Competing in Foreign Markets

In the 21st century, market leadership will be determined by companies that expand their operations globally rather than simply remaining domestic. Specifically, why would a company want to go international? 1) Expanding into the global arena will increase profits and growths. 2) Increase cost-competitiveness by increasing sale volume that may not be achievable domestically. 3) Companies can take full advantage of core competencies globally by entering countries with lower comparative advantages. 4) Expanding internationally can reduce risk associated with fluctuating markets. The economy of one country may be on the down turn while another country’s economy can be rising.

Before discussion of strategies and management techniques can begin, several issues must be addressed to set the stage for competing internationally. Culturally, people differ in how they spend their money. Cultures differ in the relative amount of disposable income, the amount they spend on certain items, (i.e. luxury items) and tastes/preferences. The potential for the market to grow needs to be considered. Developing countries grow quickly and have greater market potential. Another major concern is whether or not companies should customize products for particular countries or offer a more standardized product. These are all factors that will determine the strategies implemented when going global.

What are some strategies that will make a company competitive in the international arena? Some possibilities include:

1) Produce in one country; export to foreign markets
2) License foreign firms to use domestic technology
3) Franchise!
4) Alliances with foreign firms; joint ventures
5) Customize approach on a country by country basis
6) Use the same approach in every country; standard product or service

Export Strategies

The idea is simple. Produce domestically and ship to foreign countries. This will allow a company to “test” the feasibility of selling a product in a foreign country. If existing spare capacity is sufficient, the capital needed to export can be relatively small. This strategy allows limited direct involvement with the “politics” of other countries. A company can contract foreign wholesalers or establish its own distribution and sales centers. Problems do arise, however, when manufacturing costs are higher domestically, costs of shipping are unusually high, and exchanges in currency rates are adverse.

Licensing

Licensing allows a company to generate profits when resources are limited, making direct entrance into a foreign market difficult. The parent company can receive royalties from licensing its technology without having to bear the costs of manufacturing, distribution, or marketing. The problem with this strategy is that control over valuable technology can be lost. Handsome royalties can alleviate this disadvantage and software and pharmaceuticals often take advantage of this approach.

Franchising

Franchising has advantages similar to licensing. Instead of some technology being licensed, the brand image of service and retail stores in other countries. The franchisee is responsible for the burden of most of the expenses and risk. The franchisor only has to deal with supplying, training, and monitoring. A major disadvantage includes the potential of quality control being compromised. There is also the issue of standardization. To what end can the products of a franchise be modified (adding different spices to pizza in a foreign Pizza Hut franchise) without betraying the brand image?

Alliances/Joint Ventures

Alliances occur when a domestic company enters a cooperative agreement with a foreign company to enter a market or increase its competitive advantage. A company may go this route for several reasons. It can take advantage of the technology or production expertise of its foreign collaborator. Economies of scale can better be achieved when new cost saving techniques are learned from each other. The two companies can share distribution channels and facilities increasing access to buyers. In 2002, Toyota and First Automotive Works, a Chinese automaker, formed an alliance to bring more luxurious vehicles (SUVs, minivans) to the marketplace in China. At the time, Volkswagon had the largest market share in China, with Toyota slow to start production of vehicles in that country. As a result of the alliance and new production facility from Automotive Works, Toyota gained control of the Chinese market and 15% of the automotive market share worldwide (Doz and Hamel, 1998) Milestone Scientific is a medical device company that specializes in dental equipment. The management team has restructured its marketing team to gain access to international markets with its most recent product, the Single Tooth Anesthesia System. It recently allied itself with Istrodent Ltd in order to attract new distributors in Europe Asia and South America (“Milestrone redefines…”, 2009).

Local Approach to Strategy

When entering a foreign market, it may be necessary to tailor a product to better fit the needs of the new market. This is the “think-local, act local” approach. Here, local managers are given a certain degree of latitude in management decisions that address specific needs and wants of the customers. The reasons for choosing the Local Approach may include cultural tastes, buying habits, and even environmental factors. Castrol, specializing in oil lubricants, offers 3,000 variants of lubricants worldwide. The different formulas were a result of different vehicles, climate, and different types of equipment that used the oil. Nokia established a 1,000 worker R&D department in India that has greatly modified its cell phone for that country. The result was a simpler phone that doubles as a flashlight for commonly occurring power outages (Ghemawat, 2010).

Global Approach

On the flip-side to the local approach, sometimes a better strategy is to keep products/services standardized. This follows a low-cost, focused approach in all markets. Deviations from one foreign market to another are minor or nonexistent, with local managers given little ability to take major decisive action. The main strategic planner is a central, corporate headquarter. With this strategy, each operation within a new country is very experimental. It may be difficult to predict which product will yield success in the marketplace. Coca-Cola, Kellogg, and McDonalds have entered the global market with great success with little variation in their products. They were sold domestically in the US for an extended period of time before going international. When they did, it was with extensive market research to determine its potential place in foreign markets.

Successful strategies in global markets can be highly varied. They can include large amounts of exportation or utilizing foreign resources for production and distribution. The strengths of foreign companies can be yoked through licensing. Both standardized and customized products/services can successfully gain market share. Decisions must be made carefully with thorough research if the correct approach is to be discovered.

Areas for Improvemet/Questions

The chapter on competing internationally was a good general overview, but had areas that needed to be improved. For the most part, the text tended to be repetitive and lacked some detail pages 219-220, 226-228). Often, the main ideas were spread around and had to be pieced together. It also greatly lacked specific examples for many of the main strategies. The section on strategic alliances, as an exception, did have good examples (page 218). There were a couple of figures (page 221 and 223), but the chapter was largely bland. Overall, the chapter could have been a little more condensed, not so long winded, and have more examples and figures to illustrate key points. Some questions/ ideas to be answered:

• Discuss decentralization more thoroughly and give insight as to what local managers specifically do to customize products/services.

• What are some marketing strategies that allow managers to determine potential market share in foreign countries?

• What ethical consideration have to be made about safety, environmental regulations etc.. when a production site is newly implemented?

Recommendations

I recommend the chapter as “light” reading for global competitions. It had some strong points in that is was well organized. Categories were well outlined (although some textual information was somewhat scattered) and easy to find. The section on describing the differences between local, customized products and standardized products was interesting. The “think local, act local” or “think global, act global” was a catchy description of the concept. Figure 7.1 (page 221) was a nice flow chart that presented the key points of the multicountry vs global strategy. I give the chapter a C+. As I previously stated, it was a general assessment of the topic. MBA students would benefit with more examples from real cases.
References

Ghemaqat, P. Finding your Strategy in the New Landscape. (2010) Harvard Business Review, 88 (3), p54-60.

Yves, L., Doz, Hamel, G. Alliance Advantage: The Art of Creating Value through Partnering (1998) Boston, MA: Harvard Business School Press.

Thompson, A.A., Strickland, A.J. & Gamble, J.E. (2009) Crafting and Executing Strategy. New York, NY: McGraw-Hill Irwin.
Milestone Refines International Strategy (2009) Proofs, 92-4, P74.

Diversification and Corporate Strategy

At its simplest level, diversification is a way for businesses to spread risk across many different industries. A single-business company is more likely to suffer much larger effects from economic downturns or technological innovations than a more diversified company. The ultimate goal of any diversification strategy is not merely to reduce risk but should also be to grow shareholder value. It is the job of top-level corporate managers to determine a company’s overall diversification strategy. Thompson, Strickland, and Gamble (2009) outline four main areas of responsibility for corporate managers in the realm of diversification strategy. These include:

1. Deciding what new industries to enter and determining the most successful path to entry given the company’s current position. Which industries make sense in terms of the overall corporate strategy? Does the company have capabilities similar to those required to be successful in the target industry? Does the company have access to large amounts of free capital? How much weight will a company’s brand carry in a new industry? The answers to these questions can help management determine whether to enter a new industry. The answers will also help to determine the best diversification method to pursue, whether it is through acquisition, joint venture or partnership, or building a new business unit entirely internally.

2. Recognizing and selecting opportunities that will increase the performance of individual business units as well as overall company performance. It is important for corporate managers to choose business ventures that can benefit from the resources of the larger company and build competitive advantages. Astute managers can recognize opportunities to acquire or partner with businesses that lack a certain skills or resources that their company possesses. In reaching out to these companies managers can increase profitability. Another facet of this is the ability to identify underperforming business units and make the decision to pull out of non-profitable lines of business.

3. Building sustainable competitive advantage by leveraging cross-business value chain relationships and strategic fits. Diversifying into related businesses allows companies to gain economies of scope in value chain activities. This leads to increased profitability for the newly formed or acquired business unit as well as increased profitability for the larger company.

4. Prioritizing diversification opportunities and corporate resources. Understanding the financial performance and contributions of various business lines is key to the successful implementation of a diversification strategy. Management must identify strong performers and growing business opportunities and divert company funds to areas that will offer the most benefit.

There are three main avenues to diversification that companies can take. The first is diversification through acquisition. Diversification through acquisition can allow the company to enter new markets relatively quickly. The second involves starting a new business using company resources. Diversification through internal startup is relatively expensive and time-consuming. The third main method for diversification is the joint venture. Diversification through joint venture or strategic partnership can allow two companies to share the risks involved in starting a new business. This method can also allow partners to gain access expertise in areas where they currently have none. Determining which of these methods to use is dependent upon overall company positioning and corporate strategy.

A critical aspect of diversification decisions is whether a company will expand into related or unrelated businesses. The hallmark of related businesses is that these businesses, if added to the company, will create competitively valuable “cross-business value chain match-ups”(p. 244). Expanding into related industries allows the company to develop synergies, creating a scenario where the whole is greater than the sum of its parts. In a 2006 interview Paul Johnson, the managing director of Renaissance, said that the company planned to expand into distribution of non-IT brands by utilizing the company’s “core strengths” of managing and marketing brands and experience in warehousing and distribution (Bathgate, 2006).

Diversifying into related areas also allows companies to build on and reap the benefits from core competencies. Core competencies allow companies to streamline activities and learn from experience across businesses. Casio is able to coordinate between its miniaturization capabilities, materials technologies and processing technology. This allows the company to succeed whether making calculators, TVs or watches (Prahalad and Hamel, 1990).

Diversifying into unrelated industries can provide increased revenues and potentially less risk than diversifying into related businesses. Understanding the overall strategic goals of diversification, whether into related or unrelated industries, will help managers to evaluate the company’s diversification strategies.

The text outlines six key steps in understanding and evaluating a company’s diversification strategy. These include industry attractiveness, business-unit competitive strength, competitive advantage potential of cross-business strategic fits, resource fit, performance prospects for business-units and assigning priority for resource allocation, and formulating new strategic moves to improve corporate performance. By analyzing each of these factors managers can work to ensure a cohesive and successful diversification strategy.

Evaluating industry attractiveness focuses on the broader picture of corporate diversification. First managers must determine the attractiveness of an industry in its own right. This involves understanding whether the industry is growing, stagnant, or in decline. Understanding the competitive forces in the industry is also very important in this stage. Markides (1997) recounts the experience of Kao, a Japanese consumer-goods company. The company developed a technology that could be used to smooth the surface of clothing as well as magnetic tapes. After an extremely successful launch of a new product line in its detergent division using the new technology, Kao decided to transfer the same technology for use in floppy-discs. What the company failed to recognize was that there were already many competitors in the market offering substitute products, leaving Kao with no competitive advantage. Understanding the opportunities within an industry if vitally important to success. The next step of the process is to determine the most attractive and the least attractive of all the industries in which the company is currently involved. The final aspect involves analyzing the attractiveness of all industries that the company is involved in as a group.

After understanding industry attractiveness it is important that managers understand the competitive strength of the business-unit. This essentially means understanding where a business unit stands in its industry. When done across the company this can give the manager a view into the strengths and weaknesses of the company’s diversification portfolio. This can then guide decisions about resource allocation and also the decision to pull out of certain businesses.

The next step is understanding the competitive advantage potential of cross-business strategic fits. Strategic fit simply means that value chains of separate businesses within the company’s portfolio can work together to share resources, lower costs through combining activities, build new or stronger competitive capabilities, and leverage brand name recognition to improve revenues. Some fashion companies have leveraged the high quality luxury status of their brands in order to strike out into the luxury hotel arena. As noted in a 2006 article, many different high-end players in the fashion market, including Bulgari and Versace, have successfully used their brand to gain access to the hotel market. These companies are able to charge high prices as a result of the luxury and status that their brand brings into the new venture (Galbraith, 2006).

After understanding strategic fit, resource fit should be analyzed. Resource fit means that businesses in the company’s portfolio generally add to a company’s resource strengths. It also means that there is correlation between the resources of a company and the key success factors of the industry in question. A vitally important aspect of resource fit is ensuring that the company has adequate resources to cover all areas of its business, without “spreading itself too thin.”

The next step in the process is ranking the prospects of business units and allocating resources. Many factors are involved in these rankings including sales growth, profit growth, return on investment and contribution to overall company earnings. Resources should be directed towards business units with the best growth and profit outlooks and strong strategic and resource fit.

After managers have gone through the previous five steps they are ready to finalize impressions and form the next move in the company’s diversification strategy. Thompson, Strickland, and Gamble (2009) identify five main paths diversified companies will take after analyzing their current diversification position. The first type of reaction is for companies to make little change to what the company is already doing. This makes sense when the businesses are performing well overall and demonstrate clear growth potential. The next option is for the company to broaden its diversification base into new industries. This may involve either related or unrelated diversification. The third possibility is exiting some businesses and focusing on a more narrow base of operations. This involves getting out of businesses that lack competitive strengths, strategic or resource fits, or are in unattractive industries. This allows the company to focus resources on the more profitable businesses in its portfolio. The fourth reaction is to completely restructure the company’s diversification lineup. This involves divestiture of some old businesses and the acquisition of new business opportunities. The fifth possibility involves the decision to go after an international diversification policy, allowing the company to enter into more businesses as well as markets. It is the job of top management to determine which of these strategies will lead to long-term profitability of the company’s diversification portfolio.

Questions and Concerns

There are only a few concerns with the chapter on diversification and corporate strategy. The text spent less than a page (p. 241) discussing issues surrounding the question of when to diversify. It would have been helpful to have a more thorough discussion of when a company should diversify. Table 8.1, calculating weighted industry attractiveness scores (p. 260) and Table 8.2, calculating weighted competitive strength scores for a diversified company’s business units (p. 263) were fairly confusing. The text did not provide background on these methods. Some questions that came up were:

How were these methods, calculating weighted industry attractiveness scores and weighted competitive strength scores, developed? By whom?

How often are these methods used?

Are these methods the “standard” for determining industry attractiveness and competitive strength?

One final concern about the chapter was the lack of attention given to companies that are diversified into both related and unrelated industries. While the text did acknowledge that there are companies that do both it did not really go further in the explanation. Questions that arose as a result were:

How do companies make these decisions?

How do these companies decide what portion of company resources will be devoted to related vs. unrelated business ventures?

Recommendations

Overall this text provides an excellent introduction to diversification and corporate strategy. The text is written in a manner that is easy to read and understand. Complex topics are broken down into small sections with bullet points. Important points are also reiterated in boxes alongside the main body of text. In general the tables and figures provided are easy to understand and follow. There are also several short exercises throughout the chapter which help to reinforce the concepts that were just covered. In addition questions at the end of the chapter help to reinforce the material and also provide sources where students can go for additional information on the topic.

Resources

Bathgate, A. (2006, August 1) Renaissance in diversification. The Dominion Post, 3. Retrieved from LexisNexis database.

Galbraith, R. (2006, November 11) The luxury brand hotels; Now you can not only wear Versace, Bulgari or Armani, you can stay there. The Business.

Markides, C. C. (1997). To Diversify or Not to Diversify. Harvard Business Review, 75(6), 93-99.

Prahalad, C., & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review, 68(3), 79-91.

Thompson, A.A., Strickland, A.J.&Gamble, J.E. (2009) Crafting and Executing Strategy. New York, NY: McGraw-Hill Irwin.

Strategy

Strategy is the way a company runs its business and operations. It is also the “how” component of the company’s plan for success. How will the company grow? How will it outcompete rivals? How can all divisions within a company (R&D, marketing, distribution) work together functionally? How can the company’s performance improve? Obviously, companies must compete with one another when marketing similar products, but there is a distinct difference between having a temporary competitive edge and a sustainable competitive advantage. A sustainable competitive advantage occurs when the preference for a company’s product or service is durable over time. This durability could translate into greater earnings, higher return on investments and in other measures of financial performance. In order to obtain this competive edge, it is necessary to note that simply running an efficient company is not enough. Porter (1996) points out that operational Effectiveness is a necessary component of business, but it alone will not offer a sustainable advantage over time. Our text offers four broad strategic approaches used by successful businesses.

1. Being the low-cost provider. Two great examples of this are Walmart and Southwest Airlines. Both companies receive their market position by being able to beat competitors on low prices. Southwest Airlines has consistently been profitable for three decades while its rivals (United Arilines, Delta, US Airways, Northwest) have seen repeated bouts of bankruptcy. (Oliva and Gittell, 2002)

2. Differentiation of Product/Service. Whether it be a product or a service offered, a sustainable competitive advantage can be gained by raising value and quality, increasing product/service selection, adding style and attractiveness, and being superior in technology. Harley Davidson, as an example, is popular due to its “outlaw” image. Amazon is known for wide selection and ease of shopping. Porsche has a reputation of putting out high quality cars.

3. Focus on the wants and needs of consumers in narrow markets. Companies can attain competitive sustainability when they position themselves in particular niches. Starbucks is known for its specialty coffees. Best Buy has positioned itself as an electronics specialty store.

4. Develop an expertise, strength, or resource that can’t be easily mimicked. Many companies owe their competitive advantage to strengths within the organization rather than the product itself. Products can be mimicked (MacDonald’s new premium coffee competing with Starbucks) but the expertise of companies cannot be duplicated with ease. Walt Disney is unmatched in its theme park management skills. FedEx’s competitive advantage is resource based. Their ability to deliver fast, next-day delivery is unbeatable.

Companies must utilize these strategies in some combination to draw customers and keep them coming as time passes. Strategies are successful when management has the ability to foresee the way rivals will move in the future. A bigger and longer lasting the competitive advantage will increase a company’s chance for increasing its profits and winning large shares of the marketplace.

A good example of strategy implementation can be seen with the Thompson Corporation (Harrington and Tjan, 2008). By the late 90’s, the global company was 70 years old with $8.7 billion in revenue. Headquartered in Great Britain, Thompson was large information company that specialized in financial services and publishing professional journals. They were heavily concerned with the long term viability of the company due to the emergence of the internet and digital media replacing traditional print. By 2007, the company had tripled its market capitalization. How was this accomplish with such concern about sustainability? They utilized a three step strategic plan:

1. They mapped out the market. Thompson managed to identify eight market segments that buy their products. They realized there was an untapped market they had potential to capture.

2. They sought to understand customers’ objectives. They meticulously observed how their clients used their products, even going so far as to videotape the workplace.

3. They developed new products. While still publishing textbooks, they were among the first in offering information through digital delivery systems.

This being known, understanding the strategy of rival companies is vital. The best way to identify competitor strategy is through activities in the marketplace. Being on the lookout for competitor activities will allow some level of prediction about the strategy the company is taking. Some of these representative “actions” to look out for are:

•Lowering prices, adding performance and features to products
•Responses associated with new or changing market conditions
•Entering new geographic regions
•Trying to capture emerging markets
•Acquiring, merging, or collaborating with other companies
•Changing management styles with respect to marketing, sales, distribution, R&D, etc.
•Actively trying to strengthen weaknesses

Strategies are not static, but must continuously evolve. Most change is relatively incremental, meaning management will often make minor adjustments in certain elements of their strategy when situations deem it necessary. However, major developments occur which may make the current strategy obsolete. Examples include the emergence of newer technology, major shifts in customer needs, and external factors such as recessions. Whether or not the change is large or small, strategy is always under scrutiny. This constantly changing nature of strategy is both reactive and proactive. Decisions that are proactive occur to improve the performance (financially) of the company and increase long term competitive sustainability. The must also be reactive when unseen events unfold and require the company to make quick decisions to resolve the damaging issue. Proactive strategies occur in the way of new initiatives and innovation while reactive strategies are adaptive in nature.

In summary, there are three questions that can be used to determine if your company has a winning strategy or a “run of the mill” strategy. How well does the strategy fit with the core competency of your company? In order to be competitive, the strategy must connect with the capabilities, resources, and strengths of the company. Will the strategy help you to achieve a sustainable competitive advantage? The strategy must allow the competitive advantage to be durable and long lasting. Does the strategy increase company performance? A strategy must raise the company’s standing in the market, increase its financial strengths and profitability.

Questions and Concerns

As I mentioned earlier, there were several good diagrams in the chapter. Figure 1.1(page 10) was a little too busy, and much of the information lacked elaboration in the text. This entire section of identifying a company’s strategy was described in that figure. It was too wordy, but ultimately got its point across. While it did have real examples (particularly pages 7-9), they were also rather simplistic with little detail. Fewer examples with more substance and explanation would have been more effective. The section on ethics was too general and only gave common sense examples and scenarios (page13). Some questions that were generated after reading the chapter are:

What are the important characteristics of a company that is market driven vs operationally driven?

What is a good decision making technique that helps a company determine if positioning a product in a new way or operational effectiveness is the best way to improve a company’s financial situation?

How does a company know how to diversify its activities in its portfolio? Should it be simple or broad?

In order to avoid falling into the trap of being reactive, how can a company better foresee future changes in the market or with competitor strategy?

In more detail than the book gave, how do ethics conflict, if at all, with strategies that try to increase the financial performance of a company?

Recommendations

For the most part, we recommend this text book (as far as the introductory chapter is concerned). It gives a very broad overview of strategy that is easy to understand. Someone with a non-business background could gain a reasonable amount of information from this chapter. The strong points include a well written section of the importance of having a sustainable competitive advantage. It illustrates four important approaches to strategy with examples from real companies. In the beginning, it introduced strategy as the “how” of business, with a series of questions strategy addresses. This a great way to really understand strategy in working manner, without a lot of theoretical jargon. There were some areas that needed improving. Of course, this is only an introductory chapter. A certain level of detail isn’t to be expected. There were also a few diagrams that illustrated important points better than the text. Also, there an interesting Starbucks case study that went into great detail and reinforced many of the key elements of strategy. Overall, it was easy to read, hit the main points, and was a good introduction to strategy.

References

Harrington, R. Tjan, A. (2008) Transforming Strategy One Customer at a Time. Harvard Business Review, 86(3), 62-72.

Oliva, R., Gittell, J.(2002) Southwest Airlines in Baltimore. Harvard Business School, case no. 602-156, 1-23.

Porter, M. (1996) What is Strategy? Harvard Business Review, 74(6), 61-78.

Thompson, A.A., Strickland, A.J.&Gamble, J.E. (2009) Crafting and Executing Strategy. New York, NY: McGraw-Hill Irwin.

Along the Gray Path

As McCoy (1997) addressed the question of “When do we take a stand” (p.60), today’s business leaders are facing ethical dilemmas that cause them to choose between alternatives. There are gray areas where we cannot say whether an action is right or wrong, but we can say an action is moral or ethical within the constraints of the incident/business case. Therefore, a successful business leader should know which way to go in this gray path within in the frame of her/his company values and corporate culture.

Thompson, Strickland and Gamble (2009) define business ethics in their textbook as “the application of ethical principles and standards to business behavior” (p.290). Well, what are the ethical principles then? According to the school of ethical universalism, the same standards of what is unethical resonate with peoples of most societies regardless of local traditions and cultural norms; hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances. On the other hand, according to the school of ethical relativism different societal cultures and customs have divergent values and standards of right and wrong- thus what is ethical and unethical must be judged in the light of local customs and social mores and can vary from one culture or nation to another. In contrast, according to integrative social contracts theory, universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a “social contract” that all individuals in all situations have a duty to observe. Within the boundaries of this social contract, local cultures or groups can specify other impermissible action; however, universal ethical norms always take precedence over local ethical forms.

Three categories of managers stand out with regard to ethical and moral principles in business affairs are moral managers, immoral managers and amoral managers. Moral managers are dedicated to high standards of ethical behavior, both in their own actions and in their expectations of how the company’s business is to be conducted. On the other hand, immoral managers have no regard for so-called ethical standards in business and pay no attention to ethical principles in making decisions and conducting the company’s business. Amoral managers appear in two forms: the intentionally amoral manager and the unintentionally amoral manager. Intentionally amoral managers are of the strong opinion that business and ethics are not to be mixed. Unintentionally amoral managers do not pay much attention to the concept of business ethics either, but for different reasons. They are simply casual about, careless about, or inattentive to the fact that certain kinds of business decisions or company activities are unsavory or may have deleterious effects on others.

The question then becomes which school of thought we should choose, how we should act ethically when we are making real strategic decisions. The textbook offers the menu of actions and behavior for demonstrating social responsibility as:
• Employing an ethical strategy and observing ethical principles in operating the business.
• Making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes, and making a difference in the lives of the disadvantaged.
• Protecting or enhancing the environment and, in particular, striving to minimize or eliminate any adverse impact on the environment stemming from the company’s own business activities.
• Creating work environment that makes the company a great place to work.
• Employing a workforce that is diverse with respect to gender, race, national origin, and perhaps other aspects that different people bring to the workplace.

Can we say that the values of an organization mainly shape manager and employee types in terms of whether they act ethically, socially responsible, or vice versa? The textbook does not give any answer to this question. However, a recent empirical study by Jin and Drozdenko (2010) claims that the level of social responsibility that a manager shows goes hand in hand with the company’s level of social values. In addition, managers who are more socially responsible were also perceived as more ethical; and those perceived ethical attitudes and social responsibilities were significantly associated with organizational performance outcome measures. The textbook in page 299 lists some reasons for unethical behaviors; however, it is confusing because it says both the person and the company culture can be accused of these types of behaviors. Our question is not answered here. Do employee selection affect the ethical structure of the organization or does the organization affect the behaviors of its employees? This question is important in terms of discussing the organizational culture and thus corporate citizenship. Another question comes to our minds. How should companies act and react to be ethical in their relations with customers, suppliers, and 3rd parties? Another question can be addressed to the textbook. How should an organization act in relation to its employees? The textbook addresses some issues related with the employees in terms of diversity and workplace environment, but our question is about the basic rights of workers, health, safety, and environmental standards that an organization must have. There is one final question to address. Under the tough economic conditions that we are experiencing now, how should firms make decisions while being ethical toward their customers, employees and the community in which they are operating?

For future MBA 580 students, business ethics and corporate citizenship in organizations are becoming more and more important these days. After Enron, WorldCom, Adelphia, and Tyco scandals, stakeholders turn their faces to ethical issues in organizations. The textbook gives the definitions for different views, however does not provide enough solid cases that a potential leader should analyze to get lessons out of it.
As future business leaders, you need to understand the implications behind being ethical leaders. Even though we are not perfect in all terms, the Global Business Oath gives us an idea where can we strive for perfection.

Global Business Oath

As a business leader, I recognize that
• The enterprise I lead must serve the greater good by bringing together people and resources to create value that no single individual can create alone,
• My decisions can have far-reaching consequences that affect the wellbeing of individuals inside and outside my enterprise, today and tomorrow,
• As I reconcile the interests of different constituencies, I will face choices that are not easy for me and others.

So I promise that
1. I will manage my enterprise diligently and in good faith and will not let personal considerations and compensation supersede the long-term interest of my enterprise and society at large,
2. I will understand and uphold, both in letter and spirit, the laws and contracts governing my own conduct and that of my enterprise,
3. I will respect and protect the human rights and dignity of all people who are affected by my enterprise and will oppose all forms of discrimination and exploitation,
4. I will respect and protect the right of future generations to enjoy a clean and resourceful planet,
5. I will not engage in nor tolerate bribery or any other form of corruption,
6. I will represent the performance and risks of my enterprise accurately and honestly to each of the constituencies that are affected by it,
7. I will actively engage in efforts to finding solutions to critical social and environmental issues that are central to my enterprise, and
8. I will invest in my own professional development as well as the development of other managers under my supervision.

In exercising my professional duties according to these principles, I recognize that my behavior must set an example of integrity and responsible conduct.

References:

Global Business Oath: http://www.globalbusinessoath.org/businessoath.php

Jin, K. & Drozdenko, R. (2010). Relationships among perceived organizational core values, corporate social
responsibility, ethics, and organizational performance outcomes: An empirical study of information technology professionals. Journal of Business Ethics, 92 (3), 341-359.

McCoy, B. H. (1997). The parable of the Sadhu. Harvard Business Review, 75 (3), 54-64.

Thompson, A. A., Strickland, A.J. & Gamble, J. E. (2009). Crafting and executing strategy. New York, NY: McGraw-Hill Irwin.

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