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Ethical standards establish trust between parties doing business together, including both partners and customers. Organizations earn this trust by demonstrating a pattern of ethical behavior over time, gaining a reputation for fair dealing and respect for human rights and social responsibility. First and foremost, ethics are their own reward, in business and in our private lives. Living ethically reflects good character and concern for the well-being of others. This leads to a sense of goodwill toward others that nurtures self-respect and inner strength. At the same time, companies conducting their international business ethically realize higher profits by attracting business partners who share the organization’s commitment to ethics in international business. Clothing maker Patagonia is one example of a company that has earned a reputation for ethical practices by reducing its environmental impact and protecting workers’ rights in the countries where it operates. On the other end of the spectrum are companies whose ethical lapses have cost them. Among the businesses that the public has turned against are Nikola, a trucking company that recently admitted to staging a video demonstration of its technology, and European finance technology firm Wirecard, which collapsed in 2020 after two separate ethical scandals. Formulating and enforcing an ethics policy within an international organization and among its business partners overseas presents companies with complex challenges. Ensuring that employees and partners meet company standards for worker safety, human rights, and fair wages begins with creating a work culture of openness and caring. Importance of ethics in international businessTo function effectively, a business organization needs a common system of moral and ethical beliefs to drive and direct the day-to-day decisions made by individuals throughout the operation. Many ethical requirements are dictated by laws and regulations, such as environmental protections and worker safety rules. Management leadership demonstrates and promotes other ethics in international business, modeling ethical behavior and decision-making for employees. Back To Top International business ethics definedBeyond presenting a code of ethical conduct for employees, an international business ethics policy must consider such practices as corporate governance, bribery, discrimination, social responsibility, and fiduciary duties. A definition of international business ethics begins with a moral code of right and wrong, but modern business ethics has expanded to encompass supporting social and environmental causes, and being a responsible member of the communities where the company operates. Examples of ethical business practices include mandating truthful advertising, instituting internal quality control checks, and never profiting from insider information:
Two approaches to enforcing ethical business practices overseasWhen extending their ethics policies to their overseas operations, international organizations can either adopt a single set of ethical guidelines that apply to business dealings at home and overseas, or create separate sets of ethical guidelines for its domestic and international divisions.
Back To Top International business laws and regulationsThe term “international business” applies to all commercial transactions that involve the transfer of goods, services, or resources between parties in two or more nations. The parties may be corporations, private companies, or governments:
The international business laws and regulations that apply to these transactions include both those of the company’s home country and those of the nations in which they operate. Businesses are also subject to international regulations relating to fair trade, worker safety, and environmental protections. International Labour Organization standardsThe International Labour Organization (ILO) is made up of 187 member states who have agreed to a set of standards, policies, and programs designed to ensure that workers are safe and fairly compensated.
To enforce ILO standards, the organization relies on a supervisory system that examines reports submitted by member states describing their efforts to implement ILO conventions’ provisions. In addition, a representation procedure allows employers or workers to make a case for a member state’s failure to meet its requirements, while the ILO’s complaint procedure allows a member state to file a claim asserting that another member state has failed to comply with an ILO regulation. World Trade Organization standardsAt present, the World Trade Organization (WTO) rules and disciplines do not apply to labor standards, although several WTO member states in Europe and North America insist that the organization must do so to gain public confidence. These WTO members state that freedom of association; the right to collective bargaining; and the elimination of discrimination and abuse in the workplace, forced labor, and child labor are matters the WTO must consider. Opposing the broadening of the WTO’s purview to labor standards are most developing countries and some developed nations that consider trade and labor regulations a means by which large developed nations protect their international markets. These countries believe that the most effective way to promote labor standards and improve working conditions is by growing their local economies. They fear that imposing labor standards would perpetuate poverty in their countries and delay enhanced working conditions. In response to the debate, the WTO declared its support for the ILO’s internationally recognized core labour standards. The WTO also stated its belief that “economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards” while rejecting “the use of labour standards for protectionist purposes.” Customs requirementsInternational businesses must comply with the import and export regulations imposed by their own country and by the countries in which they conduct operations. The U.S. Customs and Border Protection (CBP) Office of Trade explains the laws and regulations in place to protect consumers from dangerous and counterfeit products manufactured overseas.
Global ethics standardsAmong the organizations that have developed a code of ethics intended to be applied to all business and nongovernmental organizations are the Global Alliance and the International Management Association (IMA).
In addition, the United Nations Universal Declaration of Human Rights, first proclaimed in 1948, promotes inherent dignity and the “equal and inalienable rights of all members of the human family” as the foundation for freedom, justice, and peace in all nations of the world. The 30 articles in the declaration include the “right to work, to free choice of employment, to just and favorable conditions of work … [and] to equal pay for equal work.” Intellectual property regulationsThe WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is the foundation of efforts by the U.S. government to protect and enforce laws governing the use of intellectual property (IP) by trading partners. The primary instruments for enforcing IP protections are regional and bilateral free trade agreements (FTA). IP takes many forms, including patents, trademarks, copyrights, and trade secrets. Violations of IP rights include infringement, such as the unauthorized use, sale, or importation of a patented invention; piracy caused by the illegal duplication or dissemination of copyrighted material; and counterfeiting by manufacturing, marketing, or distributing fake versions of trademarked products. Resources on international business laws and regulationsBack To Top International communication and cultural barriers in businessMany of the communication problems companies encounter when conducting business overseas are due to a failure to appreciate the different traditions, thought processes, and communication methods of other cultures. Ethnocentrism is defined as the belief that a person’s own cultural group is innately superior to others. Overcoming cultural barriers in business and the miscommunication that can result begins by realizing that each culture has a unique worldview that is as genuine and worthy of respect as one’s own. Back To Top Back To Top What are cultural barriers in business?An otherwise mutually beneficial international business arrangement can be sabotaged by a company’s failure to value the culture of its potential business partners. While individuals within a given culture respond differently to business situations, the following examples are among the cultural barriers in business that often arise during international dealings:
How culture affects establishing trust in business dealingsTrust is a prerequisite for all types of healthy professional relationships, whether between people or organizations. Three approaches that help businesses establish trust across cultures are starting with an open mind, learning about the other party’s background, and demonstrating results and character in all dealings with the other party.
Barriers to business communicationAvoiding miscommunication in international business dealings requires being perceptive about the forms of communication most prevalent in the other party’s culture. Business communication barriers are often the result of a failure to understand the differences between low-context and high-context cultures.
Similarly, various cultures respond differently to periods of silence. In the West, even a short silence can be disconcerting, but in other cultures, discussions and meetings are commonly punctuated by periods of silence that can last as long as 30 seconds. Businesses need to be cognizant of the differences in workplace etiquette among their overseas trading partners. For example, arriving on time for a business meeting is important in such countries as the U.S., Russia, Japan, Canada, and South Korea. In other cultures, the host arriving late for a meeting is acceptable, but the guest is expected to arrive at least 10 minutes early. Anticipating and overcoming language and cultural miscommunicationAmong the approaches that companies take to overcome cultural barriers and miscommunication related to their international business dealings are finding a translator who understands distinctions between languages and within a specific group of language speakers, and understanding that each culture has its own approach to the natural and technological environment. These are some of the areas where cultural differences can lead to miscommunication in international business dealings:
Resources on overcoming cultural barriers in international business dealingsBack To Top Outsourcing and offshoring for businessMany U.S. firms in such industries as manufacturing, technology, call centers, and human resources use outsourcing and offshoring in their operations.
While some outsourcing involves domestic partners, most is to parties in foreign countries, which is called offshoring.
Back To Top Back To Top Safe working conditions for overseas employeesBusinesses may face challenges in confirming that their third-party partners abide by the companies’ codes of ethics, including following all applicable laws and regulations. A strict vetting process for potential outsource and offshore partners ensures that the businesses are competent and prepared to meet their obligations under the contract, including the following ethical obligations:
Offshore partners are required to operate transparently, but companies must try to understand the culture of the communities in which their suppliers and other third parties do business. International standards and regulations for protecting workersThe ILO is the primary organization promoting the health, safety, and rights of workers in countries around the world. The group continues to monitor the impact of the COVID-19 pandemic on the safety of working conditions across the globe.
Ethical international outsourcingThe ethical implications of international outsourcing include the impact of the practice on workers in the company’s home country and on the economies of all countries involved. Ethical outsourcing is intended to ensure companies operate in a responsible and sustainable way from environmental, social, and economic perspectives. Modern multinational companies realize that consumers care about their ethical standards, and many have adapted their operations in response.
Vetting the values and ethics of potential international business partnersThe important task of confirming that a business’s overseas partners are complying with standards of international business ethics has been complicated by restrictions imposed as a result of the COVID-19 pandemic. Assessing the level of risk that a potential supplier poses includes the economic and social climate of the supplier’s home country, the importance of the supplier’s product to the company, and the regulatory requirements the supplier must meet.
Resources on outsourcing and offshoring for businessBack To Top Laying the foundation for ethical business managementThe success of a company’s code of ethics depends on effective ethical training for business managers, whether or not their firms work with international partners and are active in international markets. The goal of ethics in international business is to ensure the company gains a reputation for ethical and responsible business practices in its home country and overseas. The result is a more equitable, principled marketplace, strengthened by partnerships between businesses that share high ethical standards. Back To Top Infographic Sources Investopedia, “Code of Ethics” Ivey Business Journal, “The Top 10 Ways That Culture Can Affect International Negotiations” Ethical Trading Initiative, “ETI Base Code” |