Ethics, Corporate Social Responsibility,

Sustainability, and Governance in International

Business
Ethical Behavior and Its Importance
Ethical behavior is crucial for successful international business. It involves acting honestly and
fairly in ways that stakeholders (company, employees, community, government, environment)
consider right.

Components of Ethical Behavior

Ethics: Moral principles and values guiding right and wrong behavior for individuals, firms,
and governments.
Corporate Social Responsibility (CSR): Operating a business to meet or exceed ethical, legal,
and commercial expectations of stakeholders.
Sustainability: Meeting present needs without compromising the ability of future generations
to meet their own needs.
Corporate Governance: The system of procedures and processes used to manage, direct, and
control corporations. It enables ethical behavior, CSR, and sustainability.

Value of Ethical Behavior

Moral Imperative: It is the right thing to do to act fairly and respectfully, upholding human
rights.
Legal Compliance: Ethical behavior often aligns with laws and regulations, avoiding legal
consequences.
Stakeholder Demand: Customers, governments, and the media expect ethical conduct.
Enhanced Corporate Image: Ethical behavior leads to a better reputation, improving selling
prospects, hiring, employee motivation, partnerships, and dealings with foreign governments.
Risk Mitigation: Unethical firms risk prosecution, reputational damage, decreased employee
morale, and blackmail.

Unethical Behavior

Unethical behavior can arise due to:

Misaligned Goals and Incentives: Top management setting profit-driven goals that
inadvertently encourage bad behavior (e.g., billing for unworked hours).
Peer Pressure and Self-Interest: Employees overlooking unethical actions to avoid conflict or
for personal gain.
Accumulation Over Time: Small infractions becoming normalized in a permissive
environment.
Justifying Means by Ends: Using questionable methods to achieve a perceived good
outcome (e.g., unethical testing for life-saving drugs).
Examples of Unethical Behavior
Tolerating sweatshop conditions or employee abuse.
Paying or accepting bribes, kickbacks, or inappropriate gifts.
Falsifying contracts or financial statements.
Engaging in false advertising or deceptive marketing.
Deceptive, discriminatory, or predatory pricing.
Deceiving or abusing intermediaries.
Harming the natural environment.

Ethical Standards and Dilemmas Around the World

Ethical standards are not uniform globally, varying by society, culture, and economic
development.

Ethical Dilemmas

An ethical dilemma involves a problem with multiple possible solutions, none of which is entirely
morally satisfactory. Choices may be mutually exclusive, creating conflicts among different
interests.

Relativism vs. Normativism

Relativism: The belief that ethical truths vary by group ("When in Rome, do as the Romans
do"). Firms passively accept prevailing values.
Normativism: The belief that ethical standards are universal and should be upheld globally.
Firms proactively correct unethical practices.

Ethical Challenges in International Business

Corruption:
Obtaining power, gain, or influence through illegitimate means. It includes bribery,
embezzlement, fraud, extortion, blackmail, and money laundering.
Bribery: Offering or giving a gift, cash, or favor to act dishonestly for personal gain.

Harmful Work Environment: Sweatshops (long hours, low wages, poor conditions) and
workplace harassment (including sexual harassment and discrimination).
Unethical Business Practices: Inadequate regulation, profit over welfare, dishonest
accounting, and favoritism.
Harmful Global Sourcing: Using suppliers with poor labor conditions or environmental
practices.
Illicit Products and Marketing: Marketing defective or harmful products, using deceptive
advertising, and excessive packaging.
Intellectual Property Infringement: Piracy and counterfeiting of trademarks, copyrights, and
patents.

Corporate Social Responsibility (CSR)

CSR involves operating a business to meet or exceed ethical, legal, and commercial
expectations, aiming for the betterment of others beyond legal requirements. It emphasizes the
development of shared value for shareholders and stakeholders.

Examples of CSR Values

Avoiding human rights abuses.
Upholding the right to unionize.
Eliminating child labor.
Avoiding workplace discrimination.
Protecting the environment.
Guarding against corruption.
Undertaking philanthropic efforts.

Sustainability
Sustainability involves executing company practices that do not harm the ability of future
generations to meet their needs. It focuses on protecting and preserving economic, social, and
natural environments.

Examples of Sustainable Practices

Beneficial agricultural practices (e.g., crop rotation, natural pesticides).
Water conservation and recycling.
Air quality protection through reduced pollution.
Reduced energy and fuel consumption (e.g., renewable energy).
Improved work processes to reduce waste and environmental impact.

Company Role in Sustainability

Sophisticated companies view sustainability as an opportunity to reduce waste, increase

efficiency, and create competitive advantage. Industrial activities can negatively impact the
atmosphere, water resources, and land.

Corporate Governance
Corporate governance provides the framework for implementing ethical conduct, CSR, and
sustainability.

Key Elements of Corporate Governance

Code of Ethics: A document outlining values and expectations to guide employee decision-
making worldwide, acting as a moral compass.
Code of Conduct: Translates the code of ethics into specific rules for behavior, identifying
 consequences for violations. This may be adapted for local conditions.

Integrating Global and Local Standards

Developing codes that work globally while respecting local laws and practices is challenging.
Cross-functional and cross-national teams are often involved. Senior management commitment
and continuing education programs are crucial.

The Cultural Environment of International Business

Culture encompasses the values, beliefs, customs, arts, and other products of human thought
and work that characterize a society.

Culture and Cross-Cultural Risk

Culture shapes behavior, daily rituals, and perceptions. Cross-cultural risk arises from cultural
misunderstandings that can jeopardize business.

Key Sources of Cross-Cultural Risk

Language Differences: Misinterpretations in contracts, negotiations, and marketing due to
poor translation.
Communication Styles: Differences in direct vs. indirect communication and high-context vs.
low-context cultures.
Values and Beliefs: Variations in individualism vs. collectivism, and attitudes toward hierarchy
and authority.
Religion and Traditions: Impact on working hours, holidays, dietary practices, and dress
codes.
Business Etiquette: Differences in negotiation styles, gift-giving customs, and decision-
making speed.

Effects of Cross-Cultural Risk

Failed negotiations.
Loss of reputation.
Employee conflicts.
Poor marketing performance.
Financial losses.
Withdrawal from foreign markets.

Managing Cross-Cultural Risk

Cultural awareness training.
Hiring local managers.
Conducting cultural research before market entry.
Adapting marketing strategies.
 Building strong local partnerships.

What Culture Is Not

Not right or wrong: Culture is relative, with different perceptions of acceptable behavior.
Not about individual behavior: Culture is a collective phenomenon of shared values and
meanings.
Not inherited: Culture is acquired from the social environment and passed down through
generations.

Socialization and Acculturation

Socialization: The process of learning the rules and behavioral patterns appropriate to one's
society.
Acculturation: The process of adjusting and adapting to a culture other than one's own, often
experienced by expatriates.

Dimensions of Culture
Culture can be understood through various dimensions, often visualized using the iceberg
metaphor (visible "high culture" vs. invisible "deep culture").

Values and Attitudes

Values: Judgments about what is good, bad, important, or acceptable, guiding motivation and
behavior.
Attitudes: Opinions, often unconsciously held, that can lead to prejudices.

Manners and Customs

Ways of behaving in public and business situations, varying in formality and influencing
greetings, social gatherings, gift-giving, and work practices.

Perceptions of Time

Cultures differ in their orientation towards time:

Past-Oriented Societies: Value traditions and heritage (e.g., China, India).

Present-Oriented Societies: Focus on current events and immediate results (e.g., Philippines,
Mexico).
Future-Oriented Societies: Emphasize long-term planning and achievement (e.g., Japan,
Germany).
Monochronic Time: Rigid adherence to schedules, punctuality, and viewing time as a linear
resource (e.g., U.S., Germany).
Polychronic Time: Flexible approach to time, doing multiple things at once, valuing
relationships over strict schedules (e.g., Latin America, Middle East).
Perceptions of Space

Cultures vary in preferred physical distance during conversations:

High-Contact Cultures: Prefer closer physical distance (e.g., Philippines, Italy).

Low-Contact Cultures: Prefer more personal space (e.g., U.S., Japan).

Symbolic Productions

Symbols (letters, figures, colors) communicate meaning. Colors carry diverse cultural meanings
(e.g., white for mourning in Asia vs. the West).

Material Productions and Creative Expressions

Artifacts, objects, and systems that people construct (e.g., infrastructure, technology).

Education

The passing of cultural values and knowledge, influencing a region's talent base and attracting
international ventures. Literacy rates can vary significantly.

Social Structure

The pattern of social arrangements and organized relationships in a society.

Individuals vs. Family: Emphasis on individual success (Western cultures) vs. importance of
family ties (e.g., China).
Reference Groups: Affiliation with groups or employers defining social status.
Social Stratification: Classification of individuals into social layers (e.g., class systems, caste
systems).
Social Mobility: The ease with which a person can move within social strata.

Role of Language and Religion in Culture

Verbal Language: Essential for communication, providing insights into culture. Differences in
national languages, dialects, and translation can cause misunderstandings. Idioms and
jargon can be particularly challenging.
Nonverbal Communication: Unspoken cues like facial expressions, gestures, and posture.
Meanings can vary significantly across cultures.
Religion: A system of beliefs influencing ethical values, social responsibility, and behavior.

Cultural Orientations
 Ethnocentric Orientation (Home-Country Centered): Believing one's own culture is superior
and applying its practices abroad.
Polycentric Orientation (Host-Country Centered): Adapting to each country and allowing local
subsidiaries to operate independently.
Geocentric Orientation (Global Mindset): Viewing the world as a single market, integrating the
best people, ideas, and practices globally.

Models and Explanations of Culture

Cultural Metaphors: Distinctive traditions or institutions that guide understanding of a
society's attitudes and behavior (e.g., American football for teamwork and leadership in the
U.S.).
High- and Low-Context Cultures (E.T. Hall):
Low-Context Cultures: Rely heavily on spoken words and direct communication; meaning
is explicit (e.g., Germany, U.S.).
High-Context Cultures: Emphasize nonverbal messages and indirect communication;
meaning is implied and depends on context and relationships (e.g., Philippines, China,
Japan).

Hofstede's Dimensions of Culture:

Individualism vs. Collectivism: Focus on individual self-interest vs. group harmony and
loyalty.
Power Distance: Acceptance of inequalities in power (low vs. high).
Uncertainty Avoidance: Tolerance for ambiguity and risk (high vs. low).
Masculinity vs. Femininity: Emphasis on achievement and assertiveness vs. nurturing and
quality of life.
Long-Term vs. Short-Term Orientation: Focus on future rewards vs. immediate
gratification.
Indulgence vs. Restraint: Tendency to freely satisfy desires vs. suppressing them through
social norms.

Deal vs. Relationship Orientation: Focus on the task and contract vs. building trust and
personal relationships.