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International BusinessRakesh Mohan Joshi
Professor & Chairperson, IIFT New Delhi
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ETHICS AND
SOCIALRESPONSIBILITY
Chapter 20
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Learn ing Object ives To delineate the significance of ethical
practices in business
To explain the concept of ethics
To elucidate unethical business practices
To explicate corporate social responsibility
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Sign i f icance of Ethics & Social
Responsib i li ty for Bus inesses
It is in the larger interest of businesses to
carry out their activities ethically and in asocially responsible manner, not for the
sake of charity but for their own survival
and sustainability in the long-run.
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Ethics
Ethics: The study of moral conduct and itsevaluation.
Ethics are a societys concept of fairness and
justice whereas morality refers toindividual virtues.
Business ethics: The study anddetermination of what is right and good inbusiness settings. Something which is legalneed not necessarily be ethical.
Oxford International Business
Joshi, R.M
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Unethical Business Pract ices
Businesses resort to a wide range of unethicalpractices which are not only detrimental tocustomers but also to the civil society at large,such as
Corruption and bribery,
Financial misappropriations, Circumventing law enforcement,
Evading taxes and duties,
Dumping,
Making exaggerated and even false claims,
Exploiting customers, Flouting basic norms of civil decency, and
Even manufacturing and distributing pirated andfake products.
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Corrupt ion
Abuse of entrusted power for private gain. It
is a form of behaviour, which departs from
ethics, morality, tradition, law, and civic
virtue.
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Detr imen tal Effects of Corrup t Pract ices
on Bus iness Legal risks
Reputational risks
Financial costs
Repeat bribery demands
Blackmail and security risks
Risk of getting cheated
Undermines businesses vested interest insustainable development
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Br ibeAn offer or receipt of any gift, loan, fee,
reward, or other advantage to or from any
person as an inducement to do something
which is dishonest, illegal, or a breach of
trust, in the conduct of the enterprises
business.
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Smuggl ingSurreptitious trade across the borders aimedat circumventing enforcement of regulatoryprohibitions and restrictions and evading
payment of legitimate customs duties.
Products with higher prohibition andrestrictions, such as liquor, cigarettes,drugs, arms and ammunitions are generallyappealing to smugglers.
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HawalaAn informal channel for transferring funds
from one location to another through service
providers, known as hawaladars. It is used
as a major remittance system around the
world.
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Money Laundering
Conversion or laundering of money obtained
through illegal means so as to make it appear to
originate from a legal source. It is often used
worldwide to transform monetary proceeds
derived from illegal means or criminal activitiesinto funds with apparently legal sources. The
money laundering process has three
independent stages:
Placement
Layering
Integration
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Chapter 20: Ethics and SocialResponsibility
Tax HavensA country which levies taxes either at a very
low rate or no taxes at all.To assign a country tax-haven status, OECDconsiders four criteria:
Insignificant or non-existent tax levels
Absence of transparency in tax matters
Absence of fiscal data exchange with other
countries
Attractiveness for straw companies with
fictitious activities
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Chapter 20: Ethics and SocialResponsibility
Modus Operand i of Rou t ing Money to Tax
Havens Round tripping: Transactions aimed at
converting unaccounted or black-money
into legitimate wealth.
Treaty shopping: Aims at reducing total
tax incidence on capital gains made in
countries with high tax incidence.
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Chapter 20: Ethics and SocialResponsibility
Unethical Market ing Pract ices
Businesses often adopts both fair and unfair
marketing practices to entice customers and
establish their supremacy in the
marketplace.
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Chapter 20: Ethics and SocialResponsibility
Grey Market ingImport or export of goods and their
distribution through unauthorized channels.
International brands with high price
differentials and low cost of arbitrage
constitute typical grey market goods.
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Chapter 20: Ethics and SocialResponsibility
Types o f Grey Market ing Channels
Parallel importing: Selling a product at ahigher price to the authorized importer in the
overseas market than the price at which the
product is available in the home market.
Re-importing: Re-importing takes place whena product is priced lower in overseas market as
compared to home market.
Lateral re-importing: Products are sold from
one export market to another through parallel
importing when the price differences exist in
different export markets.
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Chapter 20: Ethics and SocialResponsibility
Counterfe i t ingImitating something with intent todeceive or defraud.
A wide range of products, such as
consumer goods, currency, and
documents are counterfeited
internationally. Customers often find it
difficult to differentiate between a
genuine and counterfeit products.
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Chapter 20: Ethics and SocialResponsibility
PiracyUse of illegal and unauthorized means to obtain
goods. Piracy activities are directly influenced by
the intellectual property regime within a country.
It includes use or reproduction of patented or
copyrighted matter, such as software, music,
movies, computer games, etc.
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Chapter 20: Ethics and SocialResponsibility
Transfer PricingThe price between related parties in an
international transaction.
It is used to optimize profitability in low-tax
regimes at the expense of high-tax regimes.
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Chapter 20: Ethics and SocialResponsibility
Types o f Trans fer Pric ing
Market-based / arms length transferpricing: Pricing between two unrelated(arms length) parties.
Non-market pricing : Pricing policiesthat deviate from market-based armslength pricing.
Pricing at direct manufacturing costs:The intra-firm transactions that take placeat the manufacturing costs.
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Chapter 20: Ethics and SocialResponsibility
DumpingSelling of a product or commodity below the
cost of production or at a lower price in
overseas markets compared to domestic
markets that causes injury to domestic
industry in the importing country.
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Chapter 20: Ethics and SocialResponsibility
Forms of Dumping Sporadic dumping : Occasionally selling
excess goods or surplus stock at lower pricesin overseas markets than the domestic priceor below the cost.
Predatory dumping: Aimed to force
competitors to leave the market, thus enablingthe predator to raise the price in the long-run.
Persistent dumping: It involves a consistenttendency of a firm to sell the goods at lower
prices in foreign markets compared todomestic markets.
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Chapter 20: Ethics and SocialResponsibility
Unethical Market ing Commun icat ions
In quest to entice customers, advertisers
often make exaggerated and sometimesfalse claims and exploits customers
emotions.
The ICC code on Advertising is the majorrule-setter for international marketing
and advertising whereas Advertising
Standards Council of India (ASCI), a
voluntary organization, brings out a code
for self-regulations in advertising in India
and decides upon the complaints.
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Chapter 20: Ethics and SocialResponsibility
Corporate Social Respons ibi l i ty (CSR)Carrying out business activities in a socially
responsible manner. It is the process of
assuming responsibility by a businessenterprise across its entire supply chain for
the social, ecological, and economic
consequences of the companys activities,
reports on these consequences, and
constructively engage with stakeholders.
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Chapter 20: Ethics and SocialResponsibility
Multi lateral CSR In it iativesOECD Guidelines for MNEs:
It presents the worlds foremost CSR
instrument and an important international
benchmark. The guidelines aim to promote
MNEs positive contributions to economic,
environmental, and social progress and
contains voluntary principles and standards
for conduct of responsible business.
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Chapter 20: Ethics and SocialResponsibility
Global Repo rt ing In it iat ive (GRI)It sets out the principles and indicators that
organizations can use to measure and
report their economic, environmental, and
social performance. This standardized
approach to reporting help stimulate
demand for sustainability information.
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