Notes

Program Name: BBA – 4th SEMESTER

Course Name: Business Ethics

Unit Number - 2 Unit Name: Business Ethics

Topic Name – LPG and Global Ethics in Business

 LPG and Global Ethics in Business

LPG: Liberalization, Privatization and Globalization

In the 1980s, India was facing an economic crisis. It was a slow but gradual fall in the country’s
economy. By the end of the decade in 1990, the BOP (Balance of Payment) crisis hit India. The
rising fiscal deficit and increasing overvaluation led to this chaos. The invasion of Kuwait by Iraq
took place in the same year, which led to a sharp increase in oil prices and falls in remittances
from Indian workers working abroad. Purchasing oil became costly and net factor income from
abroad decreased rapidly.
Liberalisation, Privatisation, and Globalisation are the three elements of the new economic model
of the country. Liberalisation ensures a relaxation from severely strict laws and opinions which
may include certain rules and regulations of the government. Privatisation is the complete
transfer of roles and operations of publicly owned means to private ownership. This means a
property or business of the government being taken by a private owner with an aim to function
and discipline well. Globalisation is the next step forward to increase the network of trade and
culture interconnecting the whole of the world. It ensures no trade, services or technology are
bounded by borders thus connecting and integrating the whole world together. They are often
togetherly referred to as LPG. They aim to develop the economy of the country fast so that it can
compete and complement the world’s economy.
LPG refers to Liberalisation, Privatisation, and Globalisation. When India under its New Economic
Policy approached the International Banks for developing the country, they suggested that the
government should open towards restrictions on trade which is mostly done by the private
sectors in between India and other countries. After the suggestion put forward by the
International Banks, the Indian Government announced New Economic Policy or NEP. This policy
consisted of an extensive range of reforms. These measures are broadly classified into two
groups- structural reforms and stabilisation measures.
The objective of structural measures was to develop international competitiveness. Moreover,
the measures aimed to eliminate the rigidity in various sections of the country's economy. In
stabilisation measures, the aim was to rectify and correct the existing weakness developed in
controlling the inflation and balance of payments. Both sets of measures were taken for a short-
term period.
The stabilisation measure included Liberalisation, Privatisation, and Globalisation. Under this
measure, the balance of payment was enabled to record all forms of economic transactions of a
country with the rest of the world in a year. In such a scenario, inflation refers to the growth of
prices in goods and services over a particular period.
Liberalization
The objective of liberalisation was to put an end to those rigidities and restrictions that were
acting as a hindrance to the growth of the country. Further, in this approach, the Government
was expected to be flexible with its regulation in the nation.
The objectives of this policy were to enhance the competition among the domestic industries and
encourage international trade with planned imports and exports. Moreover, it aimed at increasing
international technology and capital. Also, this policy was expected to expand the international
market frontier of the nation and reduce the burden of debt in the country.

Objectives of liberalization

• In order to test the competitiveness of domestic businesses, economic borders were

opened.
• The imbalance of BOP had to be corrected since the imports were way more than the
exports.
• It was also done to unlock the economic potential of the economy by allowing the private
sector to participate in economic activities.
• Allowing multinational companies to set up their businesses in the country to boost India’s
economic growth.

Privatization
The second policy of the stabilisation measure is privatisation. This policy aims to expand the
domination of private sector companies and reduce the control of the public sectors. Thus, the
Government-owned enterprise will have less ownership. Besides these Government companies
can be converted into private sector companies with two approaches. These approaches are by
withdrawing the control of the Government in the public sector company and by disinvesting.
There are three forms of Privatisation which are a strategic sale, partial sale, and token
privatisation. In the strategic sale or denationalisation, the Government needs to deliver 100% of
productive resources ownership to the owners of the private companies.
The Partial Sale or Partial privatization owns a minimum of 50% ownership with the help of the
transfer of shares. They would, therefore, own the majority of the shares and would have control
of the autonomy and functioning of the company. In the token or the deficit privatisation, the
Government would have to disinvest the share capital by up to 5-10% in order to meet the
shortage in the budget. This policy, therefore, aims to improve the financial situation in the
country and reduce the work pressure of the public sector companies. Moreover, funds could be
raised from the disinvestment. With the reduced work pressure the efficiency of the public sector
would automatically increase and yield better quality of goods and services for the use of
consumers.

Objectives of privatization

• Privatization was done primarily to reduce the control of the government over several
industries.
• Disinvestment would help the government raise funds by selling off stakes in PSUs.
• It was done to reduce the workload of the government.
• It would also provide the management of PSUs with more autonomy to make decisions.
• These would help create an environment of healthy competition among firms and, at the
same time increase their efficiency.

Globalization
In this policy, the country's economy is expected to grow with the help of the global economy.
This means that the primary focus would be on foreign trade and institutional and private
investments. It is the third and the last policy that is to be implemented. The objective of this
phenomenon is to develop and independent the world with the implication of suitable strategies.
It is the attempt to create a world where the requirements of one country can be driven and
turned into one large economy. One of the major outcomes of Globalisation is outsourcing.
Outsourcing means an enterprise can employ professionals from other countries to reach a
particular goal. There is a lot of contractual work that is being outsourced in the field of
Information Technology leading to its development. This has opened new avenues for a lot of
private sectors and Indian skills are regarded as the most effective and vibrant across the globe.
The low wage rate and dedicated employees have made India one of the constructive nations
suitable for international outsourcing.

Objectives of globalization

• One of the main objectives was to reduce customs duties and tariffs. This was done in
order to ease the importing and exporting of goods. Fewer taxes meant that companies
could import materials or products at cheaper rates.
• Removal of restrictions on foreign trade was another objective that had to be undertaken.
• Increasing the equity limit for foreign investment was important to let foreign investors
invest more in domestic companies.
Global Ethics
The term GLOBAL ETHIC refers to a set of common moral values and ethical standards which are
shared by the different faiths and cultures on Earth.
These common moral values and ethical standards constitute a humane ethic, or, the ethic of
humanity. In view of the process of globalization this ethic of humanity has been termed by the
famous Roman Catholic theologian and philosopher Professor Hans Küng as the “GLOBAL ETHIC”.
Although the concept of a GLOBAL ETHIC was at first introduced by Professor Hans Küng in 1989
it is, in his own words, “not a new invention but only a new discovery” of common principles
which are as old as humankind.
There can be no doubt that a globalizing world with its tremendous social, ecological and moral
problems needs a globalization of moral values and ethical standards, in short: a GLOBAL ETHIC,
in order to survive as a place where our grandchildren and great-grandchildren can live a decent
life.
The GLOBAL ETHIC is not a new religion but a set of common moral values and ethical standards
which are shared by all faiths and belief systems. Without a basic consensus over ethics any
society is threatened sooner or later by chaos or a dictatorship. Therefore, there can be no
sustainable world order without a GLOBAL ETHIC.

Importance of Global Ethics in Business:

Beyond 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:
A cereal manufacturer’s ethical standards prevent it from making unsubstantiated health claims
about its products, even if its competitors make such unproven assertions in their marketing.
An electronics manufacturer must halt production after defects are found during quality control
checks of several batches even though the delay will cause it to miss the shipping date.
An employee who learns of a financial shortfall at a confidential internal meeting is prevented by
law and by the company’s ethics policy from profiting from the information in any way.

International Business Ethics

International business ethics is the study and practice of business policies and practices
concerning potentially controversial subjects, including corporate governance, insider trading,
bribery, discrimination, and corporate social responsibility in a global context. It involves
understanding and managing business conduct across different countries and cultures, respecting
local customs, and upholding human rights in all business operations.
One issue that illustrates the intersection of ethics and international business is bribery and
corruption. In many countries, corruption can be prevalent in business transactions, where
individuals or companies offer bribes to secure contracts, permits, or favorable treatment. For
example, a multinational construction company bidding for a major infrastructure project in a
developing country may be approached by local officials who request a bribe in exchange for
favorable treatment during the bidding process.

Applying business ethics in Business Organization:

Organizations should be strategic in approaching ethics to ensure they meet their goals and are
consistent. Organizations can excel in this regard by adopting some of the following practices.
Prioritize ethical leadership: Ethical leadership is essential for setting the tone at the top and
influencing ethical behavior throughout the organization. Leaders should exemplify ethical
conduct and promote a culture of integrity, transparency, and accountability.
Engage stakeholders and partners: Engaging stakeholders and business partners is crucial in
international business. When selecting partners or suppliers, businesses should consider their
ethical reputation and commitment to responsible business practices. They should maintain open
and transparent communication with stakeholders to address their concerns and incorporate
their perspectives into decision-making.
Regularly assess and update ethical practices: International business environments are dynamic
and constantly changing. Companies should regularly evaluate and update ethical practices to
reflect new developments, emerging ethical issues, and changing societal expectations.
Seek external guidance and certifications: Businesses should seek guidance from external experts,
industry associations, or ethical standards organizations specializing in international business
ethics. Engaging with these resources can provide valuable insights, best practices, and
frameworks for ethical decision-making.

Questions for Self Assessment

1. ___________ is the policy that helps integrate a domestic economy with the world
economy.
a. Liberalisation
b. Globalisation
c. Privatisation
d. None of the above

2. Which of the following institutions are a part of the financial sector of a country?
a. Foreign exchange market
b. Banking and non banking financial institutions
 c. Stock exchange market
d. All of the above

3. The process of transferring the ownership, management and control of a public sector
partially/entirely to the private sector is known as ________.
a. Globalisation
b. Liberalisation
c. Privatisation
d. None of the above

4. Which of the following is not a part of industrial policy?

a. Tariff reduction
b. Subsidies to industry
c. Change in the corporate tax regime.
d. All of the above

5. Which of the following is an example of an area where business ethics apply?

a. Conduct of international operations
b. Nowhere
c. In the personal life of staff
d. None of the above

6. Which of the following regarding corporate governance is correct?

a. Corporate governance can temper growth.
b. Good corporate governance can result in excessive risk-taking.
c. Corporate governance often result in prompt and effective decision-making.
d. The aim of corporate governance is to protect the interests of shareholders and the local
economies.

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