Craneandmatten3e ch09

Crane and Matten
Business Ethics (3rd Edition)

Chapter 9
Suppliers, Competitors and Business

Ethics
Lecture 9
Overview
Show how other businesses suppliers and competitors
exist in mutual interdependence with a given
organization
Describe the ethical issues and problems that arise in
an organisations dealings with its suppliers and
competitors
Outline how globalization reframes these problems
Discuss whether corporations should assume some
degree of extended responsibility for the ethics of their
suppliers
Assess the arguments suggesting that attention to
business interrelationships and the network economy
may contribute to more sustainable business models
Suppliers and competitors as

stakeholders
Suppliers as stakeholders
A stakeholder of a corporation is an individual or a
group that either is harmed by or benefits from the
corporation or whose rights can be violated, or have
to be respected, by the corporation (Evan and Freeman 1993)
Organisations and their suppliers can be seen as
mutually dependent
Competitors as stakeholders
Forgotten stakeholders? (Spence et al. 2001)
Legal rights (e.g. not influencing others pricing)
Moral claims (e.g. right to fair play)
So, businesses should not be seen as isolated

islands of economic activity, but as actors operating
within a web of other businesses, bound by mutual
interests and interlinked flows of resources and
rewards
Firms thus best understood as part of industrial network
Supplier relationship as part of an

industrial network
Suppliers
supplier
Potential
supplier
Competitor
Supplier
Corporation
Suppliers
supplier
Supplier
Competitor
Suppliers
supplier
Potential
supplier
Ethical issues and suppliers
Ethical issues (I)

Misuse of power
Resource dependence theory can help understand relative
power of buyer and seller
The question of loyalty

Doesnt fit easily with economic view of firm, but can create
mutually-beneficial outcomes
Preferential treatment
Big challenge: procedural justice approach can help
Conflicts of interest
A conflict of interest occurs when a person or organizations
obligation to act in the interests of another is interfered with by a
competing interest that may obstruct the fulfilment of that
obligation
Ethical issues (II)

Gifts, bribes and hospitality
Consider the intention of the gift giver
Look at the impact on the receiver
Focus on the perception of other parties
Many large organizations have a formal purchasing

code of ethics
Guidelines provided by professional bodies such as
the International Chartered Institute of Purchasing
and Supply
Ethics of negotiation (I)

Ethics and negotiation oil and water?
Here are ten popular negotiating actions, all of which
can be challenged on ethical grounds (Reitz et al.,1998):
Lies
Puffery
Deception
Weakening the opponent
Strengthening ones own position
Non-disclosure
Information exploitation
Change of mind
Distraction
Maximisation
Ethics of negotiation (II)

A more ethical approach to negotiating should
steer clear of these tactics. This is because:
It is the right thing to do
Such practices incur costs for the negotiator. These
are:
Rigid negotiating encourages narrow tactics

Damaged relationships risk of enmity
Sullied reputation making future bargaining troublesome
Lost opportunities tends to prevent progressive discussions
that open up new issues
Basic idea: negotiation is not so much zero-sum as a

chance to build mutually-beneficial relationships
Ethical issues and competitors
Problems of overly aggressive

competition
Intelligence gathering and industrial espionage
create ethical questions when
Questionable tactics
Private or confidential information
Purpose for which information gathered is against public
interest
Dirty tricks
Negative advertising
Stealing customers
Predatory pricing
Sabotage
Anti-competitive behaviour
Problems of insufficient competition

Collusion and cartels
Select groups of competitors band together in a
cartel or trading group to fix prices and other
trading arrangements for their own mutual benefit
Abuse of dominant position

E.g. Microsoft
Globalization, suppliers, and

competitors
The ethical challenges of global
business networks
The ethical challenges of global

business networks
Reshaping of ethical consideration with
suppliers and competitors brings up:
Different ways of doing business

Impacts on indigenous businesses
Differing labour and environmental standards
Extended chain of responsibility
Different ways of doing business (I)

Rank
Country
Score
Belgium
8.8
Canada
8.8
Netherlands
8.7
Germany
8.6
United Kingdom
8.6
Japan
8.6
Australia
8.5
Singapore
8.1
USA
8.1
12
Spain
7.9
14
South Africa
6.5
14
South Korea
6.5
17
Italy
7.4
17
Brazil
7.4
19
India
6.8
20
Mexico
6.6
21
China
6.5
22
Russia
5.9
Bribe paying for multinational

companies according to country of
origin
Note: Scores based on 0 to 10, where
a perfect score, indicating no
perceived propensity to pay bribes, is
10. Thus, companies headquartered
in those countries with a lower score
have a higher perceived propensity to
bribe
Source: figures extracted from 2008
Bribe Payers Index at
www.transparency.org
Different ways of doing business (II)

Business Sector
Score
Public works/construction
5.2
Real estate/property development
5.7
Oil and gas
5.9
Heavy manufacturing
6.0
Mining
6.0
Pharmaceuticals/medical care
6.2
Utilities
6.3
Civilian aerospace
6.4
Power generation and transmission
6.4
Forestry
6.5
Top ten sectors for bribe paying

Note: The scores range from 0 to 10,
where 0 represents the view that
bribes are almost always paid and 10
that bribes are never paid by a
sector.
Source: figures extracted from 2008
Bribe Payers Index at
www.transparency.org
Impacts on indigenous businesses

Size, power and political influence of MNCs often
means that they enjoy considerable cost and other
advantages compared to local competitors
Offer employment alternatives to people who would
otherwise start their own business (Spencer, 2008: 341)
Exposure to the competition of a major multinational
can severely threaten the business of indigenous
competitors (Klein, 2000)
Differing labour and environmental

standards
Western firms increasingly sourced through global
supply chains
Race to the bottom occasioned by demand by
MNCs for lower-cost production in developing
countries
Ethical problem = lower costs often accompanied by
sweatshop conditions
poorer labour conditions
less environmental protection
lower attention to health and safety
Extended chain of responsibility

Shifts towards global supply and competition
mean that individual firms appear to be faced
with prospect of an extended chain of
responsibility
No longer acceptable to argue that the ethics of a
firms suppliers or a firms impact on its competitors
was simply not any of its business (see Emmelhainz and
Adams 1999)
The corporate citizen in the business

community
Ethical sourcing and fair trade
Ethical sourcing
Ethical sourcing is the inclusion of explicit social,
ethical, and/or environmental criteria into supply chain
management policies, procedures and programmes
Suppliers willingness to comply or resist pressure to
certify (e.g. ISO 14001) is strongly determined by the
type of relationship they have to the companies that
purchase from them (Delmas and Montiel 2009)
Suppliers with a high dependence on their customers are more
likely to comply
as are relatively new entrants to the industry
For suppliers, the public act of gaining ethical certification can
act as a way of reducing information asymmetries between
themselves and potential buyers
Business-business regulation
Ethical sourcing as business-business regulation
Pressure exerted by powerful corporate customers to comply

with ethical sourcing guidelines and criteria constitutes strong
and often very effective regulation of supply chain members
(Locke and Romis, 2007)
Strategies of business-business regulation

Disengagement
Setting of clear standards for suppliers and a means for
assessing compliance with those standards
Failure to meet standards in short- medium term will result in
disengagement by the company
Engagement
Rely on longer-term aims together with incremental targets in
order to foster a step-by-step approach to improving standards.
Firm likely to work with their suppliers to achieve improvements
Fair trade
Fair trade is a system aimed at offering the most
disadvantaged producers in developing countries the
opportunity to move out of poverty through creating
market access under beneficial rather than exploitative
terms. The objective is to empower producers to develop
their own business and wider communities through
international trade (Nicholls & Opal 2005: 6)
Aims of fair trade movement
Foster the protection and empowerment of growers
Encourage community development by guaranteeing minimum
prices and conditions
In 2008, Fair Trade sales grew 22% (est. 2.9Bn)

But success could put pressure on ethical standards
Challenges also from recruiting employees with mainstream
business skills (Davies & Crane, 2010)
Comparison: Fairtrade & New York

Prices for Cocoa, 1994-2009
Source: Fairtrade Foundation
Sustainability and business

relationships
Towards industrial ecosystems?
From supply chains to supply loops

Supply loops are product end-of-life management
strategies that fulfil two criteria (Geyer and Jackson, 2004):
They divert end-of-life products from landfill or incineration
by collecting them for economic value recovery
The reprocessing of these end-of-life products produces
secondary resources that replace primary resources in
forward supply chains
To proponents, such closed loop supply chain models

have are not only waste reducing, but eliminate the
very concept of waste (Lovins, Lovins, and Hawken 1999).
Also, important potential sources of value recovery
Industrial ecosystems
Kalundborg industrial ecosystem
ASNAES
POWER PLANT
Fly ash &

limestone gunk
GYPROC
WALLBOARD
Fly ash
Used
steam
Surplus
heat
NOVO NORDISK
ENZYME PLANT
CITY OF
KALUNDBORG
Waste as
fertilizer
Used
steam
Steam
for heat
Low-grade
cement
High
sulphur gas
CEMENT
COMPANY
Chemicals
CHEMICAL
PLANT
Wastewater
for cooling
FARMS
STATOIL
REFINERY
FISHERY
Heavy oil
Source: Shrivastava, 1995
Summary
Discussed the stake held by other companies in a
corporation
Argument that there were issues of an ethical nature
that went well beyond the legal protection of fair
competition
Globalisation substantially increased scope of these
problems suggesting expanded responsibilities for
corporations over their operations
Business relationship also increasingly seen as one
of main levers for effecting greater attention to social
and environmental problems

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Crane and Matten

Business Ethics (3rd Edition)

Suppliers, Competitors and Business

Suppliers and competitors as

So, businesses should not be seen as isolated

Supplier relationship as part of an

Ethical issues and suppliers

Ethical issues (I)

The question of loyalty

Ethical issues (II)

Many large organizations have a formal purchasing

Ethics of negotiation (I)

Ethics of negotiation (II)

Rigid negotiating encourages narrow tactics

Basic idea: negotiation is not so much zero-sum as a

Ethical issues and competitors

Problems of overly aggressive

Problems of insufficient competition

Abuse of dominant position

Globalization, suppliers, and

The ethical challenges of global

Different ways of doing business

Different ways of doing business (I)

Bribe paying for multinational

Different ways of doing business (II)

Real estate/property development

Oil and gas

Power generation and transmission

Top ten sectors for bribe paying

Impacts on indigenous businesses

Differing labour and environmental

Extended chain of responsibility

The corporate citizen in the business

Pressure exerted by powerful corporate customers to comply

Strategies of business-business regulation

In 2008, Fair Trade sales grew 22% (est. 2.9Bn)

Comparison: Fairtrade & New York

Source: Fairtrade Foundation

Sustainability and business

From supply chains to supply loops

To proponents, such closed loop supply chain models

Fly ash &

Source: Shrivastava, 1995

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