PASSI CITY COLLEGE

City of Passi, Iloilo

SCHOOL OF INFORMATION AND COMMUNICATION TECHNOLOGY

COURSE NUMBER: IT ELECT 5

COURSE TITLE: SOCIAL RESPONSIBILITY
MODULE: 7
OVERVIEW:

We take a look at the role of ethics and social responsibility in business decision making. First, we
define business ethics and examine why it is important to understand ethics’ role in business. Next, we
explore a number of business ethics issues to help you learn to recognize such issues when they arise.
Finally, we consider steps businesses can take to improve ethical behavior in their organizations

MODULE OUTCOMES

At the end of this module, the students must have:

 Explain what globalization

 Describe the different ways of globalization affecting business life , environment and
other forms of changes
 Determine the competion in a society

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IT ELECT 5 – SOCIAL RESPONSIBILITY MODULE NO. 7
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IT ELECT 5 – SOCIAL RESPONSIBILITY MODULE NO. 7
Introduction

Globalisation is a leading concept which has become the main factor in business life during the
last few decades. This phenomenon affects the economy, business life, society and
environment in different ways, and almost all corporations have been affected by these
changes. We can see these changes mostly related with increasing competition and the rapid
changing of technology and information transfer. This issue makes corporations more profit
oriented than a long term and sustainable company. However, corporations are a vital part of
society which needs to be organised properly. Therefore we need some social norms, rules
and principles in society and business life for socially responsible behavior.

Globalization

Globalization can be defined as the free movement of goods, services and capital. This
definition does not cover all the aspects of globalisation or global changing. Globalisation also
should be a process which integrates world economies, culture, technology and governance.
This is because globalisation also involves the transfer of information, skilled employee
mobility, the exchange of technology, financial funds flow and geographic arbitrage between
developed countries and

developing countries. Moreover globalisation has religious, environmental and social

dimensions. In order to encompass this broad impact area globalisation covers all dimensions
of the world economy, environment and society. Moreover it is apparent all over the world and
the world is changing dramatically. Every government has a responsibility to protect all of their
economy and domestic market from this rapid changing.

The question is how a company will adapt to this changing. First of all companies have to
know different effects of globalisation. Globalisation has some opportunities and threats. A
company might have learn how to protect itself from some negative effects and how to get
opportunities from this situation.

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IT ELECT 5 – SOCIAL RESPONSIBILITY MODULE NO. 7
Globalization affects the economy, business life, society and environment in different ways:

• Increasing competition,

• Technological development,

• Knowledge/Information transfer,

• Portfolio investment (fund transfer between developed countries and emerging

markets),

• Regulation/deregulation, International standards,

• Market integration,

• Intellectual capital mobility,

• Financial crisis-contagion effect-global crisis.

Competition

Globalisation leads to increased competition. (Increased competition is a consequence of

globalisation) This competition can be related to product and service cost and price, target
market, technological adaptation, quick response and quick production by companies etc.
When a company produces with less cost and sells cheaper, it will be able to increase its
market share.

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Customers have too much choice in the market and they want to acquire goods and services
quickly and in a more efficient way. And also they are expecting hıgh quality and a cheap price
which they are willing to pay. All these expectations need a response from the company,
otherwise sales of company will decrease and they will lose profit and market share. A
company must be always ready for price, product and service and customer preferences
because all of these are global market requirements.

Exchange of Technology

One of the most striking manifestations of globalization is the use of new technologies by
entrepreneurial and internationally oriented firms to exploit new business opportunities.
Internet and e-commerce procedures hold particular potential for SMEs seeking to broaden
their involvement into new international markets (Wrighta & Etemad, 2001). Technology is
also one of the main tools of competition and the quality of goods and services. On the other
hand it necessitates quite a lot of cost for the company. The company has to use the latest
technology for increasing their sales and product quality. Globalisation has increased the speed
of technology transfer and technological improvement. Customer expectations are directing
markets. Mostly companies in capital intensive markets are at risk and that is why they need
quick/rapid adapting

concerning the customer/market expectations. These companies have to have efficient

technology management and efficient R&D management.

Knowledge/Information transfer

Information is a most expensive and valuable production factor in the current environment
(presently/currently/at the current time) Information can be easily transferred and exchanged
from one country to another. If a company have a chance to use knowledge and information
then it means that it can adapt to this global changing. This issue is similar with the

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technology transfer issue in global markets. The rapid changing of the market requires also
quick transfer of knowledge and efficient using of that knowledge and information.

Portfolio investment (Financial fund flows)

Globalisation encourages increased international portfolio investment. Additionally, financial

markets have become increasingly open to international capital flows. For this reason, portfolio
investment is one of the major problems of developing economies. It is almost the only way to
increase liquidity of the markets and economies for emerging countries through attracting
foreign funds. Significantly, this short term investment can dramatically impact on the financial
markets. When the emerging economies have some problem in their country or investors
make enough profit from their investment then these investors might leave the market. This
would mean that market liquidity decreased and financial markets indicators plummet
immediately.

Regulation/deregulation and international standards

Globalisation needs more regulation of the markets and economy. There are many new and
complicated financial instruments and methods in the market and such instruments easily
transfer and trade in other countries because of the globalisation effect. Every new system,
instrument or tool requires new rules and regulations to determine its impact area. These
regulations are also necessary to protect countries against global risks and crises. When the
crisis comes out of one country then it influences other countries with trade channels and fund
transfers, which we call the contagion effect. On the other hand, during globalisation the
shares of big companies are trading in the international stock markets and these companies
have shareholders and stakeholders in many different countries. International rules and
regulations also offers protection to small investors against the big scandals and other
problems in companies.

International standards also regulate markets and economies by means of international

principles and rules such as International accounting standards, international auditing
standards. It aims to make corporate reporting standardised and comparable

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So that is why the globalised world has more rules and more regulations and international
standards than before.

Market integration

In fact globalisation leads to the conversion of many markets and economies into one market
and economy. The aim of international standards and regulations is also to deregulate all
these markets. The economy needs financial structures capable of handling the higher risk in
the new economy. For this reason financial markets must be broad, deep, and liquid and at
present only the U.S. financial markets are large enough to provide this financial structure in
the world market. Global stock market projection and Pan-European stock market projection
are part of this changing. There are many similar examples in the current situation for market
integration which are also the result of increasing competition in the economy. Integration
examples are prominent in company mergers and acquisitions as well.

Qualitative Intellectual capital mobility

Another effect of globalisation is human capital mobility through knowledge and information
transfers. One of the reasons is that international/multinational companies have subsidiaries,
partners and agencies in different countries. They need skilled and experienced international
employees and rotation from country to country to provide appropriate international business
practice. This changing also requires more skilled, well educated and movable employees who
can adapt quickly to different market conditions.

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Financial crisis-contagion effect-global crisis

Financial crises are mostly determined through globalisation and as a result of the globalisation
impact. In fact, this is quite a true explanation. The financial world has witnessed a number of
crises cases. Generally financial crises come out from international funds/capital flows
(portfolio investments), lack of proper regulations and standards, complex financial
instruments, rapid development of financial markets, asymmetric information and information
transfers. One country crisis can turn into a global crisis with systemic risk effect. Systemic risk
refers to a spreading financial crisis from one country to another country. In some cases,
crises spread even between countries which do not appear to have any common economic
fundamentals/problems. Previous global crises have also showed that one of the reasons for
the crisis is unregulated markets.

How Globalisation Affects CSR

The question might be how globalisation affects CSR. But the answer to this question is not
only related to the last quarter of the 20th century but also related to previous centuries. John
Maynard Keynes calculated that the standard of living had increased 100 percent over four
thousand years. Adam Smith had an important (seminal) idea about the wealth of
communities and in 1776 he described conditions which would lead to increasing income and
prosperity. Similarly there is much evidence from economic history to demonstrate the benefit
of moral behaviour; for example, Robert Owen in New Lanark, and Jedediah Strutt in
Derbyshire – both in the UK –showed the economic benefits of caring for stakeholders. More
recently Friedman has paid attention to the moral impact of the economic growth and
development of society.

It is clear that there is nothing new about economic growth, development and globalisation.
Economic growth generally brings out some consequences for the community. This is
becoming a world phenomenon. One of the most important reasons is that we are not taking
into account the moral, ethical and social aspects of this process. Some theorists indicated the
effect of this rapid changing more than a hundred year ago. Economic growth and economic
development might not be without social and moral consequences and implications.

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Another question is who is responsible of this ongoing process and for ensuring the wellbeing
of people and safeguarding their prosperity. Is this the responsibility of governments, the
business world (businessman), consumers, shareholders, or of all people? Government is part
of the system and the regulator of markets and lawmakers. Managers, businessmen and the
business

world take action concerning the market structure, consumer behaviour or commercial
conditions. Moreover, they are responsible to the shareholders for making more profit to keep
their interest long term in the company. Therefore they are taking risk for their benefit/profit.
This risk is not opposed to the social or moral/ethical principles which they have to apply in
the company. There are many reasons for ethical and socially responsible behaviour of the
company. However, there are many cases of misbehaviour and some illegal operations of
some companies. Increasing competition makes business more difficult than before in the
globalised world.

The good news and our expectations are that competition will not have any longer bad
influence on company behaviour. According to international norms (practice) and expectations,
companies have to take into account social, ethical and environmental issues more than during
the last two decades. One of the reasons is more competition not always more profit; another
reason is consumer expectation is not only related to the cost of products but also related to
quality, proper production process and environmental sensitivity.

Moreover shareholders are more interested in long term benefit and profit from the company.
The key word of this concept is long termism which represents also a sustainable company.
Shareholders want to get long term benefit with a sustainable company instead of only short
term profit. This is not only related to the company profit but also related to the social and
environmental performance of the company. Thus, managers have to make strategic plans for
the company concerning all stakeholder expectations which are sustainable and provide long
term benefit for the companies with their investments. However, Sustainability can be seen as
including the requirement that whatever justice is about – fair distribution of goods, fair
procedures, respect for rights – is capable of being sustained into the future indefinitely. Thus
sustainability requires that the values of justice are capable of being continued into the future:
if current practices for instance were just from the present point of view but would prevent the
same practices from occurring in the future, that would be rejected from the point of view of
sustainability (Dower, 2004)…. So investor or shareholder expectations and all other

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stakeholders approaches are supporting a socially responsible and ethical company more than
other companies. Globalisation has had a very sharp effect on company behaviour and still we
can see many problems particularly in developing countries. This is one of the realities of the
globalisation process. However we are hoping to see some different approaches and

improvements to this process with some of them naturally related to some international
principles, rules and norms. But most of them are related to the end of this flawed system and
the problems of capitalisation.

The challenge of CSR in a globalizing world is to engage in a process of political deliberation

which aims at setting and resetting the standards of global business behaviour. While
stakeholder management deals with the idea of internalizing the demands, values and
interests of those actors that affect or are affected by corporate decision-making, we argue
that political CSR can be understood as a movement of the corporation into environmental and
social challenges such as human rights, global warming, or deforestation (Scherer & Palazzo,
2008), .

Globalization, Corporate Failures and CSR

Enron, WorldCom, Qwest, Parmalat, Sunkill, ImClone, and various other corporate failures
bring out some governance and CSR issues and have increased attention to the role of
business ethics. Managers and CEO’s of these companies must be considered responsible for
all of these failures and these are cases of “corporate irresponsibility”. Many people have the
opinion that if corporations were to behave responsibly, most probably corporate scandals
would stop.

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REFERENCES:

1) Blowfield M, J. G. Frynas (2005), “Setting new agendas: critical perspectives on

Corporate Social Responsibility in the developing world”, International Affairs 8, 99 499-
513

2) Cramer J. (2002), “From Financial to Sustainable Profit”, Corporate Social Responsibility

and Environmental Management, 9, pp. 99–106 Published online in Wiley.

3) Dower N. (2004) “Global Economy, Justice and Sustainability” Ethical Theory and Moral
Practice 7: pp. 399–415.

4) Mcguire,J.B, A. Sundgren, T. Schneeweis (1988), “Corporate social responsibility and

firm financial performance”, Academy of Management, Vol. 31, No, 4, 854-872.

SUGGESTED READINGS:

1) Prahalad C K & Hammond A (2002); Serving the world's poor, profitably; Harvard
Business Review, 80(9), 48-57

2) Doh J P, Rodriguez P, Uhlenbruck K, Collins J & Eden L (2003); Coping with corruption
in foreign markets; Academy of Management International Review, 17 (2), 114 - 127

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IT ELECT 5 – SOCIAL RESPONSIBILITY MODULE NO. 7
 SCHOOL OF INFORMATION AND COMMUNICATION TECHNOLOGY

Last Name : ______________________________________ First Name :_________________ M.I.: _________

Course, Year & Section : _______________________

Module 7

I. Answer the following questions:

A. Enumerate the different ways on how globalization affects economy, business life, society and
environment.

1) ______________________________________________________________
2) ______________________________________________________________
3) ______________________________________________________________
4) ______________________________________________________________
5) ______________________________________________________________
6) ______________________________________________________________
7) ______________________________________________________________
8) ______________________________________________________________

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 B. What is globalization?

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