CHAPTER 4 - COUNTRY DIFFERENCES

Objectives:
✓ Explain what is meant by culture,
✓ Identify implications of differences in culture,
✓ Discuss ethical issues faced by international business,
✓ Identify and Explain how to incorporate ethical consideration to decision making, and
✓ Value the importance of ethics in international business.

A. DIFFERENCES IN CULTURE

Culture is a system of values and norms that are

shared among a group of people and that when taken
together constitute a design for living.

As your business grows, you may develop a

diverse group of employees and customers. While diversity
often enriches the workplace, cultural differences in
business can bring complications as well. Various cultural
differences can interfere with productivity or cause conflict
among employees. Stereotypes and ignorance about
different traditions and mannerisms can lead to disruptions
and the inability of some employees to work effectively as
a team or to handle business dealings with potential
customers in other countries.

Personal Space Expectations

Cultural differences in business include varying expectations about personal space and physical
contact. Many Europeans and South Americans customarily kiss a business associate on both cheeks in
greeting instead of shaking hands. While Americans are most comfortable at arms-length from business
associates, other cultures have no problem standing shoulder-to-shoulder with their peers or placing himself
or herself 12 or fewer inches away from the person to whom they are speaking. It's not unusual for female
colleagues in Russia to walk arm in arm, for example, while the same behavior in other cultures may signify
a more personal or sexual relationship.

High and Low Context

Different cultures communicate through various levels of context. Low-context cultures such as
Canada, the United States, Australia, New Zealand and most of Europe, require little or no explanation of
orders and requests, preferring to make decisions quickly. High-context cultures, which include most other
Eastern and South American populations, require and expect much more explanation about orders and
directions. Businesses that operate with a low-context form of communication spell out the specifics in the
message, while those from a high-context communication culture expect and supply more background with
their messages.

Differing Meanings of Cues

Western and Eastern cues have substantially different meanings in business. The word "yes," for
example, usually means agreement in Western cultures. In Eastern and high-context cultures however, the
word "yes," often means that the party understands the message, not necessarily that he agrees with it. A

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handshake in some cultures is as ironclad as an American contract. A period of silence during negotiations
with an Eastern business associate may signify displeasure with your proposal. While frank openness may
be desirable in Western cultures, Eastern cultures often place more value on saving face and avoiding
disrespectful responses.
The Importance of Relationships

While Western cultures proclaim to value relationship-

based marketing and business practices, in high-context
cultures a relationship involves longtime family ties or direct
referrals from close friends. Judgments made in business often
are made based on familial ties, class and status in relationship-
oriented cultures, while rule-oriented cultures believe that
everyone in business deserves an equal opportunity to make
their case. Judgments are made on universal qualities of
fairness, honesty and getting the best deal, rather than on
formal introductions and background checks.

Cultivate Cultural Understanding

Understanding cultural diversity in business is important to interacting with people from differing
cultures while preventing problematic issues. If you know, you will be negotiating with foreign
businesspersons, for example, study in advance how their manner of doing business differs from your own.
You will find that many Eastern cultures like and expect to have lengthy informative sessions before
negotiations begin.

Do not be surprised if colleagues and customers in the UK and Indonesia are more reserved with
their responses and hide their emotions. Those in France and Italy, like the US, are more effusive and are
not afraid to show their emotion.

Make sure, too, that your staff understands that cultural differences matter in business and can
easily be misunderstood by either party. Above all, when you encounter unexpected behavior, try not to
jump to conclusions. Someone who seems unimpressed with your ideas may actually be from a culture
where emotions are not readily expressed. Potential cultural barriers in business can be avoided simply by
understanding the impact of culture on business environment.

Differences in Communication

If you have traveled a lot before, you know that there are huge differences in communication
between people from one country to another. In some cultures, people are loud, direct or even blunt and
tend to interrupt others during a conversation. In others, people are typically soft-spoken, use flowery or
indirect language and wait patiently for others to finish their sentence.

During a business meeting, these differences are likely to come to the fore. Try to adjust to the way
your business partners communicate, e.g. when addressing and greeting your business partners, your boss
and your colleagues. Always use last names and titles unless you are invited to do otherwise.

Hierarchies may have a great influence on the communication style in your new surroundings, so
it is important to keep an eye on this. The most senior business partner may be the one who is making the
decisions at a meeting. Failing to acknowledge their status within the company or to greet them with due
respect can leave a bad impression.

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Valuing Time

Cultural differences also become apparent in differing concepts of time. Is the scheduled time frame
for a meeting set in stone, or does it allow for some flexibility? Will you jeopardize a business deal by
arriving late, or is it perfectly acceptable to let family matters, for example, take precedence over business
appointments?

A popular example: Everyone would agree that Germans are well-known for their punctuality. In
many African and South American countries, however, scheduled appointments are often treated like a
general guideline rather than something one has to strictly abide by.
Seeing how some cultures are more time-conscious than others, it is always best to be punctual at first and
simultaneously adopt a relaxed attitude towards time management. Even if you are always on time, your
business partners may not take the appointed time for a business meeting as seriously as you do. After a
while, you will learn to adjust to your business partners’ unique pace at work.

How cultural differences impact international business

International business deals not only cross borders, they also cross cultures. Culture profoundly
influences how people think, communicate, and behave. It also affects the kinds of transactions they make
and the way they negotiate them. Differences in culture between business executives—for example,
between a Chinese public sector plant manager in Shanghai and a Canadian division head of a family
company in Toronto– can create barriers that impede or completely stymie the negotiating process.

The great diversity of the world’s cultures makes it impossible for any negotiator, no matter how
skilled and experienced, to understand fully all the cultures that may be encountered. How then should an
executive prepare to cope with culture in making deals in Singapore this week and Seoul the next? In
researching my book The Global Negotiator: Making, Managing, and Mending Deals Around the World in
the Twenty-First Century (Palgrave Macmillan, 2003), I found that ten particular elements consistently
arise to complicate intercultural negotiations. These “top ten” elements of negotiating behavior constitute
a basic framework for identifying cultural differences that may arise during the negotiation process.
Applying this framework in your international business negotiations may enable you to understand your
counterpart better and to anticipate possible misunderstandings. This article discusses this framework and
how to apply it.

1. Negotiating goal: Contract or relationship?

Negotiators from different cultures may tend to view the purpose of a negotiation differently. For
deal makers from some cultures, the goal of a business negotiation, first and foremost, is a signed contract
between the parties. Other cultures tend to consider that the goal of a negotiation is not a signed contract
but rather the creation of a relationship between the two sides. Although the written contact expresses the
relationship, the essence of the deal is the relationship itself. For example in my survey of over 400 persons
from twelve nationalities, reported fully in The Global Negotiator, I found that whereas 74 percent of the
Spanish respondents claimed their goal in a negotiation was a contract, only 33 percent of the Indian
executives had a similar view. The difference in approach may explain why certain Asian negotiators,
whose negotiating goal is often the creation of a relationship, tend to give more time and effort to
negotiation preliminaries, while North Americans often want to rush through this first phase of deal making.
The preliminaries of negotiation, in which the parties seek to get to know one another thoroughly, are a
crucial foundation for a good business relationship. They may seem less important when the goal is merely
a contract.

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 It is therefore important to determine how your counterparts view the purpose of your negotiation.
If relationship negotiators sit on the other side of the table, merely convincing them of your ability to deliver
on a low-cost contract may not be enough to land you the deal. You may also have to persuade them, from
the very first meeting, that your two organizations have the potential to build a rewarding relationship over
the long term. On the other hand, if the other side is basically a contract deal maker, trying to build a
relationship may be a waste of time and energy.

2. Negotiating attitude: Win-Lose or Win-Win?

Because of differences in culture, personality, or both, business persons appear to approach deal
making with one of two basic attitudes: that a negotiation is either a process in which both can gain (win-
win) or a struggle in which, of necessity, one side wins and the other side loses (win-lose). Win –win
negotiators see deal making as a collaborative, problem-solving process; win-lose negotiators view it as
confrontational. As you enter negotiations, it is important to know which type of negotiator is sitting across
the table from you. Here too, my survey revealed significant differences among cultures. For example,
whereas 100 percent of the Japanese respondents claimed that they approached negotiations as a win-win
process, only 33% of the Spanish executives took that view.

3. Personal style: Informal or formal?

Personal style concerns the way a negotiator talks to others, uses titles, dresses, speaks, and interacts
with other persons. Culture strongly influences the personal style of negotiators. It has been observed, for
example, that Germans have a more formal style than Americans. A negotiator with a formal style insists
on addressing counterparts by their titles, avoids personal anecdotes, and refrains from questions touching
on the private or family life of members of the other negotiating team. A negotiator with an informal style
tries to start the discussion on a first-name basis, quickly seeks to develop a personal, friendly relationship
with the other team, and may take off his jacket and roll up his sleeves when deal making begins in earnest.
Each culture has its own formalities with their own special meanings. They are another means of
communication among the persons sharing that culture, another form of adhesive that binds them together
as a community. For an American, calling someone by the first name is an act of friendship and therefore
a good thing. For a Japanese, the use of the first name at a first meeting is an act of disrespect and therefore
bad.

Negotiators in foreign cultures must respect appropriate formalities. As a general rule, it is always
safer to adopt a formal posture and move to an informal stance, if the situation warrants it, than to assume
an informal style too quickly.

4. Communication: Direct or indirect?

Methods of communication vary among cultures. Some emphasize direct and simple methods of
communication; others rely heavily on indirect and complex methods. The latter may use circumlocutions,
figurative forms of speech, facial expressions, gestures and other kinds of body language. In a culture that
values directness, such as the American or the Israeli, you can expect to receive a clear and definite response
to your proposals and questions. In cultures that rely on indirect communication, such as the Japanese,
reaction to your proposals may be gained by interpreting seemingly vague comments, gestures, and other
signs. What you will not receive at a first meeting is a definite commitment or rejection.

The confrontation of these styles of communication in the same negotiation can lead to friction.
For example, the indirect ways Japanese negotiators express disapproval have often led foreign business
executives to believe that their proposals were still under consideration when in fact the Japanese side had
rejected them. In the Camp David negotiations that led to a peace treaty between Egypt and Israel, the

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Israeli preference for direct forms of communication and the Egyptian tendency to favor indirect forms
sometimes exacerbated relations between the two sides. The Egyptians interpreted Israeli directness as
aggressiveness and, therefore, an insult. The Israelis viewed Egyptian indirectness with impatience and
suspected them of insincerity, of not saying what they meant.

5. Sensitivity to time: High or low?

Discussions of national negotiating styles invariably treat a particular culture’s attitudes toward
time. It is said that Germans are always punctual, Latins are habitually late, Japanese negotiate slowly, and
Americans are quick to make a deal. Commentators sometimes claim that some cultures value time more
than others, but this observation may not be an accurate characterization of the situation. Rather, negotiators
may value differently the amount of time devoted to and measured against the goal pursued. For Americans,
the deal is a signed contract and time is money, so they want to make a deal quickly. Americans therefore
try to reduce formalities to a minimum and get down to business quickly. Japanese and other Asians, whose
goal is to create a relationship rather than simply sign a contract, need to invest time in the negotiating
process so that the parties can get to know one another well and determine whether they wish to embark on
a long-term relationship. They may consider aggressive attempts to shorten the negotiating time as efforts
to hide something. For example, in one case that received significant media attention in the mid-1990’s, a
long-term electricity supply contract between an ENRON subsidiary, the Dabhol Power Company, and the
Maharashtra state government in India, was subject to significant challenge and was ultimately cancelled
on the grounds that it was concluded in “unseemly haste” and had been subject to “fast track procedures”
that circumvented established practice for developing such projects in the past. Important segments of the
Indian public automatically assumed that the government had failed to protect the public interest because
the negotiations were so quick. In the company’s defense, Rebecca Mark, chairman and CEO of Enron
International, pointed out to the press: “We were extremely concerned with time, because time is money
for us.

This difference between the Indian and U.S. attitudes toward time was clearly revealed in my
survey. Among the twelve nationalities surveyed, the Indians had the largest percentage of persons who
considered themselves to have a low sensitivity to time

6. Emotionalism: High or low?

Accounts of negotiating behavior in other cultures almost always point to a particular group’s
tendency to act emotionally. According to the stereotype, Latin Americans show their emotions at the
negotiating table, while the Japanese and many other Asians hide their feelings. Obviously, individual
personality plays a role here. There are passive Latins and hot-headed Japanese. Nonetheless, various
cultures have different rules as to the appropriateness and form of displaying emotions, and these rules are
brought to the negotiating table as well. Deal makers should seek to learn them.

In the author’s survey, Latin Americans and the Spanish were the cultural groups that ranked
themselves highest with respect to emotionalism in a clearly statistically significant fashion. Among
Europeans, the Germans and English ranked as least emotional, while among Asians the Japanese held that
position, but to a lesser degree.

7. Form of agreement: General or specific?

Whether a negotiator’s goal is a contract or a relationship, the negotiated transaction in almost all
cases will be encapsulated in some sort of written agreement. Cultural factors influence the form of the
written agreement that the parties make. Generally, Americans prefer very detailed contracts that attempt
to anticipate all possible circumstances and eventualities, no matter how unlikely. Why? Because the deal

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is the contract itself, and one must refer to the contract to handle new situations that may arise. Other
cultures, such as the Chinese, prefer a contract in the form of general principles rather than detailed rules.
Why? Because, it is claimed, that the essence of the deal is the relationship between the parties. If
unexpected circumstances arise, the parties should look primarily to their relationship, not the contract, to
solve the problem. So, in some cases, a Chinese negotiator may interpret the American drive to stipulate all
contingencies as evidence of a lack of confidence in the stability of the underlying relationship.

Among all respondents in my survey, 78 percent preferred specific agreements, while only 22
percent preferred general agreements. On the other hand, the degree of intensity of responses on the question
varied considerably among cultural groups. While only 11 percent of the English favored general
agreements, 45.5 percent of the Japanese and of the Germans claimed to do so.

Some experienced executives argue that differences over the form of an agreement are caused more by
unequal bargaining power between the parties than by culture. In a situation of unequal bargaining power,
the stronger party always seeks a detailed agreement to “lock up the deal” in all its possible dimensions,
while the weaker party prefers a general agreement to give it room to “wiggle out” of adverse circumstances
that are bound to occur. According to this view, it is context, not culture that determines this negotiating
trait.

8. Building an agreement: Bottom up or top down?

Related to the form of the agreement is the question of whether negotiating a business deal is an
inductive or a deductive process. Does it start from an agreement on general principles and proceed to
specific items, or does it begin with an agreement on specifics, such as price, delivery date, and product
quality, the sum total of which becomes the contract? Different cultures tend to emphasize one approach
over the other. Some observers believe that the French prefer to begin with agreement on general principles,
while Americans tend to seek agreement first on specifics. For Americans, negotiating a deal is basically
making a series of compromises and trade-offs on a long list of particulars. For the French, the essence is
to agree on basic principles that will guide and indeed determine the negotiation process afterward. The
agreed-upon general principles become the framework, the skeleton, upon which the contract is built.

My survey of negotiating styles found that the French, the Argentineans, and the Indians tended to
view deal making as a top down (deductive process); while the Japanese, the Mexicans and the Brazilians
tended to see it as a bottom up (inductive) process. A further difference in negotiating style is seen in the
dichotomy between the “building-down” approach and the “building-up approach.” In the building down
approach, the negotiator begins by presenting the maximum deal if the other side accepts all the stated
conditions. In the building-up approach, one side begins by proposing a minimum deal that can be
broadened and increased as the other party accepts additional conditions. According to many observers,
Americans tend to favor the building-down approach, while the Japanese tend to prefer the building-up
style of negotiating a contract.

9. Team organization: One leader or group consensus?

In any negotiation, it is important to know how the other side is organized, who has the authority
to make commitments, and how decisions are made. Culture is one important factor that affects how
executives organize themselves to negotiate a deal. Some cultures emphasize the individual while others
stress the group. These values may influence the organization of each side in a negotiation. One extreme is
the negotiating team with a supreme leader who has complete authority to decide all matters. Many
American teams tend to follow this approach. Other cultures, notably the Japanese and the Chinese, stress
team negotiation and consensus decision making. When you negotiate with such a team, it may not be
apparent who the leader is and who has the authority to commit the side. In the first type, the negotiating

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team is usually small; in the second it is often large. For example, in negotiations in China on a major deal,
it would not be uncommon for the Americans to arrive at the table with three people and for the Chinese to
show up with ten. Similarly, the one-leader team is usually prepared to make commitments more quickly
than a negotiating team organized on the basis of consensus. As a result, the consensus type of organization
usually takes more time to negotiate a deal.

Among all respondents in my survey, 59 percent tended to prefer one leader while 41 percent
preferred a more consensual form of organization. On the other hand, the various cultural groups showed a
wide variety of preferences on the question of team organization. The group with the strongest preference
for consensus organization was the French. Many studies have noted French individualism.

Perhaps a consensual arrangement in the individual French person’s eyes is the best way to protect
that individualism. Despite the Japanese reputation for consensus arrangements, only 45 percent of the
Japanese respondents claimed to prefer a negotiating team based on consensus. The Brazilians, the Chinese,
and the Mexicans to a far greater degree than any other groups preferred one-person leadership, a reflection
perhaps of the political traditions of those countries.

10. Risk taking: High or low?

Research supports the conclusion that certain cultures are more risk averse than others. (Geert
Hofstede, Culture’s Consequences: International Differences in Work-related Values (Newbury Park, CA:
Sage Publications, 1980)

In deal making, the negotiators’ cultures can affect the willingness of one side to take risks—to
divulge information, try new approaches, and tolerate uncertainties in a proposed course of action. The
Japanese, with their emphasis on requiring large amount of information and their intricate group decision-
making process, tend to be risk averse. Americans, by comparison, are risk takers.

Among all respondents in the author’s survey, approximately 70 percent claimed a tendency toward
risk taking while only 30 percent characterized themselves as low risk takers. Among cultures, the responses
to this question showed significant variations. The Japanese are said to be highly risk averse in negotiations,
and this tendency was affirmed by the survey which found Japanese respondents to be the most risk averse
of the twelve cultures. Americans in the survey, by comparison, considered themselves to be risk takers,
but an even higher percentage of the French, the British, and the Indians claimed to be risk takers.

Faced with a risk-averse counterpart, how should a deal maker proceed? The following are a few steps to
consider:

- Don’t rush the negotiating process. A negotiation that is moving too fast for one of the parties only
heightens that person’s perception of the risks in the proposed deal.
- Devote attention to proposing rules and mechanisms that will reduce the apparent risks in the deal
for the other side.
- Make sure that your counterpart has sufficient information about you, your company, and the
proposed deal.
- Focus your efforts on building a relationship and fostering trust between the parties.
- Consider restructuring the deal so that the deal proceeds step by step in a series of increments,
rather than all at once.

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Why Culture is Important in International Business

Doing business on a global basis requires a good understanding of different cultures. What works
in your country might not work well in another, and could even be interpreted as an insult! And in your
role as an international human resources professional, it’s important to raise the awareness of cultural issues
within your organization to ensure effectiveness.

B. ETHICS IN BUSINESS INTERNATIONAL TRADE

Ethical behavior combined with skills and professionalism is able to ensure sustainable
development, rather than a short- term profit, which brings terrible results after a certain period of time.
Ethical behavior ensures awareness and concern for the future and for the right way of action in each
particular situation.

Ethical behavior establishes a healthy and pleasant cooperation climate for all the parties involved in a
deal, making them feel comfortable with each other. Acting in accordance with moral values is crucial for
deserving clients' attention and support and achieving a significant competitive advantage in a particular
market segment.

As businesses expand internationally, they must not only understand an organization’s mission,
vision, goals, policies and strategies but also must take into account the legal and ethical issues in
international business. When companies plan their long-term expansion into a foreign environment, they
must tackle serious moral and ethical challenges and decision-making in order to make their expansion a
success.

Some of the most common ethical issues in international business include outsourcing, working
standards and conditions, workplace diversity and equal opportunity, child labor, trust and integrity,
supervisory oversight, human rights, religion, the political arena, the environment, bribery and corruption.
Businesses trading internationally are expected to fully comply with federal and state safety regulations,
environmental laws, fiscal and monetary reporting statutes and civil rights laws.

Cultural considerations can also make or break a company conducting business globally. Every
culture and nation has its own history, customs, traditions and code of ethics. Cultural barriers include
language, which often means a company must rely on translators when speaking to business contacts and
customers. Gender can be an issue in countries where women do not have the same rights as men. Religious
holidays and other cultural events can prohibit trade at certain times. Acting in accordance with ethical and
cultural values is crucial for a multinational company to win clients’ support and business and to achieve a
competitive advantage in a particular market.

The rapid growth of international business has increased demand for qualified professionals who
are familiar with global markets, business practices, cultural considerations and ethical issues in
international business. You may study the complex legal and ethical issues encountered while conducting
business overseas within an online Master of Business Administration (MBA) program. MBA students
learn about international law and ethics, along with unique customs and attitudes, governmental policies,
monetary systems, trade basics, cross-cultural management and other factors that affect global operations.

An MBA can be one of the best ways professionals can prepare for a management, trade or general
business career on a multinational level. A variety of positions in numerous fields and industries is
becoming increasingly available.

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 International business ethics emerged quite late globally compared to the business ethics that came
up in 1970’s. It was only in late 1990’s that the international business ethics came to the fore especially so
after the economic developments that occurred on a global scale.

In 1990’s many businesses from the developing countries expanded their operations and became
multinational. The transactions between businesses and the governments increased as a result, which gave
rise to many practical issues. Culture and its relativity was one factor more prominent than the others. Other
ethical issues in the context of international business are generally dealt with the laws of the land; although
all of them fall within the ambit of international business ethics.

Globalization diminished the barriers between countries on the globe and also called for
universalization of values for trade to occur smoothly. Universal values were perceived to control the
behavior in the commercial space. This lead to ethical issues in the international business perspective, those
that were unknown till date.

Other theoretical issues arise from the diversity of business ethical traditions in various countries
across the globe. In addition, comparisons made on the basis of corruption rankings of a certain state or on
the basis of gross domestic product of a certain economy also lead to ethical issues in the international
arena.

Since religion brings in a wholly different perspective to the way we look upon things; the
comparison of ethical traditions from the perspective of the latter also gives birth to ethical problems. For
example, trade in Christian dominated countries is different from the trade in Islamic countries. Again
depending upon how strong or profound the impact of the religion is business practices are influenced
proportionally.

In the international business arena, ethical problems also arise out mere international business
transactions. Fair trade movement, transfer pricing, bio prospecting and bio piracy are examples of
transactions that fall within the ambit of international business ethics. Similarly issues like child labor and
cultural imperialism are controversial enough to call upon the attention of international business ethics.

Yet another arena for strong requirement of ethics would be when multinationals bargain to take
advantage of international differences; For example when rich nations outsource their services to poor and
developing nations at cheaper cost. Western nations were up till recently outsourcing many of services to
third world nations where they could hire manpower for the cheapest prices. This led to a severe competition
between developing nations with each one offering cheaper labor than the other.

Dumping is yet another way by which large companies are trying to kill the domestic players.
Foreign players often sell goods and services at a cheaper price making it hard for the small players to
survive the competition. Consumer durables and FMCG are biggest examples of such practices. The bigger
threat here is the resulting monopoly which places the customer in a losing position. The international trade
commission began for its search of its anti-dumping laws from the year 2009.

All these are ways in which business at the international level can lead to ethical dilemmas. In
absence of international business ethics it may become almost impossible to regulate business and create
winning situations for people in the market place.

Differences in Employment Laws

Wages and working environment in overseas locations are often inferior to those in the United
States, even when you fulfill all local legal requirements. If you hire workers there, you face the issue of

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what pay levels and working conditions are acceptable. Applying U.S. standards is usually not realistic and
often simply disrupts the established market.

An effective approach is to develop company standards which protect workers while fitting into
the local economy. Your standards have to guarantee a living wage, protect the safety of your workers and
establish a reasonable number of hours for the work week.

The Challenges of Corruption

Companies making payments to secure business that

they would not otherwise obtain are guilty of illegal actions
under the U.S. Foreign Corrupt Practices Act. The payments,
even if they seem to be customary, are usually illegal under
local laws as well. When your company makes such
payments, it is encouraging a local system of corruption
through unethical behavior. Smaller gifts, of a size that would
not normally influence a major decision, are considered
ethical in some societies and may be legal under local and
U.S. laws.
If you find that large sums are routinely required to
do any business in a country, you may want to reevaluate your
decision to enter the market.

Human Rights Laws

The country into which you are expanding may not respect basic human rights. The ethical issue
facing your company is whether your presence supports the current abusive regime or whether your
presence can serve as catalyst for human rights improvements. If you find that you are supporting a regime
that oppresses its citizens, engages in discrimination and does not recognize basic freedoms, the ethical
action is to withdraw from the market. If you find that the regime allows you to observe human within your
organization and that your presence moderates human rights abuses, you may actively work to improve
local conditions.

Pollution and Environment Concerns

Not all foreign countries have environmental legislation that makes it illegal to pollute. Companies
may discharge harmful materials into the environment and avoid costly anti-pollution measures. An ethical
approach to your expansion into such markets is to limit your environmental footprint beyond what is
required by local laws. An ethically operating company ensures its operations don’t have harmful effects
on the surrounding population.

Since your company has the knowledge and expertise to operate within the U.S. environmental
regulations, it is ethical to apply similar standards in your new locations.

List of Ethical Issues in Business

In the complex global business environment of the 21st century, companies of every size face a
multitude of ethical issues. Businesses have the responsibility to develop codes of conduct and ethics that
every member of the organization must abide by and put into action. Fundamental ethical issues in business
include promoting conduct based on integrity and that engenders trust, but more complex issues include

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accommodating diversity, empathetic decision-making, and compliance and governance consistent with a
company's core values.

Fundamental Ethical Issues. The most fundamental or essential ethical issues that businesses must face
are integrity and trust. A basic understanding of integrity includes the idea of conducting your business
affairs with honesty and a commitment to treating every customer fairly. When customers think a company
is exhibiting an unwavering commitment to ethical business practices, a high level of trust can develop
between the business and the people it seeks to serve. A relationship of trust between you and your
customers may be a key factor in your company's success.

Diversity and the Respectful Workplace. Your current and potential employees are a diverse pool of
people who deserve to have their differences respected when they choose to work at your business. An
ethical response to diversity begins with recruiting a diverse workforce, enforces equal opportunity in all
training programs and is fulfilled when every employee is able to enjoy a respectful workplace environment
that values their contributions. Maximizing the value of each employee’s contribution is a key element in
your business's success.

Decision-Making Issues. A useful method for exploring ethical dilemmas and identifying ethical courses
of action includes collecting the facts, evaluating any alternative actions, making a decision, testing the
decision for fairness and reflecting on the outcome. Ethical decision-making processes should center on
protecting employee and customer rights, making sure all business operations are fair and just, protecting
the common good, and making sure the individual values and beliefs of workers are protected.

Compliance and Governance Issues. Businesses are expected to fully comply with environmental laws,
federal and state safety regulations, fiscal and monetary reporting statutes and all applicable civil rights
laws. For example, the Aluminum Company of America's (ALCOA) approach to compliance ensures no
one at the company may ask any employee to break the law or go against company values, policies and
procedures. The company's commitment to compliance is shored up by its approach to corporate
governance: the company expects all ALCOA directors, officers and executives to conduct business in
accordance with its business conduct policies.

How to Address Differences in Ethical Standards and International Businesses

Ethical decision-making can be more challenging for international businesses than local operations.
Culture-driven codes of ethics vary between countries, making it difficult for managers to adhere to a strict
code of ethics in each market. The textbook ethical dilemma for international businesspeople occurs when
a manager must decide whether to commit an act that is
unacceptable in the home country, but expected and necessary in
the host country. Because of this, international business owners
must know how to address differences in ethical standards around
the world.

1. Keep the unique ethical climate of each market in mind

when crafting your code of ethics to ensure that it is relevant to
the international arena. Make adherence to the code a priority
among executives and management to set an example for the rest
of the organization. Post the code of ethics in high-traffic areas at
the home office, branch offices and foreign subsidiaries. Ask
managers to justify their ethical decisions in foreign markets
according to the code of ethics to ensure that managers take it
seriously. According to business-ethics.org, it is important to

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 include international employees in the process of creating your ethics program. This will help to make
your ethics programs as relevant as possible in foreign markets.
2. Follow local customs and traditions at your discretion. Decide on a case-by-case basis which local
customs to follow and which to avoid when it comes to victimless issues. Use your code of ethics when
dealing with humanitarian and environmental issues, such as child labor or deforestation, and use your
discretion in issues such as bribery or wage considerations. You may, for example, decide to offer cash
gifts to government officials in a country where there is no other reasonable way to gain a foothold in
the market, but you may decide not to enter a country if raw materials must be gained through suppliers
who use indentured labor.
3. Apply your standards equally in all markets, and among all subsidiaries. Stick to your standards,
whatever they are. If you have a policy of following your home country's ethical standards around the
world, be prepared to turn down opportunities in markets with unfavorable ethical climates. Respond
courteously and respectfully if you do have to turn down an opportunity. Do not act superior or derisive
when turning down unethical opportunities; simply explain that your company's code of ethics forbids
you to engage in that type of behavior, and that you would like to keep the business relationship intact
for future opportunities. If your policy is to take local customs into consideration when making ethical
decisions, do not shun a country immediately because of differences from your home country. Make
sure that all managers and decision-makers understand your commitment to ethical standards.
4. Make company-wide ethics training a regular activity, in addition to administering comprehensive
ethics training programs for new hires. Use training sessions to highlight actual areas of concern in your
organization, citing specific examples as often as possible.

Importance of Ethics in International Business

First, ethical behavior combined with skills and professionalism is able to ensure sustainable
development, rather than a short-term profit, which brings disastrous results after a certain period. Ethical
behavior ensures awareness and concern for the future and for the right way of action in each particular
situation.

Secondly, ethical behavior establishes a healthy and pleasant cooperation climate for all the parties
involves in a deal, making them feel comfortable with each other.

Thirdly, acting in accordance with moral values is crucial for deserving clients’ attention and
support and achieving a significant competitive advantage in a particular market segment.

Ethics is an accepted principle of right and 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 business
people.

Ethical Strategy is a strategy or course of action that does not violate these accepted principles.

Ethical Issues in International Business. The most common ethical issues in business involve:

Employment practices. If work conditions in a host nation are clearly inferior to those in a multinational’s
home nation, should companies apply: home country standards, host country standards, something in
between

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Human rights. In developed countries, basic human rights such as freedom of association, freedom of
speech, freedom of assembly, and freedom of movement are taken for granted. In other countries, these
rights may not exist

Environmental regulations. Ethical issues arise when environmental regulations in host nations are
inferior to those in the home nation. Environmental questions take on added importance because some parts
of the environment are a public good that no one owns, but anyone can despoil. The tragedy of the commons
occurs when a resource held in common by all, but owned by no one, is overused by individuals resulting
in its degradation.

Corruption. In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes
to Foreign Government Officials in order to business. The convention on Combating Bribery of Foreign
Public Officials in International Business Transactions adopted by the Organization for Economic
Cooperation and Development (OECD) obliges member states to make the bribery of Foreign Public
Officials a criminal offense.

The moral obligation of multinational companies. Social Responsibility refers to the idea that business
people should take the social consequences of economic actions into account when making business
decisions, and that there should be a presumption in favor of decisions that have both good economic and
good social consequences.

The Roots of Ethical/Unethical Behavior

▪ Organization Culture
▪ Leadership
▪ Personal Ethics
▪ Decision making process
▪ Unrealistic performance expectations
▪ Societal culture

The Roots of Ethical/ Unethical Behavior

An unethical practice that might be banned in a developed country might then be perfectly legal in
a different, less developed country, allowing an international company to then set up its own division in the
less developed country in order to take advantage of the legality of such profitable, yet unethical,
employment practices.

Cultural relativism argues that ethics are culturally determined and that firms should adopt the
ethics of the cultures in which they operate.

Ethics and Corporate Bribery

Bribery is one of the practices, which is most difficult to deal with in terms of international business
ethics, as there are as many different views on bribery as there are cultures.

Some cultures do not believe bribery is much of an issue at all and do not see the need to seek its
prosecution. Other cultures view bribery as something to be expected, a common courtesy and gesture of
standard polite practice. Yet other cultures view even such activities as tipping and leaving gratuities to be
a form of unacceptable bribery.

Bribery is even more difficult to deal with because not all countries have statutes that ban the
bribery of government officials. Thus, in some countries, bribery of government officials in business

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dealings would be considered highly unethical and illegal, while in other countries bribery of government
officials would be perfectly accepted. Navigating this mass of cultural landmines is the major difficulty of
any kind of dealings with a focus on international business ethics.

While companies could simply adopt the ethics of the society in which they are dealing, the problem
is that this would allow them to act in ways both unethical and damaging to most forms of business. After
all, if one company can get an illegitimate advantage by bribing government officials, then it upsets the
basic nature of capitalism. International business ethics, then, NEEDS TO BE USED TO SOMEHOW DEAL WITH
MULTIPLE CULTURES IN A UNIFORMLY ETHICAL FASHION.

The enforcement of international business ethics is just as difficult as the establishment of any kind
of coherent uniform set of international business ethics codes and rules. DIFFERENT NATIONS DO NOT HAVE
POWER OVER EACH OTHER. As one nation may have a culture that believes bribery is an acceptable practice,
it does not have to obey the laws of another nation where bribery is outlawed. This is the primary problem
of enforcing any kind of international business ethics code.

The only body which can legitimately exert some kind of power over international governance is
the United Nations, but IT’S POWER IS VERY MUCH LIMITED. Other than that, no government can implement
some kind of law to enforce international business ethics and then expect that law to be obeyed by all other
nations. Indeed, most nations’ laws end at their borders and, as a result, so does any power behind enforcing
each nation’s international business ethics code.

Corporate Code of Ethics

CODE OF CONDUCT. Intent of affect the behavior of international business entities within society in
order to enhance corporate responsibility, internal code of conduct.

What Makes a Good Internal Code of Conduct? It sets global policies with which everyone working
anywhere for the company must comply. It communicates company policies not only to all employees but
to all suppliers and sub-contractors as well. It ensure that the policies laid out in the code are carried out. It
reports the results to external stakeholders.

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Sources:

Reynolds, K. (2017). How Cultural Differences Impact International Business in 2017. Hult Blogs: Hult
International Business School. Retrieved from https://www.hult.edu/blog/cultural-differences-impact-
international-business/

Twose, R. (May 21, 2019). How Does Culture affect International Business?. Retrieved from
https://www.languageinsight.com/blog/2019/how-does-culture-affect-international-business/

Ray, L. (February 12. 2019). Examples of Cultural Differences in Business. Chron. Retrieved from
https://smallbusiness.chron.com/examples-cultural-differences-business-21958.html

https://www.enotes.com/homework-help/what-meant-by-international-business-ethics-should-371962

https://business.laws.com/business-ethics/international-business-ethics

https://www.slideshare.net/ayanawithyou/ethics-in-international-business-
54699908?fbclid=IwAR0qp7aBJHSjNdO0hzyVMHrJzE8tdHjiqYlW5fHPQwM61egOafCfy57KeRo

www.analytictech.com/mbo21/cultural.htm

https://www.mightyrecruiter.com/recruiter-guide/hiring-glossary-a-to-z/cultural-differences/

https://business.laws.com/business-ethics/international-business-ethics

https://online.uttyler.edu/articles/ethical-considerations-in-international-business.aspx

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