BUSINESS ETHICS IN INTERNATIONAL BUSINESS

MODULE I: Introduction to Business Ethics

Reference: Business Ethics and Corporate Governance — B.N. Ghosh
Weightage: 25% | 6 Subtopics | 10 Points Each

📌 1. Business Ethics: Introduction — Meaning of Ethics & Types of Ethical

Issues
1. Meaning of Ethics: Ethics is the branch of philosophy that deals with questions of right and wrong
conduct, guiding individuals to distinguish between moral and immoral behaviour in personal and
professional life.
2. Business Ethics Defined: Business ethics refers to the application of ethical principles and moral
standards to business activities, decisions, and relationships — ensuring firms act responsibly
towards all stakeholders.
3. Ethics vs. Law: While law sets minimum standards enforced by the state, ethics goes beyond legal
requirements. A business act can be legal yet unethical (e.g., price gouging during a crisis).
4. Normative vs. Descriptive Ethics: Normative ethics prescribes how businesses ought to behave,
while descriptive ethics studies how businesses actually behave — BN Ghosh emphasises both
perspectives for a complete understanding.
5. Types: Individual-Level Issues: These involve personal decisions of managers and employees —
e.g., honesty, integrity, and fairness in day-to-day dealings, which form the foundation of an ethical
organisational culture.
6. Types: Organisational-Level Issues: These cover firm-wide policies such as labour practices,
accounting transparency, and marketing honesty; poor governance at this level can lead to
corporate scandals like Enron.
7. Types: Industry-Level Issues: Entire sectors can face ethical concerns — e.g., the pharmaceutical
industry's drug pricing or the fast-food industry's health impact — requiring collective industry-wide
ethical standards.
8. Types: Societal/Global Issues: At the broadest level, ethical issues include environmental
degradation, human rights violations in supply chains, and bribery in international markets that
affect societies globally.
9. Moral Values as the Core: BN Ghosh argues that ethics in business must be rooted in core moral
values — honesty, fairness, respect, and responsibility — which transcend cultural and national
boundaries.
10. Ethics as a Competitive Advantage: Firms that embed ethics in their strategy build stronger
reputations, attract loyal customers and employees, and achieve long-term profitability, making
ethics both a moral and business imperative.

📌 2. Ethical Dilemmas and Ethical Principles

1. What is an Ethical Dilemma?: An ethical dilemma arises when a manager must choose between
two or more courses of action, each of which involves conflicting moral obligations — there is no
clear 'right' answer.
2. The Principle of Utilitarianism: Utilitarianism, derived from Bentham and Mill, holds that the most
ethical action is the one that produces the greatest good for the greatest number — widely used in
cost-benefit analyses in business.
3. Kantian / Deontological Ethics: Kant's categorical imperative states that an action is ethical only if
it can be universalised — businesses should ask: 'What if every firm acted this way?' This principle
underpins anti-bribery norms.
4. Virtue Ethics Approach: Virtue ethics focuses on the character of the decision-maker rather than
outcomes — a virtuous manager will consistently act with courage, honesty, and prudence in
complex situations.
5. Rights-Based Principle: This principle holds that individuals have fundamental rights that must not
be violated even for collective gain — relevant to issues like data privacy, worker rights, and
consumer safety in global business.
6. Justice and Fairness Principle: Rawls' theory of justice demands that business decisions must be
fair, especially to the most disadvantaged — relevant in fair wage policies, equitable resource
distribution, and transparent governance.
7. The Golden Rule: The Golden Rule ('treat others as you wish to be treated') is a universal ethical
principle applicable across cultures — it forms a practical guide for resolving interpersonal ethical
conflicts in multinational firms.
8. Common Types of Ethical Dilemmas: Managers commonly face dilemmas such as: bribery vs.
losing a contract, whistle-blowing vs. organisational loyalty, profit maximisation vs. environmental
protection, and local customs vs. global standards.
9. Resolving Dilemmas: A Framework: BN Ghosh recommends a step-by-step approach: identify the
facts, list stakeholders affected, apply multiple ethical principles, evaluate consequences, and
choose the action most aligned with core values.
10. Role of Ethical Codes: Written codes of ethics and conduct help organisations reduce ambiguity in
dilemmas — they provide pre-agreed guidelines so managers do not have to start moral reasoning
from scratch in crisis situations.

📌 3. Importance of Ethics for Global Managers in International Business

1. Navigating Cultural Diversity: Global managers operate across diverse cultural, religious, and
social systems — ethical sensitivity helps them understand and respect local norms while
maintaining universal ethical standards.
2. Building Cross-Border Trust: Trust is the foundation of international business relationships. Ethical
behaviour ensures that foreign partners, governments, and customers trust the firm, reducing
transaction costs and conflicts.
3. Avoiding Bribery and Corruption: Legislation like the US Foreign Corrupt Practices Act (FCPA)
and UK Bribery Act makes it legally mandatory for global managers to refuse corrupt practices,
making personal ethics a legal necessity.
4. Managing Reputational Risk: In an interconnected world, unethical conduct in one country instantly
damages the global brand — managers must make decisions with a clear awareness of worldwide
reputational consequences.
5. Ethical Leadership in MNCs: BN Ghosh highlights that ethical leadership in multinational
corporations (MNCs) sets the 'tone at the top' — leaders who model integrity inspire ethical
behaviour throughout the organisational hierarchy.
6. Fair Treatment of Employees: Global managers must ensure fair wages, safe working conditions,
and non-discrimination across all jurisdictions — ethical HR practices enhance employee loyalty
and productivity internationally.
7. Stakeholder Management: International business involves a wide range of stakeholders —
shareholders, employees, governments, NGOs, and communities. Ethical managers balance these
often-conflicting interests without sacrificing core values.
8. Sustainability and Long-term Thinking: Ethical global managers adopt sustainable business
models that consider long-term environmental and social impact, aligning the firm with growing
global demand for responsible business behaviour.
9. Decision-Making Under Uncertainty: International markets involve political instability, regulatory
gaps, and ambiguous laws. Ethical principles serve as a stable compass for decision-making when
formal rules are absent or unclear.
10. Contribution to Global Development: Ethical managers in global firms contribute to the economic
and social development of host countries by creating jobs, paying taxes honestly, and investing in
local communities rather than exploiting them.

📌 4. Issues in International Business Ethics & Their Pertinence to

Business Orientations and Management Prerogatives
1. The Universalism vs. Relativism Debate: A central issue is whether ethical standards should be
universal (the same everywhere) or relative to local culture — BN Ghosh argues for a middle path:
core universal values with cultural sensitivity in implementation.
2. Human Rights in Global Supply Chains: MNCs are increasingly held responsible for human rights
abuses in their supply chains (child labour, forced labour) — ethical management requires due
diligence beyond the firm's own operations.
3. Bribery and Facilitation Payments: Corruption is pervasive in many markets. While 'grease
payments' may be tolerated locally, they violate international norms and erode institutional trust —
firms must have clear anti-bribery policies.
4. Environmental Ethics: Global firms face ethical obligations to minimise environmental damage.
Shifting production to countries with weaker environmental laws ('pollution havens') is ethically
indefensible even if legally permissible.
5. Intellectual Property Theft: Piracy and IP infringement are major ethical concerns in international
business — violating patents and trademarks undermines innovation incentives and harms the
originators of intellectual work.
6. Pricing Ethics and Transfer Pricing: Manipulative transfer pricing — setting artificial prices for
intra-firm transactions to shift profits to low-tax jurisdictions — is an ethical issue that deprives host
countries of legitimate tax revenues.
7. Cultural Imperialism vs. Respect: Imposing home-country values and business practices on host
countries is ethically problematic. Ethical global managers adapt to local cultures while resisting
cultural practices that violate universal human rights.
8. Consumer Protection: Selling sub-standard or banned products in developing markets (where
consumer protection laws are weak) is a major ethical issue — firms must maintain the same
product standards globally.
9. Business Orientation and Ethical Stance: A firm's ethical orientation (ethnocentric, polycentric, or
geocentric) directly influences its ethical stance. Geocentric firms — which think globally and act
locally — are best positioned to uphold both universal and local values.
10. Management Prerogatives and Ethical Boundaries: Managerial discretion in MNCs can be
misused — e.g., downsizing in one country while rewarding executives in another. Ethical
management requires accountability for decisions that affect all stakeholders equally.

📌 5. Positive Impacts of Ethics in International Trade

1. Enhances Country Image: Nations known for ethical business practices attract more foreign
investment and trade partnerships — ethical standards serve as a positive signal of institutional
quality and reliability.
2. Reduces Trade Disputes: Ethical conduct — such as honouring contracts, avoiding dumping, and
fair disclosure — minimises disputes and litigation between international trading partners, lowering
the cost of trade.
3. Promotes Fair Competition: Ethics discourages anti-competitive practices like cartelisation, price-
fixing, and market manipulation — this levels the playing field and allows businesses to compete on
merit and innovation.
4. Strengthens International Agreements: Countries and firms with strong ethical cultures are more
likely to comply with international trade agreements (WTO rules, bilateral FTAs) — ethical
compliance reduces the need for costly enforcement mechanisms.
5. Builds Consumer Confidence: Ethical sourcing, truthful labelling, and transparent supply chains
build consumer trust in internationally traded products — this loyalty translates into sustained
demand and market growth.
6. Facilitates Technology Transfer: Ethical protection of intellectual property encourages MNCs to
share technology with developing-country partners — this accelerates industrialisation and narrows
the technology gap between nations.
7. Supports Sustainable Development: Trade conducted under ethical environmental standards
reduces resource depletion and pollution — this supports the UN Sustainable Development Goals
(SDGs) and ensures future generations also benefit from trade.
8. Attracts Ethical Investors: Growing ESG (Environmental, Social, Governance) investing means
firms with strong ethics attract more institutional capital — this lowers the cost of capital and
improves financial performance over time.
9. Reduces Corruption Costs: Widespread corruption inflates the cost of doing business (through
bribes, delays, and uncertainty) — international ethical standards reduce these friction costs,
making trade more efficient and inclusive.
10. Promotes Social Upliftment in Host Countries: Ethical MNCs pay fair wages, invest in local
infrastructure, and support community development — this generates positive spillover effects that
improve living standards in developing host nations.

📌 6. Ethics in International Business: Expectations vs. Reality

1. The Ideal Expectation: The ideal expectation is that global firms will uphold universal ethical
standards — respecting human rights, environment, fair wages, and transparency — regardless of
where they operate.
2. The Ground Reality: Ethical Gaps: In reality, significant ethical gaps exist: MNCs often exploit
regulatory loopholes in developing countries, engage in tax avoidance, and tolerate labour abuses
in outsourced facilities.
3. The Race to the Bottom: Competitive pressures can push firms to reduce ethical standards to cut
costs — this 'race to the bottom' undermines labour rights, environmental protections, and
governance quality globally.
4. Greenwashing: Many firms make exaggerated or false claims about environmental sustainability
('greenwashing') — presenting an ethical image without substantive ethical action, misleading
consumers and investors.
5. Codes of Conduct vs. Practice: Most large MNCs have published codes of ethics, but adherence is
inconsistent — the gap between written policies and actual management decisions is a persistent
challenge in international business ethics.
6. The Role of Whistleblowers: Whistleblowers — employees who expose unethical practices — play
a critical role in bridging the expectations-reality gap, but often face retaliation, highlighting the need
for stronger legal protection.
7. Influence of Local Institutional Context: The quality of a country's institutions (rule of law, anti-
corruption agencies, civil society) significantly determines whether global ethical standards translate
into real practice on the ground.
8. Globalisation and Ethical Dilution: Rapid globalisation has sometimes led to ethical dilution — as
firms enter new markets quickly, they may prioritise market share over ethical conduct, especially in
markets with weak governance.
9. Consumer and Activist Pressure: Rising consumer awareness and NGO activism are helping
close the expectations-reality gap — boycotts, media campaigns, and shareholder activism force
firms to align their actual behaviour with stated ethical values.
10. The Path Forward: Institutionalising Ethics: BN Ghosh argues that closing the gap requires
embedding ethics into the firm's culture, governance, incentive systems, and leadership
development — ethics must be lived, not merely declared.

Notes compiled from: Business Ethics and Corporate Governance — B.N. Ghosh | Module I