The Ethical Environment

Introduction

The ethical environment of an organization's leadership impacts business decisions and its public image. These decisions and how they are achieved impact the global view of the organization. An organization must understand the significance of ethical decision-making particularly in international business relations. AccuForm is a joint venture company, created by the combining CreaseFree, of Hong Kong and DynaCoat, a German based company. The purpose is to develop high-tech coatings for wrinkle-free clothing and fabrics and distribute throughout Asia. These companies operated in different countries; hence, they began the venture with differences in corporate cultures.

This analysis discusses the major issues raised by this joint venture. The major issues evolved through the decisions made by leadership. Three major issues are identified in the AccuForm joint venture. The first issue was a lack of a joint ethical environment at AccuForm. Secondly the laissez-faire management style of Mr. Raymond Kim. The last is issue was a lack of understanding of the Chinese culture. These issues resulted in bribery, fraud, and black marketing of inferior products.

Analysis

AccuForm was developed as a joint venture between Hong Kong and German companies; inherently there were social and ethical challenges in this joint venture. Differences in European and Asian business cultures create operational differences. AccuForm's first step to engage the differences was to hire a general manager for AccuForm that would be a good fit for the environment. Mr. Raymond Kim possesses extensive technical knowledge and managerial skills. He was selected as the general manager for AccuForm in Hong Kong. His responsibilities were to develop an AccuForm chemical supplier network and to oversee research and development in Asia (Lau & Wong, 2006, p.5).

Ethical Environment

The first challenge was a lack of a joint ethical environment at AccuForm from the combining cultures of DynaCoat and CreaseFree. When the two companies entered into this joint venture they failed to develop a plan to address differences in corporate cultures. DynaCoat, was a German company, and placed a high importance on developing environmental sustainability programs, and enforced strict quality control systems. The European business culture valued safety, quality and environment protection. DynaCoat embraced these values in their business practices. They received several accreditations, certifications, and awards recognizing their commitment to environmental protection.

On the other hand, CreaseFree operated under a traditional Chinese culture and used informal control systems, a practice widely acceptable in the Chinese business environment. According to Lau and Wong, guanxi is the practice of establishing business connections based on close and personal connections with government officials through informal methods (Lau & Wong, 2006 p. 4). For example, exchange of gifts, money, or other goods for employment of family members or bribery. CreaseFree embraced guanxi as an acceptable course of action to complete business deals and nothing more. They operated within the Chinese culture according to traditions. In contrast to DynaCoat, they did not have environmental protection standards. Additionally, CeaseFree did not establish a corporate social responsibility policy. The two conflicting ethical and cultural environments created an ambiguous starting point for AccuForm.

Management Style

The second key issue was the management style of Mr. Raymond Kim. He was very competent leader while working at Dynacoat. However he lacked the skills needed to manage in the joint venture environment. His laissez-faire management style was ineffective in the Chinese culture. When Mr. Kim took charge at AccuForm he recognized several practices that he did not condone. Instead of addressing the issues, he passively managed and ignored potential problem areas. Kim's 'hands-off' approach was interpreted as acceptance and approval, even though the behavior affected the company's image.

Mr. Kim was disengaged with employees but still placed a high level of trust in them. He allowed employees access to secure sites, and the authority to purchase materials under the premise of research and development. Furthermore, Kim prioritized the importance of research and development goals but failed to develop a tracking system. Failure to track goal progression allowed employees to do as they pleased as long as they reached the goals and incentives. This style of management ultimately allowed corruption to flow throughout the company. The corruption was evidenced by the success of Ching to bribe both employees and vendors. Ching was also able to use manufacturing facilities to produce his own products, and sell them on the black market using the AccuForm name and reputation.

Mr. Kim's management style was very effective in DynaCoat because the organization had an established ethical code and operated under strict control systems. Therefore the laissez-faire nature of Mr. Kim achieved success in that culture. Employees understood the policies of DynaCoat and worked well under them. However at AccuForm, an ethical code and control systems were not established. Mr. Kim failed to manage the employees in a directive style. A directive style would have prevented ethical dilemmas, and problems such as the allergy outbreak. Additionally, Mr. Kim's management style allowed many of Ching's activities to flourish.

The lack of supervision and control systems allowed Ching to operate a money-laundering scheme undetected. Mr. Kim owns part of the responsibility in AccuForm's problems created by Ching's actions. The application of a checks and balance system would have prevented some of the issues facing AccuForm. Checks and balances in purchasing, employee labor, and day-to-day operations was missing. Ching was able to bribe some employees and intimidate other employees into accepting bribes because a lack of supervision.

Cultural Differences

Successful international businesses understand the