Social or Ethical Issues Companies Face in a Foreign Market
When companies operate in their home markets, most of their employees come from areas with the same common culture. Their home market customers share the social and ethical standards of company staff and management to a large degree. This is especially true of small businesses that often operate from only one location.
Companies entering a foreign market typically develop some local operations there. Normal practices in the foreign market may include activities that would be considered immoral or illegal at home. Companies have to decide whether to provide safe working conditions, pay living wages, limit environmental impacts and adhere to contractual conditions when local companies may not maintain such standards. Small businesses may struggle with compromising on such issues when the profitability of their foreign operations is at stake.
In many foreign markets, companies have to address free-speech issues in terms of their own freedom of expression, that of their employees and that of their actual and potential customers. Countries may impose legal sanctions on companies and individuals engaging in forbidden communications. Western companies that value free speech have to decide whether they wish to operate in such an environment.
In many cultures, accepting gifts, commissions or favors for providing contacts or business advantages is normal and expected. Officials in some countries may request larger sums for influencing decisions or allowing illegal activities. American law does not allow American companies to pay bribes. Companies have to set detailed policies regarding what is permissible and enforce their guidelines to avoid illegal actions.
Companies have a certain amount of power to influence societies through advertising, and they have ethical and societal responsibilities to use such marketing power positively. Small businesses that act as sales channels for larger companies may find that their supplier’s advertising does not meet their own ethical standards. They may not have much influence on the larger company’s practices and have to decide whether to continue in the relationship.
Activity in a foreign market may give a business access to a low-tax jurisdiction that lets companies avoid paying taxes by the use of transfer pricing. In such a strategy, the company’s operations in the low-tax jurisdiction transfer high costs back to the home office while retaining revenue locally. The foreign entity declares a high resulting profit and pays low taxes. The home office declares a low profit due to the high costs. Such transfer pricing is sometimes illegal and usually ethically questionable. Companies have to decide how to distribute costs and revenues between their home and foreign operations keeping these legal and ethical quandaries in mind.
“When these companies enter a foreign market, most of their customers come from a culture that may have completely different values” added Salomón Juan Marcos Villarreal president of Grupo Denim.