Integrity in International Business

The American debate for outsourcing business is nothing new, but the current White House Administration has brought the issue to the forefront of foreign policy and discussion. In the 2016 presidential election, the slogan “Make America Great Again” alluded to the restoration of domestic manufacturing and insourcing. The rhetoric that America is losing in the globalization race has gained enough popularity that both sides of the political aisle are beginning to agree. Democratic Senator, and 2020 presidential candidate, Elizabeth Warren recently announced that as president, she would pursue an agenda of “economic patriotism”. She proclaims in her post, “These “American” companies show only one real loyalty: to the short-term interests of their shareholders, a third of whom are foreign investors. If they can close up an American factory and ship jobs overseas to save a nickel, that’s exactly what they will do — abandoning loyal American workers and hollowing out American cities along the way.”

Senator Warren’s words are scathing, and the public sentiment is so popular that there must be a reason some view outsourcing as an abandonment of American loyalty. What responsibilities do American companies have when conducting business on a global scale? I believe the framework of business ethics can address these questions. Outsourcing is often seen as an escape from American regulations and labor costs associated with advanced economies, but the altruistic reason for outsourcing is to leverage existing efficiencies in international industries. For a business to maintain its ethical integrity, it should hold itself accountable in foreign markets concerning working conditions, human rights, and environmental protection.

Minimum Acceptable Labor Standards

As early as 2006, Apple’s primary Chinese manufacturing partner Foxconn has been accused of sub-par working conditions. Abuses range from worker suicides, wage exploitation, and accidents all they way to underage workers, riots, and poor living conditions. Even though the foreign company will not reform, sales of Apple products continue unphased. With the lack of public condemnation, the message sent to the companies involved in these abuses is that their behavior is acceptable. No doubt other Chinese companies are exploiting similar conditions. These ethical violations of working conditions are at the heart of the outsourcing debate. Companies are utilizing the underdeveloped living and working conditions in foreign countries to lower costs, but how far is too far? A company continuously seeking lower labor costs while ignoring working conditions will eventually find free labor and imprisoned workers. Early American colonies leveraged this very scenario to fuel growth and even fought a war over the issue. So where is the line? What is the minimum level of working conditions that American companies can exploit?

13 year old Sobuj works in a textile factory in conditions of extreme heat and noise. For this he earns about 1200 Taka a month (£10.00 GBP).

 

While there is no simple answer, there are some helpful tools to ensure your business outsources effectively, but most importantly, safely. Charles W. L. Hill and G. Tomas M. Hult suggest three best practices to improve operational integrity in foreign markets.

  1. Establish adequate standards to protect employee’s dignity and rights.
  2. Perform regular labor audits of any foreign subsidiaries or partnerships.
  3. Plan and execute effective action to remedy labor violations found in the supply chain.

These guidelines will help improve labor standards, but no system is perfect. Nike is feeling the public backlash from setting standards too low or not enforcing them at all. Even with these guidelines established, managers could still face ethical dilemmas with no easy answer. For example, assume you are an American manager finding your foreign partner hiring underage employees in direct violation of internal safety standards. The appropriate action should be to terminate the employees and restore acceptable working conditions immediately. What if, however, the foreign plant manager informs you these children are the primary wage earners in their homes, and that by firing them, they will be on the street looking for dangerous work elsewhere. Should you still fire the underage employees? This dilemma showcases that there is often no easy solution.

Human Rights for All

In 2010, the Fédération Internationale de Football Association (FIFA) announced Qatar as the location of the 2022 World Cup. Since then, the country has been working furiously to build the stadiums required for the spectacle. While this might seem harmless at first glance, a recent documentary has found that at least 1,400 migrant workers have died during the construction of the facilities. Little or no safety standards coupled with filthy living conditions have made the construction sites some of the most dangerous places to work in the world. As Americans with supposedly high standards, should we watch and support these games knowing 1,400 bodies lie beneath the pitch? If we should be outraged (and we should), what is the minimum level of human life abuse to elicit a reaction? Again, there is no simple answer, but thankfully, there are tools to help.

Eight people share each of the 10 square meter rooms in the Nam Tai factory dormitory block.

In 1948, the U.N. proclaimed The Universal Declaration of Human Rights. Countries across the world assembled and established a standard for fundamental human rights. As we conduct international business, we should refuse to accept violations of this declaration. Not only should we boycott the products and services of companies that ignore the resolution, we should also refuse to operate or trade with any entity that refuses to comply. Human rights and dignity can be protected as long as there is an economic incentive to do so.

The Rights of Mother Earth

In addition to human rights, society should protect the environment of our planet. People against outsourcing often believe American companies are escaping the environmental standards established within the United States. From a financial perspective, it’s much cheaper to build a plant in Malaysia or Nepal that dumps waste directly into a river. The plant could avoid waste disposal and storage costs, save on personal protection equipment, and skimp on CO2 scrubbers for the air. Hopefully, this doesn’t sound attractive, but many international companies see it differently. They see foreign pollution as the status quo and rationalize the practice as business-as-usual.

We are slowly learning more about the environment and especially about the impact we have. With this knowledge comes responsibility. It is becoming more and more difficult for companies to pass the cost of pollution to local communities. Armed with knowledge, all companies have a simple answer for business policies concerning environmental protection: No damage to the environment should be tolerated, or net-zero footprint. Any industrial process resulting in damage to the planet should be paired with the cost to reverse the damage. This policy prevents companies from passing along the costs to others. The world is a long way from achieving this policy, but as we continue to damage the planet and see the effects, more and more pressure will bear down on entities who disregard environmental sustainability.

The outsourcing debate is here to stay, but American businesses can rest easy by operating with high ethical standards in foreign markets. They can reduce costs and leverage international expertise without contributing to poor working conditions, human rights violations, or global pollution. A sustainable strategy will triumph in the long run.

Raul Viera, PMBA SU19