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Business Ethics in China Group Assignment on Corporate Ethics
Table of Content
What is Ethics?
What is Business Ethics?
Background about Chinese Culture And Business Context
Cultural Traits
Business Context
Business Ethics And Cultural Clashes In China
The Double Standard
It Will Be Known
Some Cases For Unethical Practices In China
Samsung Illegal Labor Practices (2012)
China Meat Supplier Faced Claims (2014)
China Milk Scandal (2008)
Rules for Business Ethics in context of China by Dr. Stephan Rothlin
What is Ethics? Ethics (also moral philosophy) is the branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct The term ethics derives from the Ancient Greek word ἠθικός ethikos, which is derived from the word ἦθος ethos (habit, “custom”). The branch of philosophy axiology comprises the subbranches of Ethics and aesthetics, each concerned with concepts of value.
Ethics is two things. First, ethics refers to wellfounded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the
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reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics because they are supported by consistent and wellfounded reasons.
Secondly, ethics refers to the study and development of one's ethical standards. As mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to constantly examine one's standards to ensure that they are reasonable and wellfounded. Ethics also means, then, the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidlybased.
The three major areas of study within ethics are.
1. Metaethics: concerning the theoretical meaning and reference of moral propositions, and how their truth values (if any) can be determined
2. Normative ethics: concerning the practical means of determining a moral course of action
3. Applied ethics: concerning what a person is obligated (or permitted) to do in a specific situation or a particular domain of action.
Business Ethics is part of Applied ethics along with other ethical practices like Business, Relational, Machine, Military, Political, Publication etc.
What is Business Ethics? Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment, including fields like Medical ethics. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
Background about Chinese Culture And Business Context
Cultural Traits
Chinese society is heavily influenced by the traditional values associated with Confucianism which promotes a strict system of norms and propriety. This determines how a person should act within a community, with hierarchy a central theme. In addition, there is little separation between business and private life in China. These traditional values can have a significant influence on employees’ behaviour in a corporate setting. Those committed to ethical business practice are known as ‘Ru Shang’ or ‘Confucianism Trader’, and being so is traditionally
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thought to be a route to success.Guanxi is a deeply embedded system of relationships, personal connections, contacts and networks. The cultivation of guanxi can be thought of as a form of significant ‘social capital’ and is not something casually acquired by exchanging business cards or having a single meal together. Rather, relationships are formed over time and are based on trust and reciprocity. It is common in China for an employee to take contacts with them when switching jobs as the guanxi is with the individual, not the company. Trading competitive information among one’s guanxi network may, in some cases, also be considered an acceptable practice. Mianzi refers to the concept of ‘face’ – broadly defined as pride or selfrespect, and its corollary – preservation of the selfrespect of others. Mianzi is related to prestige and one’s position in a hierarchy. Direct disagreement or confrontation with someone – such as a colleague or a person in a position of authority – may cause them to lose mianzi and is usually avoided. Thus, opinions can be difficult, but not impossible, to gather from employees because any proposal for improvement could cause their superior to ‘lose face’ by suggesting that they are in some way deficient.
Numerous voices inside and outside China say that the country – like others – is in a deep moral crisis. These voices must be taken seriously but should not lead to exaggeration or alarmism. At the current stage of China’s development, it seems difficult to fully apprehend its complex moral situation, let alone make fair judgments about it. In other words, much caution is warranted. However, this should not prevent one from striving to improve China’s moral situation.
Business Context
The Chinese are very open to considering ethical issues: "They want to be global players, and they realize that in order to become a real global power, they have to eliminate corrupt practices." Many students at the Beijing University of International Business and Economics, where CIBE is based, are pursuing an MBA because they are frustrated by the corruption they witness.
But the Chinese do not want paternalism from the West. Instead, they want acknowledgement that "they can offer something, that they can actually become a driver in the field of ethics." Because the Chinese are emerging as an economic powerhouse, any ethical rules they integrate into their businesses practices will have an impact on the whole world.
Often, the Chinese see hypocrisy in criticism of their country by companies that tout their own ethical codes but then close their eyes to what their own Chinese subcontractors are doing. To counteract this skepticism toward Western critiques, he counseled an approach that acknowledges unethical conduct in other cultures as well.
Those who want to work with Chinese companies or bring their businesses to China. "The strategy should be to limit the output of Western experts to a minimum," he said. Setting up a code of ethics, for example, should be primarily the job of the Chinese. "It does not mean anything if you translate your existing code from English and distribute it," he cautioned. "The
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Chinese will say, 'Yes, thank you,' and then throw the code away." Of course, that indifferent kind of implementation would not work anywhere in the world. Rather than imposing a code, "let the Chinese develop their own codes. Then the managers can identify themselves with these codes."
This example of how the problem of corruption, which often includes favoring family and cronies. Some students of China have argued that the Chinese are encouraged in such favoritism by their traditions. They point to Confucius' focus on responsibility to family, citing his admonition that a person who sees his father steal a sheep should not turn his father over to the authorities.
Business Ethics And Cultural Clashes In China Ethical conflicts are endemic to foreign businesses operating in China. Failure to recognize this represents either obfuscation or denial. The best way to deal with most of them is to avoid them altogether, and for the rest there has to be an iron set of principles to guide managers.
The only way to avoid some of the more fundamental conflicts like the one in the HBR case is to address them at the time a company makes a decision about whether to go into China or not. As a part of that decision process, some of the questions that need to be addressed include:
What do our local competitors do to get and keep customer business? Is there anything that they do as a matter of habit that is simply out of the question for us?
What would our jointventure partner really do if we had to make a hard choice between ethics and sales?
Can we turn our more ethical behavior into a business advantage, or indeed lead the industry to more ethical practices, or are we shooting ourselves in the foot by trying to play a “cleaner” game than our competition?
Are foreign companies held to a higher ethical standard in our industry than local companies?
Do our customers care whether we do things better? Or do they only care about price?
These seem to be tactical, but in a growing number of industries these questions can determine whether a venture will succeed or fail, and are thus strategic. Compellingly, the same questions need to be asked about quality, and whether customers and consumers really care about the value we see in our products and services, or whether price is all.
These seem to be tactical, but in a growing number of industries these questions can determine whether a venture will succeed or fail, and are thus strategic. Compellingly, the same questions need to be asked about quality, and whether customers and consumers really care about the value we see in our products and services, or whether price is all.
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Once in a venture, however, the questions above become somewhat moot. All that is left is for the company to determine where it draws the line between sales and ethics. Managers will not only require a clear set of nonnegotiable principles on matters ranging from worker safety to kickbacks to employee infractions, but a guarantee from the company that losing sales for reasons of ethics will not count against sales targets and budgets.
What this implies, of course, is that ethics in China can cost money. The smart way to approach this problem is to budget internally for these shortfalls, and count them on the ledger as a longterm investment in corporate reputation.
The Double Standard
One area not touched upon by the case is the issue of government and popular expectations. As I’ve discussed before, foreign and private enterprises operating in China are held to a higher standard of operational ethics than local and stateowned enterprises. The ethical playing field is not level, so behaving unethically just because the local competition does is not an acceptable defense. Indeed, the government is more likely to make an example out of the foreign enterprise that behaves badly than local companies that do so.
Operating in a joint venture is not likely to provide much cover, especially when the brand on the joint venture is – or includes – the name of the foreign enterprise. A jointventure is as good as a foreign company when it comes to juicy targets for fines and other forms of prosecution. Any wise JV president would have that little tidbit up his sleeve to help mollify a bombastic local executive.
It Will Be Known
Another point that the manager can toss at his joint venture partner is the inevitability that the unethical behavior will become public knowledge, and that such knowledge could be even more disastrous than missed sales targets. Some of the best investigative journalists in China have chosen to make a career out of catching unethical businesses in the act, and while taking on locally powerful SOEs can be tricky, they have editorial carte blache to target foreign enterprises. Add the media bulldogs to the prospect of a frustrated competitor or disgruntled employee, and engaging in unethical behavior looks plain stupid.
Some local partners, especially the larger, better connected ones, will protest that they have the ability to put the muzzle on the local media. This may have been the case a decade or more ago, but it is no longer. There are simply too many reporters and too many outlets, a growing number of whom seek to build their careers as either muckrakers or crusaders against shoddy business practices. Lenovo, LiNing, and Mengniu Dairies comprise a short list of notable companies who have discovered that the number of reporters in China who can be bought is shrinking, as is the number of reporters who will stay bought once they have been paid off.
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Some Cases For Unethical Practices In China
Samsung Illegal Labor Practices (2012)
In the year 2012, Samsung was investigated for using illegal labor practices in their China manufacturers. The allegations of this case were that the employees at this manufacturer were in some cases working 16hour days with one day off per month, and they were also found hiring employees under the legal working age of 16 years of age.
According to Friedman's theory of individualism, the only obligation that the business has is to maximize profit for the owner and stockholders. Samsung's manufacturer in China was trying to cut their costs and maximize their profit by hiring younger employees and overusing overtime. This would be deemed ethical by individualists, but they used illegal methods to maximize profit.
China Meat Supplier Faced Claims (2014)
Shanghai Husi Food, the U.S.owned Chinese food supplier at the center of a meat safety scandal, won a court case earlier this year against a former quality control officer whose claims included that he was made to forge meat production dates.
Wang Donglai, who worked at Shanghai Husi Food from 2007 to 2013, sought around 38,000 yuan ($6,100) in compensation for damage to his health from exposure to chlorine used as a cleaning agent by the meat processor. He also sought to terminate his contract at Shanghai Husi, claiming he was forced to work overtime and made to do "unethical work" that violated food safety laws, court documents showed.
China Milk Scandal (2008)
The toxic milk scandal became public in August 2008 with the disclosure that the baby formula produced by Sanlu was contaminated with melamine, which caused kidney failure among the babies who consumed it. However, until the Chinese Health Ministry confirmed on Sep 12, 2008, that the milk powder produced by Sanlu was contaminated by melamine, neither the government nor the company took any actions to warn the public. Later, government inspections reported that the products of 21 other dairy firms were also contaminated with melamine. Even as the milk scandal unfolded, many countries like Hong Kong, Taiwan, Singapore, South Korea, Australia, and Indonesia rushed to ban Chinese dairy products. Foreign companies which sold China made products or products which used Chinese ingredients had to recall their products.
On September 26, 2008, four executives of Sanlu including Wenhua were arrested for producing and selling substandard products. Milk dealers and suppliers were also arrested for selling contaminated milk to dairy companies. Jiabao, the then Premier of the State Council of
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the People's Republic of China, said, "The government will put more efforts into food security, taking the incident as a warning. What we are trying to do is to ensure no such event happens in future, by punishing those responsible leaders as well as enterprises. None of those companies lacking professional ethics or social morals will be let off."16 In an effort to restore confidence among domestic and international consumers, the Chinese government introduced a new set of quality control standards which included strict limits for melamine in dairy products. In the case of infant formula, the limit was set at one milligram of melamine per kilogram and the limit for liquid milk at 2.5 milligrams per kilogram.
On January 22, 2009, two people were sentenced to death for their involvement in the Chinese milk scandal. Wenhua was given a life imprisonment and three other executives were given imprisonment from five to fifteen years.
Rules for Business Ethics in context of China by Dr. Stephan Rothlin “The golden rule in China – nothing is clear.”
Dr. Stephan Rothlin, Center for International Business Ethics (CIBE) explored the topic through his ‘rules for international business ethics’ framework:
1. The importance of context. China’s Confucian history has created a different attitude and ways of behaviour in Chinese business. To do business in China, it is essential to respect and understand these differences. Confucian teaching contributes positively to business ethics, for example through the emphasis on trust and trustworthiness.
2. There is a need to emphasise the business case for business ethics in China, and make the point that there are benefits.
3. The consumer movement is a powerful stimulus for business ethics in China; consumers are willing to take action against business and are a genuine source of pressure.
4. Developing a brand requires building a reputation based on trust and reliability. 5. Safe working conditions; new generations are more aware of the standard of living of
their contemporaries in the Western world and as a result, are increasingly less willing than their forefathers to accept poor working conditions. This is reflected in the high rate of suicides at Foxconn’s factories.
6. To inspire trust there is a need for transparency in business; particularly since the economic crisis. There needs to more effective teaching of business ethics, with business ethics integrated into courses, and business life. This is a challenge postcrisis.
7. Whistleblowing is seen unfavourably in China, as an act of disloyalty. This perception needs to be changed, by demonstrating the positive outcomes of speaking up in a business.
8. Balance the need for efficiency, profitability and downsizing with ethical responsibility for stakeholders.
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9. Business should contribute positively to the social system. The richpoor gap is a key concern for the Chinese government. Two thirds of China’s population live in rural China where there is great demand for learning and development. This provides business with a key opportunity.
10. Technological changes e.g. in smart phones, are making the privatepublic spheres harder to differentiate between in China.
11. The media has a powerful influence in China and is largely responsible for awakening civil society and consumer awareness around business ethics. Businesses need to be aware of this and the risk that it can pose in terms of their reputation.
12. There is growing concern in China around the money lost through corruption. Whereas India had higher corruption levels, it has improved over the last 5 years, whilst corruption levels in China have risen. The Chinese government refers to the Transparency International Corruption Perceptions Index.
13. Since the Bhopal incident which polluted the Songhua River in 2005, there is a large concern for the environment in China.
14. The importance of branding for an organisation to develop its reputation. Branding should be in line with the organisation’s values.
15. As yet, China does not have an established philanthropic culture. It is difficult to cultivate because there is widespread suspicion within China around what happens with economic contributions to charities. In the past, charities themselves have failed to distribute money to needy parties.
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