Global Sourcing Can Lead to Ethical Issues

Technological advancements have led to an increased demand for the raw minerals required to make electronic gadgets and equipment used by individuals and businesses around the world. One of the most familiar electronic gadgets may be the smartphone. With technology companies, such as Apple, releasing new versions of smartphones as frequently as technology develops, the need for raw materials has naturally risen to keep pace with manufacturing. This has led to questionable material sourcing for tech companies, and placed the ethical issue of “conflict minerals” in the spotlight.

The term “conflict mineral” refers to anything extracted from a mine that is located within an active conflict zone. One of the worst conflict zones in the world is the Democratic Republic of Congo (DRC). It is also one of the most abundant in many of the resources, such as gold, tin, tantalum, and tungsten, that are vital to electronics manufacturing. Mineral mines within the DRC are often controlled by militias that treat much of the population, which is often subject to theft murder and rape, as an extension of the local lucrative resources. With the steadily increasing demand for electronics, a country rich in resources should begin to prosper. However, the valuable resources within the DRC have only profited the local militias, and intensified the chaos.

Since there has been no reliable way for electronics manufacturers to determine the exact origin of the resources that come from conflict zones, the ethical decision could be to cease all purchases from such locations. However, this may only further impoverish innocent workers, and incentivize dishonesty from material distributers that would continue to directly purchase conflict minerals from militias, and potentially claim they were responsibly mined.

Before 2010, there was ambiguity regarding where tech companies were sourcing the raw minerals that are used to make the electronic components in smartphones. Large and diverse companies were asserting that they lacked an awareness to some unethical business practices, such as sourcing conflict minerals, due their size and global reach.

In 2010, the Dodd-Frank reform bill took effect, and required the Securities and Exchange Commission (SEC) to determine a system that would require publicly traded companies to report whether any conflict minerals were provided by their supply chains. However, in 2013 The National Association of Manufacturers and the U.S. Chamber of Commerce, representing a large number of businesses, argued in federal court that the requirement was in violation of corporate free-speech rights. They won their case, though most businesses had not yet satisfied the requirement because of the challenge of checking every mine within their supply chain, and the complex relationships between the mines and the smelters.

After the reporting requirement was overturned, a large group of companies within the electronics industry, most notably Apple, Intel and Microsoft, established the Conflict Free Smelters Program (CFSP) which actively performs audits of smelters to determine if they are purchasing conflict minerals. Metals from audited mines are tracked by tamper-proof, tagged, and monitored bags, and the CFSP will only work with tracked materials. The Program also requires smelters to perform audits of the mines from which they source their materials, or lose business from the group of companies affiliated with the CFSP. Intel boasts that they have not only actively participated in the Program, but also helped some of the smaller smelters with funding their audit efforts when they lacked the resources to comply with the CFSP requirements.

Bribery and local corruption are still inescapable problems, however establishing a system was the first necessary step to eliminating the use of conflict minerals by the electronics industry. More importantly, conflict minerals that may work their way into the audited supply chain are limited, and the mines that are run by militias could be eventually found, and eliminated completely if more companies joined the effort.

Often, activist groups help bring both direct and indirect unethical behavior to the public’s attention in the hopes of promoting change. Unfortunately, the Dodd-Frank disclosure requirement could have forced the change, but now it is up to a group of companies that have held themselves accountable, and worked to make their supply chains conflict-free with the optimism that other companies within the industry will be shamed into doing the same. If conditions improve around the world, it would be much easier for businesses to operate ethically, regardless of their size and global reach.

Venturing Into the Middle East

In recent years, the Middle East (particularly the Gulf Corporation Council (GCC)) has become a magnet for international companies in pursuit of growth opportunities due to internal and external factors. Within the Middle East, mass investments have been made across all industry sectors, including healthcare, transportation and real estate. Furthermore, the Middle East has seen changes such as the deregulation of State-owned monopolies and the privatization of government-owned companies. Further adding to the appeal of investing in the Middle East is the lack of growth in Western economies, in addition to the accession of some Arab countries to the World Trade Organization (WTO), which makes it easier to do business in the region.

Companies with a presence in the Middle East have an advantage over newcomers as not only are they best placed to grab new opportunities, they are familiar with the system. However, this is not to say that newcomers cannot be just as successful; they too have an advantage in that they can bring something new to the market.

In spite of the change in rules and regulations for investing, there is still a need for local partners, as in-depth knowledge of the marketplace, customers, laws, etc. is paramount. An ideal partner would be a company that has prior experience with international companies in the relevant sector(s) and not simply a commercial agency or local representative. Western governmental organizations and agencies can also aid the introduction of Western companies into the Middle East through the provision of market data, matchmaking and the opportunity to participate in exhibitions.

Middle Eastern governments strive to attract foreign direct investors in support of national objectives, such as supporting diversification efforts, technology transfer, self-sufficiency, creating job opportunities and ultimately supporting the national economy at large. Preference may be given to companies who agree to make their products locally and use locally rendered services. Some Middle Eastern governments offer incentives to foreign companies to attract foreign direct investment, including the provision of industrial land, feedstock and low-cost energy.

Pursuing business in the Middle East may feel like you are taking a big leap, as the business culture is very different to that of the West. However, this is true of conducting business in any other continent and an appreciation of how things operate will make the experience both exciting and rewarding. It is worth mentioning that connections, whether they are through business or family, are vital when conducting business in the Middle East. This further highlights the need for having a partner who is already well established in the region.

Some of the key challenges that newcomers may face include:

Understanding the business culture and market dynamics
Securing customers’ trust and confidence
Setting up local operations
Attracting skilled talent, particularly considering the new legislation for workforce nationalization
Addressing the high-level of competition, especially in commodity areas, and the need to have clear differentiators

In order to ensure smooth entry into the Middle Eastern market, businesses need to do their homework. Primarily, they need to understand the region of interest from multiple perspectives (cultural, legal, political, economic, etc.) and should aim to build alliances with well-established national players/market experts. It is essential to visit the target region at least a few times in order to meet potential partners and conduct the necessary checks before making any contractual commitments. Extreme care needs to be taken in your business dealings; be weary of scrupulous businessmen or companies who claim they can do miracles.

For an effective and problem-free market entrance, one must have:

A full understanding of the target market, in addition to customers’ expectations and demands
A clearly defined product with after-sales support that is available locally
A clearly defined business model
Willingness to transfer technology and invest in the local economy
A well-established and credible local partner with a proven track record
A clear exit strategy

Short-term engagements are highly discouraged as the market favors those investing in the long term (and who aim to become local).

It is highly advisable to refrain from making any large investments or engaging in any legally binding joint ventures before testing the market. It is best to adopt a step-wise approach with calculated risk. Once committed, remember that getting in can be straightforward, but getting out can be more of a challenge.

Donald Trump’s Irrational Decision to Withdraw The United States From the Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP) is a proposed trade agreement formerly among 12 countries that was intended to strengthen economic relationships among these countries by eliminating tariffs and promoting free trade. The twelve countries involved in signing the TPP proposal on February 4, 2016, were Canada, Japan, Australia, Mexico, Vietnam, Singapore, Brunei, Malaysia, New Zealand, Chile, the United States, and Peru. Donald Trump’s executive order to remove the U.S. from the TPP on January 23,2107, was a serious mistake. Trump withdrew the U.S. from the TPP with intentions of improving the growth of U.S. jobs and restoring the deteriorating manufacturing industry. He believes that the TPP is detrimental to U.S. employees and the manufacturing industry because an enormous amount of U.S. jobs would be exported to low-wage nations. Many U.S. companies outsource jobs to other countries in order to capitalize on cheaper operational and labor costs. Even though Trump’s decision promotes the growth of jobs in the U.S., it will be more harmful in the long-term because it will be difficult for the U.S. to sustain its influence and leadership in international economic and political affairs. Also, China would be in a position to take advantage of the U.S.’s withdrawal from the TPP and become a dominant country in the global economy. Therefore, Trump’s decision will be more detrimental than beneficial for the U.S.’s economy.

By resigning from the TPP, the U.S. loses a huge opportunity to expand their markets, eliminate tariffs, and promote exports. The TPP would have been the largest free trade deal in history because the countries involved control an annual gross domestic product (GDP) of roughly $28 trillion, which represents approximately 40 percent of the global GDP and one-third of world trade. Implementing the TPP would have tremendously improved international trade relationships between the original countries involved, which would have been far more beneficial for the U.S. than Trump’s plan to increase homeland job security. Fortunately for the U.S., immediate penalties to international trade flows have not occurred from their decision to withdraw from the TPP because they still maintain existing free trade agreements with six of the TPP countries (Mexico, Chile, Singapore, Australia, Canada, and Peru). However, Trump’s decision will place the U.S. at risk for economic and political disaster in the near future.

As a result of Trump’s decision, China was granted a huge opportunity to surpass the U.S. and become the dominant country in the global trade economy. Chinese President, Xi Jinping, plans to take advantage of Trump’s foolish decision in order to improve China’s relationships with several of the other countries involved in the TPP. China intends to negotiate a new free trade agreement with several of the original countries involved in the TPP and other neighboring Asian countries. The new free trade agreement in proposal is called the Regional Comprehensive Economic Partnership (RCEP), and it would include 16 Asia-Pacific countries. Similar to the TPP, the RCEP intends to promote free trade by eliminating tariffs and strengthening economic relationships among the countries involved. If the RCEP is successfully implemented, then China will be in as strong position to create the guidelines of

Many Asia-Pacific countries invested a tremendous amount of political capital into a U.S. led trade deal that was not administered. Therefore, since the U.S. was unable to commit to the TPP, their reputation and credibility is undermined considerably. This will be a disaster for the U.S. economy because they will lose the majority of their influence in the Asia-Pacific region. Many countries in both Asia and Latin America already view China as the superior and more reliable country in the global trade economy than the U.S. These countries prefer to negotiate trade agreements with China because it is hard for them to trust the U.S. The U.S. should be the dominant country in the global trade economy, not China. Trump is leading the U.S. towards failure because he should have realized sooner that his decisions would lead to devastating consequences for the U.S.’s economy. The U.S. should have seized their opportunity to claim an authoritative position and create the guidelines for the global economy, instead of handing it over to China. In the future, it will be difficult for the U.S. to negotiate favorable trade conditions and access the Asian supply chain because strong economic relationships will be established between China and the majority of the Asia-Pacific countries.