INTB Tower of Babble and Case Study: Ethics in the Amazon

In INTB1203 or international business and global social responsibility, students were assigned to write 2 or 3 case studies of summary, analysis, and suggestions answering questions to a case. This case was on Discovery in the Amazon.

To add more content to this post, the class also had a Lego fun day on 4/13 to learn about international expatriate managers and global cooperation. I don't fully recall the assignment, but here's my structure using the baggy of Legos.


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Dickson He
Professor Alexandra Roth
International Business and Social Responsibility, Section 8
9 February 2015
Case Brief #1: Ethics in the Amazon
1. What conflicts must foreign oil companies resolve in deciding whether or not to invest in Ecuador? Primary conflicts for the pipeline included environmental damage and upheaval of indigenous Amazon tribes.
Before construction, the formation of a consortium helped eliminate a business problem of competition for infrastructure, which represented “a huge initial investment” (“Discovery in the Amazon” 4). However, involvement in the project also implied support for the government via oil revenues, which is relatively corrupt according to the Corruption Perceptions Index (33/100 in 2014) (“Country Profiles – Ecuador”). Still, the companies and government chose to advance since they have the power to believe that the benefits outweighed the risks and ethical costs.
Construction can lead to deforestation, land degradation, and pollution among other environmental damages. These externalities disturb human and biological life in the Amazon, and how to settle the fallout to nature and indigenous tribes in health, livelihood, or relocation posed problems; the tribes’ traditional lifestyles limited their ability to adapt to modernization’s continual encroachment. Thus, the companies also had to resolve ethical conflicts of how to approach the vulnerable.
2. What objectives and whose interests appear to be carrying the most weight in this case? Which should dominate? Several parties held concerns to the pipeline with a government that long desired this investment and a group of oil-related companies spearheading the project.
While both sought revenues, the government stood to benefit beyond significantly increased receipts. Objectives included a near doubling of oil export capacity and the infrastructure signaling “an economic and political milestone” for investors and the administration (“Discovery in the Amazon” 5). Ecuador’s exports by value are not evenly diversified with the country “substantially dependent on its petroleum resources, which have accounted for more than half of the country's export earnings and approximately two-fifths of public sector revenues in recent years” ("The World Factbook – Ecuador”). This reliance on fortuitous factor endowments can lead to eventual problems like political instability and inequality, recalling the “banana republics” of Latin America with dependence on key exports. Since the government holds special legal powers, it can also rely on strong-arm policies. Granting legal title to tribes exemplified this; despite tribes owning title to the above-ground land, it excluded valuable subsurface rights (“Discovery in the Amazon” 8). Thus, the government’s objectives of revenues and developmental infrastructure strongly incentivized it even if a corrupt bureaucracy would squander most of the income.
In partnership with the government, the companies strongly represented a profit motive possibly above all else. In accordance to shareholder wealth maximization, “the primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm’s common stock” (Brigham 9). The companies, public or private, subscribed to a similar creed; realistically, damage to the environment and tribes appeared as collateral damage to be minimized as much as possible but to still allow the continuation of the project. Despite her personal encounter with a tribe, the author reflected on and crystallized this harsh reality: “Ecuador was a business investment, and the Consortium was there to make as much money as the rules would allow” (“Discovery in the Amazon” 12).
Of course, the government and companies strongly shaped the rules in their favor. The corporate-government partnership present in much of the world combined political and economic power to literally dominate the landscape in their pro pipeline interests.
            Con pipeline included most tribes and vocal NGOs and activists. Although they ideally preferred no change to indigenous ways of life and the environment, this was not a possibility, so tribe members stood to benefit from a community relations fund. This included dubious short-term results like symbolic employment and perks like a car or soccer court, which did not hold as well as long-term as investments like education (“Discovery in the Amazon” 8-9). This community fund and plans to mitigate damage as much as possible attempted to reconcile the con group, but the completion of the project clearly showed that the pro group’s financial and developmental interests dominated and had much more weight.
            Hofstede’s cultural dimensions strongly support this outcome. With relatively high masculinity (63) as shown by the female author’s accounts of discrimination, explicit goals are important also due to high uncertainty avoidance (67). Despite high collectivism within groups (individualism 8), there is high power distance (78) especially between those with power like the government versus the tribes (“Hostede – Ecuador”). Very high income inequality (Gini 48.5 in 2013; "The World Factbook – Ecuador”) exacerbates this and strongly predicated that the goal of the pipeline would be completed in spite of the vulnerable natives and environment.
3. Is there a strategy that makes sense for a firm to continue to pursue upstream oil business in Ecuador? What would you – as an “external consultant” – recommend the protagonist of the case to do? Map out an action plan(s). Considering the preceding information, alternatives like halting or abandoning the project were highly unlikely. Thus, in the scheme of cultural relativism where “…ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate” (Hill 144), the firms can still benefit the other parties rather than ignore the humanitarian cause.
            First, firms should continue to follow the policy of least harm. This included guidelines of the Environmental Impact Assessment and the criteria to minimize damage from the roundtable discussion (“Discovery in the Amazon” 6). Some tribes and NGOs would not be completely appeased, so more issues should be addressed.
            The author is very insightful and knowledgeable about Ecuadorian affairs, and her realism acknowledged that a corrupt bureaucracy siphoned funds meant for public investments. I recommend that the protagonist raise or agitate issues of government reform, though this is very difficult to accomplish considering their power or conservatism, so more minor changes include earmarking of oil funds. Although a policy of educating and assimilating natives seems imperious and colonial, the option of education and healthcare should be available after their displacement or to combine with their native cultures. The companies cannot be entirely responsible for the future of the tribe members, which the government needs to address. The environment and campesinos are undoubtedly net losers, and for this I recommend employing scientists and biologists to attempt to repopulate as much of the lost flora and fauna as possible. The pipeline will provide several years of revenues and profits that is up to the power players of the government and corporations to use responsibly; although the corporations have no obligation to the public, they should use a marginal amount like 3% of the profits from the region for social investment such as schools that may train well enough for future employment or environmental causes like replanting.

Works Cited
Brigham, Eugene F., and Joel F. Houston. Fundamentals of Financial Management. 12th ed. Mason, Ohio: Thomson/South-Western, 2009. Print.
"Country Profiles - Ecuador." Transparency International. Web. 9 Feb. 2015. <http://www.transparency.org/country#ECU>.
"Discovery in the Amazon." INTB 1203 Casepacket. New York: McGraw-Hill Education, 2015. 1-12. Print.
Hill, Charles W. L. Global Business Today. 7th ed. Boston: McGraw-Hill Irwin, 2011. Print.
"Hofstede - Ecuador." The Hofstede Centre. Web. 9 Feb. 2015. <http://geert-hofstede.com/ecuador.html>.
"The World Factbook - Ecuador." Central Intelligence Agency. Web. 9 Feb. 2015. <https://www.cia.gov/library/publications/the-world-factbook/geos/ec.html>.