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International Business
Rakesh Mohan Joshi Professor & Chairperson, IIFT New Delhi

Copyright @ Oxford University Press International Business R. M. Joshi

Chapter 20: Ethics and Social Responsibility

Chapter 20

ETHICS AND SOCIAL RESPONSIBILITY

Copyright @ Oxford University Press International Business R. M. Joshi

Chapter 20: Ethics and Social Responsibility

Learning Objectives

To delineate the significance of ethical practices in business

To explain the concept of ethics To elucidate unethical business practices To explicate corporate social responsibility

Copyright @ Oxford University Press International Business R. M. Joshi

Chapter 20: Ethics and Social Responsibility

Significance of Ethics & Social Responsibility for Businesses

It is in the larger interest of businesses to
carry out their activities ethically and in a

socially responsible manner, not for the

sake of charity but for their own survival and sustainability in the long-run.

Copyright @ Oxford University Press International Business R. M. Joshi

Chapter 20: Ethics and Social Responsibility

Ethics
Ethics: The study of moral conduct and its evaluation. Ethics are a societys concept of fairness and justice whereas morality refers to individual virtues. Business ethics: The study and determination of what is right and good in business settings. Something which is legal need not necessarily be ethical.
Copyright @ Oxford University Press International Business R. M. Joshi

Oxford International Business Joshi, R.M

Chapter 20: Ethics and Social Responsibility

Unethical Business Practices

Businesses resort to a wide range of unethical practices which are not only detrimental to customers but also to the civil society at large, such as

Corruption and bribery, Financial misappropriations, Circumventing law enforcement, Evading taxes and duties, Dumping, Making exaggerated and even false claims, Exploiting customers, Flouting basic norms of civil decency, and Even manufacturing and distributing pirated and fake products.
Chapter 20: Ethics and Social Responsibility

Copyright @ Oxford University Press International Business R. M. Joshi

Corruption
Abuse of entrusted power for private gain. It is a form of behaviour, which departs from

ethics, morality, tradition, law, and civic

virtue.

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Chapter 20: Ethics and Social Responsibility

Detrimental Effects of Corrupt Practices on Business

Legal risks Reputational risks Financial costs Repeat bribery demands Blackmail and security risks Risk of getting cheated Undermines businesses vested interest in sustainable development
Chapter 20: Ethics and Social Responsibility

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Bribe
An offer or receipt of any gift, loan, fee, reward, or other advantage to or from any person as an inducement to do something which is dishonest, illegal, or a breach of trust, in the conduct of the enterprises business.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Smuggling
Surreptitious trade across the borders aimed at circumventing enforcement of regulatory prohibitions and restrictions and evading payment of legitimate customs duties. Products with higher prohibition and restrictions, such as liquor, cigarettes, drugs, arms and ammunitions are generally appealing to smugglers.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Hawala
An informal channel for transferring funds from one location to another through service

providers, known as hawaladars. It is used

as a major remittance system around the world.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Money Laundering
Conversion or laundering of money obtained through illegal means so as to make it appear to originate from a legal source. It is often used worldwide to transform monetary proceeds derived from illegal means or criminal activities into funds with apparently legal sources. The money laundering process has three independent stages: Placement Layering Integration
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Tax Havens
A country which levies taxes either at a very low rate or no taxes at all. To assign a country tax-haven status, OECD considers four criteria:

Insignificant or non-existent tax levels Absence of transparency in tax matters Absence of fiscal data exchange with other countries

Attractiveness for straw companies with

fictitious activities

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Chapter 20: Ethics and Social Responsibility

Modus Operandi of Routing Money to Tax Havens

Round tripping: Transactions aimed at converting unaccounted or black-money into legitimate wealth.

Treaty shopping: Aims at reducing total

tax incidence on capital gains made in countries with high tax incidence.

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Chapter 20: Ethics and Social Responsibility

Unethical Marketing Practices

Businesses often adopts both fair and unfair marketing practices to entice customers and establish their supremacy in the

marketplace.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Grey Marketing
Import or export of goods and their

distribution through unauthorized channels.

International
differentials

brands
and low

with
cost

high
of

price

arbitrage

constitute typical grey market goods.

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Chapter 20: Ethics and Social Responsibility

Types of Grey Marketing Channels

Parallel importing: Selling a product at a higher price to the authorized importer in the overseas market than the price at which the product is available in the home market. Re-importing: Re-importing takes place when a product is priced lower in overseas market as compared to home market. Lateral re-importing: Products are sold from one export market to another through parallel importing when the price differences exist in different export markets.
Chapter 20: Ethics and Social Responsibility

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Counterfeiting
Imitating A wide consumer something range of with intent such to as and deceive or defraud. products, goods, currency,

documents
difficult to

are
differentiate

counterfeited
between a

internationally. Customers often find it genuine and counterfeit products.

Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Piracy
Use of illegal and unauthorized means to obtain goods. Piracy activities are directly influenced by the intellectual property regime within a country.

It includes use or reproduction of patented or

copyrighted matter, such as software, music,

movies, computer games, etc.

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Transfer Pricing
The price between related parties in an international transaction.

It is used to optimize profitability in low-tax

regimes at the expense of high-tax regimes.

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Chapter 20: Ethics and Social Responsibility

Types of Transfer Pricing Market-based / arms length transfer pricing: Pricing between two unrelated (arms length) parties. Non-market pricing : Pricing policies that deviate from market-based arms length pricing. Pricing at direct manufacturing costs: The intra-firm transactions that take place at the manufacturing costs.
Chapter 20: Ethics and Social Responsibility

Copyright @ Oxford University Press International Business R. M. Joshi

Dumping
Selling of a product or commodity below the

cost of production or at a lower price in

overseas markets compared to domestic markets that causes injury to domestic

industry in the importing country.

Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Forms of Dumping

Sporadic dumping : Occasionally selling excess goods or surplus stock at lower prices in overseas markets than the domestic price or below the cost. Predatory dumping: Aimed to force competitors to leave the market, thus enabling the predator to raise the price in the long-run. Persistent dumping: It involves a consistent tendency of a firm to sell the goods at lower prices in foreign markets compared to domestic markets.

Copyright @ Oxford University Press International Business R. M. Joshi

Chapter 20: Ethics and Social Responsibility

Unethical Marketing Communications

In quest to entice customers, advertisers often make exaggerated and sometimes false claims and exploits customers emotions. The ICC code on Advertising is the major rule-setter for international marketing and advertising whereas Advertising Standards Council of India (ASCI), a voluntary organization, brings out a code for self-regulations in advertising in India and decides upon the complaints.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Corporate Social Responsibility (CSR)

Carrying out business activities in a socially responsible manner. It is the process of assuming responsibility by a business enterprise across its entire supply chain for the social, ecological, and economic consequences of the companys activities, reports on these consequences, and constructively engage with stakeholders.
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Multilateral CSR Initiatives

OECD Guidelines for MNEs:

It presents the worlds foremost CSR instrument and an important international benchmark. The guidelines aim to promote MNEs positive contributions to economic, environmental, and social progress and contains voluntary principles and standards for conduct of responsible business.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

Global Reporting Initiative (GRI)

It sets out the principles and indicators that organizations social can use to This measure and report their economic, environmental, and performance. to standardized stimulate approach reporting help

demand for sustainability information.

Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility

ISO 26000: Social Responsibility Guidelines

ISO 26000 standards, voluntary to use,

encompasses
environment,

issues
human

relating
rights,

to

the
labour

practices, organizational governance, fair business practices, community involvement and social development, and consumer

issues.
Copyright @ Oxford University Press International Business R. M. Joshi Chapter 20: Ethics and Social Responsibility