According to Forbes, more than 60,000 multinational organizations are currently controlling about 500,000 subsidiaries around the world. There is hardly a country left that has not witnessed the flavor of international business. The global presence of a business testifies to its operational efficiency. Multinational status has become the flag bearer for a company to be prosperous. Therefore, more and more organizations are trying to expand their mark over the international business landscape. It promises them better brand development as well as higher profits.
However, entering new boundaries always pose specific challenges. They lie across a broad spectrum of sociopolitical curvature. International expansion becomes more complex because it is more than just business. It requires excellent social and cultural insight to understand host countries’ environments. As a result, companies can grasp the ethical considerations gradually. The flow moves from personal (Micro Level) to Professional (Intermediate Level) and then to Corporate (Macro level). Eventually, the entire organization becomes compliant with the ethical standards of the host countries.
The entire due diligence is because ethics play an enormous role in international business. One of the biggest reasons for it is that several underdeveloped countries offer many unethical business practices to companies from the developed world. History is evident with such malpractices. Only organizations with a strong respect for rules and regulations can save themselves from unethical international business practices.
There are several ethical issues in international business practices, and this article discusses three of the most common ones.
Tax and Tariff Escapes
Respecting the tax system of the host country is essential to run a company’s finances smoothly. Therefore, organizations should train their employees to adhere to international accounting and tax standards and remain abreast of changing accounting practices. For such employee training and development, they can opt for online platforms to instill essential accounting knowledge. For instance, an MBA with accounting concentration can help employees hone their accounting skills and advance their financial understanding. However, numerous multinational companies violate international tariffs and trade duties. They indulge in unethical practices of smuggling and under-invoicing to avoid taxes and export-import tariffs. It provides benefits to the company but inflicts trade losses on the host country.
According to research at the Institute of Economic Research, Charles University, 79 underdeveloped countries lose about $125 billion as lost tax revenue. These countries fall victim to multinationals from the developed world. These multinationals transfer around $420 billion as net profits. As compared to this, the advantage these developing countries receive is almost negligible. They cannot protest because they lack the financial muscle to stand against giant multinationals. Moreover, they depend on this business to run their economy. Multinationals know this and, as a consequence, exploit these underdeveloped countries.
Cutting costs in different business functions is among the biggest reason why companies go to international locations. They shift their production facilities to developed countries where they get lower labor costs. When the prime purpose is to reduce cost, then multinationals don’t hesitate to cut any corners. They strive to take full advantage of financial leakages. That is where corruption hikes. The United Nations Security Council quotes the global cost of corruption at a mind-boggling $3.6 trillion yearly.
Corruption and bribery during international trade contribute a large chunk of this amount. From receiving plant clearances to licenses of cross-border trade, bribery and corruption are everywhere. Even in the Fast-Moving Consumer Goods (FMCG) market, large multinationals influence local authorities to drive local vendors out of the market. Mass markets like South Asian states provide massive market expansion for these multinationals. They target these regions to drive more sales. Yet, take the crooked path to ensure more than usual profits.
When excessive power gets in the hands of a few, it distorts the natural balance, and things start to go south. The global international business landscape tells us the same story as only a few developed countries enjoy a strong position in the market. They control most of the international trade and have direct influence over trade authorities. Therefore, it becomes a deadly red ocean for any new market entrant. Moreover, these trade giants then create barriers in terms of trade sanctions to safeguard their market position.
According to a Washington International Trade Association trade report, the export of global goods stands at a whopping $18.4 trillion. Additionally, there is also an international trade of $5.9 trillion worth of services. Ironically, the 30 wealthiest countries control about 82% of this entire trade. Just five countries, the USA, the UK, Japan, France, and Germany, head more than half of this global international trade. Now, what are the odds a new market entrant would survive in the product categories dominated by these giants? Indeed, close to zero. The most significant harm comes in terms of economic dependence. The developing countries then depend on these giants to sustain their economies. Therefore, they never progress the way they can.
Business etiquettes are essential to provide the democratic notion of free markets. The international business currently operates in a dichotomy. We do enjoy the ease of purchasing things from other countries with a mere click. However, we also face stringent regulations for cross-border trade. The key is to understand the dynamics of international trade and follow the best practices. Appropriate ethical drives should always back businesses. Ultimately, your business will enjoy a better operational environment as well as a loyal customer base.