Topic 8 Suppliers, Competitors, and Business Ethics

In this topic we will look at and examine the inter-organizational relationship in the context of two types of businesses; Suppliers and Competitors. As we all know contracts between businesses and their suppliers often involve substantial sum of money, which can mean differences business survival and failure. Thus when considering issues of money and suppliers, the issues of trust, bribery, thief, overpricing etc. will come into question thus give rise to ethical issues.

Suppliers as Stakeholders

We have seen in topic 2, that suppliers together with other stakeholders such as competitors, customers, regulators, and strategic allies are part of the organization’s Task Environment within the external environment.  They directly affect a particular organization but they are not part of the organization. Each dimension of the general environment embodies conditions and events that have the potential to influence the organization in important ways. Suppliers as stakeholders can benefit from the success of a business through receiving orders for products and survives and on the other end they can be harmed by losing orders.

In the context of business ethics, we have to look at suppliers and tell ourselves that they also have certain rights, such as the rights to fair contract deal, respected as a firm, fair treatment of loyalty and so forth.

We should keep in mind that organizations and their suppliers are mutually dependent on each other for their own success; just as suppliers rely on their customers for orders which keep them in business, so too do the purchasing firm rely on their suppliers to provide them with products and services to continue their operations.  

Ethical Issues and Suppliers

Misuse of Power – The question of misuse of power can be an ethical issue when one firm uses it position to assert power over another firm, Example; the supply of one product (Maybe only one supplier) or assert it power over pricing or when there is scarcity of resources. Imbalance in power can lead to the emergence of ethical problems when any imbalances is misused to create unfair terms and conditions for one or another party.

Question of Loyalty – The question of loyalty come into play when a firm has been using the same supplier for so many years that there is expectation that such business relationship would continue. Advantages that may arise from such relationship is reduced transaction cost, as well as working out ways together for the firms growth as well as customer benefits. Question of ethics may arise when the relationship is broken resulting in loss of business, bankruptcy, loss of job etc. When ethics is considered, both parties should come up with some form of agreements before they enter into the supplier-business relationships to address such issues before it happens. 

Preferential treatments – Preferential treatment of certain suppliers over others can also raise the issue of ethics. Where does an obligation to be loyal ends and the granting of an unfair advantages begins? One way of addressing such problem of preferential treatment is to apply the notion of procedural justice. Procedural justice is concerned with the fairness of the processes through which decisions are made.

Many cases of preferential treatment of suppliers occur when individual purchasing officers concerned are offered personal gifts or other inducements to sway their options. This can be address by firms by incorporating clause against such through the firms Code of Conducts and Code of Ethics.

Conflicts of Interest – Conflict of interest is a critical factor when it comes to business ethics not just in relations to suppliers but to other business activities as well. A conflict of interest occurs when a person’s or organization’s obligation to act in the interests of another is interfered with by a competing interest that may obstruct the fulfilment of that obligation. (Crane, Matten, 2007)

A good example of conflict of interest involved the accounting firm Arthur Andersen and its part in the downfall of US giants Enron and Worldcom. (Students are encouraged to read their story on the internet).

Gifts, Bribes and Hospitality -   When it comes to bribery, gifts etc., there are so many new ways of expressing such issues. You would have heard of the words; gifts, gratitude, hospitality, kickbacks, bungs, sweeteners etc.  Such offers might be innocent and quiet genuine as a gesture of gratitude however, some may view it differently and the issue of ethics arises. Where do we draw the line of what is acceptable or unacceptable practices? Sometimes we need to look at other environmental factors as well such as the socio-cultural practices of a particular country to make decisions. In some culture gift giving is acceptable when a business deal has been successfully negotiated and should be reciprocated. Other culture may not be acceptable. When it comes to ethics these factors should be considered.

There are a number of ways you can look at such issues when it comes to ethical considerations; i) Intention of the gift-giver, ii) Impact on the receiver and iii) Perception of other parties. 

Ethic in Negotiation

Let us look at the issue of negotiation when it comes to supplier relationship. Negotiation between buyer and supplier may raise some ethical questions that we need to look at. Let us look at the following issues;

·         Lies – about something material to the negotiation.

·         Exaggerating – Value of something.

·         Deception – Misleading promises or threats etc.

·         Non-disclosure – Deliberately withholding the some information.

·         Exploitation – Misuse of information provided.

·         Distraction – Deliberately attempting to lure opponent into ignoring information.

·         Maximization – Exploiting the situation to one own benefit. 

When it comes to negotiation, let us look at some of the issues may incur and that is the cost factor given risks involved;

Rigid Negotiation – Unethical tactics can draw negotiations into a narrow view of the tactics available to them.

Damaged Relationships – The relationship may ceased once a deal has been negotiated.

Sullied Reputation – Negative influence on the individuals or company image.

Lost Opportunities – Unethical negotiations may lead to lost opportunities.

 

Competitors as Stakeholders

While our competitors are seen as threat to our business survival does not mean we forget about them when it comes to business ethics. Competitors are also an organization’s stakeholder. As seen in topic 2 an organization’s competitors are other organizations that compete with it for resources. The resource most commonly competed for is customer dollar.  No all competition can be expressed in terms of customer dollar. Competitors maybe in the form of;

·         Government department compete for tax revenue.

·         Business compete for the best and brightest young graduate.

·         Firms seeking limited funding from bank.

When it comes business ethics, competitors also has rights just like any other business (competitors). Competitors has the right to conduct business just as any other business, Competitors do have national and international contractual agreements when it comes to their products and services thus they also have moral and ethical considerations when it comes to doing business activities and also the rights to privacy. Some organizations track their competitors more closely than others.

·         One company may purchase examples of its competitor’s products for the purpose of analysing quality and construction techniques.

 

·         One hotel chain may have its managers “mystery shop” the service provided by it competitors by having them book rival hotels to see how their competitors manage comfort and service.

·         Securing ‘inside knowledge’ of a competitor’s product plans, financial margins and marketing campaigns, while potentially valuable to the organization, not only is difficult, but also may fall into the category of industrial espionage and this is where business ethics emerges. 

If you consider the following issues mentioned above, we can sum it up and say; business should not be seen as isolated islands of economic activities but as actors operating within a web of other business, bound by mutual interests and interlinked flows of resources and rewards. 

Ethical Issues and Competitors

When it comes to ethics and competitors, let us look at two firms and say they are both in the business to maximise profits and make a good return for their investors/shareholders. At the same time they are competing against each other. When we look at competitors in this way, we can be able to discuss ethical issue without any form of negativity against competitors.

Overly Aggressive Competition - Where a company goes beyond acceptable behaviour in its direct relationship with a competitor, thereby harming the competitor in a way that is seen as unethical.

Insufficient Competition – Where the actions of one or more companies acts to restrict competition in a market thereby harming consumers in a way that is seen as unethical.

 

Problems of Overly Aggressive Competition

When competitors goes beyond the ethical boundaries of acceptable competitive behaviour (Spying, dirty tricks, etc.).

Intelligence gathering and industrial espionage – gathering information against your competitor.

Questionable tactics – May take the form of illegal gaining of information through other means. Example break and enter into a firm’s office, phone bugging etc.

Private or Confidential information – information that should not be freely given or available to outsiders.

Public interest – Use of information to sway consumer behaviour .

 

Dirty Tricks

·         Negative Advertising – Firm deliberately set out to publicly criticize their competitors, their products, or any product or performance claims the competitors may have made. 

·         Stealing Customers – Where a rival’s customers are specifically approached in order to encourage them to switch suppliers. 

·         Predatory Pricing – Deliberate setting of prices below costs in order to initiate a price war and force weaker competition. 

·         Sabotage – Involves the direct interference into a competitor’s business in order to obstruct, slow down or otherwise derail their plans.

 

Anti-Competitive Behaviour

Putting rival firms out of business can be about more than just intense competition between two industrial rivals.  

Problems of Insufficient Competition

Create problems for consumers when there is less competitors. Dominance of one company can result in higher prices etc. 

Collusion and Cartel

Refer to a group of competitor’s band together in order to fix price and other trading arrangement. 

Abuse of Dominant Position

Abuse of dominant position refers to markets that are dominated by a single large competitor who uses its muscle to disadvantage consumers and smaller competitor alike. 

 

Globalization, Suppliers, and Competitors; the Ethical Challenges of Global Business Network

Deterritorialization of corporate value chain can be identified as an important influence contributing to the process of globalization.

Convergence of markets - Refers to firms increasingly selling their products across the world resulting in direct competition with firms in and from different countries.

Other factors that have contributed to the process of globalization are; Global competition, Cost advantages and Government Influences.

Given the contacts with overseas suppliers and competitors, corporate managers are faced with different ways of doing business as well as many ethical considerations such as;

·         Different ways and approaches to doing business.

 

·         Impacts on Indigenous businesses.

·         Differing labour and environmental standards.

·         Extended chain of responsibility.

 

The Corporate Citizen in the Business Community; Ethical sourcing and Fair Trade

Ethical Sourcing is the inclusion of explicit social, ethical, and or environmental criteria into supply chain management policies, procedures and program.

Fair Trade is a system aimed at offering the most disadvantaged procedures 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. 

For the global component of this topic, students are encouraged to read chapter 9 of Andrew Crane and Dirk Matten text book; Business Ethics.

 

Sources:

Andrew Crane and Dirk Matten, 2007 Business Ethics Second Edition.

Nickel, McHugh, McHugh, (2005) Understanding Business 7^th Edition, McGraw-Hill.

Johnson, Abramov, Business Ethics 2004, “A Publication of the Good Governance Program” International Trade Administration Washington D.C. 2004