Session 3.

Ethics and Social Responsibility in

International Business

SULISTYANDARI – FEB UNSOED

International
Business
 Objectives :

After studying this session you should be able to :

1. Describe the nature of ethics
2. Discuss the ethics in cross-cultural and international
contexts
3. Identify the key elements in managing ethical behavior
across borders
4. Discuss social responsibility in cross-cultural and
international contexts
5. Identify and summarize the basic areas of social
responsibility
6. Discuss how organizations manage social responsibility
across borders
7. Identify and summarize the key regulations governing
international ethics and social responsibility.
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 Preface

 Globalization has brought an enormous increase in

cross-border trade, along with the ability to shift
investment quickly and, in areas of the world such as
Europe, enormous changes in policy. Couple with
this has been the increased mobility of international
labor.
 This factor has been driven by falling transport costs
and cheaper communication.
 Individual have been prepared to move across the
globe in search of work and higher pay.
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 Migration has often been associated with poverty. In
other words, people are motivated to uproot
themselves and move to another country where they
can be more assured of earning a livelihood.
 It is estimated that around 175 million people across
the world live outside their own country as a result of
seeking work.

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 Globalization offers businesses, employees, and
entrepreneurs myriad new opportunities to seek new
markets, broaden their product lines, and lower their
cost of production.
 But the globalization also presents international
businesses with new challenges, such as the need to
define appropriate ethical standards and to operate
in a socially responsible manner in all the markets
and countries in which the firm dose business.

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The Nature of Ethics and Social Responsibility
in International Business

 The fundamental reason for the existence of a

business is to create value (usually in the form of
profits) for its owners.
 Furthermore, most individuals work in order to earn
income to support themselves and/or their families.
 As a result, the goal of most of the decisions made on
behalf of a business or an individual within a
business is to increase income (for the business
and/or the individual) and/or reduce expenses
(again, for the business and/or the individual)
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 Hence, just as the business world is becoming
increasingly internationalized, so too is the concern
for ethical and socially responsible conduct by
managers and the businesses they run.

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 Definition of Ethics

 Ethics is an individual’s personal beliefs about

whether a decision, behavior, or action is right or
wrong.
 Hence, what constitutes ethical behavior varies from
one person to another.
 Further, although ethics is defined in the context of
an individual’s belief, the concept of ethical behavior
usually refers to behavior that conforms to generally
accepted social norms.

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 Unethical behavior, then is behavior that does not
conform to generally accepted social norms
 An individual’s ethics are determined by
combination of factors.
 Exp : children’s perceptions of behavior of their
parents and other adults (when they was a child),
behavior of peers with whom they interact in the
classroom and playground (when they enter school),
religion, etc.

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 Generalization about individual ethics

Individuals have their People from the same

own personal belief cultural contexts are
system about what likely to hold similar-
constitutes ethical and but not necessarily
unethical behavior identical

Individuals may be Individuals may

able to rationalize deviate from their own
behaviors based on belief systems based
circumstances on circumstances

Ethical values are

strongly affected by
national cultures and
customs.

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 Figure 5.1.Ethics in a cross-cultural context

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 Managing Ethical Behavior Across
Borders

 To manage ethical behavior, managers use the

common ways :
1. guidelines or codes of ethics,
2. ethics training, and
3. organizational practices and the corpotare culture.

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 1. Guidelines and codes of ethics

 Many large MNC, including Toyota, Siemens, Genera

Mills and Johnson&Johnson, have written guidelines
that detail how employees are to treat suppliers,
customers, competitors, and other constituents.
 Other company have developed formal codes of
ethics (nissan, daewoo, philips, etc.)
 Codes of ethics is written statements of the values
and ethical standards that guide the firm’s actions.

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 However, the mere existence of a code of ethics does
not ensure ethical behavior. It must be backed up by
organizational practices and the company’s
corporate culture.
 A multinational firm must make a decisions as to
whether to establish one overarching code for all of
its global units or to tailor each one to its local
context.

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 In order for a code to have value, of course, it must
be clear and straightforward, it must be address the
major elements of ethical conduct relevant to its
environment and business operations, and it must be
adhered to when problems arise.

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 2. Ethics Training

 Some MNC address ethical issues proactively, by

offering employees training in how to cope with
ethical dilemmas.
 Training sessions involve discussions of different
ethical dilemmas that employees might face and how
they might best handle those dilemmas.
 Again, one decision for international firms is
whether to make ethics training globally consistent
or tailored to local contexts.

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 3. Organizational Practices and the Corporate
Culture

 If the top leaders in a firm behave in an ethical

manner and violations of ethical standards are
promptly and appropriated addressed, then everyone
in the organization will understand that the firm
expects them to behave in an ethical manner-to
make ethical decisions and to do the right things.

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 Social Responsibility in Cross-Cultural and
International Contexts

 As we have seen, ethics in business relate to

individual managers and other employees and their
decisions and behaviors.
 Organizations themselves do not have ethics but do
relate to their environment in ways that often involve
ethical dilemmas and decisions by individuals within
the organization.
 This situations are generally referred to within the
context of the organization’s social responsibility.

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 Definition of CSR
(Corporate Social Responsibility)

 Social responsibility or CSR is the set of obligations

an organization undertakes to protect and enhance
the society in which it functions.
 The complexities for managers in an international
business are clear-balancing the ideal of a global
stance on social responsibility against the local
conditions that may compel differential approaches
in the various countries where the firm does
business.

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 Areas of Social Responsibility

Organizational Stakeholders
• People and organizations that are directly
affected by the practices of an organization and
that have a stake in its performance
The Natural Environment
• Environmental protection and pollution

General Social Welfare

• Exp: making contributions to charities,
philantropic organizations, supporting
museums, public radio and TV

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 Managing Social Responsibility Across Borders

 Steps for managing social responsibility across

borders:
 Adopt the approach to social responsibility
 manage issues of compliance
 Identify the informal dimensions of social responsibility
 evaluating their social responsibility efforts.

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 Approaches to Social Responsibility

Figure 5.2

Least Most
responsible responsible

Obstructionist Defensive Accomodative Proactive

stance stance stance stance

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 Managing Compliance

 Organizations therefore need to fashion an approach

to social responsibility the same way that they
develop any other business strategy.
 That is, they should view social responsibility as a
major challenge that requires careful planning,
decision making, consederation, and evaluation.
 They may manage social responsibility through both
formal and informal dimensions.

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Formal organizational dimensions used to implement a firm’s
social responsibility as follow:

Legal Compliance

Ethical Compliance

Philantropic Giving

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 Informal Dimension of Social Responsibility

 In addition to these formal dimensions for managing

social responsibility, there are also informal ones.
Leadership, organization culture, and how the
organization responds to whistle blowers each helps
shape and define peoples’s perceptions of the
organization’s stance on social responsibility.

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 Organization leadership and culture

• Different between one

organization to another
Whistle-blowing
• Is the disclosure by an
employee of illegal or unethical
conduct on the part of others
within the organization
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 Evaluating Social Responsibility

 Any organization that is serious about social

responsibility must ensure that its efforts are
producing the desired benefits.
 An organization should also evaluate how it responds
to instances of questionable legal or ethical conduct.
 Many organizations choose to conduct formal
evaluations of the effectiveness of their social
responsibility efforts such as : corporate social audit

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 A corporate social audit is a formal and thorough
analysis of the effectiveness of the firm’s social
performance.
 The audit is usually undertaken by a task force of
high-level managers from within the firm.
 It requires that the organization clearly define all its
social goals, analyze the resources it devotes to each
goal, determine how well it is achieving the various
goals, and make recommendations about which
areas need additional attention.

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Difficulties of Managing CSR Across Borders

The Anglo- The Asian

Saxon Approach Approach

The Continental
European
Approach

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 Regulating International Ethics and Social
Responsibility

Some Regulation as follow :