BACC 5 INTERNATIONAL BUSINESS AND TRADE (Midterm)

LESSON 1
ETHICS IN INTERNATIONAL BUSINESS

I. Intended Learning Outcome

At the end of the lesson, the students will be able to:

1. Define business ethics and its components.

2. Familiarize the different ethical issues in International Business.
3. Know the roots of unethical behavior.
4. Have an idea of what is Straw man/men.

II. Start-up!

Business Ethics
 Business ethics are principles of right or wrong governing the conduct of
business people
¤ The text says, “the accepted principles of right and wrong”
¤ But there are many differences of opinion among highly ethical
businesspeople

Religion, Ethics and Global Diversity

 The world has many different ethical systems

¤ mostly derived from different religions
 Different systems can lead to different opinions about what is ethical
Religious and Ethical Systems

Don’t start business with anyone unless you believe they have strong ethics

 Work hard to understand your own ethics

 Work hard to apply them
 Work hard to understand others’ ethics

Ethical Issues in International Business

 Many ethical issues and dilemmas are rooted in differences in political systems,
law, economic development, and culture
 Some key ethical issues in international business …
 Employment Practices
¤ When work conditions in a host nation are clearly inferior to those in a
multinational’s home nation, what standards should be applied?
 How much divergence is acceptable?
— Human Rights
— Basic rights are not respected in many nations
- freedom of speech
- freedom of association
- freedom of assembly
- freedom from political repression
— ‘What is the responsibility of a foreign firm in a country where human rights are
trampled?’
 Environmental Pollution
— Environmental regulations (or enforcement) in host nations may be inferior
to those at home
— Multinationals can produce more pollution than at home
— The tragedy of the commons occurs - The water in Mekong River
— Corruption
— International businesses can, and have, gained economic advantages by
making payments to government officials
— US passed the Foreign Corrupt Practices Act
— Organization for Economic Cooperation and Development (OECD)
adopted the Convention on Combating Bribery of Foreign Public Officials
in International Business Transactions
— Social Responsibility
— Multinational firms have power, wealth from control over resources and
ability to move production
— Moral philosophers argue that with power comes the responsibility to give
something back to the societies that enable them to prosper

The Roots of Unethical Behavior

 Why do managers behave in a manner that is unethical?

¤ Businesspeople sometimes do not realize they are behaving unethical
because they fail to ask if the decision is ethical
¤ The climate in some businesses does not encourage people to think
through the ethical consequences of business decisions
¤ Pressure to meet unrealistic performance goals that can be attained only
by cutting corners or acting in an unethical manner
¤ Leaders help to establish the culture of an organization and they set the
example that others follow

Ethical Dilemmas

 Managers must confront real ethical dilemmas

¤ The ethical obligations of a multinational corporation toward employment
conditions, human rights, corruption, environmental pollution, and the use
of power are not always clear cut
¤ Ethical dilemmas are situations in which none of the available
alternatives seems ethically acceptable

Suppose your subcontractor has hired a 12-year-old…

 Do you demand that she be laid off?
¤ What if she is the sole support of her younger brothers and sisters?
¤ What if working will mean she never gets an education?
An introduction to philosophical approaches to ethics: ‘Straw men’

 ‘Wrong ways to approach ethics’

 For combat training, people used to create dummies out of straw and then
practice attacking them
 Today when a thinker seeks to develop good ideas, he/she try to increase
understanding by proposing weak ideas and showing why they’re weak
 Scholars raise straw-man approaches to ethics to demonstrate that they offer
inappropriate guidelines for decision-making in a multinational firm

Philosophical straw men

¤ The Friedman Doctrine states that the only social responsibility of business
is to increase profits, staying within the law
 May be defensible in developed countries
 What if you’re in systems that let you destroy a country’s environment or
keep people poor?
¤ Cultural Relativism suggests that ethics are nothing more than the reflection
of a culture (‘When in Rome, do as the Romans’)
 If a culture supports slavery, is it OK to use slaves?
¤ The Righteous Moralist claims that his or her own standards of ethics are the
appropriate ones in all countries
¤ The Naïve Immoralist asserts that if a manager sees that firms from other
nations are not following ethical norms in a host country then they should not
either
¤ If everybody is making payments to a local drug lord, do you do it too?

Ethical Decision Making

 Five things that an international business and its managers can do to make sure
ethical issues are considered
¤ Favor hiring and promoting people with a well-grounded sense of
personal ethics
¤ Build an organizational culture that places a high value on ethical
behavior
¤ Make sure that leaders within the business not only articulate the speech-
making of ethical behavior, but also act in a manner that is consistent
with that speech-making
¤ Implement decision-making processes that require people to consider
the ethical dimension of business decisions
¤ Develop moral courage
Decision-Making Process

 According to experts, a decision is acceptable on ethical grounds if a

businessperson can answer yes to each of these questions:
¤ Does my decision fall within the accepted values or standards that
typically apply in the organizational environment (as articulated in a code
of ethics or some other corporate statement)?
¤ Am I willing to see the decision communicated to all stakeholders affected
by it — for example, by having it reported in newspapers or on television?
¤ Would the people with whom I have a significant personal relationship,
such as family members, friends, or even managers in other businesses,
approve of the decision?

Moral Courage

 Moral courage enables managers to walk away from a decision that is profitable,
but unethical
 Moral courage gives an employee the strength to say no to a superior who
instructs her to pursue actions that are unethical
 Moral courage does not come easy and employees have lost their jobs when
acting on this courage

The Roots of Unethical Behavior

Organization Culture and Leadership

 To foster ethical behavior, businesses need to build an organization culture that

values ethical behavior
 Three things that are need to build an ethical culture
¤ Businesses must explicitly articulate values that emphasize ethical
behavior in a code of ethics
¤ Leaders in the business must give life and meaning to those words by
repeatedly emphasizing their importance and then acting on them
¤ Incentive and benefit systems, including promotions, must reward people
who engage in ethical behavior and sanction those who do not

Decision-Making Process

Five-step process to think through ethical problems

1. Businesspeople should identify which stakeholders ‘decision would affect and in
what ways
 Stakeholders are individuals or groups that have an interest, claim, or
stake in the company
2. Judge the ethics of the proposed strategic decision, given the information gained
in Step 1
3. Managers must establish moral intent
4. Implement the ethical behavior
5. Review the decision to make sure it was consistent with ethical principles

III. Rev-up!

1. Suppose your subcontractor has hired a 12-year-old…

 Do you demand that she be laid off?
¤ What if she is the sole support of her younger brothers and sisters?
¤ What if working will mean she never gets an education?

What would be your decision? Explain your answer.

2. Discuss the (5) ethical issues in international business.

3. Discuss the (4) Philosophical straw men.

4. Explain the illustration on the Roots of Unethical Behavior

5. Create a diagram of the Five-step process to think through ethical problems

IV. References:
Gaspar, Juliene E., et al. Introduction to Global Business: Understanding the
International Environment and Global Business Functions. 2nd Edition ed., Cengage
Learning Asia Pte Ltd Philippines, 2019.

LESSON 2
REGIONAL ECONOMIC INTEGRATION

I. Intended Learning Outcome

At the end of the lesson, the students will be able to:

1. Know the objectives of Economic Integration.
2. Identify the levels of Integration.
3. Familiarize European Union, Indo-Eu Trade, Euro, NAFTA and its Functions,
Economic Integration of Developing Countries and ASEAN.

II. Start-up!

INTRODUCTION

• Regional Economic Integration refers to agreement between groups of countries in

geographic region to reduce and ultimately remove tariff and non-tariff barriers to the
free flow of goods, services and factors of production between each other countries.
• Regional trade agreement is design to promote free trade, but instead the word may
be moving toward a situation in which a number of regional trade blocks compete
against each other.

OBJECTIVES OF ECONOMIC INTEGRATION

• To pursue non-economic objectives such as strengthening political ties and

managing migration flows.
• To ensure increased security of market access for smaller countries by forming
regional trading blocs with larger countries.
• To improve members bargaining strength in multilateral trade
• negotiations or to protest against the slow trade of pace negotiations.
• To promote regional infant industries which cannot be viable without a protected
regional market.
LEVELS OF INTEGRATION

Free Trade Area

A free trade area is a grouping of countries to bring about free trade between them. The
free trade area abolishes all restrictions on trade among the members but each member
is left free to determine its own commercial policy with non-members.

Customers Union

It not only eliminates all restrictions on trade among members but also adopts a uniform
commercial policy against the non-members.

Common Market

It allows free movement of labor and capital within the common market, besides having
the two characteristics of the customer’s union, namely, free trade among members and
uniform tariff policy towards outsiders.

Economic Union

The economic union achieves some degree of harmonization of national economic

policies, through a common central bank, unified monetary and fiscal policy etc.

EUROPEAN UNION

It comprised six nations, namely, Belgium, France, Federal republic of Germany, Italy,
Luxembourg and Netherland was brought into being on January 1, 1958 by the Treaty
of Rome, 1957.
 Eliminate tariffs, quotas and other barriers on intra community trade.
 Devise a common internal tariff on imports from the rest of the world.
 Allow the free movement of factors of production within the community
 Harmonize their taxation and monetary policies and social security policies.

EUROPEAN UNION 1992

The community members of Customs union had taken some steps towards their
economic policies including adoption of agricultural policy in 1962 and established the
European monetary system in 1979.

The EC council promptly committed the EC to carry out the white paper’s program
named “completing the internal market” by 1992.

This program which envisaged the unification of the economies of member nations into
a single market by removing all border barriers to trade and factor mobility.
 Border control
 Limitations on the movement of people and their right of establishment
 Differing internal taxation regimes
 Lack of common legal framework for business
 Controls on movement of capital
 Heavy and differing regulation of services
 Divergent product regulations and standards
 Protectionist public procurement policies.

INDO-EU TRADE

The EU, taken as a single unit, is India’s largest partner. India’s exports to EC grew
from Rs 282 crore in 1970-71 to Rs 1447 crore in 1980-81. The corresponding figures of
India’s imports from the EC were Rs 320 crore, 2639 crore and 12,680 crore.

India’s main exports to EU include textiles, jute, leather and leather manufactures,
polished diamonds, engineering goods, chemicals, marine products etc.

Imports include edible oils, fertilizers, dairy products, steel, capital goods, optical
instruments, aluminum and copper products, synthetic rubber and cinematographic
goods.

India’s export performance has been regarded as poor because of lack of lack of price,
competitiveness, poor quality image, bad reputation in respect of delivery schedules,
poor export marketing skills, protectionist policy pursued by the EU countries etc.

THE EURO

It is the common currency of European Union which was launched by 11 of the 15

members of the Union, on January 1, 1999.

MAASTRICHT TREATY
The Maastricht treaty undertaken to integrate Europe was signed on 7 February 1992
by the members of the European community in Maastricht, Netherlands.

The Maastricht treaty of 1991 which set the stage for monetary union, laid down certain
eligibility criteria for member countries to join EMU such as maintaining budget deficit,
public debt, inflation, long term interest rates and exchange rate within defined limits.

Euro currency will not come into circulation until 2002, although banking and trading
transactions in Euro have commenced since January 1, 1999.

At the time of the launch of the Euro, there are two types of conversion ratio against
other currencies:
INTERNAL CONVERSION: It is the rate at which participating currencies will be
converted into the EURO during the transition period.

EXTERNAL CONVERSION: It is the exchange rate against currencies outside the

euroland.

The monetary policy decisions for the Euro area are made by the European Central
Bank (ECB), which along with the National Central Banks (NCB) of all EU members
comprise the European system of Central Banks (ESCBs).

The ECB is controlled by a Governing council consisting of an Executive board and the
governors of the NCBs.

NORTH AMERICA FREE TRADE AGREEMENT (NAFTA)

The North American free trade Agreement (NAFTA) had its origin in the Canada-US
free trade Agreement, which became effective on January 1, 1989.

Mexico became a member of it with effect from January 1, 1994.

NAFTA is a large trading bloc with a combined population and total GNP greater than
the 15-member EU.

NAFTA is perceived to expand by pulling together North, central and South America.

NAFTA has achieved substantial trade liberalization. The two way trading relationship
between US and Canada is the largest in the world.

Mexico replaced Japan as the second-largest market for US exporters, while remaining
as the third most important supplier to the US market after Canada and Japan.

 MARKET ACCESS – tariff and non-tariff barriers, rules of origin, governmental

procurement.
 TRADE RULES – safeguards, subsidies, countervailing and antidumping duties,
health and safety standards.
 SERVICES – It provide for the same safeguards for trade in services that exist for
trade in goods.
 INVESTMENT – It establishes investment rules governing minority interests,
portfolio investment, real property and majority owned or controlled investments from
the NAFTA countries
 INTELLECTUAL PROPERTY – US, Canada and Mexico, these three countries
pledge to provide adequate and effective protection and enforcement of intellectual
property rights.
 DISPUTE SETTLEMENT – It provides a Dispute settlement process that will be
followed instead of countries taking unilateral action against an offending party.
FUNCTIONS OF NAFTA

• To eliminate barriers to trade in, and facilitate the cross border movement of,
goods and services between the territories of the parties.
• Promote the conditions of fair competition in the free trade area.
• Increase substantially investment opportunities in their territories
• Provide adequate and effective protection and enforcement of intellectual
property rights in each party’s territory.
• Create effective procedures for the implementation and application of this
agreement, and for its joint administration and the resolution of disputes
• It establishes a framework for further trilateral, regional and international
territories.

ECONOMIC INTEGRATION OF DEVELOPING COUNTRIES

It has been advocated to accelerate economic development and strengthen their trading
and bargaining power.

UNCTAD (United nations conference on Trade and development) believes that

Regional economic groupings, integration should be promoted among developing
countries as a means of expanding.

Regional trade agreements among developing countries include the Latin American free
trade Association (LAFTA), the central American Common Market (CACM), the
ANDEAN PACT, and the Caribbean Common Market (CARICOM) in Latin America.

It was an establishment of Latin America common market consisting of Brazil,

Argentina, Chile, Uruguay and Paraguay. The Southern Cone Common Market
(Mercado Comun Del Sur- MERCOSUR) consisting of Argentina, Brazil, Paraguay and
Uruguay was formed in 1991.

The MERCOSUR, world’s third largest customs union had decision to transform the
bloc into a common market.

The MERCOSUR convergence plan has been dubbed a “little Maastricht” because it
resembles the European Union treaty which helped the formation of the European
Union and the EURO.

ASSOCIATION OF SOUTH EAST ASEAN NATIONS (ASEAN)

ASEAN is formed by Bangkok Declaration by five countries, viz., Indonesia, Malaysia,

the Philippines, Singapore and Thailand, to accelerate the economic progress.

The ASEAN constitutes a larger market for Japan than does the United States.
Economic growth rate of ASEAN which is richly endowed with natural resources has
been very high. This region accounts for the lion’s share of the world’s natural rubber,
palm oil and tin. It is also an important producer of sugar, coffee, timber, petroleum,
nickel, bauxite,
tungsten and coal.

III. Rev-up!

1. Discuss the (4) Levels of Integration

2. Explain the Maastricht Treaty

3. Differentiate internal conversion from external conversion.

4. Discuss what is NAFTA and its functions.

5. Discuss the Economic Integration of Developing Countries

References:

Gaspar, Juliene E., et al. Introduction to Global Business: Understanding the

International Environment and Global Business Functions. 2nd Edition ed., Cengage
Learning Asia Pte Ltd Philippines, 2019.
International Trade – Core Principles of International Marketing. Wsu.edu.
https://opentext.wsu.edu/cpim/chapter/2-1-international-trade/. Published 2011.
Accessed July 20, 2020.