Marlboro’s unethical behaviour in developing countries
Causes:
1. Tight control on tobacco in advanced countries
US, Europe and Japan have taken measures to limit the number of smokers since some medical research showed the relationship between smoking and some diseases like lung cancer. In US, Tobacco industry has been accused of exaggerated marketing promotion (USA Today, 2009)[i] and hiding danger of smoking (Washington Post, 2004)[ii]. The federal government made an attempt, though not successful, of having the tobacco industry pay US$260 billion for “ill gotten gain” (Daily Finance, 2010)[iii]. In Japan, only adults are able to apply for smart card called “taspo” for the purpose of identification in buying cigarettes. It made tobacco companies try hard to explore new business opportunities in developing countries where the related regulations are still not clear and tight and the growth in population, especially for young generation, is rapid.
Ethical dilemma: Profit maximization v.s. Health of smokers in developing countries
2. Government inactivity in developing countries
A report made by the president of Asia Pacific Association for Control of Tobacco (1994) suggested that the administration usually perceive that production of tobacco leaves and tobacco products creates agricultural and manufacturing jobs and generates substantial tax revenue.[iv] Inevitably, tobacco industry is well integrated into local economy that creates value for local citizens and government. It makes the authority fewer incentives to solve the smoking associated issues.
3. Weak non-government organizations (NGOs)
NGOs are the third party to deal with smoking issues. However, NGOs get little resources to fight for tobacco giants. International Union Against Tuberculosis and Lung Disease (The Union) is an instance of that kind of NGOs. Since late 2006, the Bloomberg Initiative to Reduce Tobacco Use has boosted The Union’s work on tobacco control interventions in the countries with the highest burden of tobacco-related disease (The Union, 2011).[v] It seems to be too late. Statistics shows that smoking is on the rise in the developing world but falling in developed nations (WHO, 2002).[vi]
4. The deep involvement of stakeholders in tobacco industry
When it comes to the corporate social responsibility, Cavett-Goodwin (2007) states that the mostly accepted definition of CSR is that any group or individual who can affect or is affected by the achievement of the organizations’ objectives.[vii] In Turkey, among manufacturing industry employing 10 or more workers, tobacco industry occupied 2% of shares in 1997, let the retailers of cigarettes alone. Each worker may carry one or even more families. In this sense, tobacco companies have a say on the no-smoking campaign, especially for the low-income areas where tobacco companies employ mainly low-skilled workers.
Ethical dilemma: Job opportunities v.s. Smoking-related expenses in society
Marlboro’s unethical behaviour accused by the public
Indeed, many activities are neither good nor bad but exist in moral free spaces (Harvard Business Review, 1996).[viii] Marlboro is using soft marketing strategies to attract young adults to become smokers in developing countries. Marlboro is accused of employing underage girls to handout free Marlboro cigarettes to children at clubs and concerts. Also, Marlboro issued a report in the Czech Republic saying that premature smokers deaths have ‘positive effects’ because they save governments money (Action For Our Planet, 2011)[ix]. Marlboro sponsors the “Asia Marlboro” road , featured prominently on Chinese television, to sidestep bans on tobacco ads (The Rotarian, 1999).[x]
Ethical dilemma: Allow soft marketing v.s. prohibition of tobacco promotion
Consequences
Throughout some grey channels of promotion in developing countries, Marlboro can absorb new young smokers with high brand loyalty. Philip Morris International, the holding company of cigarette brand “Marlboro”, said quarterly profit rose 15% thanks to strong demand for its cigarettes in Asia (The Street, 2011).[xi] There is no doubt that the shareholders of Philip Morris will applause the unethical action to boast the sales of cigarettes. Also, many cigarettes bring the investment in remote area by building full tobacco supply chain worldwide. It will make health organizations more difficult to promote no smoking campaigns, as the interest group of tobacco consists of state government, local employees and hawkers.
On the other side, it brings larger financial burden on health care programmes. A study on the health care costs on smoking shows that among 65-to-74-year-olds the costs for smokers are as much as 40 percent higher among men and as much as 25 percent higher among women (Barendregt, 1997).[xii] Unless a country totally bans on smoking and allows tobacco products to export, I doubt that no government can benefit from tobacco industry if we calculate the implicit costs of smoking.
Does warning messages work well to alert smokers?
A study shows that graphical warning messages are more effective than text-only messages among young adults.[xiii] Nevertheless, Wikipedia (2011) shows that most of the developing countries require only text messages in cigarette packaging.[xiv] So, why don’t tobacco companies move further to print graphical warning messages to alert smokers in countries that have no such requirement?
Ethical dilemma: Higher sales by text warning messages v.s. more CSR by graphical messages
Cost- benefit approach to deal with dilemma
Ethicists are always concerned about businesses actively targeting vulnerable consumers who are susceptible to physical, economic, or psychological harm in market transactions (Goliath Business News, 2007)[xv]. In the tobacco industry, vulnerable consumers may include children, adolescents, and lower income and less educated consumers.
Philip Morris is well known for its unethical business practices. It has been repetitively accused of having unethical mass advertising. And it has faced a moral dilemma that launching unethical marketing campaign, which target at vulnerable consumers who lack adequate skills to make well-reasoned decisions in the purchase of the product. Obviously, it has used cost-benefit approach. Under the cost-benefit approach, company balances the costs and benefits of taking versus not taking a particular action (Phoznak Law Firm Ltd, 2010).[xvi]
Cost of unethical business practice
The cost of launching unethical marketing campaign is that the negative publicity and reputation towards company. Reputation is an important and valuable asset to the firm. It is very likely that consumers and other stakeholders will not react favorably to the businesses that employ unfair practices. Sometimes consumers turn to other company to find substitute of the products, which might harm long-term profit. Yet, tobacco is considered to be a harmful adult product because of its potential to cause physical (e.g., cause cancer); economical (e.g., monetary cost of consumption); or psychological harm (e.g., feeling of addition to the product) (Goliath Business News, 2007)[xvii]. The product itself is not really favorable to general public. And regular consumers are not really care about ethnicity of tobacco company, it is not the main consideration of buying which type of cigarettes, as they are used to smoke or already addicted to it, which is difficult to change the habits. Therefore, the negative impression of public is not harm the company profit and revenue a lot.
Benefit of unethical business practice
On the other hands, the benefit of launching such unethical marketing campaign is that it can boost company’s sales. According to recent survey, about 1.35 billion people smoke in the world in 2010.[xviii] The world population statistic in 2009 stood at 6.8 billion meaning almost 20% of the world’s population smokes. And there is approximately 80% of adult smokers started smoking before the age of 18. 25% of all high schoolers (teens) in the United States smoke and 1,000 teens become new smokers every day in the United States. Obviously, the marketing campaigns that target on teens are very effective, such as using younger looking models in tobacco advertisements, portrayal of smoking as a fun activity, etc. It helps to attract youngsters to try to smoke and many turn to be regular smokers.
(Source: http://www.quitsmokinghub.com/blog/2010/02/2010-smoking-statistics-us-and-worldwide/)
To conclude, as the benefit of launching unethical marketing campaigns is far more that the cost, Philip Morris choose to continue its campaigns.
Corporate Social Responsibility
Although unethical business practice does not greatly affect company business, due to public criticism and press pressure, Philip Morris has tried to raise its corporate social responsibility (CSR). In 2001, it launched its so-called “corporate responsibility campaigns” to neutralise the negative publicity associated with its deceptive and manipulative practices, but with the means of emphasizing the many positive things that it has achieved through its philanthropic donations to charitable organizations (Lee, 2010)[xix].
At the same time, Adbusters Media Foundation (a non-for-profit, anti-consumerist organisation) criticised Philip Morris for spending USD 108 million on advertising on its products and only USD 60million on corporate donations to these charitable organisations (Stoll, 2002)[xx]. Due to the fact that Philip Morris spends far more on its good deeds, it is questionable that whether or not the actions are truly morally praiseworthy. Also, the effectiveness of such campaign is doubtful as well. According to the 2007 CSR Survey conducted by the National Consumers League (NCL)[xxi], 23 percent of consumers in American define corporate social responsibility as “committed to the public and communities” and only one percent of consumers think that CSR can be defined as “charity giving”. Most of the consumers don’t see donation to charity as a type of social corporate responsibility. The campaign is not effective at all.
How to manage business in the global context?
Tobacco industry promotes to encourage youngsters to try tobacco products and initiate regular use by giving free samples in public entertainment areas. This motivates current tobacco users and former smokers to addict to Marlboro’s products again[xxii].
Marlboro mainly promotes its tobacco products by directly involved in the tobacco trading activities, for example, Tobacco Company, retailers and advertising agencies. On the other hand, current users also promote Marlboro when they smoke and persuade their friends to try Marlboro. The mass media also promote the tobacco products by films, TV programmes and news which increase the social acceptability of smoking behaviour[xxiii].
Marlboro’s costs, causes and consequences of promoting its tobacco products of giving free samples by young girls in publics reveals the unethical business practise which harms Marlboro’s company as well as the social future development as discussed above.
Multi-national company’s CEO should maintain their leadership qualities and capabilities with handling dilemmas in managing their business.
Leadership qualities:
In managing a global enterprise, CEO must possess excellent leadership skills in handling ethical issues in managing the business as based on the case of Marlboro. The CEO should understand the complexity of ethical dilemmas when making ethical decisions which applies to the management of human resources, marketing, manufacturing, corporate social responsibility, corruption, business profession and in international branches.
How do they value ethics? We cannot label Marlboro’s CEO do not possess good leadership qualities, but businessman looks at money. As law regulations banned the tobacco advertising and set up the age limit of smoking, Marlboro’s CEO need to try other marketing strategies, such as offering free tobacco product samples to youngsters so as to explore more new markets. Business is business, but a good CEO should take their role to strive the balance of ethical issues.
Figure 1: Management qualities
GLOBE model show that global expected leadership qualities across cultures should be aware of the Uncertainty Avoidance, Power Distance, Individual Collectivism, Societal Collectivism, Gender Egalitarianism, Assertiveness, Future Orientation, Performance Orientation and Humane Orientation of that country[xxiv]. It’s difficult to define ethical standards due to these cultural differences. Also, CEO must be highly flexible and possesses different situational leadership skills in order to manage the business.
After considering these cultural differences and using the right leadership practises, CEO should pay attention to the core human values[xxv] to define the ethical threshold, ‘The right to good health and the right to economic advancement and an improved standard of living… Another is what Westerners called the Golden Rule, which is recognizable in every major religious and ethical tradition around the world.’
Then, CEO should not be any excuse to their unethical business practises in other countries. Otherwise, they just concern the money by using cost-benefit approach to make ethical decision. The cultural differences are important criteria to define ethical standards but CEO need to concern what’re human values. ‘Individuals must not treat others simply as tools, in other words, they must recognize a person’s value as a human being. …Individuals and communities must treat people in ways that respect people’s basic rights. Finally, members of a community must work together to support and improve the institutions on which the community depends.’[xxvi]
Therefore, Marlboro’s CEO did not value the importance of ethics as leadership qualities as it gave free cigarettes samples to youngster by underage girls.
Figure 2: OXCEL leadership qualities
Due to the age limit law regulations, Marlboro, as part of the community did not respect and protect the human rights of teenagers and violates their right to good health and standard of living. Teenagers are protected by the law and generally, they actually do not have the ability to judge what’s right and what’s wrong. But, the underage teenagers are hypnotized by promotions of Marlboro, not only the current users.
Capabilities
In the case of Marlboro, the CEO only focused on their own benefits of making money but scarified the social interests and global future as there must be further social impacts induced by promoting free cigarettes to underage teenagers.
When entering the international markets, successful CEO has to realize influences of the cultural norms, ‘While many cultural norms influence a manager’s behaviour and subsequent reactions, five particularly important ones are hierarchy and status, groups vs. individual orientation, time consciousness, communication and conflict resolution.’[xxvii] In managing the international enterprises, the definitions of ethical standard should be based on the cultural differences and the core human rights. CEO must have the cross-cultural awareness to understand the role of culture and deal with the cultural conflicts. As a result, CEO can make comprehensive ethical decisions and have the capable to develop the expected leadership qualities in management to success.
Marlboro’s CEO should not only use the cost-benefit approach to make ethical decision and there should not have the excuse to their promotion strategy based on the ethical standards. Based on the approaches to ethical decision making, utilitarian, moral rights, universalism and cost-benefit[xxviii] are important approaches to make ethical decisions. As CEO faces to ethical dilemmas and tension when managing the international business, they should have the capabilities to use all these approaches so as to solve complex ethical issues.
As discussed in Marlboro’s global story, they only have little contribution to the corporate social responsibility. As CSR only costs the company to invest a sum of money to the society, but in fact, CSR creates values of a company to consumer’s mind. Therefore, the CEO should also have ability to possess and understand boarder vision of CRS toward the company’s future development but cannot just focus on the short-term individual benefits.
Dilemmas
As Marlboro is a tobacco industry, it’s inevitable to face to ethical decision when managing the business due to Marlboro’s nature of the business. Businessmen always value money most rather than the society and ethical issues.
However, CEO cannot ignore the influences of their unethical business practises towards the company’s future development. In the long run, the company would collapse if they continue. Instead, the tobacco industry, Marlboro, can manufacture their produces according to the law regulations to the quality of raw material of tobacco and marketing methods.
Although the business nature is not totally accepted by the community, they can also continue their business with suitable and ethical business decision so as to cancel out the other social impacts of smoking. All in all, CEO of Marlboro would have strong reasons and arguments if they appeal or sue by the community. Justice is to attain the world’s equilibrium.
[i] USA Today (2009) “Tobacco industry accused of aggressively marketing to women and girls” http://content.usatoday.com/topics/post/Lung+Cancer/63078013.blog/1
[ii] Washington Post (2004) “Tobacco firms accused of hiding dangers of smoking for 50 years / U.S. seeking billions in 'ill-gotten' profits as trial opens in D.C.”, http://articles.sfgate.com/2004-09-22/news/17444942_1_tobacco-industry-tobacco-companies-tobacco-institute
[iii] Daily Finance (2010) “Tobacco Industry Dodges a $280 Billion Bullet”, http://www.dailyfinance.com/story/company-news/tobacco-industry-supreme-court-280-billion-dollar/19534044/
[iv] Chitanondh, H. (1994) “Tobacco control in a developing country”, http://www.thpinhf.org/37.6-TC%20in%20Developing%20Countries.pdf
[v] The Union (2011) “Tobacco Control”, http://www.theunion.org/tobacco/tobacco-control.html
[vi] World Health Organization (2002) “Smoking Statistics”, http://www.wpro.who.int/media_centre/fact_sheets/fs_20020528.htm
[vii] Cavett-Goodwin, D. (2007) “Making the case for Corporate Social Responsibility”
[viii] Harvard Business Review (1996) “Value in Tension: Ethics Away from Home”, page 56
[ix] Action For Our Planet (2011) “Unethical companies”, http://www.actionforourplanet.com/#/top-10-unethical-companies/4545796858
[x] The Rotarian (1999) “Young smokers lighting up in record numbers”, issued in May, page 12
[xi] The Street (2011) “Philip Morris Profit Up 15% on Asia Demand”, http://www.thestreet.com/story/11003948/1/philip-morris-profit-up-15-on-asia-demand.html
[xii] Barendregt (1997) “The Health Care Costs of Smoking”, http://www.nejm.org/doi/full/10.1056/NEJM199710093371506
[xiii] O’Hegarty, M, et (2006) “Reactions of Young Adult Smokers to Warning Labels on Cigarette Packages”, http://www.ajpm-online.net/article/S0749-3797(06)00110-3/abstract
[xiv] Wikipedia (2011) “Tobacco packaging warning messages”, http://en.wikipedia.org/wiki/Tobacco_packaging_warning_messages
[xx] Stoll, M. L., 2002, The Ethics of Marketing: Good Corporate Conduct, Journal of Business Ethics
[xxi] National Consumers League, (2007), Rethinking Corporate Social Responsibility, A Fleishman-Hillard/National Consumers League Study
[xxii] 20Controlling the Promotion of Smoking - a lesson in Industry Ingenuity, J Martin, Jul 2004, http://www.cancerforum.org.au/Issues/2004/July/Forum/Controlling_the_Promotion_of_Smoking.htm
[xxiii] Controlling the Promotion of Smoking - a lesson in Industry Ingenuity, J Martin, Jul 2004 http://www.cancerforum.org.au/Issues/2004/July/Forum/Controlling_the_Promotion_of_Smoking.htm
[xxiv] Global Leadership: What Makes the Perfect Leader? Jul 26 2010 © Communicaid Group Ltd. http://blog.communicaid.com/cross-cultural-training/global-leadership-what-makes-the-perfect-leader/
[xxv] Thomas Donaldson, September – October 1996, Harvard Business Review, When is different just different, and when is different wrong? ‘Values in Tension: Ethics Away from Home.’ P. 48-62
[xxvi] Thomas Donaldson, September – October 1996, Harvard Business Review, When is different just different, and when is different wrong? ‘Values in Tension: Ethics Away from Home.’ P. 48-62
[xxvii] Lee Gardenswartz and Antia Rowe, March 2001, Management tools-supervisor resources, Cross-cultural awareness, P. 139-142 HR magazine
[xxviii] Poznak Law Firm Ltd, (2010), Approaches to Ethical Decision Making, http://www.poznaklaw.com/articles/bizethics.htm
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