Ethical Issues in Business

Ethical Issues in Business

• Discrimination is unethical and often illegal, involving unequal treatment of employees.
• Harassment, frequently related to racism or sexism, includes verbal, sexual abuse, teasing, racial slurs, or bullying.
• Unethical accounting is used by publicly traded companies occurs to falsely inflate their profitability.
• Cutting corners on health and safety can reduce costs or speed up tasks.
• Abuse of leadership authority includes harassment, discrimination, or pressuring employees to bypass procedures.
• Nepotism involves hiring family members.
• Favoritism involves treating an employee better than others for personal reasons.
• Privacy refers to protecting sensitive information from unauthorized access or misuse, like protecting customer data, and employee records.
• Corporate espionage involves misusing company data or stealing intellectual property.
• Bribery is offering or accepting money or items of value to influence a public official corruptly.

Why Nations Trade

• Nations specialize in producing goods and services where they have a comparative advantage.
• Trade enables nations to access resources not domestically available or available in limited quantities.
• International trade allows firms to achieve economies of scale, which lowers production costs.
• Trade increases the array of goods and services for consumers.
• Trade increases international competition, which leads to greater efficiency and innovation.
• Trade enables firms to access foreign markets and sell internationally.

Theories Explaining Trade Flows

• Comparative Advantage Theory, by David Ricardo, says countries should specialize in goods and services where they have a comparative advantage.
• Absolute Advantage Theory, by Adam Smith, theorizes that countries should specialize in producing goods and services where they have an absolute advantage.
• Heckscher-Ohlin Model, by Eli Heckscher and Bertil Ohlin, links factor endowments to a country’s comparative advantage.
• Product Life Cycle Theory, by Raymond Vernon, describes a product's life cycle from innovation in its home country to maturity and decline.
• New Trade Theory, developed by Paul Krugman, incorporates economies of scale and product differentiation.
• Gravity Model of Trade says bilateral trade flows depend on the economic sizes and distance between trading partners, based on Newton's law of gravity.
• Factor Proportions Theory attributes trade patterns to differences in factor proportions.
• Reciprocal Demand Theory, by Gottfried Haberler, focuses on the mutual demand between trading nations.

Free Trade System

• The free trade system eliminates existing tariffs.

Advantages of Free Trade

• Free trade leads to lower prices.
• Free trade increases productivity.
• Free trade eliminates trade barriers like tariffs and quotas.
• Free trade promotes innovation in production.
• Free trade supports increased economic development and living standards.
• Free trade results in overall economic growth.

Disadvantages of Free Trade

• Domestic industries struggling to compete with international competitors.
• Free trade resulting in increased job outsourcing.
• Free trade poses a threat to intellectual property.
• Free trade results in less tax revenue.
• Free trade leads to unhealthy working conditions.

Government's Role in Promoting National Competitive Advantage

• Government may intervene due to Market Failure and Externalities.
• Government intervention can be due to Strategic Importance.
• Government intervention can be to support Economies of Scale.
• Government intervention can be to support Research and Development.
• Government may intervene for Infrastructure and Skills Development.

Importance of International Trade Theory for Business Practices

• Comparative advantage shows businesses the strengths and weaknesses in their production.
• International trade theory helps businesses understand trade policies and regulations.
• Trade theory helps develop global market entry strategies.
• Supply chain management considers transportation costs, lead times, and inventory strategies.
• Businesses operating internationally face exchange rate risks.
• International trade theory guides selection of target markets and expansion.
• Businesses develop pricing strategies based on market conditions.

Policy Instruments Used by Governments in Trade

• Trade restrictions are unfavorable to importers.
• Trade promotion is favorable to exporters.
• Tariffs (government tax) are taxes on imported goods.
• Quotas limit the amount of specific goods.
• Embargoes are bans on trade.
• Local content requirements specify inputs from domestic resources.
• Currency controls affect convertibility of currencies.
• Administrative delays impair international trade flows.
• Export subsidies are financial aid from the government to domestic companies.
• Foreign free zones are special areas with reduced trade restrictions, taxes, or customs duties.
• Special government agencies are organizations supporting businesses in trade.

Reasons for Government Intervention in International Trade

• To protect infant industries.
• To keep employment rates healthy.
• Because of environmental concerns.
• To counter aggressive trade practices.
• Government intervention can be due to emotional arguments.
• To ensure consumer safety.
• Due to medical drug related concerns.
• To ensure compliance with regulations.