IGNOU : M.COM : IBO 1 : UNIT 19 : Q - 1. Describe various ethical v/s unethical activities of Multinational Corporations.

 

Ans. Ethical v/s Unethical Activities

Even when there is proactive behaviour on parts of many MNCs in their marketing practices, some of their activities have been debated regarding their ethical nature. While many issues have been raised in this debate, major ones having a bearing on international trade are listed below.

i) Selling Products Less in Demand in Home Countries : After products reach maturity or face decline in demand due to their particular stage in product life cycles in developed markets, there is pressure on firms to sell them in the markets of less developed countries (LDC). Such is the case about tobacco products. It is experiencing decline in consumption in USA and Europe due increased awareness about its potential bad effects. In addition, there is increased competition among producers. Many tobacco companies to retain their profitability are targeting the LDC markets where smokers are not fully awate of the risk of smoking. Such a move is open to question regarding its ethical nature.

ii) Selling Prohibited Products in LDC Markets : In some cases drugs and chemicals prohibited in developed countries, due to their harmful effects, are being sold in LDC countries. This has been justified as not necessarily exploitative. Take the case of DDT. It is known to contaminate ground but it is also only known counter to malaria-bearing mosquitoes and therefore benefits of its use in a LDC, where malaria is rampant, far outweigh its cost. Similar arguments have been also advanced in respect to many drugs and veterinary products, withdrawn from developed country markets due to their side effects, as still useful to LDCs who cannot afford the high priced developed substitutes, now in use in developed countries.

iii) Selling Products Likely to be Misused : Products developed to be used in an environment may be used incorrectly by consumers due to changed circumstances, lack of knowledge or scarcity of resources. If such misuse can be foreseen, marketing of such products is unethical. One such case was marketing of milk powder by Nestle in LDCs. The company was not fully mindful of its implications for the mothers and the babies, in situation of lack of clean water, money and training. Investigations of some pressure groups have revealed the following.

iv) Restrictive Trade Policies : Restrictive trade policies adopted by certain governments have been labelled as unethical by other governments and companies in international trade. The relative closeness of Japanese market has been attributed to many historical and cultural factors (such as Japanese consumers having tradition of purchasing locally produced goods that is perceived to be superior) but also due to protectionist policies pursued by the government there. There have been high import tariff and non-tariff barriers for wide range of products.

v) Dumping : Dumping occurs when goods produced in one country are offered for sale, in large quantity, at very low price, in international markets. Such trade has been regarded as questionable. Reasons behind such trade include state subsidies, debt write-offs and high exit barriers of a particular industry (e.g. steel, shipbuilding and aircraft manufacturing). Such trade leads to hurting of business and jobs in one country by state-supported, non-viable jobs in another country. A case of supporting non-viable jobs is evident in many national air-carriers, which are subsidized even when there is substantial over-capacity in the industry.

vi) Counterfeiting : This growing problem relate to firms violating the patent and copyright of another firm, usually in case of luxury products. The product copies 0 are normally produced in LDCs. This leads to creation of jobs in copying countries, mostly LDCs, and consumers, particularly in developed countries, have opportunity of purchasing a copy of a luxury product at very low price. However, the producers of original products claim that this practice leads to diminishing value for their products, whose image has been built through large investment. There are many that hold that the concept of counterfeiting and the violation of intellectual property right appear to be a Western and ethnocentric view of ethics. If such right exists than China should get royalty for noodles, compass and ice cream.

vii) Grey Marketing : This arises when goods are imported and sold through market distribution channels not authorized by the manufacturer. It occurs mainly due to significant differences in market price of same product in different countries. Such difference in price can occur due to variation in exchange rates, differences in country taxation rates and differences in market cost structures. This makes it attractive for an unauthorized dealer to purchase branded products at low rates in one country and sell it at higher price in another country. Such practice, when assumes significant proportion, makes the authorized dealer demotivated.