Ethics (Edexcel A Level Business)

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Written by: Jennifer Aryiku, Economics Content Creator

Reviewed by: Steve Vorster, Economics & Business Subject Lead

An Introduction to Ethics

Business ethics refers to the principles and norms that govern business behaviour
The ethics of a business will determine how they operate and their decision making process
Unethical actions can damage the brand and result in a loss of profitability
- Unethical actions are usually pursued as they result in higher levels of profit for the business (or its owners)
- Customers around the world are putting more and more pressure on brands to behave ethically
Businesses are being judged more on how they handle the following issues

Flowchart displaying ethical considerations: marketing, supply chain, stakeholder conflicts, and environmental, with related issues like labelling and waste.

The range of ethical considerations businesses need to consider

Ethical Considerations Explained

Stakeholder Conflicts

A stakeholder is an individual or group that has an interest or can be affected by a business
Different stakeholder have different levels of power and different priorities which inevitably creates the potential for conflict

Conflict	Explanation
Management V Workers	Management may be more focused on output or reducing costs than on worker safety or creating a positive working environment Workers want to be safe and have a comfortable environment in which to work
Management V Owners	The owners (shareholders) want management to maximise the business profits and, for example, be less interested in the mental well-being of the employees The management work daily with the employees and will often sacrifice some profit in the interest of looking after their workers health and mental well-being
Company Profits vs. Resource Depletion	The owners (shareholders) aim to maximise output so as to generate increasing levels of profit Higher output requires more rapid usage of natural resources and generates more environmental damage

Pay & Working Conditions

MNCs often operate in countries which have different employment regulations and working conditions
- MNCs need to decide if they will comply with the regulations of their base location or the country abroad
MNCs may demonstrate unethical behaviour by exploiting workers in LEDCs by paying them lower wages
- MNCs argue that the wages they pay provide a decent standard of living within that country
- In 2015, Apple came under scrutiny as their production facilities in China were found to pay workers approximately $1.85 an hour, nowhere near enough to cover their living expenses
Some MNCs also behave unethically by providing poor working conditions in order to cut costs
- Factories and warehouses with poor working conditions are referred to as ‘sweatshops’
  - Nike were accused of using sweatshops in countries such as China and Vietnam, paying workers 14 cents a day
Another issue with MNCs is child labour, where school aged children are working extremely long hours
- Starbucks were found to have children under 13, working 40 hour weeks in Guatemala picking beans for as little as £5 a day

Environmental Considerations

Climate change and global warming have become a priority for governments across the world
Governments are encouraging businesses to improve the environmental impact of their business activity

Current Environmental Issues

Potential Issue	Explanation
Waste Management	Many developed countries have regulations about how businesses should dispose of their waste LEDCs usually have less regulation and enforcement on waste management There is usually poor waste management infrastructure MNCs can also dispose of waste in LEDCs at a cheaper cost, which allows them to maintain their high profits Four major MNCs (Coca Cola, Pepsi, Nestle and Unilever) dispose of half a million metric tonnes of plastic across six developing countries (Tearfund, 2020)
Emissions	Emissions are often released from factories or from products made by MNCs E.g. The Carbon Majors Database report found that 100 companies are responsible for 71% of the global emissions that cause global warming The emissions MNCs produce have a negative impact on local communities, causing health issues such as asthma, cancer and skin irritations

Potential Issue

Explanation

Waste Management

Many developed countries have regulations about how businesses should dispose of their waste
LEDCs usually have less regulation and enforcement on waste management
- There is usually poor waste management infrastructure
MNCs can also dispose of waste in LEDCs at a cheaper cost, which allows them to maintain their high profits
Four major MNCs (Coca Cola, Pepsi, Nestle and Unilever) dispose of half a million metric tonnes of plastic across six developing countries (Tearfund, 2020)

Emissions

Emissions are often released from factories or from products made by MNCs
- E.g. The Carbon Majors Database report found that 100 companies are responsible for 71% of the global emissions that cause global warming
The emissions MNCs produce have a negative impact on local communities, causing health issues such as asthma, cancer and skin irritations

Supply Chain Considerations

The supply chain consists of all the suppliers involved in the manufacturing of a product/service
Many MNCs have suppliers in different countries and increasingly they are held accountable for the working conditions of these suppliers
Many MNCs are now taking action to reduce unethical labour practices as part of their Corporate Social Responsibility (CSR)
Issues with child labour and exploitation of labour in the supply chain

Child labour

Exploitation of labour

Some MNCs have manufacturing facilities in countries where child labour is common
- Usually in areas where children are are working to generate income for the family
MNCs using child labour in their supply chain face backlash, which can damage their brand and affect sales
- E.g. There were protests outside the Primark Oxford Street store after a documentary revealed child labour working in their factories in Bangladesh

Exploitation of labour can take the form of low wages and poor working conditions
- E.g. working long hours and with poor ventilation
MNCs are under increasing pressure from governments, customers and institutions such as the International Labour Organisation to take action to ensure their products and services do not involve exploited labour

Marketing Considerations

When developing their marketing strategy, MNCs must consider the cultural and social differences in the countries in which they operate

Marketing Considerations for MNCs

Misleading labelling	Inappropriate Promotional Activities
Labelling must comply with the regulation of the country The information must be correct and not include any false information aimed at generating higher sales Examples of misleading information include false information about Size Content of the product Features Functionality E.g. Volkswagen were found to falsely promote ‘clean diesel’ vehicles and had to pay approximately $34bn in fines This severely damaged their brand	Promotional activities should not be offensive or illegal E.g. Nivea had to pull their ‘White is purity’ campaign for their deodorant in the Middle East as the public believed it was promoting white supremacy

Misleading labelling

Inappropriate Promotional Activities

Labelling must comply with the regulation of the country
- The information must be correct and not include any false information aimed at generating higher sales
Examples of misleading information include false information about
- Size
- Content of the product
- Features
- Functionality
E.g. Volkswagen were found to falsely promote ‘clean diesel’ vehicles and had to pay approximately $34bn in fines
- This severely damaged their brand

Promotional activities should not be offensive or illegal
- E.g. Nivea had to pull their ‘White is purity’ campaign for their deodorant in the Middle East as the public believed it was promoting white supremacy

Last updated: 25 October 2024

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