International Business Ethics
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Abstract
The main objective why the antitrust laws were developed is to prevent businesses from unfair competition from companies that abuses their powers. Monopolistic companies, mergers and acquisitions may hinder or limit the small companies’ abilities to provide goods and services to their consumers. As a result, the small companies are unable to compete effectively in the market. Although open and free competition has been considered as an effective way of providing lower prices and better goods and services, the strategy limits market diversity. Particularly, mergers and acquisitions have significantly affected the ways businesses conduct their businesses.
Example 1
In this case, the Federal Antitrust enforcer investigates if a large pharmaceutical corporation has tried to reduce the effects of generic competition to some of its profitable prescription drugs. From this case analysis, the anti-depressant drug company is the best-selling drug companies with revenues increase of $2.11 billion from the previous year, representing an increase of 22%. Due to this, the Federal Trade Commission (FTC) decides to conduct an investigation to establish whether this business has adopted or enhanced activities such as generic alternatives which prevents the drugs from entering into the market (Gallagher et. al., 2018). According to the FTC, the generic drug manufacturing company failed to delay the introduction of lower priced generic drugs in the market.
There are many reasons why a drug manufacturing company would want to delay or prevent generic competition in the market. Firstly, the company would want to achieve this to loose on the cost. Secondly, if the generic drug becomes more popular in the market, consumers would start purchasing the drug as if it is the only available drug. Although the drug might have similar composition with the original drug, consumers would consider it because of its lower cost. Therefore, many drug makers have mastered this art of reducing competition from the generic brands (Gallagher et. al., 2018).
It takes approximately 8 years to manufacture and introduce a new drug in the market. The company also incurs an enormous cost of $100 million in manufacturing the drug. It is therefore the wishes of the manufacturer to make money on the drug as first as possible to cover the capital layout in this investment. A lot of research is involved in manufacturing the drug, and hence there is an urge from the manufacturer to return back the money. On the other hand, a generic competitor does not have any costs on research and development (Gallagher et. al., 2018). After the drug’s patent is scrapped off, the competitor has a chance to isolate the formula. This will assist the competitor in recreating and selling the drug at a lower price in the market. Additionally, a company’s shareholders will be offloaded from paying these extra costs. To prevent the patent rights, manufacturers are forced to pay the generic competitors to have a longer time of profit making. Furthermore, the main objective is getting back the original capital used in making the drug.
1. There are many legal barriers for entry and exist of generic competitors in the market. Generic products are more appealing to consumers compared to other existing ones. For instance, HMO’s and hospital pharmacies prefers to use generic drugs since they have full knowledge and expertise of evaluating them compared to specific physicians. It is therefore expected that the generic competitors will produce more sales (Fiona & Morton, 2000). Because of this, manufacturers of innovative drugs will strongly respond to the generic competition is some market segments. The main legal barriers for entry and exit for generic competitors include research and development of patents and huge initial capital layout. There are many legal requirements for marketing streams like doctors, physicians, nurses, pharmaceuticals and hospital in general. These individuals are supposed to ensure that there is efficient and proper use of the drugs according to the health and medical profession regulations.
2. In this example, there are various possible ethical dilemmas within trade agreements which are considered illegal under the Sherman antitrust act. This law stops or prevents specific business activities which the local and federal government and agencies considers as anti-competitive (Danta & Ghinea, 2017). Legal proceedings are taken by the federal agencies to investigate and establish trusts. Cost is also a major issue since many firms are unwilling to compete directly. Because of this, consumers may receive substandard or low quality goods because of the unfair agreement which aims at paying the competitors to keep them away from the market.
Example 2:
In this case, the board of directors of two large telecommunication firms entered into a $16 billion merger agreement. The transaction will result into the largest telecommunication company in the world. Analysts suggest that the merger between these firms will be dynamic; consumers feel that they could end up paying the ultimate price of the merger. This is because the company may end up being dominant in certain service areas.
1. There are many reasons why the consumers have expressed their concerns about this merger. Studies shows that whenever there is large merger, there are always some disappointments or limitations to consumers. Many analysts suggest that a merger between two large firms reduces competition and hence reduces the prices of goods and services (Basu, 2019). Consumers are concerned that this consolidation will create a lot of problems. For example, consumers feels that they could be stuck with huge bills if they decide to forgone the bundled packaged services over a simple phone services. The merger will also limit small companies from accessing into the market. Due to this, small starts or upcoming telecommunication companies will have to pay more to gain access into the market.
2. Apart from the pricing pitfalls, there are other challenges that the merger will create to the consumers (Basu, 2019). The main objective why large firm’s merger is to save on the cost of production, gain a larger market share and become financially strong. However, the impact of merger of consumers may be positive or negative but depends on the market competition and industry. Some of the challenges that consumers will have to face may include;
a) Price – A merger reduces competition by eliminating a competitor in the industry. This allows the other companies to strategize on how to increase the prices of products uniformly (Basu, 2019). For instance, the merger between these large telecom corporations will force the remaining small companies to increase their prices. Since the merger may be offering special services to the consumers, the cost will passed to the users. When the merger serves the entire market, both small businesses and consumers will end up paying more. .
b) Variety – A merger tend to increase or lower the choices available to consumers. For example, a merger of these telecom firms may reduce the number of phone plans. This allows the merger entity to save on costs and acquire low price data plans (Basu, 2019).
c) Service – In many occasions, mergers tend to affect the loss of jobs especially in the area of customer service (Basu, 2019). Restructuring the organizational structure is always an objective during a merger. The loss of consumer service personnel will result to poor customer service. Despite this, a merger may lead to a better consumer service especially where one company had poor consumer service.
3. In this case, there are many possible ethical dilemmas to reflect on. Most mergers and acquisitions are based on the fact that the consolidating companies will grow rapidly and become stronger than if they were independent. Despite of the potential benefits offered by the merger, most employees lose their jobs. Consolidating various business functions between companies reduces costs, but on the other hand reduces the number of job positions in both entities (La Vertu & Barrett-Pugh, 2012). Most of these employees may have worked hard in these companies for it to reach where it is. Additionally, most companies are loyal, devoted and committed, thereby contributing to the success of the company. It is therefore unfair for these employees to lose their jobs. There is need of having higher management planning in the merger to deal with the issue of unplanned employee’s layout.
The second ethical issue in this case is that most employees are relocated. Staff encounters a lot of challenges when relocating from one area to another. The situation is more severe especially when two operating companies come from different geographical regions (La Vertu & Barrett-Pugh, 2012). It becomes difficult for the affected families to adapt to another environment they are not used on. Proper management planning before the merger helps in handling the employee’s concerns.
References
Basu, C., (2019) How Can a Company Merger Affect Consumers? Retrieved from:
https://smallbusiness.chron.com/can-company-merger-affect-consumers-37226.html
Danta, M., & Ghinea, N., (2017) The complex legal and ethical issues related to generic
Medications. Viral hepatitis: a case study. Retrieved from: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5384269/
Gallagher, M., Grannon, E., McDevitt, H., Acosta, A., Adam, K., Grant, T., &
O’Shaughnessy, K., (2018) United States: Pharmaceutical Antitrust. Retrieved from: https://globalcompetitionreview.com/insight/the-antitrust-review-of-the-americas-2019/1174013/united-states-pharmaceutical-antitrust
Fiona, M., & Morton, S., (2000) Barriers to entry, brand advertising, and generic entry in the US
Pharmaceutical industry. Retrieved from: https://www.researchgate.net/publication/222383554_Barriers_to_entry_brand_advertising_and_generic_entry_in_the_US_pharmaceutical_industry
La Vertu, E., & Barrett-Pugh, L., (2012) Ethical Dilemmas during mergers, acquisitions, and
Takeovers. Retrieved from: https://ro.ecu.edu.au/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1108&context=ecuworks2012
