Ethical issues in international business Essays

Many companies encounter various issues when they run their business in foreign countries where there are different environments. Some of the issues that they face are ethical and legal. Questions that arise include following the laws of a particular country, e.g. environmental laws, which do not exist in the home country.

Ethical Issues in International Business

Each country has different ethics which are influenced by differences in cultures. This is the main reason why most business people find it challenging to start a business in a foreign country. It is therefore important for companies to develop a sense of responsibility when operating their business internationally to avoid conflicts (Litka & Blodgett, 2009).

There are various measures that have been taken to reduce the challenges faced by foreign companies. Some of these measures include the formulation of the General Agreement on Trade and Tariffs (GATT). The aim of this agreement is to promote harmony and cooperation in the international trade.

Ethical Issues in International Business

Gift Giving and Bribery

Many multinationals do not know how to differentiate between giving a gift and bribery. When a person in authority is given a gift in exchange for a favor, that is termed as bribing (Whalley, M. & Semler, 2007). However, gift giving is considered to take place when there is no favor expected for giving a gift.

International bribery slows down economic growth. This is caused by the lack of competition which contributes to the production of low quality products. Bribery interferes with justice and enhances violation of laws by multinationals such as environmental pollution regulations. It is also unethical to pay customs officials to avoid taxes on imports. In addition, bribing a person in authority with the aim of facilitating requests like visa applications constitutes unethical business practice.

Labor Costs Saving

It is unethical to close down a factory and open it in another country in order to save labor costs. This leaves many people who were working in that plant jobless. Although labor costs in some countries like the U.S.A are expensive, saving labor costs should not be a reason for manufacturing firms to close and open in foreign countries. It is important for companies to be socially responsible instead of focusing on making profits alone.

Firms are therefore advised to learn different socio-cultural forms and socioeconomic conditions so that they can run their business in a proper and fair way in foreign countries. This includes understanding different cultural traditions of people in those countries they are operating in.

Legal Issues in International Business

Legal issues that mostly arise in foreign countries include protection of the intellectual property, payment issues, taxation among others (August, Mayer & Bixby, 2009). The General Agreement on Tariffs and Trade (GATT) gives out rules that govern the operation of a business that is functioning internationally. These rules are international and they help to solve legal issues.

Before a firm start operating in a foreign country, it is important for it to check some constitutional clauses that govern foreign business. This will help the company avoid court battles.

Payment Issues

Many countries have laws that restrict the amount of money that a foreign company can repatriate to host countries. These laws are aimed at ensuring that the host country does not lose in the balance of trade. They also serve as a precautionary measure for stabilizing a country’s currency.

If foreign companies are allowed to send to their home countries any amount of profit that they make in the host countries, the host countries stand to lose in the balance of trade especially if such countries do not have a lot of multinationals to counteract this outflow of investments. The balance of trade has a long-term impact on the exchange rate of a country’s currency. Sometimes, a country may suffer from exchange rate instability if massive amounts of funds are removed from the country’s economy, for instnace, during a political crisis.

Multinationals are the main actors in the international trade, and they should be responsible for such a monetary outflux. To guard against this situation, countries have introduced caps on the maximum amount of money that foreign companies can repatriate to their home countries. This essentially means that there is a limit for the amount of foreign profits that shareholders of multinationals can enjoy.

Intellectual Property

There is a tendency for laws protecting intellectual property to favor local firms and discriminate against foreign firms. This is an unfavorable situation for foreign companies considering that these are credited with introducing revolutionary technologies, products, and ideas to the host countries, leading to improvement in the quality of life in such countries.

However, governments in a bid to protect local interests usually fail to enforce intellectual property laws against local firms when they are liable for violating the intellectual property rights of foreign firms.

Taxation

Taxation double standards are very common in international business. Local firms usually face a lower corporate tax rate compared to foreign firms. This basically means that local firms have an absolute competitive advantage making the situation more difficult for foreign firms.

References

August, R., Mayer, D., and Bixby, M (2009). International Business Law. August Publisher: Pearson

Litka, P. & Blodgett, M. (2009). International Dimensions of the Legal Environment of Business. New York Thomson Learning Custom.

Whalley, M. & Semler , F. (2007). International Business Acquisitions: Major Legal Issues and Due Diligence. London: Kluwer Law Intl.

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In this assignment, the Foreign Corrupt Practices Act is elucidated and explained. The assignment applies two situations involving Geletex Corporation and Jed Richardson the company’s compliance officer to determine if the Foreign Corrupt Practices Act was violated.

Introduction

The Foreign Corrupt Practices Act is legislation passed in 1977 to deter involvement in corruption by American companies in foreign countries. This law considers bribery of foreign government officials in order to get or maintain business as a violation of the United States law. The FCPA requires American companies to maintain detailed accounting records to allow reviews by auditors to determine whether it complies with the provisions of this act.

Legal Explanation of Foreign Corruption Practices Act

The FCPA law prohibits American companies in making payments to foreign government officials or corporations with the purpose of gaining or maintaining business. However, the Act precludes a gift or payment to a foreign corporation or a corporate officer. Moreover, gifts or payments made to officials who do not have control over a ward or maintenance of business do not amount to a violation of the law. The FCPA law gives United States businesses some degree of exceptions in circumstances where payments to foreign government officials do not contravene local laws, even if the gifts or payments leads to maintain or gain business (Zarin, 1995).

The Foreign Corrupt Practices Act allows companies to facilitate and expedite payments in foreign countries. The intention is to expedite or secure the performance of routine government functions. Payments acceptable include gifts aimed at speeding up the issuance of licenses or permits, and processing of paperwork. This particular exception to the general provisions of the act that deters bribery is provided despite the fact that technically grease payments are regarded as bribes. These bribes are less offensive compared to bribes used in the acquisition and maintenance of business. These inducements assist in facilitating performance of duties that American companies in foreign countries are already obligated to perform (Zarin, 1995).

FCPA and Geletex’s Situation

The FCPA applies to all American Corporations with business operations abroad. Geletex is a Corporation that has expanded its operations internationally. It has to comply with the full provisions of FCPA legislations as it engages in business activities abroad. Geletex’s US operations have code of ethics which complies with FCPA. However, the company’s international code of ethics is unclear as it expands its activities abroad. This is shown in situations met by Jed in his visits to the offices in Lima and Stockholm. In Lima, he discovered unusual high commission expenses which the office official justifies as normal. In Stockholm office, he met a situation where the branch employed relatives of top government officials. These situations seem to amount to payments made in an attempt to acquire and maintain business with government officials, thus a violation of the FCPA.

FCPA and Jed’s Concerns

Jed as a compliance director of Geletex has certain concerns about the company’s branch in Lima, Peru. Specifically, he is concerned with possibility of its branch in Lima in engaging in practices that contravene the Act. This is exemplified when he discovers on review of the branch’s accounting records an unusually high expenses on commission payments. As a compliance director, Jed is aware that many companies pay unusually high commissions to disguise that some sales people are paying bribes in exchange for contracts. He is also concerned with Geletex’s code of ethics which comply with FCPA laws in connection to unusual high expenditure on commissions in the Lima, Peru branch.

Violation Determination and Reasoning

The FCPA has provisions that play significant roles such as; one, barring American organizations in foreign countries in paying commissions which exceed stipulated market rates. Two, making it clear that a United States Corporation cannot escape liability by remaining ignorant of the actions of its representatives or agents. Three, has accounting standards provision with accounting rules and regulations designed to make implementation of bribery provisions possible. Lastly, FCPA has record keeping provision that requires American companies to keep records that show how their assets are used. These roles determine whether a company has contravened the FCPA. Similarly, the concerns of Jed about the Lima office indicate a violation of the FCPA. The discovery of unusually high commissions expenditure is a violation of this act. Differences in culture and ethics from country to country does not shield American corporations from liability under the act for being ignorant of the behavior its representatives abroad (International Business Ethics Institute, (n.d)).

Jed’s Alternatives

As a compliance director of Geletex, Jed knows that all American companies must comply with the FCPA and other laws. Jed has the alternative of ensuring that Geletex affiliates comply with FCPA. Given the company’s office situation in Lima, where Jed found out unusually high expenditure on commissions, he has the option of investigating the payment to ensure compliance with FCPA. FCPA requires payments made on commissions not exceed market rates. If commission expenses made in the Lima office exceeded the market rates, then that amounted to a violation of FCPA and Geletex is subject to litigation. Jed also has the alternative of finding out whether high expenditure was meant to facilitate or expedite performance of routine government actions such as issuance of permits and licenses. The FCPA provides exception to American business in this situation where the payments do not violate the local laws. Finally, Jed has to ensure that he is aware of Geletex’s international operations and ensure full compliance with the law. He has an obligation of ensuring that the company has international code of ethics which does not violate the law. FCPA, in its provisions makes it clear that American Corporations cannot shield themselves from liability by remaining ignorant of the actions of its agents or representatives abroad.

Conclusion

In conclusion, the FCPA law considers a company to have violated its provisions if the company’s accounting system fails to openly show how money is used well. If this is detected, the Securities Exchange Commission will use the act to prosecute the offending company for engaging in bribery.

References

International Business Ethics Institute. (n.d). Bribery in International Business. Web.

Zarin, D. 1995. Doing Business Under Foreign Corrupt Practices Act. New York: Practicing Law Institute.

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