Business Ethics in China

There are significant problems with business ethics in the world’s second biggest economy, China. Witness the recent scandals involving tainted milk powder. Before that, lead paint used in toys was the big issue. Last year, there was a scandal involving injecting water into meat to increase its weight. And it’s not just a matter of a few scandals. According to Transparency International’s 2009 Corruption Perceptions Index, China ranks 79th (just a couple of notches below Columbia, and just above Swaziland and Serbia. (New Zealand is #1 — i.e., least-corrupt. The U.S. ranks 19th, and Canada is tied for 8th.)

Here’s an interesting piece on the topic of the special problems of business ethics in China, on Russell Flannery’s blog on Forbes: On The Front Line In China: Challenging Business Ethics. It’s well worth reading.

Here are just a few thoughts and questions:

1) It’s worth thinking about the relationship between ethics and success in the Chinese context. Three years ago, I blogged from a conference in Latvia, and I pointed out that many countries that were formerly part of the Soviet Union “are still struggling with establishing democratic institutions, and establishing the kinds of background conditions — including the rule of law and traditions of basic trust — that allow their populations to prosper.” In other words, at least some basic business ethics is necessary in order to have a flourishing economy. It’s a truth that many economists (including Nobel prize-winners like Ronald Coase and Amartya Sen) have written about. But China’s economy is booming, apparently despite serious problems related to basic integrity in business. Why?

2) Will foreign trade help? In particular, I wonder about the role of companies like Apple and Walmart. Apple and Walmart (and especially the latter) provide mechanisms for Chinese companies to sell stuff to wealthy westerners. But Apple and Walmart are also high-profile American companies, subject to constant, intense scrutiny. And both have the economic muscle to force Chinese suppliers to do things their way, if they decide to. In other words, if Apple and Walmart insist on (and verify) certain kinds of behaviour, it will happen. In some cases, of course, a company like Walmart — with its constant pressure on suppliers to cut costs — may be part of the problem. On the other hand, dealing with a company like Walmart is going to make all sorts of basic dishonesty very hard to get away with. Walmart famously pays close attention to the details.

3) What about western companies selling things in China? A while back, I blogged about the fact that there’s a lot to be gained by, for example, North American companies that figure out how to do business in China in a way that’s ethically acceptable to the folks back home. In this regard, Google and various pharmaceutical companies come to mind. Again, those are companies subject to significant scrutiny. Is there hope that those companies can raise the ethical tone of the Chinese industries they work in or with? Again, some may find it ironic to see anyone looking to Big Pharma to improve ethics anywhere. But despite its many failings, Big Pharma is heavily regulated, and those regulations (and the threat of litigation) force those companies to avoid behaviours that are likely very tempting to companies operating in places, like China, where regulations may be more lax.

4 comments so far

  1. Celesa Horvath on

    I did some work in China over a decade ago, training corporate staff in environmental assessment methods. We hit a wall when it became clear that, for social and political reasons, staff could not or would not actually say that there is a negative impact from a corporate practice, and thus could not proceed to the stage of promoting mitigation. Until such cultural barriers are addressed, business ethics will have a difficult road to navigate in China.

  2. Bob Matthews on

    China is quickly becoming one of the largest suppliers of certified organic food in the West. Organic certification is based on thitd-party verification that a specific set of practices (in Codex Alimentarius, promulgated by IFOAM) was followed. The system relies on a high level of ethics. It seems a particular challenge in China. First, as Celesa points out above, since no environmental practice can be called wrong, it is hard to distinguish those that are right. Second, the overall awareness of long-term environmental impacts is low so the related requirements are very abstract. Third, there is a tradition of providing fictional certification of product quality.

    I foresee organic food as one place where big trade disagreements will erupt between Chinese producers and Western consumers. It will likely start with German consumers, who buy lots of Chinese product, value adherence to standards, and are passionate consumers of organic (ökogische) food.

  3. […] #6. Business Ethics in China. This entry explores the relationship between ethics and economic growth, in the context of an economy that is both struggling, and at the same time one of the world’s largest. […]

  4. […] (See also this piece on fighting corruption in India: Wake-up call on anti-graft laws, from The Hindu Business Line. I also blogged last year about Business Ethics in China.) […]

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