[Type text]

[Type text]

CANDIDATE NUMBER 108766

Discuss how developing countries and developed countries pose distinct challenges for multinational enterprises ethical behaviour? Using examples, discuss whether and how MNEs from developed countries adapt their ethical conduct and corporate social responsibility practices according to local expectations in developing countries.

Introduction
Firms that operate internationally often encounter ethical dilemmas derived from differences in ethical principles/norms between home and host countries. What course of action is right or wrong is not always easy to ascertain when there is a disagreement in cultural values and interests. Whether multinational companies should adapt their behaviour to the local standards or follow the same universal principles upheld at home is an on going debate with no definite answer. As Donaldson (1996) agreed with the philosopher Michael Walzer, There is no Esperanto of global ethics

This essay commences by presenting some of the main theories regarding business ethics. After examining the ethical challenges that Multinational Enterprises (MNEs) face in a global context, it will be addressed in what degree MNEs adapt their activities to meet local values and norms. This essay also presents how some existing MNEs from developed countries have implemented their ethical strategies in developing countries.

Theories on Business Ethics

Business ethics are the moral principles regarding right and wrong behaviours within a corporation. In an international context this is of particular importance as what is considered as good practice in one country may be considered unethical in another. This

[Type text]

[Type text]

CANDIDATE NUMBER 108766

raises the question whether ethical principles should be adapted to local culture or whether moral principles are universal and should lead to the same behaviour around the world. Two different theoretical perspectives, relativism and absolutism, reflect both views (Cavusgil et al., 2013).

Cultural relativism follows the maxim when in Rome do as Romans do. Problems arise when dealing with ethically questionable practices that are common in developing countries. At the other extreme we find ethical absolutism, which advocates for the universality of ethical principles and seeks the promotion of common values around the world. Mel (2013) explores some of the approaches within both theories.

As relativism could be contradictory with some of the collectively accepted values of human rights, and it is problematic to agree on what the universal ethical norms ought to be, it seems that a balance position between both extremes could be the answer. Donaldson (2006) advocates for this third perspective and recommends companies to respect fundamental human rights at well as local traditions, and to comprehend that the context is important when making ethical business decisions.

What type of principles a MNE is going to follow in the host country will determine the way in which that company adapt their ethical behaviour. erg and olt r gge )

propose a hierarchical pyramid of ethic principles. The basis of the pyramid are the universal principles, regarding the compliance of basic human rights, and that must not be violated under any circumstances. Defenders of universalism theories would always observe these values. The middle tier is constituted by cultural principles, distinct of each culture and influenced by religion, traditions, and so on. The last tier is built by

[Type text]

[Type text]

CANDIDATE NUMBER 108766

situational principles, depending on the specific situation and that are need to be addressed locally. Relativists are likely to follow cultural and situational principles.

Ethical Issues in International Business

Developed countries and developing countries are likely to present differences in business ethical standards due to their great cultural, geographical, political and economic distance. Hence, MNEs will encounter ethical dilemmas derived from the decision-making process of what ethical norms should they apply, those from the home country or those from the host country. MNEs need to shape their strategy concerning some of the most common ethical issues that are present in international business: be employment practices, human rights, environmental regulations, corruption and social responsibility (Hill, 2013). Those challenges will take different forms in developed countries than in developing countries.

In the case of developed countries, the acceptance and observance of universal principles is generally established in the business environment. During the past decades, there has been a proliferation of MNEs that have implemented codes of conduct and set policies regarding ethics. The United Nations Global Compact (2013) and other platforms encourage companies worldwide to apply 10 principles in the areas of human rights, labour, environment and anti-corruption. These are principles that could be taken for granted in developed countries, where we agree on child labour not being a tolerable practice, minimum wage is adequate for the living standards, or on the necessity of having good working conditions. However, the observance of some principles regarding corruption or environment is occasionally weaker, and cases on lobbying, tax evasion, discrimination, or failure to protect the environment can take place. There is also a growing concern about corporate social responsibility (CSR) in developed countries. The

[Type text]

[Type text]

CANDIDATE NUMBER 108766

stakeholders as the general public or governments among others expect from business not only to make a profit but also to actively engage in activities that benefit the society and environment. CSR is a further step in business ethics, where just to merely meet the legal minimum requirements is not felt as the only obligation of business.

On the other hand, developing countries have their own ethical codes, which can be in conflict with those followed in developed countries. Implementing universal or situational principles, and deciding whether to adapt to local standards or not, constitute a moral dilemma that MNEs face when shaping their ethical behaviour in developing countries. For instance, child labour is not much restricted in countries like India, where large families rely on their children income erg and olt r gge, 2001). When MNEs operate

in those countries, they have to make crucial decisions as if they will tolerate a practice that is allowed by the local laws or if they will enforce the moral codes of conduct of Western societies which vehemently oppose child labour, even if the latter is unfavourable to the subsistence of poor families. Likewise, Hanson and Rothlin (2001) analyse the widespread case of bribery in Eastern countries as China, where payments to corporate or government officials to secure business projects are frequently accepted. Therefore, it could be detrimental for MNEs not to engage in gift giving practices even though they are discordant with Western values against corruption.

Ethical conduct in developing countries

Globalisation has brought countries worldwide closer and MNEs from developed countries are avid to exploit new opportunities. Developing countries are considered a golden mine where cheap labour, competitive advantages in resources, lax regulations and weak competition constitute attractive opportunities for MNEs to increase profits and

[Type text]

[Type text]

CANDIDATE NUMBER 108766

reduce costs. When MNEs from developed countries operate in developing countries, conflicts in ethical decision-making processes can arise due to discordances between home and host countries values and interests and inconsistent cultural norms, as previously explained. Furthermore, the local government, institutions, shareholders, suppliers and other local stakeholders project their own expectations on the activities carried out by MNEs in their countries. When a set of cultural standards is established in the local business environment, MNEs might find a conflict with the ethical standards the company operates by elsewhere. Those local norms can be problematic, especially when related to employment practices, human rights and corruption issues (Hill, 2013)

Probably one of the most infamous cases on poor labour standards took place in the 99 s when, in a major scandal, the sportswear giant Nike was accused of using sweatshops to manufacture footwear in Indonesia, Vietnam and other Asiatic countries. It was reported that the company subcontractors employed child labour, paid less than the minimum wage, thus making necessary for workers to work considerable overtime, exposed the workers to hazardous substances, intimidated and coerced their workforce. These issues had a negative impact in their image that was reflected in a decrease of sales due to consumer boycotts. (Beder, 2002; Hill, 2013). Nike was not violating the local law, but adapted their ethical behaviour to the questionable cultural norms prevailing in the host countries, where it is acceptable to employ child labour or it is common practice to neglect the working conditions. Nike was held directly accountable for these issues, even though they took place in factories operated by subcontractors, as it was the responsibility of the firm to monitor and control its subsidiaries. It could be inferred from this case that when ethical standards are lower it is best to maintain superior ethical values to what is required by local laws and norms.

[Type text]

[Type text]

CANDIDATE NUMBER 108766

Corruption is also frequent in business practices in developing countries, where bribery, masked in form of gift giving, is an important ritual. MNEs should define their position with respect to payments of bribes to corporate and government officials, according to local expectations. The German telecommunications firm Siemens has also been involved in a multi-million bribery scandal worldwide. Unofficial payments to secure foreign contracts were so blended into the business model that it could be stated that Siemens had institutionalized corruption (Schubert and Miller, 2008).

Corporate Social Responsibility in developing countries

The two previous examples presented the way in which some MNEs adapted their ethical behaviour to the local expectations, benefiting from the existence of the weaker ethical norms prevailing in developing countries. Nevertheless, that is not always the trend among MNEs from developed countries and there is a growing interest on CSR for the general public, governments and institutions worldwide. There is still a long way to go until developing countries fully embrace the CSR values, bringing the low level of economic development, political instability and social deprivation other priorities. However, as Cramer (2007) stated, issues regarding CSR and sustainability have a new sense of urgency for business leaders in developing countries, who are starting to shape policies to address the issue. Local expectations in developing countries regarding CSR practices of Western companies are increasingly higher, and MNEs find themselves required to be more and more socially and environmentally responsible (Cavusgil et al., 2013).

[Type text]

[Type text]

CANDIDATE NUMBER 108766

An example of a multinational giant that has successfully implemented CSR policies and carried out socially and environmentally responsible practices in developing countries is Adidas. For eleven consecutive years the firm has released CSR reports, which presents different measures taken to ensure social and environmental welfare in developing countries. It details the strategies that Adidas follow to improve working conditions in suppliers factories, to work ethically with suppliers in Asia and to reduce the environmental impact of its activities (Adidas, 2007). Contrary to the case of one of its main competitors, Nike, Adidas decided to follow an ethical strategy based in promoting welfare to society, which has granted the firm with the respect from the public and institutions. Adidas has gone beyond merely adapt their activities to the minimum local standards and has emphasised the importance of complying with universal principles in every aspect of their business.

Conclusion
The aim of this essay was to explore the different ethical challenges that MNEs face in developed and developing countries and to examine, providing specific examples, how Western MNEs acclimatize their ethical conduct when operating in developing countries according to local expectations. Some of the principal theories in business ethics have been also described.

It can be concluded that, within international business, an ethical conduct is a fundamental element for multinational firms in the current globalised environment. Developed and developing countries have their own distinct moral standards that might be in conflict due to cultural divergences. Thus, it is necessary to address the different ethical dilemmas encountered during the course of business, as unethical behaviour can have a great cost

[Type text]

[Type text]

CANDIDATE NUMBER 108766

for companies, not only economic wise, but also regarding to corporate image and reputation.

Although business ethics is a growing concern worldwide, it is still needed to develop sound policies regarding universal codes of conduct, corporate social responsibility and sustainability, specially in developing countries, where those concepts are not as grounded. Therefore, it is suggested to carry out further studies that address the position upheld by developing countries regarding universal ethical principles, and that measure whether and how MNEs in developing countries are implementing not only universal codes of conduct but also policies regarding CSR and sustainability.

References
Adidas, (2007). Corporate Responsibility Report, 2007. [online]. Available at: <http://www.adidasgroup.com/media/filer_public/2013/08/27/adidas_ser2007_online_en.pdf> [Accessed 7 November 2013].

Beder, S. (2002). Putting the boot in. The Ecologist, 32(3), pp. 24-28, 66-67. Available at: < http://www.uow.edu.au/~sharonb/nike.html> [Accessed 30 October 2013] Berg, N., Holtbrgge, D. (2001). Public Affairs Management Activities of German Multinational Corporations in India. Journal of Business Ethics, 30, pp. 105119 Cavusgil, S.T., Knigh, G., Riesenberger, J.R. (2013). International Business: the new realities. (3rd ed.). Harlow: Pearson Education Limited. Cramer, A., Prepscius, J. (2007). Creating a Sustainable Future: Corporate Social Responsibility in Asia. Global Asia, [online] Available at: http://www.globalasia.org/Issue/ArticleDetail/150/creating-a-sustainable-futurecorporate-social-responsibility-in-asia.html [Accessed 5 November 2013].

[Type text]

[Type text]

CANDIDATE NUMBER 108766

Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, 74(5), pp. 4857. Available

Hanson, K., Rothlin, S. (2010). Taking your code to China. Journal of International Business Ethics, 3(1). Available at: http://www.scu.edu/ethics/publications/ethicalperspectives/Code-to-China.pdf [Accessed 1 November 2013]. Hill, C.W., (2013). International business: competing in the global marketplace. (9th ed.). New York: McGraw-Hill Irwin.

Mel, D., Sanchez-Runde, C. (2013). Cultural Diversity and Universal Ethics in a Global World. Journal of Business Ethics, 116(4), pp. 681-687.

Schubert, S., Miller, C. (2008). At Siemens, Bribery Was Just a Line Item. The New York Times, [online] 8 December. Available at: http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?adxnnl=1& pagewanted=all&adxnnlx=1384394740-RsQWZaC1hzts9gUI2iKXiA [Accessed 3 November 2013].

United Nations Global Compact, 2013. Global Corporate Sustainability Report. [pdf] New York: United Nations Global Compact. Available at: <http://www.unglobalcompact.org/AboutTheGC/global_corporate_sustainability_report.h tml> [Accessed 30 October 2013]