January 10th, 2018
Ethics in International Business – Relocating to China.
Firms face a challenge of maintaining high integrity despite the increasing competition in the global market, and minimal-performance requirements by their investors. Failure to maintain ethical practices has at times led to the collapse of entities as unearthing of unethical practices makes it difficult for the entity to recover its corporate reputation (Heineman, 2007). The spectrum of ethical issues that face corporations has widened as business try to maintain their performance by expanding to global markets. One of such ethical implication has been in respect to expansion to China. Despite its heightened political risks and curtailed freedom, corporations are forced to establish manufacturing plants in the country to tap its market potential, out of government policies that make sales in the country contingent to an entity’s FDI in China. This part considers the ethical implications of companies establishing their operations in China, to reap short-term benefits, while transferring managerial and technological skills to the country.
Multinational corporations should view China’s incentives in terms of its long-term impacts. Evaluating China’s scientific and technology initiatives highlights that China’s core incentive in allowing multinationals into its market is to enhance unethical technological and managerial-skills transfer. For instance, the indigenous innovation policy adopted by the Chinese government provides Chinese firms with better prospects of securing state contracts by requiring foreign companies intending to engage in such market to transfer technological skills to local individuals (Linton, 2010). Through such policies, local firms have obtained technological skills at times with disregard to property rights, a factor that has led to their propagation of cheap but low quality alternatives in global markets. Accordingly, by agreeing to Chinese government terms, multinational corporations are contributing to the propagation of a culture that disregards property rights thus discouraging innovative approaches that would lead to development of new and better products. This scenario is illustrated by the Joint venture between Kawasaki and China to build high-speed rail network, a strategy Kawasaki intended to use to penetrate the Chinese market. After technology transfer, Chinese companies currently make cheaper trains than Kawasaki and compete against them in international markets, with Kawasaki protesting that trains constructed by Sifang – a Chinese company – are based on its own technology (Linton, 2010). Likewise, the China National Railway Signal and Communication Corp, edged out Siemens, its former partner, in the bid to build the Beijing-Shanghai high-speed link (Linton, 2010).
Western companies should take caution regardless of the risk of losing sales in China. China takes advantage of the Western companies’ drive to make profits to acquire technology from them (Lawrence, 2010). Western companies lured by cheap labor, massive market and bigger profits, build their plants in China, which however, provide short-lived benefits thus making it hard for them to recoup their investment. In the long-term, the Chinese companies sprout and overtake the companies eventually reducing their profitability and viability. For instance, shareholders of Caterpillar, an American company, could be flourishing now since their share price has increased two folds in less than twelve months mainly due to increase in demand from China (Linton, 2010). However, working Americans have not realized any the benefits in terms of employment opportunities or improvement of wages. Another example is the Q-Cells of Germany, which was a global market leader in solar panels. After technology transfer to China’s Suntech Power, the latter has outsmarted them overtaking their global sales. As a result, the stock market value of Q-Cells has fallen rapidly from €11 billion at the end of 2007 to about €390 million; currently they face multiple domestic problems. Other Chinese competitors in the solar manufacture have also come up. In the long-term, expansion to China thus faces not only political risks, but also has the potential to prevent the entities from reaping a return on their investment out of unethical competition that results.
Heineman, B. W. (2007). Avoiding integrity landmines. Harvard Business Review, (April 2007); 100-108, retrieved May 29, 2011, from http://blogs.law.harvard.edu/corpgov/files/2007/11/hbr_heineman_avoiding-integ.pdf
Lawrence. V.K (2010) US – China relations: policy issues. Washington, DC: Congressional Research Service
Linton. K. (2010). China: intellectual property infringement, indigenous innovation policies, and frameworks for measuring the effects on the U.S. economy. Washington, DC: United States International Trade Commission Publication.