Small Business Ethics

8/9/2019 Small Business Ethics

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1. INTRODUCTION

Business ethics is a form of the art ofapplied ethics that examines ethical principles and moral

or ethical problems that can arise in a business environment.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more

ethical business processes and actions (known as ethicism) is increasing. Simultaneously,

pressure is applied on industry to improve business ethics through new public initiatives and

laws (e.g. higher UK road tax for higher-emission vehicles).

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and

a career specialization, the field is primarily normative. In academia descriptive approaches are

also taken. The range and quantity of business ethical issues reflects the degree to which

business is perceived to be at odds with non-economic social values. Historically, interest in

business ethics accelerated dramatically during the 1980s and 1990s, both within major

corporations and within academia. For example, today most major corporate websites lay

emphasis on commitment to promoting non-economic social values under a variety of headings

(e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined

their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum"

environmental tilt).

Business managers face ethical dilemmas (ethical questions) almost every day. Ethical

dilemmas occur when a manager is faced with two or more conflicting ethical issues, and has to

make a choice.

1. Business to Employee. A business has a responsibility to act ethically towards its

employees. Most importantly, employers must hire and fire people in ethical ways. Wages

and working conditions are a second ethical issue. Businesses must ensure that employees

are paid a fair wage, and that working conditions are reasonable. For instance, paying a

worker $1 per day is considered unethical. The same could be said of having an employee

work in a room filled with toxic fumes that would cause illness. Privacy is the final ethical

issue with respect to employees. This includes random drug testing; and listening to

employee telephone calls.
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2.OVERVIEW OF ISSUES IN BUSINESS ETHICS

2.1 GENERAL BUSINESS ETHICS

This part of business ethics overlaps with thephilosophy of business, one of the aims of

which is to determine the fundamental purposes of a company.

Corporate social responsibility or CSR: an umbrella term under which the ethical rights

and duties existing between companies and society is debated.

Issues regarding the moral rights and duties between a company and its shareholders:

fiduciary responsibility, stakeholder concept v. shareholder concept.

Ethical issues concerning relations between different companies: e.g. hostile take-overs,

industrial espionage. Leadership issues: corporate governance.

Political contributions made by corporations.

Law reform, such as the ethical debate over introducing a crime of corporate

manslaughter.

The misuse of corporate ethics policies as marketing instruments.

2.2 PROFESSIONAL ETHICS

Professional ethics covers the myriad practical ethical problems and phenomena which arise out

of specific functional areas of companies or in relation to recognized business professions.

ETHICS OF ACCOUNTING INFORMATION

Creative accounting,earnings management,misleading financial analysis.

Insider trading, securities fraud, bucket shop, forex scams: concerns (criminal)

manipulation of the financial markets.

Executive compensation: concerns excessive payments made to corporate CEO's.

Bribery, kickbacks, facilitation payments: while these may be in the (short-term)

interests of the company and its shareholders, these practices may be anti-competitive or

offend against the values of society.

Cases: accounting scandals, Enron, WorldCom
http://en.wikipedia.org/wiki/Philosophy_of_businesshttp://en.wikipedia.org/wiki/Corporate_social_responsibilityhttp://en.wikipedia.org/wiki/Fiduciaryhttp://en.wikipedia.org/wiki/Stakeholder_concepthttp://en.wikipedia.org/wiki/Shareholder_concepthttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Industrial_espionagehttp://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Campaign_finance_reformhttp://en.wikipedia.org/wiki/Corporate_manslaughterhttp://en.wikipedia.org/wiki/Corporate_manslaughterhttp://en.wikipedia.org/wiki/Creative_accountinghttp://en.wikipedia.org/wiki/Earnings_managementhttp://en.wikipedia.org/wiki/Misleading_financial_analysishttp://en.wikipedia.org/wiki/Insider_tradinghttp://en.wikipedia.org/wiki/Securities_fraudhttp://en.wikipedia.org/wiki/Bucket_shophttp://en.wikipedia.org/wiki/Forex_scamhttp://en.wikipedia.org/wiki/Executive_compensationhttp://en.wikipedia.org/wiki/Bribehttp://en.wikipedia.org/wiki/Kickbackhttp://en.wikipedia.org/wiki/Facilitation_paymenthttp://en.wikipedia.org/wiki/Accounting_scandalshttp://en.wikipedia.org/wiki/Enronhttp://en.wikipedia.org/wiki/WorldComhttp://en.wikipedia.org/wiki/Philosophy_of_businesshttp://en.wikipedia.org/wiki/Corporate_social_responsibilityhttp://en.wikipedia.org/wiki/Fiduciaryhttp://en.wikipedia.org/wiki/Stakeholder_concepthttp://en.wikipedia.org/wiki/Shareholder_concepthttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Industrial_espionagehttp://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Campaign_finance_reformhttp://en.wikipedia.org/wiki/Corporate_manslaughterhttp://en.wikipedia.org/wiki/Corporate_manslaughterhttp://en.wikipedia.org/wiki/Creative_accountinghttp://en.wikipedia.org/wiki/Earnings_managementhttp://en.wikipedia.org/wiki/Misleading_financial_analysishttp://en.wikipedia.org/wiki/Insider_tradinghttp://en.wikipedia.org/wiki/Securities_fraudhttp://en.wikipedia.org/wiki/Bucket_shophttp://en.wikipedia.org/wiki/Forex_scamhttp://en.wikipedia.org/wiki/Executive_compensationhttp://en.wikipedia.org/wiki/Bribehttp://en.wikipedia.org/wiki/Kickbackhttp://en.wikipedia.org/wiki/Facilitation_paymenthttp://en.wikipedia.org/wiki/Accounting_scandalshttp://en.wikipedia.org/wiki/Enronhttp://en.wikipedia.org/wiki/WorldCom


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ETHICS OF HUMAN RESOURCE MANAGEMENT

The ethics ofhuman resource management (HRM) covers those ethical issues arising around

the employer-employee relationship, such as the rights and duties owed between employer and

employee.

Discrimination issues include discrimination on the bases of age (ageism), gender, race,

religion, disabilities, weight and attractiveness. See also: affirmative action, sexual

harassment.

Issues surrounding the representation of employees and the democratization of the

workplace: union busting, strike breaking.

Issues affecting the privacy of the employee: workplace surveillance, drug testing. See

also:privacy.

Issues affecting the privacy of the employer: whistle-blowing.

Issues relating to the fairness of the employment contract and the balance of power

between employer and employee: slavery,indentured servitude, employment law.

Occupational safety and health.

ETHICS OF SALES AND MARKETING

Marketing which goes beyond the mere provision of information about (and access to) a product

may seek to manipulate our values and behavior. To some extent society regards this as

acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps strongly with

media ethics, because marketing makes heavy use of media. However, media ethics is a much

larger topic and extends outside business ethics.

Pricing:price fixing,price discrimination,price skimming.

Anti-competitive practices: these include but go beyond pricing tactics to cover issues

such as manipulation of loyalty and supply chains. See: anti-competitive practices,

antitrust law.

Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam

(electronic),pyramid scheme,planned obsolescence.

Content of advertisements: attack ads, subliminal messages, sex in advertising, products

regarded as immoral or harmful
http://en.wikipedia.org/wiki/Human_resource_managementhttp://en.wikipedia.org/wiki/Discriminationhttp://en.wikipedia.org/wiki/Ageismhttp://en.wikipedia.org/wiki/Disabilitieshttp://en.wikipedia.org/wiki/Affirmative_actionhttp://en.wikipedia.org/wiki/Sexual_harassmenthttp://en.wikipedia.org/wiki/Sexual_harassmenthttp://en.wikipedia.org/wiki/Union_bustinghttp://en.wikipedia.org/wiki/Strike_breakinghttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Workplace_surveillancehttp://en.wikipedia.org/wiki/Drug_testinghttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Whistle-blowinghttp://en.wikipedia.org/wiki/Slaveryhttp://en.wikipedia.org/wiki/Indentured_servitudehttp://en.wikipedia.org/wiki/Employment_lawhttp://en.wikipedia.org/wiki/Occupational_safety_and_healthhttp://en.wikipedia.org/wiki/Media_ethicshttp://en.wikipedia.org/wiki/Media_ethicshttp://en.wikipedia.org/wiki/Price_fixinghttp://en.wikipedia.org/wiki/Price_discriminationhttp://en.wikipedia.org/wiki/Price_skimminghttp://en.wikipedia.org/wiki/Anti-competitive_practiceshttp://en.wikipedia.org/wiki/Antitrust_lawhttp://en.wikipedia.org/wiki/Greenwashhttp://en.wikipedia.org/wiki/Bait_and_switchhttp://en.wikipedia.org/wiki/Shillhttp://en.wikipedia.org/wiki/Viral_marketinghttp://en.wikipedia.org/wiki/Spam_(electronic)http://en.wikipedia.org/wiki/Spam_(electronic)http://en.wikipedia.org/wiki/Pyramid_schemehttp://en.wikipedia.org/wiki/Planned_obsolescence_(business)http://en.wikipedia.org/wiki/Attack_adhttp://en.wikipedia.org/wiki/Subliminal_messagehttp://en.wikipedia.org/wiki/Sex_in_advertisinghttp://en.wikipedia.org/wiki/Human_resource_managementhttp://en.wikipedia.org/wiki/Discriminationhttp://en.wikipedia.org/wiki/Ageismhttp://en.wikipedia.org/wiki/Disabilitieshttp://en.wikipedia.org/wiki/Affirmative_actionhttp://en.wikipedia.org/wiki/Sexual_harassmenthttp://en.wikipedia.org/wiki/Sexual_harassmenthttp://en.wikipedia.org/wiki/Union_bustinghttp://en.wikipedia.org/wiki/Strike_breakinghttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Workplace_surveillancehttp://en.wikipedia.org/wiki/Drug_testinghttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Whistle-blowinghttp://en.wikipedia.org/wiki/Slaveryhttp://en.wikipedia.org/wiki/Indentured_servitudehttp://en.wikipedia.org/wiki/Employment_lawhttp://en.wikipedia.org/wiki/Occupational_safety_and_healthhttp://en.wikipedia.org/wiki/Media_ethicshttp://en.wikipedia.org/wiki/Media_ethicshttp://en.wikipedia.org/wiki/Price_fixinghttp://en.wikipedia.org/wiki/Price_discriminationhttp://en.wikipedia.org/wiki/Price_skimminghttp://en.wikipedia.org/wiki/Anti-competitive_practiceshttp://en.wikipedia.org/wiki/Antitrust_lawhttp://en.wikipedia.org/wiki/Greenwashhttp://en.wikipedia.org/wiki/Bait_and_switchhttp://en.wikipedia.org/wiki/Shillhttp://en.wikipedia.org/wiki/Viral_marketinghttp://en.wikipedia.org/wiki/Spam_(electronic)http://en.wikipedia.org/wiki/Spam_(electronic)http://en.wikipedia.org/wiki/Pyramid_schemehttp://en.wikipedia.org/wiki/Planned_obsolescence_(business)http://en.wikipedia.org/wiki/Attack_adhttp://en.wikipedia.org/wiki/Subliminal_messagehttp://en.wikipedia.org/wiki/Sex_in_advertising


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Children and marketing: marketing in schools.

Black markets, grey markets.

Cases: Benetton.

ETHICS OF PRODUCTION

This area of business ethics deals with the duties of a company to ensure that products and

production processes do not cause harm. Some of the more acute dilemmas in this area arise out

of the fact that there is usually a degree of danger in any product or production process and it is

difficult to define a degree of permissibility, or the degree of permissibility may depend on the

changing state of preventative technologies or changing social perceptions of acceptable risk.

Defective, addictive and inherently dangerous products and services (e.g. tobacco,

alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).

Ethical relations between the company and the environment: pollution, environmental

ethics, carbon emissions trading

Ethical problems arising out of new technologies: genetically modified food, mobile

phone radiation and health.

Product testing ethics: animal rights and animal testing, use of economically

disadvantaged groups (such as students) as test objects.

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law.

ETHICS OF INTELLECTUAL PROPERTY, KNOWLEDGE AND SKILLS

Knowledge and skills are valuable but not easily "ownable" objects. Nor is it obvious who has

the greater rights to an idea: the company who trained the employee or the employee

themselves? The country in which the plant grew, or the company which discovered and

developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical

disputes over ownership arise.

Patent infringement, copyright infringement, trademark infringement.

Misuse of the intellectual property systems to stifle competition: patent misuse,

copyright misuse,patent troll, submarine patent.
http://en.wikipedia.org/wiki/Marketing_in_schoolshttp://en.wikipedia.org/wiki/Black_markethttp://en.wikipedia.org/wiki/Grey_markethttp://en.wikipedia.org/wiki/Benetton_Grouphttp://en.wikipedia.org/wiki/Bungee_jumpinghttp://en.wikipedia.org/wiki/Pollutionhttp://en.wikipedia.org/wiki/Environmental_ethicshttp://en.wikipedia.org/wiki/Environmental_ethicshttp://en.wikipedia.org/wiki/Carbon_emissions_tradinghttp://en.wikipedia.org/wiki/Genetically_modified_foodhttp://en.wikipedia.org/wiki/Mobile_phone_radiation_and_healthhttp://en.wikipedia.org/wiki/Mobile_phone_radiation_and_healthhttp://en.wikipedia.org/wiki/Animal_rightshttp://en.wikipedia.org/wiki/Animal_testinghttp://en.wikipedia.org/wiki/Ford_Pintohttp://en.wikipedia.org/wiki/Bhopal_disasterhttp://en.wikipedia.org/wiki/Asbestoshttp://en.wikipedia.org/wiki/Asbestos_and_the_lawhttp://en.wikipedia.org/wiki/Patent_infringementhttp://en.wikipedia.org/wiki/Copyright_infringementhttp://en.wikipedia.org/wiki/Trademark_infringementhttp://en.wikipedia.org/wiki/Patent_misusehttp://en.wikipedia.org/wiki/Copyright_misusehttp://en.wikipedia.org/wiki/Patent_trollhttp://en.wikipedia.org/wiki/Submarine_patenthttp://en.wikipedia.org/wiki/Marketing_in_schoolshttp://en.wikipedia.org/wiki/Black_markethttp://en.wikipedia.org/wiki/Grey_markethttp://en.wikipedia.org/wiki/Benetton_Grouphttp://en.wikipedia.org/wiki/Bungee_jumpinghttp://en.wikipedia.org/wiki/Pollutionhttp://en.wikipedia.org/wiki/Environmental_ethicshttp://en.wikipedia.org/wiki/Environmental_ethicshttp://en.wikipedia.org/wiki/Carbon_emissions_tradinghttp://en.wikipedia.org/wiki/Genetically_modified_foodhttp://en.wikipedia.org/wiki/Mobile_phone_radiation_and_healthhttp://en.wikipedia.org/wiki/Mobile_phone_radiation_and_healthhttp://en.wikipedia.org/wiki/Animal_rightshttp://en.wikipedia.org/wiki/Animal_testinghttp://en.wikipedia.org/wiki/Ford_Pintohttp://en.wikipedia.org/wiki/Bhopal_disasterhttp://en.wikipedia.org/wiki/Asbestoshttp://en.wikipedia.org/wiki/Asbestos_and_the_lawhttp://en.wikipedia.org/wiki/Patent_infringementhttp://en.wikipedia.org/wiki/Copyright_infringementhttp://en.wikipedia.org/wiki/Trademark_infringementhttp://en.wikipedia.org/wiki/Patent_misusehttp://en.wikipedia.org/wiki/Copyright_misusehttp://en.wikipedia.org/wiki/Patent_trollhttp://en.wikipedia.org/wiki/Submarine_patent


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Even the notion of intellectual property itself has been criticised on ethical grounds: see

intellectual property.

Employee raiding: the practice of attracting key employees away from a competitor to

take unfair advantage of the knowledge or skills they may possess.

The practice of employing all the most talented people in a specific field, regardless of

need, in order to prevent any competitors employing them.

Bioprospecting (ethical) and biopiracy (unethical).

Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

2.3 INTERNATIONAL BUSINESS ETHICS AND ETHICS OF ECONOMIC

SYSTEMS

The issues here are grouped together because they involve a much wider, global view onbusiness ethical matters.

INTERNATIONAL BUSINESS ETHICS

While business ethics emerged as a field in the 1970s, international business ethics did not

emerge until the late 1990s, looking back on the international developments of that decade.

Many new practical issues arose out of the international context of business. Theoretical issues

such as cultural relativity of ethical values receive more emphasis in this field. Other, older

issues can be grouped here as well. Issues and subfields include:

The search for universal values as a basis for international commercial behaviour.

Comparison of business ethical traditions in different countries.

Comparison of business ethical traditions from various religious perspectives.

Ethical issues arising out of international business transactions; e.g. bioprospecting and

biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. Issues such as globalisation and cultural imperialism.

Varying global standards - e.g. the use ofchild labour.

The way in which multinationals take advantage of international differences, such as

outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage

countries.

The permissibility of international commerce with pariah states.
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3. SMALL BUSINESS

A small business is a business that is privately owned and operated, with a small number of

employees and relatively low volume of sales. Small businesses are normally privately owned

corporations, partnerships, or sole proprietorships. The legal definition of "small" varies

historically, by country and by industry, but generally has fewer than 100 employees in the

United States and under 50 employees in the European Union. However, in Australia, a small

business is defined by the Fair Work Act 2009 as one with fewer than 15 employees. By

comparison, a medium sized business ormid-sized business has under 500 employees in the

US, 250 in the European Union and fewer than 200 in Australia. In addition to number of

employees, other methods used to classify small companies include annual sales (turnover),

value ofassets and net profit (balance sheet), alone or in a mixed definition. These criteria are

followed by the European Union, for instance (headcount, turnover and balance sheet totals).

Small businesses are usually not dominant in their field of operation.1

Small businesses are common in many countries, depending on the economic system in

operation. Typical examples include: convenience stores, other small shops (such as abakery or

delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses,

photographers, small-scale manufacturing etc. The smallest businesses, often located in private

homes, are called microbusinesses (term used by international organizations such as the World

Bank and the International Finance Corporation) or SoHos. The term "mom and pop

business" is a common colloquial expression for a single-family operated business with few (or

no) employees other than the owners. When judged by the number of employees, the American

and the European definitions are the same: under 10 employees.

3.1 ADVANTAGES OF SMALL BUSINESS

A small business can be started at a very low cost and on a part-time basis. Small business is

also well suited to internetmarketing because it can easily serve specialized niches, something

that would have been more difficult prior to the internet revolution which began in the late

1990s. Adapting to change is crucial in business and particularly small business; not being tied

to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small

1 Longenecker, Justin G.; Carlos W. Moore, J. William Petty, Leslie E. Palich (2008) (Casebound).Small business management : launching and growing entrepreneurial ventures..
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business proprietors tend to be intimate with their customers and clients which results in greater

accountability and maturity.

Independence is another advantage of owning a small business. One survey of small business

owners showed that 38% of those who left their jobs at other companies said their main reason

for leaving was that they wanted to be their own bosses.[citation needed] Freedom to operate

independently is a reward for small business owners. In addition, many people desire to make

their own decisions, take their own risks, and reap the rewards of their efforts. Small business

owners have the satisfaction of making their own decisions within the constraints imposed by

economic and other environmental factors.[1] However, entrepreneurs have to work very long

hours and understand that ultimately their customers are their bosses.

Several organizations also provide help for the small business sector, such as the Internal

Revenue Service's Small Business and Self-Employed One-Stop Resource.[2]

3.2 PROBLEMS FACED BY SMALL BUSINESSES

Small businesses often face a variety of problems related to their size. A frequent cause of

bankruptcy is undercapitalization. This is often a result of poor planning rather than economic

conditions - it is common rule of thumb that the entrepreneurshould have access to a sum of

money at least equal to the projected revenue for the first year of business in addition to his

anticipated expenses. For example, if the prospective owner thinks that he will generate

$100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have

no less than $250,000 available. Failure to provide this level of funding for the company could

leave the owner liable for all of the company's debt should he end up in bankruptcy court, under

the theory ofundercapitalization.

In addition to ensuring that the business has enough capital, the small business owner must alsobe mindful of contribution margin (sales minus variable costs). To break even, the business

must be able to reach a level of sales where the contribution margin equals fixed costs. When

they first start out, many small business owners underprice their products to a point where even

at their maximum capacity, it would be impossible to break even. Cost controls or price

increases often resolve this problem.
http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Small_business#cite_note-0http://en.wikipedia.org/wiki/Small_business#cite_note-1http://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/Undercapitalizationhttp://en.wikipedia.org/wiki/Entrepreneurhttp://en.wikipedia.org/wiki/Courthttp://en.wikipedia.org/wiki/Undercapitalizationhttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Variable_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Cost_controlhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Small_business#cite_note-0http://en.wikipedia.org/wiki/Small_business#cite_note-1http://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/Undercapitalizationhttp://en.wikipedia.org/wiki/Entrepreneurhttp://en.wikipedia.org/wiki/Courthttp://en.wikipedia.org/wiki/Undercapitalizationhttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Variable_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Cost_control


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In the United States, some of the largest concerns of small business owners are insurance costs

(such as liability and health), rising energy costs and taxes. In the United Kingdom and

Australia, small business owners tend to be more concerned with excessive governmental red

tape.[3]

Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth.

The mythic assumption is that an expert in a given technical field will also be expert at running

that kind of business. Additional business management skills are needed to keep a business

running smoothly.

3.3 MARKETING THE SMALL BUSINESS

Common marketing techniques for small business include networking, word of mouth,

customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards),

print, email marketing, and internet. Electronic media like TV can be quite expensive and is

normally intended to create awareness of a product or service.

Many small business owners find internet marketing more affordable. Google AdWords and

Yahoo! Search Marketing are two popular options of getting small business products or services

in front of motivated Web searchers. Advertising on niche sites can also be effective, but with

the long tail of the internet, it can be time intensive to advertise on enough sites to garner an

effective reach.

3.4 FRANCHISE BUSINESSES

Franchising is a way for small business owners to benefit from the economies of scale of the big

corporation (franchisor). McDonald's restaurants, TrueValue hardware stores, and NAPA Auto

Parts stores are examples of a franchise. The small business owner can leverage a strong brandname and purchasing power of the larger company while keeping their own investment

affordable. However, some franchisees conclude that they suffer the "worst of both worlds"

feeling they are too restricted by corporate mandates and lack true independence. However, in

some chains, such as the aforementioned TrueValue and NAPA, franchises may have their own

name alongside the franchise's name.
http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Legal_liabilityhttp://en.wikipedia.org/wiki/Health_insurancehttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Small_business#cite_note-2http://en.wikipedia.org/wiki/E-Mythhttp://en.wikipedia.org/wiki/Mythichttp://en.wikipedia.org/wiki/Word_of_mouthhttp://en.wikipedia.org/wiki/Google_AdWordshttp://en.wikipedia.org/wiki/Yahoo!_Search_Marketinghttp://en.wikipedia.org/wiki/Niche_markethttp://en.wikipedia.org/wiki/Long_tailhttp://en.wikipedia.org/wiki/Reach_(advertising)http://en.wikipedia.org/wiki/Franchisinghttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Legal_liabilityhttp://en.wikipedia.org/wiki/Health_insurancehttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Small_business#cite_note-2http://en.wikipedia.org/wiki/E-Mythhttp://en.wikipedia.org/wiki/Mythichttp://en.wikipedia.org/wiki/Word_of_mouthhttp://en.wikipedia.org/wiki/Google_AdWordshttp://en.wikipedia.org/wiki/Yahoo!_Search_Marketinghttp://en.wikipedia.org/wiki/Niche_markethttp://en.wikipedia.org/wiki/Long_tailhttp://en.wikipedia.org/wiki/Reach_(advertising)http://en.wikipedia.org/wiki/Franchising


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3.5 SMALL BUSINESS BANKRUPTCY

When small business fails, the owner may file bankruptcy. In most cases this can be handled

through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of

business and valuable corporate assets are likely to be repossessed by secured creditors there is

little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions

for small business assets so they can continue to operate during and after personal bankruptcy.

However, corporate assets are normally not exempt, hence it may be more difficult to continue

operating an incorporated business if the owner files bankruptcy.

Certification and trust

Building trust with new customers can be a difficult task for a new and establishing business.

Some organizations like the Better Business Bureau and the International Charter now offer

Small Business Certification, which certifies the quality of the services and goods produced and

can encourage new and larger customers. These services may require a few hours of work, but a

certification may reassure potential customers. However, the most effective way to earn trust is

through customer referrals.

Contribution to the economy

In the US, small business (less than 500 employees) accounts for around half the GDP and more

than half the employment. Regarding small business, the top job provider is those with less than

10 employees, and those with 10 or more but less than 20 employees comes in as the second,

and those with 20 or more but less than 100 employees comes in as the third (interpolation of

data from the following references).[4] The most recent data shows firms with less than 20

employees account for slightly more than 18% of the employment.[5]

Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7

percent had fewer than 500 employees.[6]

3.6 SOURCES OF FUNDING

Small businesses use several sources available for start-up capital:[7]
http://en.wikipedia.org/wiki/Better_Business_Bureauhttp://en.wikipedia.org/w/index.php?title=International_Charter&action=edit&redlink=1http://en.wikipedia.org/wiki/Professional_certificationhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Small_business#cite_note-3http://en.wikipedia.org/wiki/Small_business#cite_note-3http://en.wikipedia.org/wiki/Small_business#cite_note-4http://en.wikipedia.org/wiki/Small_business#cite_note-4http://en.wikipedia.org/wiki/Small_business#cite_note-5http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Small_business#cite_note-6http://en.wikipedia.org/wiki/Better_Business_Bureauhttp://en.wikipedia.org/w/index.php?title=International_Charter&action=edit&redlink=1http://en.wikipedia.org/wiki/Professional_certificationhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Small_business#cite_note-3http://en.wikipedia.org/wiki/Small_business#cite_note-4http://en.wikipedia.org/wiki/Small_business#cite_note-5http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Small_business#cite_note-6


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Self-financing by the owner through cash, equityloan on his or her home, and or other

assets.

Loans from friends or relatives

Grants from private foundations

Personal Savings

Private stockissue

Formingpartnerships

Angel Investors

Banks

SME finance, including Collateral based lending and Venture capital, given sufficiently

sound business venture plans

Some small businesses are further financed through credit card debt - usually a poor choice,

given that the interest rate on credit cards is often several times the rate that would be paid on a

line of credit orbank loan. Many owners seek a bank loan in the name of their business,

however banks will usually insist on a personal guarantee by the business owner. In the United

States, the Small Business Administration (SBA) runs several loan programs that may help a

small business secure loans. In these programs, the SBA guarantees a portion of the loan to the

issuing bank and thus relieves the bank of some of the risk of extending the loan to a small

business. The SBA also requires business owners to pledge personal assets and sign as a

personal guarantee for the loan.

Canadian small businesses can take advantage of federally funded programs and services.
http://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/Angel_Investorshttp://en.wikipedia.org/wiki/SME_financehttp://en.wikipedia.org/wiki/Venture_capitalhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Small_Business_Administrationhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/Angel_Investorshttp://en.wikipedia.org/wiki/SME_financehttp://en.wikipedia.org/wiki/Venture_capitalhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Small_Business_Administration


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4. THE ETHICAL PERCEPTIONS OF SMALL BUSINESS

OWNERS: A FACTOR ANALYTIC STUDY

According to Donaldson and Werhane (1993, 2), the word "ethics" refers to the "study of

whatever is right and good for humans" and the study of business ethics investigates business

practices in light of human values. Over the last few years, a number of researchers have

discussed the importance of the ethical considerations in business decisions. (Beversluis 1987;

Henderson 1982; Longenecker, McKinney, and Moore 1988; and Stead, Worrell, and Stead

1990). The small business owner personally confronts numerous business decisions that possess

ethical challenges. Alpander, Carter, and Forsgren (1990) identified some of the key managerial

issues that confront small businesses in their formative years. These issues include employee

problems, product pricing, legal problems, product quality, and government regulatory

concerns. The authors state, "Most owner-managers described their decision process as an

action based on significant thought, conscious analysis of the problem, and evaluation of

available alternatives" (Alpander, Carter, and Forsgren 1990, 15). One reason for this careful

decision process on these issues may be the possible ethical ramifications that each issue

possesses.

Small business owners may often find it difficult to make purely impersonal decisions. Venture

success, financial opportunity, and new-product development are all areas that may be impactedby decisions having ethical consequences (Hosmer 1987). What are the ethical considerations of

small business owners with regard to their decisions? Are there any underlying dimensions or

factors that can be identified within the small business ethics area? This current study

investigated the factor structure of small business owners' ethical perceptions. Specifically, the

research question centers around the possible existence of underlying dimensions which guide

owner/managers' behaviors.

4.1 PURPOSE OF THE STUDYSeveral of the studies cited in this paper examined ethical behaviors or perceptions within the

business environment. However, most of these studies utilized open-ended questions or other

questionnaires with a limited number of items. Very little is known about the factor structure of

small business ethics since only one factor analytic study currently exists.


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The current study examined the 16-item questionnaire developed by Longenecker, McKinney,

and Moore (1989) to determine its utility as a tool for assessing ethical perceptions of small

business owners. This instrument was selected in order to expand the dimensions which could

exist within the framework of small business decision making.

SAMPLE

The sample for this study consisted of 282 small business owners from the midwest and

southern United States. Owners were interviewed by students in small business courses, from

two different universities, following a structured format which resulted in a questionnaire being

returned by each firm. Owners had been contacted in advance and informed that this was part of

ongoing university efforts to study small business owners. Owners were advised that

participation in the survey was voluntary and confidential; few contacted owners refused toparticipate in the survey.

SURVEY INSTRUMENT

The Longenecker, McKinney, and Moore (1989) ethical perceptions instrument was utilized.

The instrument consists of 16 statements which describe a specific event which has some kind

of ethical choice connotation. Business owners responded to each statement on a seven point

Likert scale (1 = "never acceptable" to 7 = "always acceptable") indicating their belief about

that particular situation. See table 1 for a complete list of items.

ANALYSES

Three sets of statistical analyses were conducted. The first involved calculating frequencies on

demographic variables such as type of business, length of time in the business, age of the

owner, and number of employees. The second analysis involved a principal components factor

analysis of the 16-item instrument. The third analysis assessed the internal consistency of the

factor structure.

4.2 RESULTS

SAMPLE DEMOGRAPHICS


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The sample represented small businesses in a broad range of industries. The largest number of

participants came from retail, service, and manufacturing sectors. In addition, nearly 69 percent

indicated sales below $1 million, 91 percent reported an employee level of fewer than 100, and

almost 30 percent of the owners had been in business 21 years or more with the remainder

dispersed in categories below 21 years. The owner's ages ranged from 21 to older than 70 with

more than 80 percent between 31 and 60, and over 50 percent possess some type of college

degree. A complete demographic description of the participating firms can be found in table 2.

FACTOR ANALYSIS

The results of the principal components factor analysis, based on a vari-max rotation. suggested

a four-factor solution to the Longenecker, McKinney, and Moore (1989) ethical perceptions

instrument. Table 3 presents the factor analysis results. Examination of the content of the itemsloading on each factor resulted in the following names being applied to the various factors:

1. Business Development/Profit Motive

2. Money-Related Theft

3. Administrative Decision Making

4. Accession to Company Pressure

Internal Consistency

The item analysis of the four scales suggested in the factor analysis revealed that the first three

scales (Business Development, Money-Related Theft, and Administrative Decision Making)

were reliable. The last scale, Accession to Company Pressure, had an unacceptable level of

reliability for it to be considered a viable factor. The resulting coefficient alpha reliabilities were

.65, .65, .58, and .32 for the four factors respectively.

4.3 DISCUSSION

The results of this study indicate that there are three reliable dimensions of ethics measured by

the Longenecker, McKinney, and Moore (1989) instrument. The items loading onto factor 1

(Business Development/Profit Motive), relate to activities which focus on improving the

strength of the business, either by returning greater profit or securing additional business. Factor

2 (Money-Related Theft), was composed of four items which focused on the withholding of


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money from those to whom it was due or earning money through illegal methods. The third

factor (Administrative Decision Making) included issues dealing with the ongoing management

of the firm, such as hiring, promotion, and marketing.

Table 2DEMOGRAPHIC RESULTS

Demographic Variable N Percent

Industry

Manufacturing 59 19.4Construction 9 3.2Mining 1 0.4Retail 74 26.1

Wholesale 14 4.9Service 72 25.4Finance/Insurance 15 5.3Education 3 1.1Real Estate 7 2.5

Government 1 0.4Transportation 6 2.1Other 25 8.5

Owner Age

21-30 28 9.931-40 71 25.041-50 97 34.251-60 66 23.261-70 11 3.971+ 4 1.4

Years in Business

3 or fewer 40 14.44-7 50 17.68-12 49 17.413-20 53 18.821+ 85 29.9

Owner Educational Level

High School 50 17.6Some College 83 29.2


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college Graduate 73 25.7Some Grad School 32 11.3Graduate Degree 39 13.7

Annual Firm Sales

$100,000 or less 60 21.1100,001-300,000 58 20.4300,001-1,000,000 77 27.11,000,001+ 72 25.4

Employees

1-14 188 67.415-49 52 18.650-99 14 5.0100+ 25 9.0

The dimensions found in this study represent a more pragmatic view of ethical dilemmas faced

by smaller firms. The factors found by Humphreys et al. (1993) appear to be much more

theoretical. On the other hand, there are some similarities between the results of this study and

the Humphreys et al. findings. For example, both studies resulted in a three factor solution and

it could be argued that the Humphreys et al. dimensions of moral equity, relativistic, and

contractualism do in fact resemble the factors identified in this study. Moreover, the business

development dimension from this study is similar to the contractual dimension of the

Humphrey's et al. study. In addition, the theft-related and business decision making dimensions

from this study may also resemble the moral equity and relativistic dimensions identified by

Humphreys et al. While not specifically tested these similarities do provide a basis for future

research.

It is interesting to note that although people traditionally have the feeling that "ethics means the

law" or that we should use the law as the guide for ethical behavior, this study refutes those

stereotypes. While there are items on the scale which clearly describe illegal activities, they did

not seem to load together on any single legal factor. This study indicates there are underlyingdimensions of the concepts of small business ethics which are broader than simple adherence to

the law. As illustrated by certain items in the business development and administrative decision-

making factors, there are considerations beyond legal parameters that TABULAR DATA

OMITTED small business owners rely upon. Thus it is apparent that an owner's value system is

a critical component of the ethical considerations that surround a business decision.


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This study may also have implications for small business owners in establishing an ethical

environment within which employees and constituents can work. For example, the preparation

of a specific policy statement on ethics by the owner and his other employees may provide the

clear understanding to address the administrative decision making dimension identified in this

study. Small business owners may also need to spend time developing benchmarks or guidelines

concerning ethical behaviors of employees. While these guidelines cannot be expected to cover

every possible scenario, they will still help address the business development/profit motive

dimension identified in this study. Finally, if small business owners can carefully establish

explicit rewards and punishments that are based upon ethical behaviors (and enforced) then the

dimension of money-related theft can also begin to be addressed.

As recommended by Dees and Starr (1992), this study attempts to begin the process of

advancing the body of research in small business ethics. The identification of a reliable and

consistent factor structure of an established small business ethics instrument can serve as a base

upon which future research can be built. The results of this examination suggest. a three-factor

structure to the Longenecker, McKinney, and Moore instrument and there are some similarities

with the Humphreys, Robin, Reidenbach, and Moak (1993) study.

A number of directions for future research can be suggested. First, additional study of the

instrument should be conducted with different samples to determine the stability and

generalizability of this factor structure. Future research should develop a larger pool of items

covering a broad spectrum of situations in order to ensure that any survey instrument that is

developed will measure the full range of ethical considerations. Because this research involved

the investigation of an existing instrument, other investigations should be undertaken to

determine the possible presence of additional factors. Future research should include exploring

the impact of demographic variables such as gender, age, education, and business size on ethical

perceptions. Finally, longitudinal research would address the question of whether ethical values

change as the business grows and profits stabilize.


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5. ARISING ETHICAL ISSUES IN SMALL BUSINESS

5.1 ETHICAL ISSUES ARISING FROM THE NATURE OF MARKETS

- The 18th Century economist Adam Smith demonstrated how in a free market the self interestof producers and consumers will produce an outcome desirable to all concerned

- But the market can also lead to inequality of income, wealth and market power:

Monopoly suppliers can exploit consumers

Monopsony buyers can exploit supply firms

World wide inequality of income can result in unethical practices such as the child

labour

5.2 ETHICAL ISSUES AND SOCIETY - EXAMPLES

Involvement in the community & Honesty, truthfulness and fairness in marketing

Use of animals in product testing

Agricultural practices e.g. intensive faming

The degree of safety built into product design

Donation to good causes

The extent to which a business accepts its alleged responsibilities for mishaps, spillages

and leaks The selling of addictive products e.g. tobacco

Involvement in the arms trade

Trading with repressive regimes

5.3 ETHICAL ISSUES ARISING FROM INTERNAL AND INDUSTRY

PRACTICES - EXAMPLES

Treatment of customers - e.g. honouring the spirit as well as the letter of the law in

respect to warranties and after sales service The number and proportion of women and ethnic minority people in senior positions

The organisations loyalty to employees when it is in difficult economic conditions

Employment of disabled people

Working conditions and treatment of workers

Bribes to secure contracts & Child labour in the developing world


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This is a key ethical issue in business:

It first needs to be stated that bribery to secure a contract (especially a contract with a

public sector body) is against the law and severe penalties can result

However, it is sometimes seem (wrongly) as a victimless crime and is often rationalised

in terms of if we dont offer a bribery, others will

From a moral or ethical perspective it should be approached not in terms of can we get

away with it but is it right to offer a bribe to secure a contract

5.8 INSTITUTE OF BUSINESS ETHICS SUGGESTIONS FOR GOOD

PRACTICE

The Institute recommends that organisations issue statements of ethical practice in respect of:

Relations with customers, shareholders and other investors

Relations with employees & Suppliers

Relations with the government and the local community, competitors

The environment & Issues relating to international business

Behaviour in relations to mergers and takeovers

Ethical issues concerning directors and managers

5.9 ETHICAL CODE

- This is a set of principles governing morality and acceptable behaviour

It is likely to cover:

Personal behaviour e.g. when dealing with customers and suppliers

Corporate behaviour e.g. when negotiating deals

Behaviour towards society e.g. when recruiting

Behaviour towards the environment e.g. when deciding on process

5.10 ETHICAL AUDIT

- This is an audit of all the firms activities

Purpose:

To check that ethical principles are being pursued

To check the extent to which actions are consistent with the organisations stated ethical

intentions


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And to establish action plans if they are not

6. CASE STUDY

ETHICAL PROBLEMS ENCOUNTERED BY U.S. SMALL BUSINESSES

IN INTERNATIONAL MARKETING

Reports indicate firms that fail to become active in international trade may begin to experience

financial difficulties as foreign competition for slowly expanding domestic markets intensifies

(Small Business Reports 1987b). This trend is especially alarming to small U.S. businesses, less

than 10 percent of which are actively involved in international trade despite having export

potential (Small Business Reports 1986). Nonexporters often cite their lack of international

marketing knowledge and "perceived barriers" (such as understanding foreign business

practices) as obstacles to their pursuit of foreign trade (Yaprak 1985). Despite the numerous

programs available to assist managers with the technical aspects of international trade (for

example, the International Trade Administration of the U.S. Department of Commerce), many

owner-managers' worries and fears stemming from "perceived barriers' go unattended,

representing a real disincentive for small businesses to export (Joynt and Welch 1985).

One "perceived barrier" that has received much recent attention from both the popular press and

researchers is the difficult ethical problems that international trade may pose. Such problems

appear to be a potent "perceived barrier," in that many U.S. marketers report they tend to avoid

foreign markets where they expect to encounter ethical dilemmas (Mayo et al. 1990). This

"perceived barrier" may have a strong negative impact on the foreign trade intentions of small

businesses, given that many have limited resources (such as having no legal or public relations

specialists on staff) to wrestle with such ethical dilemmas (Ward 1987).

Avoidance is only one of several options that small businesses may employ to cope with ethical

problems. By including ethics in the strategic planning process and/or by developing codes of

conduct, for example, small business managers may be able to anticipate and work through the

ethical problems posed by some foreign markets (Robin and Reidenbach 1987). The success of

such an approach, however, may partially depend upon how ethical concepts and problems are

defined. Small businesses are more likely to implement codes and strategies where operational

definitions of ethical concepts and problems have been developed (Ward 1987). A detailed


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listing of the type of ethical problems that might be encountered in international trade by small

businesses, however, is currently not available. The sparse attention given to the ethical

problems encountered by small businesses may have resulted from researchers' assumption that

ethical problems bear equally upon firms of all sizes. This assumption may be misleading in that

the type and impact of ethical problems may be different for small and large businesses

(Longenecker et al. 1989).

The present study determines the type of ethical problems that small businesses may encounter

in international trade and how these problems may affect the firm and its management team.

Since marketing activities are central to international trade and often are the focus of questions

regarding ethical conduct (Fritzsche 1986), the present study will focus on the type of ethical

problems that small business firms encounter in international marketing.

METHODOLOGY

The data for the present report were collected as part of a larger study by the author to ascertain

the ethical issues confronting U.S. firms engaged in international business (Mayo et al. 1990).

Sample

The sample for the present study was selected from the District Export Councils Membership

Roster (1987-1991 term, U.S. Department of Commerce 1987). District Export Council (DEC)members are experienced in international trade, are appointed by the U.S. Secretary of

Commerce, and advise federal, state, and local governments and manufacturers on export-

related matters. Consequently, it was assumed that the members would be well versed in

international marketing and could comment on the nature of the non-domestic ethical problems

encountered when selling transnationally. In addition, the DEC membership is widely

distributed nationally, which should minimize regional biases.

Despite the aforementioned qualifications of DEC members to report on the ethical problemsencountered in international marketing, some restrictions were placed on sample selection. It

was assumed that ethical problems might be more important in situations in which market

access depends upon establishing and maintaining long-term relationships with a small number

of marketing channel members. Consequently, council members employed as consultants or in

the accounting industry were excluded, as they may be less knowledgeable than others about the

specific ethical problems found in international marketing. Additionally, council members


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employed in the education and public service sectors were excluded as they were less likely to

be involved in ongoing sales/service transactions. DEC members employed in the

manufacturing and business service sectors wee most likely to be involved in the relationships

described above wherein ethical problems would disruptmarket access realized through a

limited number of channel members. It was assumed that these DEC members would be highly

interested in and sensitive to the ethical problems found in international marketing.

Procedure

The questionnaire used in the present study was included as part of a mail survey sent in July

1988 soliciting DEC members' opinions on the ethical issues facing international marketers and

business managers. A total of 192 (out of 770) usable questionnaires was returned, representing

a response rate of 24.9 percent. This response rate reflects a high degree of interest in the topicand is comparable with other studies (for example, Chonko and Hunt 1985) using marketing

practitioners as a sample.

To assess response bias, a telephone follow-up of nonrespondents to the initial mail survey was

conducted. Analysis of demographic and questiionnaire items indicated no differences between

nonrespondents and those individuals who returned the initial mail survey. Consequently, it was

assumed that nonresponse bias was negligible and that sample results were representative of the

views of DEC members employed in the manufacturing and business service industries. Whenthe telephone follow-up sample was merged into the initial response data set, the response rate

increase to 31.0 percent (239/770).

The sample for the present study was drawn from the response set described above. In order to

ensure that respondents could identify the nature and extent of ethical problems that small

businesses were likely to encounter in international marketing, two additional restrictions were

placed upon the sample. Specifically, only DEC members who were employed in small

businesses as currently defined by the U.S. Small Business Administration (1988) (500 or fewer

employees for manufacturing under Division D; annual sales of $3.5 million or less for business

services under Division I) and wer actively involved in international trade (15 percent or more

of their annual sales came from overseas markets) were included in the present study. The

number of respondents meeting these restrictions was 91.

Research Instrument


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The questionnaire consisted of two sections. Section one asked respondents to identify the

aspects of international marketing which posed the most difficult ethical problems (adapted

from Chonko and Hunt 1985). This section began by assuring respondents that people in all

professions experience ethical problems. This qualifier was included to improve the response

rate by assuring managers that the study was not intended to criticize either small business or

the marketing profession. The questionnaire format allowed respondents to identify up to three

ethical problems. In section one, respondents were also asked to rate the frequency of each

ethical problem they identified and to indicate its impact on the firm and its management team.

Section two asked respondents to provide personal and corporate demographics. The

questionnaire was pretested on a convenience sample of midwestern DEC members to ensure

item clarity. Minor revisions were made as warranted.

RESULTS

Sample-Respondent Profile

The typical small business respondent in this study was highly experienced in international

marketing (x = 18.0 years), well educated (24.2 percent had earned a bachelor's degree; 58.3

percent had completed some graduate work or degree program), male (93.4 percent), and held a

position either in upper administration (73.7 percent were CEOs, presidents, or vice-presidents)

or in sales/marketing management (23.1 percent). Respondents were employed in a diverserange of industries from the manufacturing and business ervice sectors, and, based on

observation of the return envelopes, appeared to be relatively balanced geographically. The

average firm and annual sales of $59.5 million, employed 182 people, and had a substantial

commitment to international marketing (mean percentage of annual sales from overseas

operations = 48.1 percent; average number of countries in which firm has a major marketing

commitment = 23.3). In summary, based on these demographics it is obvious that the

respondents were highly experienced in international marketing, employed with small-sized

firms with a multinational orientation, and thus well qualified to comment on the ethical

problems encountered by small U.S. business in international marketing.

Ethical Issues

The question, "Would you please describe the aspect(s) of International Marketing that pose(s)

the most difficult ethical or moral problem(s) to U.S. executives like yourself," generated 140


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responses (see table 1 for a breakdown; multiple responses were allowed). These 140 responses

were classified into 11 categories (9 ethical problems, miscellaneous, and no ethical problems

encountered) by two independent judges.

The nine issues that posed the most difficult ethical or moral problems encountered ininternatiional marketing were ranked according to how often they were identified by

respondents (see table 1). This ranking represents, in descending order, the issues that are

perceived as the most difficult problems for small businesses engaged in international trade.

Table 2 shows how often respondents encountered each of the identified ethical problems, and

their impact on the firms' overseas competitiveness, domestic public image, and top

management team. To assist in the interpretation of results, let us center on the top five issues

identified by respondents. Ignoring the categories of "no ethical problems" and "miscellaneous",

the first five ranked issues account for 86.5 percent of the ethical problems encountered often by

small businesses. These issues were bribery, political issues and/or government intervention,

customs clearance, questionable transfer of funds, and cultural and/or business practice

differences. A description of the categories used to classify responses can be found in tale 3.

Overall, the top five ranked ethical problems occur with moderate frequency (x = 3.94; calculate

from table 2). The impact of these problems, however, does not appear to greatly restrict

overseas competitiveness (x=3.30), but may tarnish the domestic public image of small

businesses found engaging in such unethical practices (x = 5.37). Given this mixed impact upon

the firm, top management was only moderately concerned about the ethical implications of

these problems (x = 4.41).

Further analysis of these measures, however, indicates that the impact on the firm and its

management team is somewhat dependent upon the ethical problem in question. For example,

respondents reported that overseas competitiveness is restricted to a greater extent when the

ethical problem is bribery or political issues/ government interference compared to the other

types of problems (see table 2). Although the data collected in the present study do not explain

these results, it is inferred that in the case of bribery, marketers may withdraw from or avoid

foreign markets where bribes are encountered or anticipated. Marketers who are unable to

differentiate between illegal bribes and acceptable facilitating payments (as outlined in the

original Foreign Corrupt Practices Act) may select avoidance and withdrawal strategies to avoid

the possibility of federal litigatiion. In the case of political issues/ government interference, it is


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inferred that small businesses often do not have sufficient resources (managerial and financial)

to overcome the legislative (e.g., tariffs) and administrative (e.g., export licensing) hurdles that

such interference may present. Consequently, small businesses' ability to compete in

international trade may be negatively affected. Finally, the

Table 1 ETHICAL PROBLEMS IN INTERNATIONAL MARKETING FOR SMALL

BUSINESS (a)

Rank Issue (b) Frequency Percent

2 Bribery 47 33.6

2 Government interference 14 10.0

3 Customs clearance 11 7.9

4 Transfer of funds 9 6.45 Cultural/business differences 9 6.4

6 Technology/copyright theft 6 4.3

7 Pricing 4 2.9

8 Immoral entertainment 3 2.1

9 Product use 1 0.7

10 No ethical problems 8 5.7

11 Miscellaneous 28 20.0

Total (c) 140 100.0

(a) Response to open-ended question: "In all professions (e.g., law, medicine, education,

accounting, advertising, etc.), decision makers are exposed to at least some situations that pose

moral or ethical problems. In the case of business executives who may become involved in

different cultures and environments the potential for such problems undoubtedly increases.

Would you please describe the aspect(s) of International Marketing that pose(s) the most

difficult ethical or moral problem(s) to U.S. executives like yourself?"

(b) Some of these issues (e.g., cultural differences and governmental regulations) represent

more pragmatic difficulties in conducting business overseas and are not strictly ethical in nature.

(c) Respondents could describe up to three ethical problems. Of 75 respondents to this

question, 35 described only one problem, 15 described two, and 25 described three, so n = 140.

ethical issues involved in some customs clearance transactions appear to have a unique impact

on the firm and its management team. Relative to other reported ethical problems, customs


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clearance has a limited negative impact on overseas competitiveness and domestic image and

consequently does not attract as much concern from top management. It is speculated that the

relatively low incidence of this ethical problem may account for its limited influence on these

measures.

DISCUSSION

One of the reasons that first-time exporters fail in their efforts to enter international trade is their

inability to understand and adapt to foreign cultural and business practices. This failure may be

partly due to the strong ethnocentric orientation of some managers as well as their lack of

training in arbitrating social conflicts in a multinational setting (Gladwin and Walters 1980).

Additionally, small businesses themselves may be partially to blame when the management

team fails to make a commitment to overcome the initial cultural and business practicedifferences and to solve the ethical problems often found in international marketing (Small

Business Reports 1985). An initial step in managing the various ethical problems involves

examining the type of problems that exporters active in international trade actually encounter.

The present study identifies the five issues that pose the most difficult ethical problems in

international marketing for small businesses.

Analysis of the impact of these ethical problems on the firm and its management team would

not be complete without examining how the structure, limited resources, and orientation ofsmall business influences marketers' ability to manage such problems. Relative to large firms,

small businesses appear more profit-oriented and tolerant of unethical practices when their

financial welfare is at stake (Longenecker et al. 1989). By implication, small firms (especially

those experiencing financial difficulties) should recognize their susceptibility to some of the

ethical problems identified in this study. This susceptibility, plus the less formal management

structure and monitoring systems of many small firms, would appear to make the payment of

bribes, the alteration of customs documentation, and the illegal transfer of funds more difficult

to detect. In terms of organizational resources, small businesses often do not have specialists

(such as public relations personnel, lobbyists, etc.) to wrestle with ethical problems and,

consequently, may be unable to contend with political issues and government interference

which can impede foreign trade.

From the above discussion it appears that some organizational elements of small businesses

may be an impediment to coping with ethical problems. Additionally, management's inability to


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reliably identify business problems with moral implications may be another impediment to

coping with ethical problems. Small business managers appear to have a wide-ranging

definition of ethics and tend to include practices which present problems in conducting business

overseas, but which, in themselves, are unlikely to pose an ethical issue. The responses

categorized in the present study as "miscellaneous" comments (e.g., "Customers wanting the

quality we produce but not our price") and "cultural and/or business practice differences" (e.g.,

"Different accounting practices") exemplify this overgeneralization. This lack of discrimination

between ethical problems and other issues may be due, in part, to the fact that the field of

business ethics has not developed a precise vocabulary to assist managers in identifying,

discussing, and resolving ethical dilemmas (Walter 1978).

Implications

Small business professionals need not wait, however, until a language of business ethics is

developed to address ethical problems that may confront their firms. Chittipeddi (1987) has

suggested managers begin to integrate ethics into decision making by first identifying the

ethical problems that might develop between the firm and its relevant stakeholders. The present

study provides a list of such problems for small business managers involved in international

marketing. Chittipeddi then recommends that managers consider the ethical merits of the

various means to resolve each ethical dilemma that has been identified. "Ethical" solutions are

those business decisions that "lead to a net positive value to the affected stakeholders." It is

important to note that such an analysis does not identify "the optimal ethical solution" but rather

a range of business decisions deemed to be ethical. Although each business decision may

represent a "net positive value," the impact on various stakeholders will vary across solutions.

The final solution chosen in a small business to resolve an ethical dilemma often reflects the

values and personality of its owner-manager.

As managers develop administrative policies around the problems associated with various

stakeholders important to the firm, a "code of ethics" is constructed. Codes constructed in this

manner provide managers with pragmatic definitions of ethical responsibilities and encourage

them to include ethical criteria in their decision making. Additionally, top managements'

involvement in code construction and any subsequent revisions helps to integrate ethics into the

corporate culture.


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CONCLUSIONS AND RECOMMENDATIONS

The present study identifies five issues that posed the most difficult ethical problems for small

businesses engaged in international marketing. Although the impact on the firm and its

management team depended somewhat upon the ethical problem in question, overall, small

business managers were more concerned about how ethical problems might tarnish the domestic

image of the firm than about how such problems might restrict competitiveness in overseas

markets. Brown and King (1982) also noted that concern about negative publicity (with both the

general public and in the business community) resulting from engaging in unethical practices

was an important factor in promoting ethical conduct by small business managers. The loss of

public esteem resulting from media coverage of questionable corporate activities in international

commerce is prompting many small firms to develop ethical codes of conduct (Small BusinessReports 1987a). The present study outlined a process to develop codes of ethical conduct for

small businesses.

The "perceived" barrier of ethical problems should prove less of a deterrent to international

marketing as small business managers come to understand the extent and nature of ethical

problems and develop the means (such as codes of conduct) to reduce the impact such problems

have on the firm. As small businesses "work through" ethical problems they may come to

realize some of the advantages associated with foreign trade (such as expanding their customerbase, extending product life cycles, etc.) and to recognize the strengths they possess to compete

internationally (such as being more responsive to market niches, being more technologically

innovative, etc.).

Finally, it must be noted that the results and recommendations presented here were derived by

surveying DEC members. It is unclear to what degree these findings can be generalized to firms

not included in the DEC membership roster. Additionally, it is unknown how small businesses

with little or no international trade experience may react to perceived ethical problems. It isunclear, for example, to what degree perceived ethical problems, relative to other barriers (such

as lack of business knowledge about exchange rates, counter trade, etc.) inhibit small business

managers from investigating internatinal trade opportunities. Future research is recommended to

investigate these issues.


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BIBLIOGRAPHY

BOOKS AND JOURNALS

Essays on Ethics in Business and the Professions, Jack N. Behrman, Englewood Cliffs,NJ: Prentice Hall, 1988

Business Ethics, A Kantian Perspective, Norman E. Bowie, Blackwell, 1999.

Ethical Dilemmas 1988

Perspectives in Business Ethics, Laura Hartman, Burr Ridge, IL: McGraw-Hill, 2004

Business as Ethical and Business as Usual, Sterling Harwood, Belmont, CA: Wadsworth

Publishing, 1996.

INTERNET SOURCES

http://en.wikipedia.org/wiki/Business_ethics

http://tutor2u.net/business/strategy/business-ethics-issues.html

http://www.thehindubusinessline.com/2006/07/15/stories/2006071501151200.htm

http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/KFC%20in

%20India%20-%20Ethical%20-%20Business%20Ethics.htm#Exhibits

http://en.wikipedia.org/wiki/Small_business http://www.allbusiness.com/human-resources/employee-development-employee-

ethics/480864-1.html

http://www.allbusiness.com/human-resources/employee-development-employee-

ethics/163877-1.html
http://tutor2u.net/business/strategy/business-ethics-issues.htmlhttp://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/KFC%20in%20India%20-%20Ethical%20-%20Business%20Ethics.htm#Exhibitshttp://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/KFC%20in%20India%20-%20Ethical%20-%20Business%20Ethics.htm#Exhibitshttp://tutor2u.net/business/strategy/business-ethics-issues.htmlhttp://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/KFC%20in%20India%20-%20Ethical%20-%20Business%20Ethics.htm#Exhibitshttp://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/KFC%20in%20India%20-%20Ethical%20-%20Business%20Ethics.htm#Exhibits

Documents

Small Business Ethics