Should Human Right be Taken into Consideration When Granting Preferential Trading Rights?

When it comes to international trade, there are two types of trade agreements that can have a direct influence on human rights; preferential trade agreements and trade sanctions. Whereas trade sanctions stop or severely limit the amount of trade between two countries, preferential trade agreements grant certain trade privileges to a particular country, such as very low import taxes. Although the potential effects of trade sanctions on human rights in the sanctioned country are somewhat obvious, the effects of preferential trade agreements can have many of the same negative effects as sanctions, but in a more obscure manner.

Take, for example, a situation involving three countries; A, B, and C. Country A is a wealthy developed country that has decided to give Country B, a developing country with high human rights standards, preferential trade rights in the form of no import taxes. Country C, another developing country with many known human rights violations, may also trade with Country A, but must pay the usual amount of import taxes. Both Country B and Country C export sugar to Country A.

Under these conditions, which country will assume the dominant position in Country A's sugar market? Clearly it will be Country B, since the people of Country A will be able to purchase sugar from Country B at lower prices than from Country C. How will this effect the people of Country's B and C? Those in Country B (who already have higher human rights standards than Country C) will prosper due to their sugar trade with Country A, while the people of Country C (who are already suffering from human rights violations) will suffer even more since their sugar trade with Country A will decrease as a result of Country A's preferential trade agreement with Country B.

As this scenario illustrates, when a developed countries grant preferential trading rights to developing countries who have high human rights standards over those developing countries who do not, the result is that those already suffering from domestic human rights violations suffer even more. Even though the developed country may view the preferential trade agreement as a "reward" to those developing countries who maintain high human rights standards, they may be compounding the negative situation in those low-human-rights developing countries. Essentially, these preferential trading agreements may act as partial (or complete depending on the case) sanctions against competing countries who are not granted the same preferential rights.

The World Trade Organization's policies are not very clear on this matter. "What about trade preferences made conditional upon human rights protection?...General national programs offering lower tariffs for development purposes are allowed, and what’s more, the granting state may require the beneficiary to adhere to certain standards for eligibility. Just how much a WTO Member can decide for itself whether or not to grant preferences is somewhat open – clear discrimination among similar potential recipients would probably be seen as a violation of trade obligations – but it is clear that the use of conditions in the first place is permissible" (Schefer, 2007, 8-9).

Clearly the developed international community should encourage and try to protect human rights in developing countries around the world, and that supporting human rights violating countries via open trade seems to go against this goal. In reality, however, sanctioning trade with these countries, or granting preferential trading rights to their competitors, only hurts those they are trying to help.

Therefore human rights should be taken into consideration when deciding which countries should or should not be granted preferential trading rights, but perhaps the result of such considerations will not be as expected.

Source:

Schefer, Krista Nadakavukaren. (January 2007). Economic Sanctions and Human Rights/Preferential Trade and Human Rights. NCCR Trade Regulation - Swiss National Center of Competence in Research. Reference URL: http://www.nccr-trade.org/images/stories/publications/IP4/ip4%20benefri%20t&hr.pdf

(ps - I really thought this paper was great if anyone else is interested in this topic!)

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business, developing countries, developing economies, developing nations, ethics, export, human rights, opinion

What's the Best Way to Enter a Foreign Market?

Scenario: Your US company has come up with a way to produce a computer that is just as good as your competitors but can be manufactured at half the cost. Now you would like to sell these computers in the EU. What should you do?

Option A: Export computers to the EU from the US.

This mode of entry falls under the category of international trade.

Pro: The greatest benefit of exporting is that it does not require a lot of additional investments and it is the least risky of all given options. Because the manufacturing stays within the US, it is not necessary for the company to have foreign employees or to directly invest in any foreign country. The company must decide whether it will choose to export directly, via a separate foreign sales company or a foreign sales division within the existing company, or to export indirectly via manufacturing export agents, export commission agents, export merchants, or international firms. Indirect exporting requires less investment than does direct exporting, and is often the initial mode of exportation (Ball et al., 2006, 431). Exporting also allows for a relatively inexpensive trial run to see how well the computers sell in the EU.

Con: The main drawbacks of exportation are that it requires a lot of paperwork, knowledge of trading laws and restrictions, and the payment of taxes and fees associated with goods leaving and entering various countries. However there are many well known shipping companies that are able to handle these requirements for the company for a fee.

Option B: License a EU firm to manufacture and market the computers in the EU.

This mode of entry falls under the category of transfers.

Pro: Like exporting, licensing requires very little investment capital. The company can grant an already existing firm in the EU the rights to manufacture, market, and sell the computers in exchange for an initial licensing fee and between 2-5% royalties for every computer sold in the EU for the duration of the contract (Ball et al., 2006, 433). This method is inexpensive, profitable, and does not require the company to exert a lot of effort or spend a lot of time on the project once a suitable EU firm has been found and is under contract.

Con: The main drawback to licensing these rights to another firm has to do with the intellectual and financial risks involved, both during the duration of the contract as well as after its expiration. Under this agreement the company will have to divulge its computer manufacturing techniques to the EU firm and must trust that the EU firm will pay the correct amount in royalties to the company. There is always the possibility that the EU firm will not uphold the terms of the contract, making it necessary for the company to sue the EU firm for any unpaid royalties and patent/copyright infringements. This process can be expensive and time consuming. After the contract has expired there is also the possibility that the EU firm will continue to use the knowledge gained from the company to produce competitive computers, and could possibly take over any market share that the company may have gained during the duration of the contract. Furthermore the EU firm may begin to export the competitive computers to the US, where it will have the opportunity to gain market share from the company in its own domestic market (Ball et al., 2006, 433). Lastly, by licensing these rights to an EU firm the company is giving up its control over almost all aspects of the computers, from manufacturing to marketing to distribution. Disputes over any of these processes may arise and the company will have little sway in determining how any of these aspects are handled in the EU.

Option C: Set up a wholly owned subsidiary in the EU.

This mode of entry falls under the category of foreign direct investment.

Pro: The advantages to setting up a wholly owned subsidiary are great in terms of keeping control over the entire production and distribution process. Because the company would own the subsidiary completely, it would be able to oversee all aspects of the business and be able to run the company much like it runs the one in the US. The only necessary changes would be those needed to uphold the laws of the host country. There are also three different ways to set up a wholly owned subsidiary, each of which has its own benefits and drawbacks. For the scope of this post, however, I will simply list the various options; build a new plant from scratch, buy a plant that already exists, or purchase a distributor that already has an established distribution system and market (Ball et al., 2006, 434).

Con: The main disadvantages to this method are that it is very costly regardless of which option is chosen, it is time intensive, and it requires a large investment in human capital abroad such as employees. It is also very risky since a foreign market must be established, without the benefit of a ‘trial run‘ that is possible via the method of simple exportation.

Suggested Course of Action:

Because I do not have any information about the computer company in question, such as its financial status, marketing history, etc., I do not believe it is possible to make an educated suggestion on which option the company should choose to sell computers in the EU. Therefore my decision would be to choose the method that is the least expensive, least risky, and least time consuming - simple exportation to the EU from the US. This way the company would be able to quickly stop selling its computers in the EU if they were not selling well, increase the amount of computers exported if sales are high, and have the ability to move further into the foreign market later on if conditions prove favorable in the EU.

Sources:

Bell, Donald A. et al. (2006). International Business: The Challenge of Global Competition. Mc-Graw-Hill Irwin. New York, New York. P. 431-34.

Stumble It!

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advice, business, computers, domestic market, export, foreign direct investment, foreign investment, generation y, globalization, licensing, management, manufacturing, market entry

Blatant Lying or Smart Advertising? The MetLife Case.

Although the words "deceptive" and "advertising" are considered by many to be synonyms, there are certain industry standards that should be upheld for the good of the public. While mild exaggerations such as "the best" or "the brightest" are widely accepted, blatant lying is usually frowned upon. For example, it seems obvious that one should not advertise toothpaste as a cure for the common cold, nor life insurance as a retirement savings policy. However, the latter is exactly what MetLife did in the early 1990s to the dismay of many befuddled nurses.

But just how bad was telling nurses that a whole life insurance policy was actually a retirement savings plan? After all, whole life policies do have an investment aspect to them. In addition to the basic death benefit of all life insurance policies there is also a "cash value" with whole life policies. This cash value is made up of one's premium payments minus "administrative fees and a profit margin plus the cost of death protection" (Orman, 70, 2004). What's left after all these deductions and fees are taken out goes into a tax-deferred savings account.

That's right, a savings account...that could also be referred to as "retirement savings." By focusing on this aspect of the policy, all MetLife did was shift the focus from the insurance aspect of the policy to the savings aspect of the policy. So, was this really lying, or did MetLife just do what most advertisers do and cater their sales presentations to the expected needs or a particular group? Sure they may have used words like "contributions" instead of "premiums," but this is just a matter of semantics. After all, no one was being physically harmed or endangered by purchasing this product, and they were getting additional insurance coverage, something most people need anyway, even if they don't realize it. So, again, should this have been considered "lying"?

Apparently the courts thought so, and MetLife was ordered to pay out upwards of $2 billion dollars in damages (Hartley, 2005). Still I'm not convinced that what MetLife did was entirely wrong. Yes, it was first and foremost an insurance policy that they were selling, but it was also a savings account that could potentially be used for retirement. One could argue that advertisers and sales representatives need to disclose the entirety of a product to potential buyers rather than just one or two aspects, but in reality, what advertisers do that?

Sources:

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. Hoboken, NY. John Wiley & Sons Inc.

Orman, Suze. 2004. Ask Suze...About Insurance. Riverhead Books. New York.

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abuse, advertising, business, ethics, insurance, lying, management, manipulation, MetLife, morality, opinion, techniques

Are Corporate Blogs Becoming Necessary?

One of the most exciting trends in the world of internet communication is the growing use and influence of blogs. Short for "web logs," these online journals are not only growing in numbers, but also in influence. Unlike the older "gripe sites" which were relatively isolated websites that allowed people to comment or complain about a company's management, procedures, or work environment (Robbins, 2005), blogs are very interconnected, particularly due to their integration with social networking sites such as Technorati and MyBlogLog. Once someone publishes a blog entry it has the potential to reach thousands of people within minutes. "Some bloggers have "viewership" in the millions, rivaling some television program audiences" (Voigt, 2006). This can either be very good or very bad from a business perspective.

Rather than trying to silence this type of public scrutiny, many companies have decided to create their own blogs. By doing this they can stay on top of what is being said about them in the ever-growing "blogosphere" and can quickly correct any misinformation or false accusations that appear on the web. Just as "grips sites" were and are useful for a company to gauge the overall mood and discontents of its employees, blogs are a perfect way to widen the scope of feedback from employees to the general public.

Other uses for blogs are public relations, a medium for dispensing new company information or products, and as a way to make the company seem "user-friendly" or accessible. This latter point is becoming increasingly important for maintaining a good reputation, as many young people expect immediate corporate responses to their complaints. "As a public relations tool, a quick, honest blog response from the company CEO "is better than the polish of a press release," Ito (head of Technorati) said. "Speed and tone of response is critical ... even if it's just, `I'm sorry, we don't know what's going on, we're looking into it'" (Voigt, 2006).

Perhaps blogs are the future of corporate public relations, and companies would be better off asking themselves *when* they will launch their own blog, rather than *if* they will launch a blog.

Sources:

Robbins, Stephen P. and Mary Coulter. 2005. Management.
Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Voigt, Kevin. (December 20, 2006). Companies Ponder the Blog Option.
CNN Online. Reference URL: http://www.cnn.com/2006/BUSINESS/
11/07/digitalbiz.blogging/index.html

Other:

Technorati URL: http://www.technorati.com

MyBlogLog URL: http://www.mybloglog.com

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blogging, blogosphere, blogs, business, generation y, management, opinion, public relations

Negligent Consumers vs. Unethical Companies

Can any company "really expect the average consumer to act with strict prudence" and do companies need to take precautions "with the worst case scenario in mind as to consumer behavior" (Hartley, 33, 2005)?

These two questions illustrate one of the most striking ethical issues that face every product-based company in operation. In the particular case of Firestone and Ford, consumers were held partly responsible for their tire blowouts and Explorer roll-overs because they did not check their tire pressures before driving, over-loaded their vehicles, and drove at high speeds for long periods of time. According to Firestone and Ford, the results of this consumer negligence was not something their companies should be held accountable for. Not surprisingly, this stance did not sit well many of their consumers, nor the general public. And although checking tire pressure before driving is commonly recommended in vehicle operation manuals, rarely, if ever, does anyone follow this guideline.

But does having this disclaimer in an operations manual eliminate manufacture culpability completely, or should a company go further to protect consumers when the potentially negligent behaviors of consumers (such as not checking tire pressure consistently) is known beforehand by the manufacturing company? Perhaps in the Firestone/Ford case the answer to this question seems simple because the consequences of the known consumer negligence could result in consumer fatalities.

But what of companies whose products, when and if misused, have less dire consequences? For example, consumers commonly use Q-tips to clean their ears despite the many health warnings against this practice. In fact, Q-tips makes it very clear on their packaging that using their product to clean ears is not recommended, and goes further by suggesting other, more appropriate, ways to use Q-tips. Now suppose a law suit is filed claiming that someone has lost part of their auditory abilities due to repeatedly using Q-tips to clean their ears. Is this person's hearing loss the responsibility of the Q-tips manufacturers, or of the consumer?

An even more extreme case would be the now famous McDonald's Hot Coffee Incident (Lectric Law Library) that resulted in warning labels being placed on all hot beverage containers stating that the contents of the container was indeed "hot" and could potentially cause burns. Was it McDonald's fault that this particular consumer was burned when she spilled hot coffee on herself? Are these warning labels ethically necessary from McDonald's perspective?

Using these three cases as examples, it is possible to see how fine a line there exists between what consequences are the responsibility of a manufacturing company verses the responsibility of a negligent consumer. Like most ethical issues, the answer to this question seems to be a matter of degree - How likely is it that consumers will improperly use the product? How severe are the consequences of its improper use? - In today's litigious society, failing to address these questions before incidences arise will be costly at best.

Sources:

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. Hoboken, NY. John Wiley & Sons Inc.

The Actual Facts About the McDonald’s Coffee Case. Lectric Laws Library Stacks. Reference URL: http://www.lectlaw.com/files/cur78.htm