Introduction
Many companies encounter various issues when they run their business in foreign countries where there are different environments. Some of the issues that they face are ethical and legal. Questions that arise include following the laws of a particular country, e.g. environmental laws, which do not exist in the home country.
Each country has different ethics which are influenced by differences in cultures. This is the main reason why most business people find it challenging to start a business in a foreign country. It is therefore important for companies to develop a sense of responsibility when operating their business internationally to avoid conflicts (Litka & Blodgett, 2009). There are various measures that have been taken to reduce the challenges faced by foreign companies. Some of these measures include the formulation of the General Agreement on Trade and Tariffs (GATT). The aim of this agreement is to promote harmony and cooperation in the international trade.
Ethical Issues in International Business
Gift Giving and Bribery
Many multinationals do not know how to differentiate between giving a gift and bribery. When a person in authority is given a gift in exchange for a favor, that is termed as bribing (Whalley, M. & Semler, 2007). However, gift giving is considered to take place when there is no favor expected for giving a gift.
International bribery slows down economic growth. This is caused by the lack of competition which contributes to the production of low quality products. Bribery interferes with justice and enhances violation of laws by multinationals such as environmental pollution regulations. It is also unethical to pay customs officials to avoid taxes on imports. In addition, bribing a person in authority with the aim of facilitating requests like visa applications constitutes unethical business practice.
Labor Costs Saving
It is unethical to close down a factory and open it in another country in order to save labor costs. This leaves many people who were working in that plant jobless. Although labor costs in some countries like the U.S.A are expensive, saving labor costs should not be a reason for manufacturing firms to close and open in foreign countries. It is important for companies to be socially responsible instead of focusing on making profits alone.
Firms are therefore advised to learn different socio-cultural forms and socioeconomic conditions so that they can run their business in a proper and fair way in foreign countries. This includes understanding different cultural traditions of people in those countries they are operating in.
Legal Issues in International Business
Legal issues that mostly arise in foreign countries include protection of the intellectual property, payment issues, taxation among others (August, Mayer & Bixby, 2009). The General Agreement on Tariffs and Trade (GATT) gives out rules that govern the operation of a business that is functioning internationally. These rules are international and they help to solve legal issues.
Before a firm start operating in a foreign country, it is important for it to check some constitutional clauses that govern foreign business. This will help the company avoid court battles.
Payment Issues
Many countries have laws that restrict the amount of money that a foreign company can repatriate to host countries. These laws are aimed at ensuring that the host country does not lose in the balance of trade. They also serve as a precautionary measure for stabilizing a country’s currency.
If foreign companies are allowed to send to their home countries any amount of profit that they make in the host countries, the host countries stand to lose in the balance of trade especially if such countries do not have a lot of multinationals to counteract this outflow of investments. The balance of trade has a long-term impact on the exchange rate of a country’s currency. Sometimes, a country may suffer from exchange rate instability if massive amounts of funds are removed from the country’s economy, for instnace, during a political crisis.
Multinationals are the main actors in the international trade, and they should be responsible for such a monetary outflux. To guard against this situation, countries have introduced caps on the maximum amount of money that foreign companies can repatriate to their home countries. This essentially means that there is a limit for the amount of foreign profits that shareholders of multinationals can enjoy.
Intellectual Property
There is a tendency for laws protecting intellectual property to favor local firms and discriminate against foreign firms. This is an unfavorable situation for foreign companies considering that these are credited with introducing revolutionary technologies, products, and ideas to the host countries, leading to improvement in the quality of life in such countries.
However, governments in a bid to protect local interests usually fail to enforce intellectual property laws against local firms when they are liable for violating the intellectual property rights of foreign firms.
Taxation
Taxation double standards are very common in international business. Local firms usually face a lower corporate tax rate compared to foreign firms. This basically means that local firms have an absolute competitive advantage making the situation more difficult for foreign firms.
References
August, R., Mayer, D., and Bixby, M (2009). International Business Law. August Publisher: Pearson.
Litka, P. & Blodgett, M. (2009). International Dimensions of the Legal Environment of Business. New York Thomson Learning Custom.
Whalley, M. & Semler , F. (2007). International Business Acquisitions: Major Legal Issues and Due Diligence. London: Kluwer Law Intl.