One of the most successful companies to set up business abroad is the famous shoe and sports apparel manufacturing and marketing company Nike. The Oregon-based company does business in 45 countries, employing nearly a million people, outsourcing products from more than 500 factories worldwide. The company reaps the benefits of this global strategy by the billions, with Nike’s revenues for 2010 reached US$ 19.014 billion and a net income of approximately $2 billion in the same year.
A company of this size and reach would not set up shop in one country in the same manner as it would in the next country. Nike, to be effective and efficient, must be sensitive to the major and subtle cultural intricacies of each country it operates in, and yet have the sensibilities to operate at a highly professional level to reach its business objectives. Nike has done so, conquering the international business arena with its speed, inventiveness and careful use of resources and opportunities. This road has not been easy, even to a company with the financial girth and corporate-talent load such as Nike. Nike encountered many stumbling blocks, from problems in actual production, to accusations of environmental maltreatment, to irresponsible corporate governance in other host countries. Its international marketing department, one of the most prolific in the current business landscape, scrambles and juggles its campaigns continuously, to fit the needs of the markets in different countries it wishes to lead in.
More and more, the realities of doing business abroad has been one of the most important, current and easily-overlooked issues corporations may encounter. Globalization of both markets and production processes has increased the required sophistication a corporation must have to deal with cross-cultural ethical and business issues. Globalization has caused consumer preferences to become harmonized and standardized, however, despite the seeming “homogeneous-ation” of demand; business operations have not become any easier. The most obvious and perhaps convenient way to explain this is the fact that every country is different economically, culturally, politically and structured legally. The notion of being able to copy and transfer a successful business practice from one country to another has never been proven to work correctly and absolutely every time.
Wikipedia defines marketing as that activity or process that creates, communicates, delivers and exchanges offerings that have value for customers, partners and the society. Wikipedia also defines international marketing as the type of marketing carried out by corporations overseas. The American Marketing Association defines international marketing as the process of planning and executing a concept, whether that be price, promotions, or distribution of ideas, goods and services, across national boundaries, to satisfy individual and organizational objectives. In international marketing efforts, the common causes of concern are demand, competition, and the local economic, legal, and cultural/ethical environment.
While demand and competition takes precedence most of the time, the cultural and ethical impact cannot be taken less seriously. McDonalds has been successful at getting a foothold in most of the European countries it has entered but almost failed to sustain its presence in France due to cultural differences. McDonalds heavily marketed the idea of drinking soda with their meals, a thing that the French opposed vehemently, because of their cultural connections with wine and food. McDonalds had to adjust its marketing campaign, resulting in alcohol being sold in the same outlet where BigMacs are available.
Regulating International Markets
These institutions exert prudent force on keeping the pace of globalization, that is, the integration of production and demand centers in check. The pace of globalization right now is at a blinding pace. A small restaurant serving pizza in Seattle may just as easily set up its franchise in Czechoslovakia and strive there, in the same way a Pizza Hut could. This cross-border business integration is made possible by two critical things. The first is the removal of trade barriers and the second is the rapid pace of technological development. Trade barriers have been removed through the formation of multilateral trade agreements such as the North American Free Trade Agreement, the European Trade Block and the ASEAN Free Trade Agreement, as well as bilateral arrangements from major production and consumption centers.
Issues on Business Ethics
Despite its many advantages and opportunities, globalization has also created problems for international business. Due to the difference in working environments, not one single management “approach” has proven to be successful in the international business arena, due to differences in economic, social, legal and even ethical facets of a particular country.
The stark difference and the looming difficulties can best be seen in marketing goods and services. In international marketing one approach cannot be taken by a corporation and utilized across all its markets. One cannot expect that a campaign by one of the largest fast food chain McDonalds Hamburgers in a country such as India, where meat from cows are considered sacred could be the same one it uses for Australia, which is one of the most prolific producers of beef in the world.
Yet there is a McDonalds store in downtown Mumbai, that has been operating for about 10 years now. What McDonalds and other equally successful companies have done is to transfer their core competencies from the base of their operations such as the ability to reduce costs, efficiently manufacture, improve or domestic skills, tweak its marketing campaign, take it oversees and “customize” the strategy according to its “goodness of fit” with the local conditions. McDonald’s, after successfully entering the ASEAN market, played on its manufacturing-like treatment for its restaurants and offered locally flavored offerings (i.e. Durian flavored sundae in Indonesia and tomato-sauce based spaghetti in the Philippines) to capture and retain market share. McDonald’s marketing strategy of being the “world’s fast-food” is the reason why the company has a global reach of 33,000 locations worldwide, US$ 25 billion in annual revenues, US$ 5 billion in net income and US$ 32 billion in total assets.
One of the most critical items that McDonald’s has taken into account is local business ethics. Cases of companies trying to do business is economic powerhouses India and China today, ending up flat on their faces has often been caused by the non-observance of local business ethics, a metric that has taken the very last, back-most seat after EBITDA, percent gross margins, and return on assets.
Ethics, the study of moral values often leading to definitions of what is “right” or “wrong” is normally associated with culture, that being the whole complex of knowledge, beliefs, morals, laws and customs of a society. Because of the complexity and variability of cultural and ethical environments in any particular country, doing business there becomes arduous if not totally prohibitive. Consider doing business in a country whose “ease of doing business” rank falls in the lower quartile (such as Chad, Congo Republic or any other emerging African economy) and you would be encountering costs that would not be considered above board or ethical in a country that has high regard for business process transparency (such as Singapore). If the first step of conducting business in a foreign territory is bribing your way into that country, then the requirements of being successful there must surely produce a long list of to-dos.
Marketers, such as the sports apparel and footwear super brand Nike, faces the problem of not having an ethical standard for all countries it operates in. In some cases, it must succumb to standards that are not at par with its own ethical standards to succeed in the business place. A case in point is the alleged use of minors in China for the production of its shoes and sports apparel. While that may be unethical with respect to the company’s Oregon roots, it is what is practical and in fact a sustained business approaches in some of China’s low income, impoverished regions. Providing jobs to those that live way below the poverty line does sound like a good idea to them. Marketing products coming from these production centers thereby connotes a negative effect to consumers.
If one considers the moral implications of marketing as a dilemma to domestic marketers, then the same moral implications must be considered for international marketers. Studies have shown there is no universal guideline for international marketing. Clearly, there is neither “marketing norm nor rule of thumb” that international marketers can follow. Value judgment becomes the only approach that could be internationally used. Despite numerous studies about possible structural identification of how international marketing should be conducted and the ethical issues to follow, there are not definite results. However, what are most documented are the types of ethical barriers that one may encounter in the conduct of business. These include:
Bribery – the exchange of cash or gifts for favors, often in violation of existing legal requirements. Briery come in both small scale and large scale. In some developing countries, there is an expectation of bribery or gift giving to skirt around certain rules or regulations. Companies willing to set up shop may be faced with the expectation to provide such bribes.
Unfair pricing, which includes imbalanced or differentiated pricing of products and services or questionable issuance of invoices. In developing countries, one ethical barrier are incidences of unfair pricing, for instance setting up a ceiling price for products that would enable local producers to gain considerable advantage. Use of banned technology. In some countries, marketers encounter ban on certain technologies that may give entrenched corporations competition. In some countries in South East Asia, incinerators are banned from use thereby allowing open land-fills to continually be used for solid waste management.
Evasion of tax payments from income taxes to value added taxes to import duties and tariffs. Entry into a particular country whose tax structures are different may mean that international corporation may have to subject themselves to creative accounting to fit within required tax parameters. Involvement in political affairs. Some multinational companies, because of their financial capabilities and political connections, may questionably exert influence to acquire advantage over competitors.
The Challenge of International Business and Law Practitioners
The challenge for international business and law practitioners may be summarized as the challenge of not violating any basic moral values in international marketing. Whether or not there are laws to guide companies in marketing their products in other host countries to provide for ethical business behavior, the guiding principle, although it may not be always obvious or practical, shall be that the said actions must cause more good than harm, especially to the host country. Often we read about companies that are “willing to do anything” to gain in the market place. These companies do not self-regulate thereby highlighting the need to institutionalized assistance, such as the involvement of the WTO.
The role of international business and law practitioners can in turn be summarized as follows, leaders and participants of international business; especially those engaged in international marketing must conduct their activities in a reformed, well-organized, equitable and ethical manner. This is the only way for the all economies to succeed and survive.
Connor, M. 2010, Nike: Corporate Responsibility at a “Tipping Point”. Taken from http://business-ethics.com/2010/01/24/2154-nike-corporate-responsibility-at-a-tipping-point/ Retrieved on May 5, 2012
Salameih, M. and M.A.A. Rousan, 2009. Issues in International Marketing Efforts. Taken from http://www.eurojournals.com/ajsr_6_02.pdf Retrieved on May 5, 2012
Yucel, R., H. Elibol, O., Dagdelen, 2009. Globalization and International Marketing Problems. Taken from http://www.eurojournals.com/irjfe_26_08.pdf Retrieved on May 5, 2012
Wikipedia: Marketing. Taken from http://en.wikipedia.org/wiki/Marketing Retrieved on May 5, 2012
Wikipedia: International Marketing. Taken from http://en.wikipedia.org/wiki/International_marketing Retrieved on May 5, 2012