MGT Assignment

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Economic Issues

6

Chapter

Economic Issues

Issues

  • Corruption
  • Ethical Consumption
  • Ethical Sourcing
  • Microfinance
  • Profit
  • Supply Chain

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1. Corruption

Corruption is a fact of life, it includes dishonesty, exploitation, bribery, fraud etc.

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Costs associate with corruption:

  • Operational costs: Corruption adds additional expense throughout the corporate value chain and can lead to costly operational disruptions.
  • Legal risks: Corporations face substantial consequences if they engage in corrupt business conduct, including large fines and disqualification from future government procurement. For instance, the German engineering conglomerate Siemens recently agreed to pay a record amount in fines to settle bribery cases against the company
  • Competitive risks: Companies can also be at a competitive disadvantage if they refuse to pay bribes. Companies that adhere to strict principles against corruption can find themselves losing business to less ethical competitors who are willing to pay to influence the procurement process.

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Corruption also exerts significant costs on:

society (including reduced government services for the disadvantaged,

constraints on foreign direct investment in high-corruption countries, and

crime and instability resulting from decreased trust in government).

Corporations can play a greater leadership role and improve results in the broader anti-corruption effort by treating corruption as a strategic CSR issue and seeking proactive solutions to social problems critical to the business.

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1. Corruption

Companies can perform specific actions against corruption like:

i. influencing legislation: Companies can force the government to introduce new anticorruption laws.

ii. Organizing workshops: that include government, private sector, and civil society in an open discussion of anti-corruption reform. •

iii. Building capacity. Companies can lend expertise and help build skills in financial management, technology, or ethics (e.g., transparent procurement practices) to public agencies, or NGOs supporting public agencies.

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1. Corruption

1. Corruption

  • How legitimate is it for companies to operate with different standards in different countries and cultures?

  • Corruption means different things to different people. Some people argue that political campaign contributions are just another form of corruption. What is your reaction to this statement?

  • Why do you think corruption is more prevalent in some countries than others? What should a company do when operating in such an environment? Is it better to abide by local custom or try to impose standards and values from home?

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2.Ethical consumption

  • Being an ethical consumer means buying products which were ethically produced and/or which are not harmful to the environment and society.

  • Products which fall into the ethical category include organic produce, fair trade goods, energy-efficient light bulbs, electricity from renewable energy, recycled paper and wood products with Forest Stewardship Council approval.
  • Consumers have always cared about societal issues; those concerns are now more frequently turning into action as the more socially aware customer evaluates an enterprise’s CSR profile before making purchasing decisions.

  • Today, this consumer influence in support of CSR can be seen in marketplace trends, such as the growing number of hybrid automobile models, the popularity of eco-tourism, and the increasing availability of organic and fair trade foods.

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2.Ethical consumption

3. Ethical Sourcing

  • Ethical Sourcing is the process of ensuring that the products made are obtained through responsible and sustainable methods.
  • This includes ensuring that:
  • the workers who make the products are paid a fair wage and all human rights are met,
  • the factories are clean and safe environments to work in,
  • and that all social and environmental aspects of production to the workers and the surrounding communities are consider.

 https://www.dailymail.co.uk/news/article-8044079/George-Clooneys-coffee-beans-picked-child-labourers.html

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  • Brands continue to promote ethical

sourcing and sustainability efforts

Denney’s statement (Cage-free eggs)

  • The humane treatment of animals

remains an important part of our brand’s

sourcing strategy, and our commitment to

this transition underscores our confidence in the ethical evolution of supplier capabilities.”

  • Consumers would tend to buy more when they would know that the products are being ethically sourced and helped the farmers in the local community and the social issues attached with the product

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3. Ethical Sourcing

4. Microfinance

  • Micro finance is the support of entrepreneurs and small businesses with small low-rate or no interest rate loans.
  • Micro finance is often associated with developing countries where loans are provided to local artisans or farmers who need funding to get a small business off the ground. 
  • Supporting micro finance initiatives or creating your own program is a potential addition to your company's social responsibility program.
  • Examples:

  • http://www.accion.org/
  • https://www.kiva.org/

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4. Microfinance

  • Companies can make micro finance part of their CSR initiative.
  • They can support micro finance is by supporting a nonprofit that has an established micro finance program.
  • Or company may consider creating its own micro finance initiative to fund local entrepreneurs. 
  • Micro-finance organizations have significantly higher repayment rates (97% and above) than for-profit banks in developed economies?

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5. Profit

  • This issue forms an essential component of the CSR debate. The best of intentions aside, a bankrupt company does not benefit any of its stakeholders. Profits are essential to the survival of the firm and, as such, form a core component of the strategic CSR argument.
  • The study of CSR and its relation to corporate profits is growing.
  • The companies that fail to maximize their adoption of a CSR strategy will be left behind.
  • Recently, empirical evidence has shown that customers are willing to pay a higher price for products with CSR attributes and that CSR programs influence 70 per cent of all consumers' buying decisions. As a result, many leading international brands, such as Walmart, Nike, Adidas and Gap, have been compelled to incorporate CSR in their complex supply chains via a code of conduct 

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6. Supply Chain

  • This issue highlights the complexities of CSR when dealing with conflicting values in different cultures. This is a particular problem for multinational corporations that source their products in many different countries, but need to try and satisfy all stakeholders.

  • It focuses on a) supply of materials to manufacturers

b) manufacturing process

c) distribution of finished goods through a network of distributors and retailors to a final customer

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  • Actual execution of socially-responsible business models requires overcoming a variety of logistical complexities.

  • Environmental critics were skeptical that many of Unilever’s products used palm oil, the production of which was responsible for heavy deforestation in places like Indonesia.

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6. Supply Chain

  • Companies are expected to be able to track the carbon footprint not only of their own manufacturing activities, but also their transportation, distribution and procurement activities, while monitoring the related activities of their extended supply chains as well

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6. Supply Chain