A multinational corporation that adopts the naive immoralist approach to ethics will most likely

From your course text, Global Business Today,9th read the following:

· Ethics, Corporate Social Responsibility, and Sustainability

· International Trade Theory

· The Political Economy of International Trade

· Foreign Direct Investment

https://digitalbookshelf.argosy.edu/books/1259669432/epubcfi/6/28[;vnd.vst.idref=body014]!/4/4/18/4@0:82.2

Ethics, Corporate Social Responsibility, and Sustainability (CHAPTER 5)

Making Toys Globally

opening case

Toys for children are made in numerous countries and then exported to buyers throughout the world. In some countries, such as the United States, certain protection exists to make sure that toys are safe for children. The U.S. Consumer Product Safety Commission (CPSC) regularly issues recalls of toys that have the potential to expose children to danger such as lead or other heavy metals. For example, lead may be found in the paint used on toys and in the plastic used to make the toys. If ingested (e.g., children chewing on toys), lead is poisonous and can damage the nervous system and cause brain disorders. Lead is also a neurotoxin that can accumulate in both soft tissue and bones in the body.

For these reasons, lead was banned in house paint, on toys marketed to children, and in dishes or cookware in the United States in 1978. In addition, in an agreement between China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and CPSC, the Chinese agreed to take immediate action in 2007 to eliminate the use of lead paint on Chinese manufactured toys that are exported to the United States. With China’s prominence as a toy manufacturing country, this agreement was a step toward making safe products for children.

Still, lead continues to be a hazard in a quarter of all U.S. homes with children under age 6. In fact, a wide range of toys and children’s products, including many market-leading and reputable brands, often contain either lead or other heavy metals (e.g., arsenic, cadmium, mercury, antimony, or chromium). Estimates exist that suggest that one-third of Chinese toys contain heavy metals. This is a major problem given that China manufactures 80 percent of the toys sold in the United States. Researchers from Greenpeace and IPEN conducted a study by buying 500 toys and children’s products in five Chinese cities. They tested the products with handheld X-ray scanners and found that 163 of the toys were tainted with heavy metals above the norm (32.6 percent). “These contaminated toys not only poison children when chewed or touched, but can enter the body through the air they breathe,” said Ada Kong Cheuk-san at Greenpeace.

While lead in the paint on toys has not been eliminated, the focus on cleaning up lead in the paint has been given front-page coverage ever since the agreement to eliminate it in 2007. It is certainly not gone, Page 128but at least more and more people are paying attention. Several organizations—both governmental and private—are examining lead-based paint in toys on a continual basis. For example, The New York Times and Consumer Reports recently found that dangerous products for children are still widely available. The Ecology Center has created a website called HealthyStuff.org that contains a database of toys and other products that have been tested for dangerous chemicals.

While lead in paint seems to be in focus, the use of lead in plastics has not been banned! Lead is used to soften the plastic and make it more flexible to allow it to go back to its original shape after children play with the toys. Plus, lead may also be used in plastic toys to stabilize molecules from heat. Unfortunately, when the plastic is exposed to sunlight, air, and detergents, for example, the chemical bond between the lead and plastics breaks down and forms dust that can enter the human body. Another unfortunate part about lead is that it is invisible to the naked eye and has no detectable smell. This means that children may be exposed to lead from toys (and other consumer products) through normal playing activity (e.g., hand-to-mouth activity). As everyone with children knows, children often put toys, fingers, and other objects in their mouth, exposing themselves to lead paint or dust.

Children are also more vulnerable to lead than adults; there is no safe level of lead for children. The worldwide toy industry has published a voluntary standard of 90 ppm for lead in toys, which, of course, is greater than a ban on lead in paint used for toys and in the materials used to make the toys (such as plastics). But since 2007, the world has at least seen stricter standards—either voluntary or regulated standards—that make it safer for children to play with newly purchased toys. The CPSC in the United States, the European Union, and China’s AQSIQ are actively monitoring and seemingly enforcing stricter standards. But, according to Scott Wolfson of the CPSC, many toy manufacturers have been violating safety regulations for almost 30 years. So, are toys safer now than they were before 2007, and are they really safe to play with throughout the world? And, what do we do with old, antique toys? images

Sources: M. Moore, “One Third of Chinese Toys Contain Heavy Metals,” The Telegraph, December 8, 2011; P. Kavilanz, “China to Eliminate Lead Paint in Toy Exports,” CNN Money, September 11, 2007; U.S. Centers for Disease Control and Prevention, www.cdc.gov/nceh/lead/tips/toys.htm, accessed March 8, 2014; and “U.S. Prosecutes Importers of Toys Containing Lead, Phthalates,” AmeriScan, February 26, 2014.

Introduction

The opening case describes the thriving toy manufacturing business and ethical concerns that exist in toy production. Total sales of toys worldwide are estimated to be about $85 billion annually according to the Toy Industry Association’s data, with the U.S. domestic toy market being around $21 billion. It is a large industry, especially in North America, Europe, and Asia; each of these regions has between $23 billion and $24 billion in toy sales annually.1

As noted in the opening case, there is some evidence that some companies and countries are less ethical in their toy manufacturing. While the worldwide toy industry has published a voluntary standard of 90 ppm for lead in toys, it is, after all, a voluntary standard and not a regulation that can be enforced worldwide. And while the U.S. Consumer Product Safety Commission and China’s General Administration of Quality Supervision, Inspection and Quarantine agreed that toys exported from China to the United States will no longer contain lead in paints, no such agreement exists for other materials such as plastics used in toy production, nor does the regulation appear to be working as effectively as it might.

Page 129images Module on International Ethics

globalEDGE provides more than 60 interactive educational modules for businesspeople, policy officials, and students. These modules focus on issues pertinent to international business and include a case study or anecdotes, a glossary of terms, quiz questions, and a list of references when applicable. The combination of the text and the free globalEDGE online course modules serves as an excellent resource to prepare for NASBITE’s Certified Global Business Professional Credential (with topics focus on management, marketing, supply chain management, and finance). Achieving the industry-leading NASBITE CGBP credential assures that employees are able to practice global business at the professional level required in today’s competitive environment. As related to Chapter 5, check out globalEDGE’s online module on international ethics at globaledge.msu.edu/reference-desk/online-course-modules. View the questions in the module as a quick-test on your understanding of the main issues in international ethics and your readiness to achieve the CGBP credential.

Perhaps some toy manufacturers have been violating safety regulations for almost 30 years and many will continue to do so in the future; time will tell, assuming we can track the ingredients in the materials being used to make toys. But, what we do know is that about a third of the toys that are exported out of China are tainted with heavy metals above the norm. Unfortunately, it is not illegal to use lead, for example, in plastics at this time; it is an ethical issue—and usually a voluntary one—that some companies tackle ethically and others choose to side-step given the large size of market opportunities in the toy industry. A basic question then is: Can it be considered unethical to manufacture toys that include heavy metals that are bad for children to ingest and come in contact with when using the toys in their proper way?

Ethical issues like the ones in the toys example arise frequently in international business, often because business practices and regulations differ from nation to nation. With regard to lead pollution, for example, what is allowed in Mexico is outlawed in the United States. These differences can create ethical dilemmas for businesses. Understanding the nature of an ethical dilemma, and deciding the course of action to pursue when confronted with one, is a central theme in this chapter. Ethics serves as the foundation for what people do or not, and ultimately what companies engage in globally. As such, companies’ involvement in corporate social responsibility practices and sustainability initiatives can be traced to the ethical foundation of its employees and other stakeholders such as customers, shareholders, suppliers, regulators, and communities.2

The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople, and an ethical strategy is a strategy, or course of action, that does not violate these accepted principles. This chapter looks at how ethical issues should be incorporated into decision making in an international business. The chapter also reviews the reasons for poor ethical decision making and discusses different philosophical approaches to business ethics. Then, using the ethical decision-making process as platform, we include a series of illustrations via Management Focus boxes throughout the chapter, including issues related to Apple Computers, Myanmar, Daimler, and corporate social responsibility. The chapter closes by reviewing the different processes that managers can adopt to make sure that ethical considerations are incorporated into decision making in international business.

Business Ethics

Accepted principles of right or wrong governing the conduct of businesspeople.

Ethical Strategy

A course of action that does not violate a company’s business ethics.

Ethical Issues in International Business

images LO 5-1

Understand the ethical issues faced by international businesses.

Many of the ethical issues in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation. What is considered normal practice in one nation may be considered unethical in another. Because they work for an institution that transcends national borders and cultures, Page 130managers in a multinational firm need to be particularly sensitive to these differences. In the international business setting, the most common ethical issues involve employment practices, human rights, environmental regulations, corruption, and the moral obligation of multinational corporations.

EMPLOYMENT PRACTICES When work conditions in a host nation are clearly inferior to those in a multinational’s home nation, which standards should be applied? Those of the home nation, those of the host nation, or something in between? While few would suggest that pay and work conditions should be the same across nations, how much divergence is acceptable? For example, while 12-hour workdays, extremely low pay, and a failure to protect workers against toxic chemicals may be common in some less developed nations, does this mean that it is okay for a multinational to tolerate such working conditions in its subsidiaries there or to condone it by using local subcontractors?

In the 1990s, Nike found itself in the center of a storm of protests when news reports revealed that working conditions at many of its subcontractors were very poor. Typical of the allegations were those detailed in a 48 Hours program that aired in 1996. The report painted a picture of young women who worked with toxic materials six days a week in poor conditions for only 20 cents an hour at a Vietnamese subcontractor. The report also stated that a living wage in Vietnam was at least $3 a day, an income that could not be achieved at the subcontractor without working substantial overtime. Nike and its subcontractors were not breaking any laws, but this report, and others like it, raised questions about the ethics of using sweatshop labor to make what were essentially fashion accessories. It may have been legal, but was it ethical to use subcontractors who, by Western standards, clearly exploited their workforce? Nike’s critics thought not, and the company found itself the focus of a wave of demonstrations and consumer boycotts. These exposés surrounding Nike’s use of subcon-tractors forced the company to reexamine its policies. Realizing that even though it was breaking no law, its subcontracting policies were perceived as unethical, Nike’s management established a code of conduct for Nike subcontractors and instituted annual monitoring by independent auditors of all subcontractors.3

As the Nike case demonstrates, a strong argument can be made that it is not okay for a multinational firm to tolerate poor working conditions in its foreign operations or those of subcontractors. However, this still leaves unanswered the question of which standards should be applied. We shall return to and consider this issue in more detail later in the chapter. For now, note that establishing minimal acceptable standards that safeguard the basic rights and dignity of employees, auditing foreign subsidiaries and subcontractors on a regular basis to make sure those standards are met, and taking corrective action if they are not up to standards are a good way to guard against ethical abuses. For another example of problems with working practices among suppliers, read the accompanying Management Focus, which looks at working conditions in a factory that supplied Apple with iPods.

HUMAN RIGHTS Questions of human rights can arise in international business. Basic human rights still are not respected in many nations. Rights taken for granted in developed nations, such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, freedom from political repression, and so on, are by no means universally accepted (see Chapter 2 for details). One of the most obvious historic examples was South Africa during the days of white rule and apartheid, which did not end until 1994. The apartheid system denied basic political rights to the majority nonwhite population of South Africa, mandated segregation between whites and nonwhites, reserved certain occupations exclusively for whites, and prohibited blacks from being placed in positions where they would manage whites. Despite the odious nature of this system, Western businesses operated in South Africa. By the 1980s, however, many questioned the ethics of doing so. They argued that inward investment by foreign multinationals, by boosting the South African economy, supported the repressive apartheid regime.

Several Western businesses started to change their policies in the late 1970s and early 1980s.4 General Motors, which had significant activities in South Africa, was at the forefront of this trend. GM adopted what came to be called the Sullivan principles, named after Leon Sullivan, a black Baptist minister and a member of GM’s board of directors. Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws. Sullivan’s principles were widely adopted by U.S. firms operating in South Africa. Their violation of the apartheid laws was ignored by the South African government, which clearly did not want to antagonize important foreign investors.

Page 131management FOCUS

Making Apple’s iPod

In mid-2006, news reports surfaced suggesting there were systematic labor abuses at a factory in China that makes the iPhone and iPod for Apple Computer. According to the reports, workers at Hongfujin Precision Industry were paid as little as $50 a month to work 15-hour shifts making the iPod. There were also reports of forced overtime and poor living conditions for the workers, many of them young women who had migrated from the countryside to work at the plant and lived in company-owned dormitories. The articles were the work of two Chinese journalists, Wang You and Weng Bao, employed by China Business News, a state-run newspaper. The target of the reports, Hongfujin Precision Industry, was reportedly China’s largest export manufacturer with overseas sales totaling $14.5 billion. Hongfujin is owned by Foxconn, a large Taiwanese conglomerate, whose customers (in addition to Apple) include Intel, Dell, and Sony Corporation. The Hongfujin factory is a small city in its own right, with clinics, recreational facilities, buses, and 13 restaurants that serve the 200,000 employees.

Upon hearing the news, Apple management responded quickly, pledging to audit the operations to make sure Hongfujin was complying with Apple’s code on labor standards for subcontractors. Managers at Hongfujin took a somewhat different tack; they filed a defamation suit against the two journalists, suing them for $3.8 million in a local court, which promptly froze the journalists’ personal assets pending a trial. Clearly, the management of Hongfujin was trying to send a message to the journalist community—criticism would be costly. The suit sent a chill through the Chinese journalist community because Chinese courts have shown a tendency to favor powerful, locally based companies in legal proceedings.

Within six weeks, Apple had completed its audit. The company’s report suggested that although workers had not been forced to work overtime and were earning at least the local minimum wage, many had worked more than the 60 hours a week allowed for by Apple, and their housing was substandard. Under pressure from Apple, management at Hongfujin agreed to bring practices in line with Apple’s code, committing to building new housing for employees and limiting work to 60 hours a week. However, Hongfujin did not immediately withdraw the defamation suit. In an unusually bold move in a country where censorship is still common, China Business News gave its unconditional backing to Wang and Weng. The Shanghai-based news organization issued a statement arguing that what the two journalists did “was not a violation of any rules, laws, or journalistic ethics.” The Paris-based Reporters Without Borders also took up the case of Wang and Weng, writing a letter to Apple’s then CEO, the late Steve Jobs, stating, “We believe that all Wang and Weng did was to report the facts and we condemn Foxconn’s reaction. We therefore ask you to intercede on behalf of these two journalists so that their assets are unfrozen and the lawsuit is dropped.”

Once again, Apple moved quickly, pressuring Foxconn behind the scenes to drop the suit. Foxconn agreed to do so and issued a “face-saving” statement saying the two sides had agreed to end the dispute after apologizing to each other “for the disturbances brought to both of them by the lawsuit.” The experience shed a harsh light on labor conditions in China. At the same time, the response of the Chinese media, and China Business News in particular, point toward the emergence of some journalistic freedoms in a nation that has historically seen news organizations as a mouthpiece for the state.

Sources: E. Kurtenbach, “The Foreign Factory Factor,” Seattle Times, August 31, 2006, pp. C1, C3; Elaine Kurtenbach, “Apple Says It’s Trying to Resolve Dispute over Labor Conditions at Chinese iPod Factory,” Associated Press Financial Wire, August 30, 2006; and “Chinese iPod Supplier Pulls Suit,” Associated Press Financial Wire, September 3, 2006.

After 10 years, Leon Sullivan concluded that simply following the principles was not sufficient to break down the apartheid regime and that any American company, even those adhering to his principles, could not ethically justify their continued presence in South Africa. Over the next few years, numerous companies divested their South African operations, including Exxon, General Motors, Kodak, IBM, and Xerox. At the same time, many state pension funds signaled they would no longer hold stock in companies that did business in South Africa, which helped persuade several companies to divest their South African operations. These divestments, coupled with the imposition of economic sanctions from the United States and other governments, contributed to the abandonment of white minority rule and apartheid in South Africa and the introduction of democratic elections in 1994. Thus, adopting an ethical stance was argued to have helped improve human rights in South Africa.5

Page 132Although change has come in South Africa, many repressive regimes still exist in the world. Is it ethical for multinationals to do business in them? It is often argued that inward investment by a multinational can be a force for economic, political, and social progress that ultimately improves the rights of people in repressive regimes. This position was first discussed in Chapter 2, when we noted that economic progress in a nation could create pressure for democratization. In general, this belief suggests it is ethical for a multinational to do business in nations that lack the democratic structures and human rights records of developed nations. Investment in China, for example, is frequently justified on the grounds that although China’s human rights record is often questioned by human rights groups, and although the country is not a democracy, continuing inward investment will help boost economic growth and raise living standards. These developments will ultimately create pressures from the Chinese people for more participative government, political pluralism, and freedom of expression and speech.

There is a limit to this argument. As in the case of South Africa, some regimes are so repressive that investment cannot be justified on ethical grounds. Another example would be Myanmar (formerly known as Burma). Ruled by a military dictatorship for more than 45 years, Myanmar has one of the worst human rights records in the world. Beginning in the mid-1990s, many Western companies exited Myanmar, judging the human rights violations to be so extreme that doing business there cannot be justified on ethical grounds. (In contrast, the accompanying Management Focus looks at the controversy surrounding one company, Unocal, which chose to stay in Myanmar.) However, a cynic might note that Myanmar has a small economy and that divestment carries no great economic penalty for Western firms, unlike, for example, divestment from China. Interestingly, after decades of pressure from the international community, in 2012 the military government of Myanmar finally acquiesced and allowed limited democratic elections to be held.

ENVIRONMENTAL POLLUTION Ethical issues arise when environmental regulations in host nations are inferior to those in the home nation. Many developed nations have substantial regulations governing the emission of pollutants, the dumping of toxic chemicals, the use of toxic materials in the workplace, and so on. Those regulations are often lacking in developing nations, and according to critics, the result can be higher levels of pollution from the operations of multinationals than would be allowed at home.