A Study on the Impact of Ethical Behaviour of Firms on Global Competitiveness Ranking

(1)

1 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Volume-5, Issue-6, December-2015

International Journal of Engineering and Management Research

Page Number: 1-8

A Study on the Impact of Ethical Behaviour of Firms on Global

Competitiveness Ranking

Sivaraam Duraisamy1, Dr. V. R Nedunchezhian2

1

Research Scholar, Karpagam University, Coimbatore, INDIA

2

Professor, KCT Business School, Coimbatore, INDIA

ABSTRACT

Success is journey and not a destination, is the famous quote which reminds everyone in the business that do the business for a long term benefits and not for the short one. In the globalized world, building trust with the customers from various part of the globe is a key factor for the success in the business. Ethical behavior of the firms plays major role in building trust retaining the customers. Ethical behavior confirms to following best practices, following standards, regulatory requirements and laws. It is needed to compete with others to sustain in the market and making the nation pride to march towards the betterment. The countries competency is also identified based on its Global competitiveness index. Global competitiveness index is calculated based on twelve parameters categorized under three headings namely Business Requirements, Efficiency Requirements and Innovation and sophistication factors. As both Ethical behavior of firms and the Global competitiveness index are helping to evaluate the status of countries, there should be some relationship between these two. Five years data on the ethical behavior of firms and the competitiveness index is taken for the study. Random samples are taken from the countries showing improvement, countries with declining results, and countries which exists at the same level are taken and the analysis is done. It is found that there is a strong positive correlation between Global competitiveness ranking and Technical readiness ranking.

Keywords---- Ethical Behavior of Firms, Global

Competitiveness Index, Global ranking

I. INTRODUCTION

When we look back the history of India, Indians were doing business across the globe even before British people took the control of India. After independence, again Indians spread their wings across the globe in the business. After globalization, the competition has increased, winning the customers’ trust becomes a major bench march, to exist and expand the business. Ethical behavior of the firms decides not only their brand, but

also the image of the country. Ethical behavior is decided by consistently following some of the recommended standards accepted by the firm, community, laws, regulations and agreements. Ethical behavior of firms is a parameter considered to know the competitiveness of the institution and a nation.The Global competitiveness report shows that India is showing a negative growth in getting the ranks. It seems that other countries are growing faster than India. This paper analyzes the importance of ethical behavior of firms and its impact on the Global ranking among the selected countries. The report helps the stakeholders in understanding the relationship between the ethical behavior of firms and the Global competitiveness ranking and the way to achieve better ranking through improving the ethical behavior of firms.

II. OBJECTIVE

Once in a year World Economic Forum is publishing a report on the competitiveness measured in terms of competitiveness score and ranking. The trend shows that India is scoring lower and lower ranks year by year. Ethical behavior of firms is one of the parameter considered to calculate the Global competitiveness ranking. As a growing country, India depends on foreign direct investment. Global competitiveness rank is one of the key parameter considered by the investors. The objective of the study is to know the relationship between Ethical behavior of firms and the Global Competitiveness ranking, If Ethical behavior of firms found to have a significant impact on the Global Competitiveness ranking, suggesting the areas for improving the ranking of Ethical behavior of firms.

III. LITERATURE REVIEW

(2)

2 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Azim Premji (2012), in his article Capacity building helps ethical behaviour8mentions that employees should witness their organizations infusing ethical practices into everyday action

Zubin Mulla (2013), in his publication Corporates in India cannot afford to be ethical10mentions that political corruption and administrative corruption has grown to the level that “Corporates in India cannot afford to be ethical”.

National Human Rights Commission (2012)in the Developing Code of Ethics for Indian Industry, Final Report, states that in a competitive world, an updated and well-defined code of ethics reflects the core values of an organization

Rania Ahmed Azmi(2006) in the paper Business Ethics as Competitive Advantage for Companies In the Globalization Era11states that “An integrity approach to business can yield strengthened competitiveness: it facilitates the delivery of quality products in an honest, reliable way.

IV. DISCUSSION

Global Competitiveness Score and Ranking helps the foreign investors to decide about their investment in other countries. Competitiveness Index and Ranking are important influencing factors of foreign direct investment.

Global Competitiveness Score is calculated based on twelve parameters classified under three headings. Institutions, Infrastructure, Macroeconomic environments and Health and primary education are listed under the heading of Basic requirements. Human education and training, Goods market efficiency, Labor market efficiency, financial market development, and Ethical behavior of firms Market sizes are grouped under the heading Efficiency enhancers. Business sophistication and innovation are categorized under the heading Innovation and sophistication.

Ethical behavior of firms is the parameter used to know the level of trust worthiness of the firms in a country. Global Competitiveness Report 2014-15 published by the World Economic Forum says that “an economy is well served by businesses that are run honestly, where managers abide by strong ethical practices in their dealings with the government, other firms, and the public at large1”.

The Business Dictionary defines “ethical behavior” as acting in ways consistent with what society and individuals typically think are good values. Ethical behavior tends to good for business and involves demonstrating respect for key moral principles that include honesty, fairness, equality, dignity and individual rights.

The ethical behavior of forms score in the Global Competitiveness Report is arrived based on the feedback received for the question, in your country, how would you rate the corporate ethics of companies (ethical behavior in interactions with public officials, politicians, and other firms)

Data are taken from The Global Competitiveness Reports published by World Economic Forum and World Development Indicators. Samples are selected randomly such that two countries which made a significant improvement in scoring Global Competitiveness Rank, two countries which lost their ranking and two countries hold their ranking in the same level. Along with India is also considered.

Because of globalization, the reachability to latest technologies, new vendors, and new customers also became easier which results in the continuous growth of competition. Customers’ expectations are also increasing. So for the institutions it becomes mandatory to be honest in their business to retain, improve business and to get recognition in the public and market.

INDIA

India, being a growing country has its own limitations in-terms of investment, infrastructure. India has good working force, and is growing in all the areas. The Global Competitiveness Reports from 2009-10 to 2014-15 shows the Global Competitiveness score being 4.3 till 2013-14 and in in 2014-15 it decreased by 0.1, whereas the rank has come down from 49 to 71. Ethical behavior is grouped under the heading Basic requirements. The score of Basic requirements has improved from 4.18 to 4.25 and the ranking come down from 79 to 92.

At the time of calculating the GCI, Basic requirement is given 60% of the weightage and Efficiency enhancers is given 35% weightage and the remaining 5% is given to Innovation and sophistication factors. So the impact of Efficiency enhancers and Innovation and sophistication factors are less impact. So the Basic requirements are taken for the study. In the basic requirements the Ethical behavior is one of the parameter.

Table 1- India - Year wise Ethical Behavior of Firms Score and Ranking

Year 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 Ethical behavior of firms mean

Score 4.2 4.1 4.2 4.2 4.2 4.3

Ethical behavior of firms Score 3.8 3.7 3.8 3.7 3.9 4.1 Ethical behavior of firms Rank 88 86 81 86 70 57 GCI Score 4.2 4.3 4.3 4.3 4.3 4.3

(3)

3 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Source: Global Competitiveness Report 2009-10, 2010-11, 2001-12, 2011-2012, 2012-13, 2013-14, 2014-15

Figure 1 –India Correlation between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

Table 1shows that both the Ethical behavior ranking and Global Competitiveness ranking are coming down. The Figure 1 shows there is a relationship between Ethical behavior of Firms Ranking and Global competitiveness ranking. The correlation coefficient is 0.7876 shows a strong positive correlation.Data related to India gives an impression that there is a relationship between these two.

.

SWITZERLAND

Switzerland is the one which is retaining its GCI rank as 1 for a longer period. The rank it scored in Ethical behavior of firms is moved from 6 to 5. In between the rank was 4 during 2013-14. The Global Competitiveness Reports from 2009-10 to 2014-15 shows the Global Competitiveness score being 5.6 in 2009-10 and 2010-11 after that till 2013-14 it is 5.7. Switzerland stands top scoring rank 1 during the study period.

Table 2 - Switzerland - Year wise Ethical Behavior of Firms Ranking

Year 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 Ethical behavior of

firms Score 6.2 6.2 6.4 6.5 6.4 6.4 Ethical behavior of

firms Rank 5 4 5 6 6 6

GCI Score 5.7 5.7 5.7 5.7 5.6 5.6

GCI Rank 1 1 1 1 1 1

Figure 2 – Switzerland - Variations in Ethical Behavior of Firms Ranking 2009-10 to 2014-15

40 60 80 100

2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - India

Ethical behavior of firms Rank GCI Rank

Linear (Ethical behavior of firms Rank) Linear (GCI Rank)

3 4 5 6 7

2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Switzerland

(4)

4 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Table 2 shows CGI rank is constant whereas the Ethical Behavior of Firms rank is improved. In this case CGI rank is 1, so it cannot be improved further. Ethical Behavior of Firms score varies between 5.6 to 5.7. The correlation, between the Ethical Behavior of Firms Score and GCI Score is – 0.316.

As Switzerland is already in the top, the slight deviations in the other areas will not show any significant correlation. For the past six consecutive years Switzerland retains the first place. Switzerland is strong in Innovation and sophistication factors scoring 1st place. Switzerland’s data is not helping to come to a

conclusion to say Ethical Behavior of Firms rank has an impact on Global Competitiveness Ranking,

PHILIPPINES

Philippines is a country which is a fast growing in the GCI ranking ladder.GCI score of Philippines has improved from 3.9 to4.4during the period 2009-10 to 2014-15 resulting an improvement in the ranking from 87th to 52nd. It is a good achievement. The ethical behavior score improved from 3.3 to 4.3 and the ranking improved from 116 to 49.When we look into the other Scores, the Basic Requirements score is improved from 3.9 to 4.63 and the ranking improved from 95 to 66.

Table 3 - Philippines Year wise GCI and Ethical behavior of firms

firms Rank 49 69 87 118 129 116 GCI Score 4.4 4.3 4.2 4.1 4.0 3.9

GCI Rank 52 59 65 75 85 87

Figure 3 – Philippines - Correlation between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

Table3 shows Philippines scored better ranks both in GCI and Ethical behavior of firms. The correlation coefficient is 0.9539. The existing data shows that Ethical Behavior of firms have impact on the Global Competitiveness Ranking.

TAJIKISTAN

It is a small country with 8.208 million populations. More than 50% of the revenue is generated by service sectors and manufacturing industry. Agriculture contributes the rest of the revenue. It also made a remarkable positive movement in the GCI ranking from 122 to 91.

Table 4– Tajikistan Year wise GCI and Ethical behavior of firms

firms Score 4.0 NA 3.8 3.7 3.4 3.4 Ethical behavior of

firms Rank 67 NA 78 85 101 109

GCI Score 3.93 NA 3.80 3.77 3.53 3.38

GCI Rank 91 NA 100 105 116 122

40 60 80 100 120 140

2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Philippines

(5)

5 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Figure 4 – Tajikistan - Correlations between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

Table4 shows a significant growth in Global competiveness ranking and the Ethical behavior of firms from 109thrank to 67th rank and 122ndrank to 91strank respectively. The ranking correlation coefficient is 0.9725. We can say improvement in ranking of Ethical behavior of firms also helped in achieving better ranking in Global Competitiveness Ranking. .

TUNISIA

It is a small country having 10.8 million population. This country gets more than 50% of its revenue from service sector. Manufacturing contributes 30% to 40% and the rest is taken by agriculture.

Tunisia data shows downward growth.GCI score declined from4.5 to 4.0 during the period 2009-10 to 2014-15. It lost 47 places in the ranking sliding 40 to 87. When we look into the other Scores, the Basic Requirements score declined from 5.1 to 4.4

Table 5- Tunisia Year wise GCI and Ethical behavior of firms

firms Score 3.9 4.0 NA 4.6 5.2 5.1 Ethical behavior of

firms Rank 75 65 NA 42 29 31

GCI Score _4.0 _4.1 _NA _4.5 _4.7 _4.5

GCI Rank ₈₇ ₈₃ _NA ₄₀ ₃₂ ₄₀

Figure 5 – Tunisia - Correlations between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

40 60 80 100 120 140

2014-15 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Tajikistan

Linear (Ethical behavior of firms Rank) Linear (GCI Rank)

20 40 60 80 100

2014-15 2013-14 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Tunisia

(6)

6 Copyright © 2011-15. Vandana Publications. All Rights Reserved.

Table 5 shows a Tunisia made downward growth in the GCI Ranking and also in the Ethical behavior of firms ranking. GCI ranking is dropped from 31 to 75 and the GCI ranking is dropped from 40 to 87. The rankings correlation coefficient is 0.9744. We can say declining in ranking of Ethical behavior of firms also impacted in the in Global Competitiveness Ranking.

EGYPT

Egypt having 78.08 million population doing more on service followed by manufacturing and agriculture

Egypt is also shows thedownward trend. The GCI score declines GCI from 4.0 to 3.6 during the period starting from 2009-10 to 2014-15. The ranking shows a downward movement from 70th rank to 119th rank. When we look into the other Scores, the Basic Requirements score declined from 4.2 to 3.7. Efficiency enhancers’ score declined from 3.9 to 3.6 and the Innovation and sophistication factors area also shows a declining score 3.5 to 3.2

Table 6 - Egypt Year wise Global competitiveness and Ethical behavior of firms

firms Rank 69 57 73 90 59 52

GCI Score 3.6 3.6 3.7 3.9 4.0 4.0

GCI Rank 119 118 107 94 81 70

Figure 6 –Egypt - Correlations between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

Table 6shows a depression in the Ethical behavior of firms score and rank. Global competitiveness score and rank also came down. A positive correlation of 0.2597 is seen between the ranks. This shows the Ethical behavior of firms has an impact of the GCI ranking.

BELGIUM

Belgium is a small country with 11.2 million population. Service sector fetches more than 75% of the revenue. Manufacturing is the next contributor, agriculture contributes very minimum.

Belgium data shows a slight improvement in the CGI score moving from 5.1 to 5.2. During the period the rank obtained varies from 15 and 19. When we look into the other Scores, the Basic Requirements score improved from 5.43 to 5.53.

20 70 120 170

2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Egypt

(7)

Table 7 Belgium - Year wise GCI and Ethical behavior of Firms

firms Rank 19 22 20 18 21 20

GCI Score 5.2 5.1 5.2 5.2 5.1 5.1

GCI Rank 18 17 17 15 19 18

Figure 7 – Belgium - Correlations between Ethical Behavior of Firms Ranking and Global Competitiveness Rank 2009-10 to 2014-15

Table 7 shows a slight fluctuation in the Ethical behavior of firms score and rank. Global competitiveness score and rank also undergone similar fluctuation. A positive correlation of 0.3536 is seen between the ranks.

This shows the Ethical behavior of firms has an impact of the GCI ranking.

V. COMPARISION BETWEEN

COUNTRIES

Table 8–Ethical behavior of firms and Global competitiveness ranking Country Correlation in Ranking Correlation in the Score

India 0.7876 0.1085

Switzerland NA -0.3160

Belgium 0.5175 0.3536

Philippines 0.9539 0.9021 Tajikistan 0.9725 0.9669

Tunisia 0.9744 0.9540

Egypt 0.2597 0.3750

Source: The Global Competitiveness Report 2008-09 to 2014-15

It is observed that all the countries except Switzerland have positive correlation between the Ethical behavior of firms and Global competitiveness. Switzerland already in the Top 1 Ranking, the impact made by Ethical behavior of firms doesn’t affect the overall ranking.

VI. ETHICAL BEHAVIOUR OF

INDIAN COMPANIES

Azim Premji (2012), in his article Capacity building helps ethical behaviour8mentions the real threat to the business is from within, from poor ethical

standards and lack of integrity that can incalculable harm. He also mentions that the business integrity is directly related to the future of the company. In the last decade the response from the business community to integrity violations and breaches is growing wider and stronger.

Tata Steel and Wipro are the two Indian companies listed among the most ethical companies in the world9. They are the top two leaders in the IT sector also. This is a proof that ethical behavior will lead to successful business in the globe.

10 15 20 25

2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

Ethical Behaviour of Firms Rank Vs. GCI Rank - Belgium

(8)

Zubin Mulla suggests that individuals should turn to be ethical and the organizations should define code of conduct and monitoring and enforcement are to be in place.

VII. CONCLUSION

Doing business will always have lots of risks. Normally doing with business with unethical person and forms is a high risk, and the benefit received on taking that high risk is negligible. So doing business with the person, firms with unethical behavior are not preferred. The same theory is proved here also. In all the countries considered in this study shows that the ethical behavior of firms have impact on the Global competitiveness ranking. Investors’ objective is getting return on investment at the earliest. To attract investors the Competitiveness rank should be higher. Ethical behavior firms also bring better business. Growing countries should get themselves ready with the growing technology to grow further.

Being a growing country India has to strive for its excellence. Though corruptions are there, to exist in the market for a longer time it is mandatory to be more competitive in all the places, to be competitive the organizations should define ethical codes and should ensure that it is being followed by all in the organizations.

REFERENCES

[1] Klaus Schwab,(2014)The Global Competitiveness Report 2014-15, World Economic Forum

[2] Klaus Schwab, (2013)The Global Competitiveness Report 2013-14, World Economic Forum

[7]

[8] Forbes India magazine issue of 25 May, 2012.

[9]

[10] Zubin Mulla, Corporates in India Cannot Offered to be Ethical, (Published in Management & Labour Studies, February