Markkula Center of Applied Ethics

Re-examining Your China Strategy

by Sharleen Sy

Acknowledging China's growing influence in the political and economic arenas, Kirk Hanson, executive director of the Markkula Center for Applied Ethics, and Mary Szto, visiting professor at the Santa Clara University School of Law, jointly tackled how Western companies can cope with the ethical challenges of doing business in China at a forum sponsored by the Ethics Center April 10, 2006.

Many companies feel they are forced to choose between tolerating practices that go against highly regarded principles and completely boycotting markets in countries like China. Hanson likened this struggle to the "South African dilemma," where U.S. firms debated pulling out or staying and working for change.

Recently put in the spotlight for agreeing to censor search results in China, Google reasoned that even adhering to the Asian superpower's free-speech restrictions, it could still provide better access to information for the Chinese people. On the other hand, critics believed that by giving in to China's demands, U.S. companies like Google are not left with much bargaining power.

"For every Western company going into a developing country, there is a fundamental dilemma - [is] it better to be there in order to influence and liberalize, or is it better to isolate them in order to put pressure on them to change," Hanson said.

Ethical challenges

Apart from censorship of media, the emerging superpower has also been criticized by the international community for bribery and corruption, substandard working conditions, and intellectual property violations. To concretize the severity of the situation, Hanson cited these figures: Roughly 85 to 90 percent of the software used in China is pirated, and knock-off luxury brands sell for only 1 to 2 percent of the cost of their genuine counterparts.

Despite efforts to liberalize its economy by encouraging investment and the development of new businesses, political controls in China remain tight. "They have freed the economy and at the same time, they have failed to free the political side and the opportunity for political participation. So, this is unique kind of environment," Hanson said.

East meets West

Szto noticed the same phenomenon but zeroed in on the concept of "complementarity." She pointed to a convergence between cultures, citing everything from pot stickers in Italian restaurants and healing stores in Western hospitals.

"If [convergence] is happening everywhere, I think it's also happening in business ethics and governance. [The United States and China] are different, but there's complementarity going on," Szto said.
While stark differences exist between Chinese and Western cultural and legal traditions, both sides bring important perspectives to the table, and these can be harmonized, Szto argued.

China's philosophical tradition emphasizes personal and governmental morality, correctness of social relationships, justice, and sincerity. Szto pointed out how Confucianism, legalism and Communism all offer a sophisticated critique of greed and capitalism. In the Confucian tradition, "Government should teach virtue, and then you won't need the law," Szto said.

On the other end of the table, the West adheres to business dealings that are based on fiduciary duties. In the American legal view, the business relationship is sacred and violations against this trust are enforceable in law. "A trustee is held to something stricter than the morals of the market place," Szto said, citing a 1928 New York court ruling. "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior."

In the end, Szto said that with mutual respect for and a critical evaluation of the strengths and weaknesses of both traditions, a middle ground can be identified. Szto concluded, "Every country can be itself. The table has to be large enough so that, in this era of renewed business ethics and governance, we can work together."

Integrating into the global economy

Hanson recognized a very "pragmatic approach" among the Chinese and a strong motivation for China to integrate into the global economy. "What's different today is that [Chinese leaders] are calmer because they are all working from the assumption that they will once again be the most highly developed economy in the world, the most highly developed civilization in the world - and that the rest of the world will be coping," Hanson said.

Different sectors have been mobilizing to help China ingrain ethics into its day-to-day cultural, politica. and economic activities. For example, International Bridges to Justice, founded by Karen Tse, a Chinese-American from San Francisco, has established 400 legal aid centers in China to help enforce the rule of law and ensure that everyone gets a fair day in court. Notably, the Chinese government has given substantial amount of encouragement and support for this endeavor.

Santa Clara in the spotlight

In addition, the newly established Center for International Business Ethics in Beijing has tapped the Markkula Center for Applied Ethics to provide technical assistance and has chosen Hanson to be the honorary chair of the organization.

Sharleen Sy is a media intern at the Markkula Center for Applied Ethics.