International Management: Ethical Issues Faced By Multi-National Companies - Term Paper Example

? International Management By: Location Ethical Issues Faced By Multi-National Companies Operating In Less Developed Countries Multinational companies are organizations that control production or services facilities outside nations they are based. The rise of globalization has enabled many companies to establish their operations in the thriving markets abroad to capture on their market share and their profitability. With more companies venturing into the global market, they experience ethical issues that affect their production and service delivery. As much as they try to deal with one culture in another country, they still experience others as they venture into other markets in search for cheap labor and raw materials. There are different moral standards within the countries, which brings challenges to the operation of multinational companies. Because of this, successful multinational companies require to solve these ethical issues to maintain their stability towards realizing the organizational goals. Ethical Issues Traditional Small-Scale and Large Scale Bribery Most of the developing countries lack strict laws to minimize bribery of the public officials. This is a contradictory to the practices by the developed countries where bribery is offense and punishable by law. In the developing countries, multinational companies experience ethical issues as they are forced to bribe foreign officers in exchange of the violation of the official duties. Foreign officers need bribes to offer services which they are meant to perform. This also implies in a case when the multinational companies fails to comply with certain provision and are forced to give bribery as a justification or failure. Similarly, multinational companies have to give hefty bribes in order to influence the making of policies or in case of a violation (MacDaniel, Hair & Lamb & 2007, 72). The issues of bribery are very rampant in the developing countries unlike in the developed countries where most of the multinational companies base. Because of this, theses corporations are operating in a dilemmas which they need to find a solution. Pricing Developing countries are characterized by unfair pricing and questionable invoicing where the buyer request for invoice showing a different price from the actual price of the product or service delivered. The regimes fix the corporation prices in order to face off local competition. The companies also dump their prices to below their mother countries and engage in the business practices, which are illegal in their home countries but are legal in their host country (Rendtorff, 2009, 436). These practices in pricing raise the ethical issues in which the multinationals companies operates in the host countries. As much as they want to remain relevant and capture the market share, they are forced to indulge in unethical activities to remain relevant to the laws and regulation governing business activities in the host country. Any corporation that wants to remain successful has to find a way of dealing with these ethical issues without being victim to the host nation by not complying with the law. However much it may pose a challenge more so when operating in a new business environment, the multinational companies have to strive, and do their best in managing their corporations to enable them meet their goals. Legal Issues Multinational companies face legal issues in their host countries different from their mother countries. Different countries operate under certain laws and vary depending with the framework in which the government requires them to operate. The legal challenges may come with undefined way of doing things that cause the company to close its operations or continue operating under inflexible and strict laws minimizing its full potential. In many cases, Legal issues affect the company in terms of penetrating the inner market and its relation with its stakeholders. Legal issues are binding and meant to influence the organization towards a certain direction. Because of this, legal issues in the developing countries affect the operations of the multination, as they have to adhere to them (Stackhouse, 2005, 796). Products and Technology Different level of developments between the host and mother countries poses ethical challenges in terms of products to use or in which to venture. For instance, some products banned in the mother countries are allowed in the host countries, and the same applies to the technology. Different technological advancement between the developed and the under developed nations also poses the same challenges concerning ethical issues. Technological applications rejected from the use by the mother countries may be relevant in the host countries hence putting the company in a dilemma on the best way to go. Similarly, advanced technology that the company uses may not be applicable in the host countries due to lack of structures in place to aid its usage (Buchholtz & Carrol, 2011, 304). Tax Evasion This may include practices used in evading taxes such as transfer pricing, which involves adjusting prices paid to the affiliate between the parent and the host nation. This practice leads to low allocation of the company’s profits since it divides its revenues to the two nations. This might put the company in a dilemma in deciding which may to go since there are more revenues divided which ought to be used in developing the corporation. Other dilemmas include questionable management and service fees charged between the affiliates and the parent company (Andrew, 2009, 588). The management fee may not be accounted for, and the corporation has to pay since they do not have much understanding of the operations of the mother countries since they do not have proper structures to regulate their operations as well accounting for all that is collected. Illegal Activities Less developed countries do not have structures in place to deal with the illegal activities. This has led to more environmental pollution, un-conducive working environment that are unsafe, product and technological copying. These unethical practices common in the developing countries puts corporations in a dilemma because they pose ethical challenges that are difficult to deal with. The tendency of copying is rampant in the developing countries, and this affects the productivity of the corporations due to counterfeits products in the market. It makes it difficult for consumers to identify genuine products hence fall victim to illegal activities. Developing nations also do not enforce the trademarks hence making it difficult in company identification with its products to give consumers an option of choosing. Similarly, short-weighing in overseas shipment leads to less, charging which in the end affects the company in terms of the quality of goods that they receive (Sethi, 2003, 40). Cultural Differences Cultural differences between corporations and the host countries make it difficult in the exchange process due to misunderstandings related to traditional requirements. For instance, corporations are not used the traditions in the host countries involving bribe transactions. The mother nations have cultures that do not accept bribes, and in the host country it an accepted as per their culture. Other business activities not accepted in the mother nation but accepted in the host nation hence posing challenges to the corporation on how to deal with them. Similarly, the cultural difference may cause a negative perception towards company’s products and services due to their misinterpretation (Stackhouse, 2005, 798). The knowledge, perception and conception of the two nations may vary hence the corporation needs to deal with the ethical challenges in order to be better equipped in dealing with consumers and other stakeholders involved. Observing and having a better understanding of the above ethical issues will make the company realize their goal in the new environment. Involvement in the Political Affairs Multinational corporations find themselves in the dilemma on whether to engage in the political process in case of the unfavorable economic environment. This is mostly in situations where there is war and the company’s performance in declining hence calling the need to be involved in the political affairs (Sethi & Williams, 2000, 249). This may be in the host country or the mother nation in trying to curb the situation. Similarly, involvement in the political affairs may arise in case the corporation is irritated by the illegal transfer of technology which they feel may not work to their benefit. Recommendations There are no proper ways to justify the above ethical issues, but they depend on proper making of decisions. Multinational corporations need to make a proper decision on how they relate with their host nations and adhere to good business practices. This may pertain to issues related to their exploitation of the developing countries cheap labor and raw materials. They need to take charge of the situation and adopt ethical practical that holds individuals dignity. This will ensure that they have a mutual collaboration, which achieves long-term goals. The host nations need to put proper structures and strengthen the institutions dealing with business regulation. Most of the multinational companies take advantage of the weak systems in the developing countries to serve their self-interest. Putting up measures in place and working institutions will ensure there is conducive working environment for the corporations, proper policy guidelines governing products development and pricing. Re-structuring of the structures will also ensure the corporations understands the culture in the host nations which spells that bribery is an offense to enable them comply with the entire requirement. Additionally, corporations needs to establish a communication link with the government to understand and consults in matters they do not understand to curb the unethical practices which they may experience from the host nation without their knowledge. Proper measures will ensure there is mutual existence between the multinational and the host country. Conclusion Multinational companies are facing ethical issues in their pursuit of cheap labor, raw materials, and unexplored foreign markets. They face pricing ethical dilemmas because they are regulated to work on certain perimeters. They find it difficult in dealing with cultural differences and tax evasion practices hence pose dilemmas. Similarly, they have to deal with the political influence and bribery since most of the developing nations do not have institutions to curb these vices, which are prone. However, the corporations may overcome these ethical issues by practicing responsibility and making a proper decision. This will ensure they make a good relationship with the host country and minimizing the influence. The host country should also put policies, structures, and institution dealing with international business to solve the ethical issues incurred by corporations. Bibliography Andrew, G,. 2009. Financial Management; Principles and Practice. New Jersey: Pearson education Buchholtz, A & Carrol, A., 2011. Business and Society: Ethics, sustainability, and stakeholder’s Management. Mason, OH: Cengage learning MacDaniel, J, Hair, J & Lamb, C,.2007. Marketing. Mason, OH: Cengage learning Rendtorff, J,.2009. Responsibility, Ethics and Legitimacy of Corporations. Denmark: Copenhagen Business School Press. Sethi, S & Williams, O., 2000. Economic Imperatives and Ethical Values in Global Business. London: Kluwer Academic Publishers. Sethi, S., 2003. Setting Global Standards: Guidelines to creating code of Conducts. Canada: John Wiley & Sons. Stackhouse, M., 2005. On moral business: classical and contemporary resource for ethics. New York: Eerdwans Publishing. Read More