial countries and the developing countries, how costly it will be for the developing country to engage in such an activities, and how this agreement deteriorate poverty. In addition to that, many claimed that WTO and Multi-National Corporations have done more to help the country to be rich or be developed rather than to help the poor or the underdeveloped. Statistics shows that the gap between the rich nation and poor has increased from 1.6% in 1960 to 3% in 1997 (Singer, P. 2004, p. 82). Peter Singer states “that WTO is kind of Robin Hood in reverse, because it takes from the poor to give the rich”. George W. Bush said in a speech at the World Bank: “Those who protest free trade are no friend of the poor; those who protest free trade seek to deny them by their best hope for escaping poverty .(Singer, P. 2004, p77) Vandana Shiva, one of the best known WTO opponents from one of the less developed countries writes that the liberation of trade in India means that for food to be exported, and as a result “food prices have doubled and the poor have had to cut their food consumptions in half”. Today, 46% of humankind lives below Wold Bank’s $2/day poverty line. People so incredibly poor are extremely vulnerable to even minor changes in natural and social condition as well as too many forms exploitation and abuse. Each year approximately 18 million of them die prematurely from poverty related causes. This is one third of all human deaths- 50,000 every day, including 34,000 children, wherein most of them are under the age of five. The average income of citizen in rich countries is about 50 times greater than the poor (Pogge, T., 2004). Thus, it is one of the reasons why rich people become richer and why poor become poorer. In 2001 in South Africa alone, 20% of the adult population were infected with HIV (the viruses cause AIDS). In the rich country the virus is no longer a death sentence because they have a drug which suppresses the Virus infection and it cost $10,000 per person a year. When South African government decided to license the drug to produce it locally for cost at $350 per person a year for its emergency situation to rescues its people from death, United States has the threat of trade sanction to defend the property rights for drug manufacturers. After pressure from AIDS activist the world’s major pharmaceutical corporation went to court to stop the life saving infection production in South Africa and supply the drug to them or give it to them free. (Singer, P., 2004). This shows how trade agreement could intervene on government’s vital decision and how some developmental countries could pay economic costs in refusing the rich country’s order. This is very strange view of democracy the WTO claimed and pretends. Actually it is by veto as what Peter Singer has called it because the rich country has different barging power from the developing countries which represents the majority of the members of WTO. In practice, the WTO agenda is set by formal meeting of the major trading power such as United State, the European countries, Japan, and Canada Singer, P. (2004). The above clearly shows the charges made against WTO and Multi-national Companies. The researcher believed that WTO place economic consideration far ahead of concerns for other issues such as human rights and treating poverties as statistics above have shown. The researcher also believed that WTO memberships curtail national sovereignty in the sense that, in the real world, it is often hard to leave the WTO and as long as it remains a member, a country’s power to make some important decision eroded. Moreover, WTO is undemocratic in theory and in practice. Firstly, because a procedure requires unanimous consent to any change is not a form of democracy. Secondly, because the dispute panels of the main decision makers in WTO are not responsible to either the majority of the member or the majority of the planet’s population, and finally because the organisation is disproportionately influenced by the major of trading powers. Also, WTO makes the rich richer and the poor poorer. Many ethical criticisms on multinational companies arise from their tendency to exploit local conditions for commercial advantages. MNEs doing good by giving local jobs and employ them but local companies claimed that these MNEs pay the local employees above the labour market rate, western companies pay the Indian MBAs at salary three times that which an Indian company would pay .by doing this. MNEs will harm the local companies in the developing country by occupying the economic world and the top professional people .For example, Software engineers in Bangalore, the capital of India’s IT industry, work in good condition in the state of the art corporate campuses whereas the rest of the economy operates in poor to bad condition. (Fisher, C. And Lovell, A., 2006) Moreover, the MNCs especially those involved in strategic industries have become dependent to damage the local government ability in the developing country to make sure the marketplace operates fairly and ethically. An example of this was when the Western had interests in Indonesia in 1965, wherein they played a crucial role that time to change the political leadership by changing the President Sukarno in 1965 by General Suharto who supported Western that time to dictate the economic policy and control the natural resources. “Indonesia produces nearly 85% of the world’s natural rubber, over 45% of the tin, 65% of the copra and 23% of the chromium ore”. (Fisher, C. And Lovell, A., 2006: p473) In 1997, an internal report of World Bank confirmed that at least 20-30% of bank’s loans to Indonesia are diverted through informal payments to Government of Indonesia (stuff and pollinations). In the recent years, many clients drawn to the working condition such as 36-hours shifts with paying (72p per hour) of workers who work in factories own by big MNCs such as Nike, Adidas, Reebok, and Gap. (Fisher, C. And Lovell, A., 2006: p474). From the given example, it clearly shows how Multinational Corporation seeks out law wages opportunities worldwide and its structures, its investment in such a way as to take advantage of law wages. This corporation has strategy called cost-minimisation. This strategy means poor labor conditions and long hours without caring about any healthy and safety condition for the human beings who work under them. And if we apply the utilitarian principle here, we will see that there is no happiness for labor but only uses them, their lands, and environment for sake of profit-maximisation. Globalisation has opened the chance to the powerful countries and big companies to impose their values on weaker society. Many local products all over the world has replaced by big brands from cloths to restaurants, this is sometimes called McDonaldisation. Ritzer (1993) argued that McDonaldisation deceives the consumers and let them lose the ability to distinguish the good from the bad (Fisher, C. And Lovell, A., 2006): p482). 7. Conclusions From the evidences that was previously mentioned above, we could therefore conclude that the hazard of globalization is clear and it is somehow seems unfavourable to the poor and to the developing countries. Studies also shows how multinational companies operation showed no inherit concern for the human and environment consequences especially when they are at risk because of their actions. Moreover it can cause harm to the local conditions and cultures all over the world for commercial advantages. 8. Recommendations advise MNEs need to develop standards that will lead on the way to a better world for all, embracing global assessment and reporting schemes that encourage responsibility and clearness. Researcher also suggests that globalization requires a level of global responsibility “business need to move beyond corporate social responsibility to concept of global responsibility” (Antal, A, 2004) and to be aware of the need for excellent labour environment, human rights in the workplace and compassion to the environmental impact of business process. Company should know that they have responsibility for those who are affected the lives and the future of powerless stakeholders (the poor, future generations, weak communities, and the natural environment) and should therefore take their interests seriously into consideration. Companies should overcome their shareholders value mindset and adopt more inclusive stakeholder value perspective. Company achievement should be evaluated on their contribution to the network of relationship in which they participate. Globalisation can only be tackled from the perspective of global responsibility. “We should stop talking about company and society. What we should talk about is the company in society” (Zsolni, L., 2004). MNEs should consider turning to socially conscious consumers to develop another globalisation strategies. Such strategies involve exploring creative ways to serve particular needs through the development of unique goods and services, while at the same time meeting the social and environmental standard of society. This is not possible; many NGOs have been shown to help foster responses to these challenges, such as Greenpeace and WWF. (Zsolni, L., 2004). Multinational Corporation should have better integration into local communities. Companies should become accustomed to local socio-cultural and environmental circumstances, while implementing global ethical standards. They have to respect and protect local diversities, and enhance the well-being of local societies and natural ecosystems. MNE should balance between globalisation and localisation creatively to be more effective in the long term plan. . Figure 2: Extract for DANONE way result (Source: Antal, A., (2004). “Beyond CSR: organisational learning for global”) In 2000, Global Compact lunched programme at UN headquarter to bring different organizations together to share experiences on tackling the global ethical issues, the programme emphasised that Organisation should be a part of its culture to share the knowledge, experiences and generating synergistic solutions to expand their agenda and mission to tackle the global ethical issues(Antal, A, 2004). One of the examples of learning experience of Multi-national Corporation is Group called DONONE, a company characterised by its strong corporate culture which seeks to bring together the social and economic goals. In 2001, they decided to develop a tool whose aim to provide managers with a framework for the corporate social responsibility policies all over the world to achieve tong term perspective based on their stakeholder management. Figure 2 shows how the result should be on the DANONE evaluation program. This figure help the company to prompt a strong awareness of where the company needs to engage in a single loop or double loop learning (Antal, A, 2004) (for the meaning of single and double loop see appendix A). Researcher believes that the business world has a great opportunity in the globalization process if they come together and learn from each other to know how to deal with global ethical issues, being a global responsible, and learning how to implement it in their organizational culture. Companies and their stakeholders can win in an ethical and healthy way. And those who apply the new strategy will gain benefit on the long run. 9. References Singer, P. (2004) One World the ethics of globalisation, 2nd Edition ; USA: Yale University Press. Pogge, T. (2004) World Poverty And Human Rights.Oxford: Blackwell Publising Ltd. Fisher, C. And Lovell, A. (2006) Business Ethics and Values individual, corporate and international prospective,2nd Edition; Essex: Pearson Education Limited Comparative advantage and international trade: available online from http://www.tutor2u.net/economics/content/topics/trade/comparative_advantage.htm accessed on 7th DEC 2007 Antal, A (2004) Beyond CSR: organisational learning for global responsibility.Journal of mangment [online] available from: http://0-web.ebscohost.com.lispac.lsbu.ac.uk/bsi/detail?vid=6&hid=106&sid=b5ad04a8-249a-4f07-82ea-567541dc915d%40sessionmgr106 Accessed on 1st DEC 2007 Zsolni, L. (2004) How Serious are the Alternative to Globalisation? European business forum online http://www.ebfonline.com/Article.aspx?ArticleID=229 Accessed on 4th DEC 2007 Appendix A Argyris and Schon (1978) distinguish between single-loop and double-loop learning, related to Gregory Bateson's concepts of first and second order learning. In single-loop learning, individuals, groups, or organizations modify their actions according to the difference between expected and obtained outcomes. In double-loop learning, the entities (individuals, groups or organization) question the values, assumptions and policies that led to the actions in the first place; if they are able to view and modify those, then second-order or double-loop learning has taken place. Double loop learning is the learning about single-loop learning. To whom it may concern, The report is about “The Ethical Issues in Globalization and International Business” that talks about the issues in globalization and its effect in human, in environment as well as the society. For instance, it causes the developed country to become more developed like using technologies and being an industrialized country. Through this industrialization, it causes the environment to change and in addition to that it may have a risk on the environment like increasing the pollution present in air and reduces areas for agricultural land. The research also talks about the issues on how poor people are suffering, on this kind of phenomenon (globalization) because some of them died because of starvation because no land for planting can be used for their source of food. Another is the issue about the spread of HIV in one country wherein in the developed country there is a sufficient amount of drugs to cure the virus while in the underdeveloped the drugs is insufficient wherein they need to please the developed country to decrease the price of the drugs just to help them to overcome the problem on the virus. However, not only a bad side of the globalization were tackled on this report but also the good side like being globalize can help the economy of one country to progress but mostly favour the richer one and still cause negative effect to poorer one. Another ethical issue that was tackled in the report is in International Business. Companies likely influenced the developed country wherein International Businesses prefers to give more help to the richer one than the poorer one. And also this includes multinational companies that do not have any concern to human or to the environment in what they do whether it is risky or not, that what they concern is to do their actions or plan successfully. In addition to that they are only concern the statistics of the improving economy and not to the statistics of increasing poor society. The problem to these Multinational companies is that they prefer to work for the richer one and to become richer. And also because of these companies many people enter works for their survival by using their lands, their labour without the happiness. Thus, International Businesses should open their eyes to what they can give to human, whether rich or poor and to the society whether developed and underdeveloped. Read More