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Lecture 12. Business Practices, Ethics, Corporate Governance, and Social

Responsibility

Consumer Protection

• Product Safety, SK-II

• Fake products (related to IPR)

• Truthful labeling

• Unclear pricing

• Promotional tactics

– Real estate marketing in China and Hong Kong – Medical products

(2)

Other Ethics Problems in Marketing

Deceptive advertising, not telling the truth, implied,

Bundled promotion

Impact on the environment: pollution , waste, the Great Wall

Monopoly and unfair competition

State monopoly, e.g., portable phone numbers

IPR: a uniquely China problem?

International comparison of the percent of U.S. software package sales that are illegal copies

0 20 40 60 80 100

Percentage China Taiwan Iberia Switzerland Korea Japan

Italy Germany

(3)

Rights of consumers

Safety Information Choice

Fairness

Redress

-class action?

(集体诉讼)

Assembly

Education Respect Monitor

Anti Unfair Competition Laws

1、Fake products (of another brand);Danone vs. Wahaha 2、Unauthorized use of others’ trademark, packaging, brand name , company name, certificate of quality, origin of product, and mislead the buyers

Anti monopoly laws

Once a judgment is passed, the offender is subject to 50k-200k RBM in fines – enough a deterrence?

Legal Frameworks in China

(4)

Anti corruption / graft laws

hidden commissions or kickbacks

Deceptive Advertising

Untruthful representation of quality, content, function, usage, maker, expiration date, and place of origin

Concerning commercial secrets and privileged information:

Such as technology and proprietary practices, through means such as theft, bribery, extortion, unauthorized use, breach of nondisclosure agreement

Sales with rewards: prize

Deception, rewards to promote defected products, lotteries

Bundling

to promote some products against the will of consumers

Dumping:

selling below cost to hurt the competition, not including

perishable products, products with close expiry dates, overstocks, seasonal price reduction, bankcrupcies, divestment, etc..

(5)

Defamation

Fabrication, dissemination of untrue information to hurt the competition Red paint

Collusion in bidding

Collusion in bidding to suppress prices, conspiracy with the bid issuer to hurt the competition

Bribery and extortion

Offer bribery for favor

Demand bribery such as kickbacks or withhold

Stealing state secrets:

the Rio Tinto case

Advertising:

1) cannot have any detrimental effect on the under-aged and other disadvantaged

2) cannot badmouth the others: comparative advertising 3) must clarify your information and commitment, e.g.,

functions, price, maker, expiry date, content of service, exact prize

Remember sex appeals in advertising?

Sometimes there are no clear guidelines but occasional government clampdowns.

(6)

Laws concerning medical products

1、unscientific promise of benefits and guarantees

2、unclear healing power or effects

3、compare with others in functions or safety 4、advertise in the name of research, academic, medical institutes or that of doctors, experts, patients,

Tobacco Products:

No advertising through broadcast, movie, TV, newspaper or magazines

No advertising in waiting rooms, theaters, meeting rooms, sports facilities

Must indicate the harm.

Very much up to the international standards.

(7)

Guanxi or Relationship: a review

• Social capital and networks:

– Lubrication, greasing – Mutual benefit

• Westerners often view Guanxi as related to unethical behavior

– Lead to corruption – Privileged treatment – Under-table dealing

It’s a special type of relationship which contains trust, favor, dependence, and adaptation and often leads to insider-based decision making in the business world.

Guanxi is perceived as an ethical efficient means to efficiently conduct business in China based on Confucian cultural values

The Dynamics of Guanxi and Ethics for Chinese Executives

R. Chan, L. Cheng, and Ricky Szeto, J. of Business Ethics,12/2002

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Types of ethical philosophies:

1) self-interest, egoism, greed 2) Opportunistic, it depends

3) Principled, to abide by ethics criteria and rules One study uncovered 5 types of ethical views

1. Emphasize personal benefits rather than laws.

2. Explore Legal loopholes for profits.

3. Resist official governance and regulations.

4. Emphasize profits rather than friendship.

5. Giving favor and doing business within a Guanxi network.

Ethical Frameworks and Philosophies

Ethical Dilemma

Failure to take direct measures to offset and elude the effects of GuanXi and perform under ethical code of conduct in the business environment in China

Key Problem

Genuine dilemma

This refers to two or more valid ethic requirements or legitimate interests conflict and consensus do not exist as to how it should be resolved.

Moral laxity

This refers to one believe to do an important moral goal at some time, yet need not perform any particular action at the moment

Compliance problem

This refers to one knows undoubtedly what to do, but performance may be inhibited by pressures which run counter to morality

No-problem problem

This refers to one knows what the moral goal is and has the will and ability to pursue it

Typology

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Legal (law) Legal

(law)

Ethics (Opinions) Gray

Area Gray Area

Ethics In Business

Corporate Culture :

– how well an individual’s or an organization’s marketing activities exhibit ethical values

– Does good ethics = good business?

Golden Rule of Ethics

• “Do unto others as you would have them do unto you.”

• Different people understand this rule in different ways

• The other person may be different from you and does not want to be treated as you want to be treated!”

Marketing News. “Ethics can be gauged by three key rules.” Written by

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Why rampant corruption?

• Reforms and opening: opportunities for some, but many others cannot access

• Incomplete laws and regulations: loopholes

• Concentration of power among a few

• Lax enforcement and oversight mechanism

• Separation of regulators and the regulated

• Ethics education and conduct:

– 100 steps vs. 50 steps

• Organizational culture and climate

• Things changing for the better, slowly!

• Many good businesses: www.motionpost.cn

Corporate Social Responsibility

• Labor issues: sweat labor, product safety, worker safety, human treatment, new laws

• Environment protection: the air-quality regulations in China were comparable to the 1950s in the United States.

• Transfer of polluting industries to developing countries:

including many HK firms,理工大学校董会主席罗仲荣任大 股东的GP超霸电池,上週爆出工人集体中毒事件,其在 惠州工厂百多名女工,怀疑因接触及吸入可致肺癌及生畸 胎的化学物质镉,纷纷中招,出现腰痛、呕吐等征状

惠州

超霸

電池

廠是為美泰(Mattel Inc.)、玩具反斗城(Toys 'R' Us)和沃爾瑪(Wal-Mart Stores)等美國公司生產含鎘

電池

的中國

工廠

。 。

• Use of sweatshop labor (血汗工厂)

• Young workers at Foxconn Factory plunge to their death:

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Corporate Social Responsibility

• Sustainability: business models and consumption

• Scientific view of development:

– Raw materials, cheap labor, environmental crisis

• Charity:

– helping the poor, education,

• Privacy and human rights: Google.com

• Compliance: cost vs. benefit

TRADE SHOW -- As a sales person at a trade show, you have the opportunity to pick up an important document invariably left behind by a competitor.

GIFT Giving -- The purchasing agent of an important account wants an expensive gift; To provide it would violate company policy, while not providing it would lose the account.

What would you do?

References

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