The Role of Ethics in Business and Competition

Edina Monique G. Tahilan

Divine Word College of Laoag, Laoag City, Ilocos Norte, Philippines

Abstract

Competition is everywhere. Even in businesses, competition in the market always exists; you won’t find any field where there isn’t any competition. Companies are fighting to succeed, competition is rampant, and success in terms of money and fame is harder to come by because markets are cluttered and competitive. It can be easy to overlook the essentials that form a sturdy foundation on which individuals and businesses learn and grow. These essentials include ethics and integrity.

Companies exhibiting a business ethical code of conduct consistently outperform companies that do not display ethical conduct. If firms use unethical or illegal, socially unproductive means to gain competitive advantage, then competition may not lead to socially desirable outcomes or it may implicate many devastating results. Unethical behavior may damage a firm’s reputation and make it less appealing to stakeholders. Profits could fall as a result. A company with good ethical standards, by comparison, is bound to succeed in the long run because it promotes growth and raises income. A company stands to profit from a reputation for acting with honesty and integrity. Thus, building a strong competitive culture is vital to the reputation, growth, and finances and could be a very valuable long term asset of an organization.

As all companies always try to search for new things or use possible instruments to gain a competitive advantage, this paper tries to analyze how competition may encourage ethical and unethical business practices in a competitive world.

 

Keywords: Business Ethics, Competition, unethical practices

 

Introduction

Why is it important for a business to be ethical? Can a business survive without ethics? In this paper, we will analyze the ethics of competition among firms and we will explore the growing issue of business ethics particularly as a competitive advantage.

In our global economy today, businesses have become highly competitive, and the management of corporate ethics has become one of the vital issues companies cannot afford to ignore. The business ethics of a firm have been defined as one of the invaluable intangible assets for competing. In general, intangible assets are assuming increasingly competitive significance in rapidly changing domestic and global markets. As the speed of comparable tangible assets acquisition accelerates and the pace of imitation quickens, firms that want to sustain distinctive global competitive advantages need to protect, exploit and enhance their unique intangible assets, particularly integrity (building firms of integrity is the hidden logic of business ethics) (Morales 2014)."Competitive Advantage" is a long-term advantage over competitors. It’s an advantage, which competitors find difficult to emulate (Kar 2014).

Cohen, et. al. (1997) argue that ethical companies have an advantage over their competitors. “Consumers are used to buying products despite how they feel about the companies that sell them. But a values-led company earns the kind of customer loyalty most corporations only dream of-because it appeals to its customers on the basis of more than a product”.

There is also an argument that ethics are natural market consequences of business-customers, clients, employees all want their companies to be ethical, so it is the company’s best interests to be so.

When a company is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors, then we can say the company has a competitive advantage. And when potential or actual competitors are unable to duplicate the benefits of this strategy, then we can say that the company has a competitive advantage that derives from business ethics (Morales 2014).

Competitive the advantage is about finding a “hole in the market,” something that other competitors would have trouble providing. If you have strong and observable business ethics and core values, you have a huge competitive advantage, because you are different from most others (Triplett 2015).

With these arguments, we can say that business ethics is not just used to enhance the image of a corporation but the very foundation of the success of every business. Companies are able to create a global sustainable competitive advantage when they implement a strategy that others cannot imitate. Furthermore, a company must make changes in order to achieve a sustainable competitive advantage.

 

Advantages of Being Ethical in Business

The advantages of business ethics can extend beyond moral obligation; they can also benefit a company's bottom line. Ethical behavior can serve to differentiate your brand from those of your competitors if you operate in an oversubscribed market, offering you a competitive edge. Identifying your product and business practices as being founded on strong ethical principles make your product or service more attractive to consumers — a good example of this model would be the Body Shop, a cosmetics company whose products are not tested on animals (Breslin 2019).

Customers, who cares about high ethical standards, are the ones who can contribute to the biggest potential profits on ethically produced goods. There should not be any hesitation in being ethical as this is a long term investment in making current and future customers your loyal partners. When companies work ethically, they naturally outpace competitors who are unethically working for expanding profits. It is simply because customers see them as a trusted partner, not only for what they do but for how it is delivered.

Business ethics is very important to stop business malpractices. It helps the business survive for a longer time and it helps in the protection of consumer rights. It facilitates healthy competition, creates goodwill of the business, it helps maintain customer satisfaction, and avoids legal problems which is very prominent in many companies at present.

 

World’s Most Ethical and Successful Companies

According to Ethisphere Institute, the global leader in defining and advancing the standards of ethical business practices, among 2020 world’s most ethical companies listed there are Accenture, Canon, Colgate-Palmolive Company, Dell, H&M, HP, Intel Corporation, IBM, L’Oreal, Microsoft, Nokia Corporation, Sony (the list includes 132 companies spanning  21 countries and 51 industries and includes 14 first-time honorees and seven companies that have been named to the list every year since its inception). The companies on the list have met rigorous criteria across five categories covering the quality of their ethics and compliance program, organizational culture, corporate citizenship and responsibility, governance, and leadership, and reputation.

In his article, Miranda (2020) mentioned IBM being recognized as one of the 2020 World’s Most Ethical Companies by the Ethisphere Institute. For more than a century, IBM has sought to earn and keep the trust of its clients, partners, employees, and people because of the company’s longstanding commitment to integrity. And this earned trust is why 95 percent of Fortune 500 companies rely on IBM to handle their data. From the company’s start, IBM has adopted policies that promote inclusion and treat people with dignity and respect. IBM’s Principles of Trust and Transparency is just a reflection of a new era of their ethics-one where technology increasingly influences every aspect of society, from how the government services are delivered, to how we shop and entertain ourselves, to how our children learn, and also to how physicians treat patients.

 

 Disadvantages of a Lack of Ethics on a Business Environment

A lack of ethics leads to a wealth of problems in business. Businesses without values are businesses at risk. Their reputations suffer in the marketplace, depressing stock prices and eroding consumer confidence; recruitment of talented personnel is more difficult (Driscoll, 2017).  Furthermore, lack of business ethics endangers the future of their company, jeopardizes the public good, and can have many other negative effects on a business environment. So businesses small and large must act ethically to protect themselves and their business environments. Otherwise, they pose a threat to their employees, customers, and communities (Mack, 2018).

Poor ethical decisions can affect companies in a variety of ways. Unethical actions in businesses may result in negative publicity, declining sales, and even legal action. Businesses that act unethically in ways that break the law may face large fines and other penalties. Also, a lack of ethics within a company affects the way employees do their job. People can decide that because leaders can break the rules, they can too. This can lead to them to damage the company. They may also become discouraged or not see the need to work hard in an unethical environment. When a company is unethical, it affects its reputation. Not only will the leaders and company lose respect from employees, but they will also lose credibility with the general public as well. This can result in reduced sales, lost customers, and significant financial harm.

 

Common Unethical Business Practices in Competition

One of the biggest threats to any business is its competitors. All businesses aim at gaining a competitive advantage over their competitors to win the trust of many customers. They would spend millions of money to employ strategies that would enable them to enhance their sales. However, some companies try to give themselves an unfair advantage by attacking their competition through a few different types of unethical business practices that result in unfair competitive practices. In a recently published article, Kane (2020) states the following types of unfair activities through competition that a company may engage in.

·         Trademark infringement, such as one business using another's trademarked property without permission. For example, using the Coca-Cola trademark on a soda container manufactures by a competing beverage maker.

·         False advertising which involves making claims that are misleading or untrue, such as a company making false claims about a drug's abilities to promote weight loss when such claims had never been proven.

·         Unauthorized substitution such as when a seller replaces one brand of goods with another without authorization. This could involve substituting a low-cost handbag for a designer handbag. It could also mean false advertising or false representation of products or services, such as exaggerating a software program’s spell-check capabilities. In either case, consumers are not getting what they thought they were paying for.

·       Bait-and-switch-tactics  such as substituting a lower-cost product from a different brand for a more expensive, higher-quality product.

·         Misappropriation of trade secrets such as stealing a competitor’s proprietary formula. Consider an employee who is entrusted with or stumbles upon the exact recipe for KFC's chicken batter. They then rent a fast food restaurant establishment and begin selling chicken on their own using that same recipe.

·         Below-cost selling occurs when a company intentionally and willingly sells a product or service to consumers for less than the market rate. A retail seller might actually charge consumers less than what it paid for an item, taking a loss. Another company might sell one or more of its services at a rate that virtually ensures it cannot make money. 

·         Dumping such as selling products abroad for far less than what they would fetch in a local market.

·         Rumor mongering such as written or verbal communications that would ruin or harm a company’s reputation in the industry.

The unfair competitive practices would only earn a company massive profits in the short run. However, upon investigation and publicity of the matters, the company will have its reputation destroyed. Unethical business practices will result in bad publicity, and the company may never win the publicity in the future even though it struggles to employ ethical conducts. Moreover, as a consequence of unethical practices, the company can lose their credibility, general morale and productivity can decline, or it can result in significant fines and/or financial loss.

 

Conclusion

Fair competition in the marketplace is good both for the business and consumers. It is healthy for businesses, yet that rivalry is so intimidating. If business competition is fair, it meets the requirements of high ethics, and it is one of the fundamental sources of economic development.  An integrity approach to business facilitates the delivery of quality products in an honest, reliable way thus consumers can get the best possible prices, quantity, and quality of goods and services. So, companies should know that continually improving the ethics environment is an essential element of becoming a preferred choice by customers, employees, shareholders, communities, business partners, and investors.  Ethical business is indeed a good business so it is increasingly important to include ethics in the company’s strategy and potentially implement it in a way that achieves a competitive advantage and adds value to the stakeholders. This could result in a life-long competitiveness in the business environment. And despite many issues in competition among firms, being ethical plays a critical role in maintaining a good company reputation and helps the organization remain competitive in years to come.

Business competition means to test the efficiency of an organization. The existence of competition helps the business in becoming more dynamic and innovative so as to make itself better than its competitors. It also sometimes encourages the business to indulge in negative activities like resorting to unfair trade practices. The bad feature of the competition is that it can be very stressful to the business players greatly caused by unethical practices of some companies. And the effects of unethical behavior on businesses are detrimental to a company and one incident that contradicts a customer’s belief in the company is often enough to destroy their trust. Therefore, companies must make decisions to act ethically or else face the damaging effects of unethical acts in their business and their representatives. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

 

References

 

Morales, J. (2014). Re: Does corporate ethics lead to a competitive advantage? Retrieved from:https://www.researchgate.net/post/Does_corporate_ethics_lead_to_competitive_advantage2/53deb555d3df3e86338b469d/citation/download

 

Kar, B. (2014). Re: Does corporate ethics lead to a competitive advantage? Retrieved from:https://www.researchgate.net/post/Does_corporate_ethics_lead_to_competitive_advantage2/53deb555d3df3e86338b469d/citation/download

 

Triplett, J. (2015) How Your Business Ethics Can Be a Great Competitive Advantage & Profitable Sales Tool Retrieved from https://www.businessbankoftexas.com/business-resource-center/how-your-business-ethics-can-be-a-great-competitive-advantage-profitable-sales-tool.htm

 

Kane, S. (2020) What is Unfair Competition Retrieved from https://www.thebalancecareers.com/unfair-competition-2164416

 

Miranda, G. (2020) IBM named one of the World’s Most Ethical Companies Retrieved from https://www.ibm.com/blogs/corporate-social-responsibility/2020/02/ethisphere-2020/?fbclid=IwAR2CXigFTR00KGaRaJThEWmeB6zoTBEjSNjhS90-xv2RqB5is0i_7HzMDz0

 

Spooner, A. (N.D). Importance of Ethics in Business             Retrieved from https://business.lovetoknow.com/business-operations-corporate-management/importance-

ethics-business

 

Moment, R. (2019) 7 Ways to Be More Ethical Than Your Competition Retrieved from https://www.thebalancesmb.com/be-more-ethical-than-your-competition-2951404

 

Mack, S. (2018) Effects of Lack of Ethics on a Business Environment Retrieved from https://yourbusiness.azcentral.com/effects-lack-ethics-business-environment-7840.html

 

Driscoll, D. (2017) Why Ethics Matter: A Business Without Values is a Business at Risk  Retrieved from: https://www.corporatecomplianceinsights.com/why-ethics-matter-a-business-without-values-is-a-business-at-risk/?fbclid=IwAR0h6iHfRbLI0nE2X18nil5ts20He65GjpYbiUF4SBYPiubMiN4Y-f6HPyY

 

Cohen, B. Et. Al. (2017) Ben & Jerry’s Double Dip: Lead With Your Values and Make Money, Too Retrieved from https://www.referenceforbusiness.com/small/Bo-Co/Business-Ethics.html?fbclid=IwAR3KBWEisteU3GrAm0IemjlUpqO9ChcSBJd881TFQ6elD1-oQ0LrMNLlPYQ

 

Bowes, B. (N.D). Unethical actions have serious consequences Retrieved from: https://www.legacybowes.com/tools/articles/unethical-actions-have-serious-consequences?fbclid=IwAR1IP6oQKbeRWh0veT8gSs0d53dU40vUNjR4ks_4FvrqbZL4Xb-jaiCqWHo

 

Karpe, A. (N.D). It’s Profitable to be Ethical Retrieved from: https://www.pmi.org.in/manageindia/articelDetails.aspx?id=564&fbclid=IwAR29UQ1UX9ybsDPK1YSkuAwjMt5QAGEBTFsFlq8GSC7qAhxhhld6sJNHZAE

 

Breslin, C. (2019) The Advantages of Being Ethical Retrieved from https://yourbusiness.azcentral.com/advantages-being-ethical-17579.html