According to Fritzsche (2005 p 39), business ethics is good for business, both at a macro and micro level. At macro level, ethical behaviour supports the market system, while unethical behaviour distorts it. At micro level, the level of the individual firm, ethical behaviour creates the trust needed to support exchange relationships between firm and suppliers, firm and customers or firm and employees. According to this, businesses should strive not only for ethics to be incorporated into their organizational culture, but to also permeate the network of organizations they form partnerships with. This essay will focus on the nature of business to business relationships and on possible breaches of ethical practice by one of the partners as well as the consequences faced by marketing strategists when these breaches occur. The essay will start by defining market strategy and the role of the marketing strategist and will continue by analyzing a few cases of possible unethical behaviour in partnerships arrangements.
What is market strategy and what do market strategists do?
Drucker was one of the first authors to highlight the strategic dimension of marketing in 1973: Marketing is first "a central dimension of the entire business. It is "the whole business seen from the point of view of its final result, that is from the customers" point of view" (Gillian and Wilson, 2009, p 2).Ever since, marketing strategy definitions have evolved, all underlying the complex nature of the marketing function. Mcdonald's definition, provided by Fifield (1998, p xxv) best encapsulates the complexity and the importance of marketing strategy: "formulating marketing strategies is one of the most critical and difficult parts of the entire marketing process. It sets the limit of success. Communicated to all management levels, it indicates what strengths are to be developed, what weaknesses are to be remedied, and in what manner. Marketing strategies enable operating decision to bring the company into the right relationship with the emerging pattern of market opportunities which previous analysis has shown to offer the highest prospect of success". Gillian and Wilson (2009, p 3) suggest that more recently, a new perspective on marketing has evolved, which focuses on the intangible resources, the co-creation of value and the management of relationships. Although definitions of marketing strategists do not abound in the relevant literature, we can infer from the above definitions that they have a difficult job ahead. Not only do they have to continuously build and maintain relationships with customers, they are now faced with new challenges inherent in having to build and maintain business relationships with partner organizations. Their job is made even more challenging by the fact that organizational success depends on how well they do at managing these complex, inter-related relationships.
Business Markets Characteristics and how they impact on the marketing strategist's role
Hakansson and Snehota (2002) have looked at the characteristics of the business markets, as well as the peculiarities of the marketing function within the context of business relationships with partner organizations. The main business markets features are the existence of continuous business relationships, the interdependencies between the relationships and the continuous, dynamic change in business markets.
They argue that "in business markets, relationships matter" and that "business markets are characterized by relational exchange. (p. 6). When relational exchange matters, the main determinants of market performance of the company are different from the single transaction parameters. The relationship is viewed as a "hybrid mode of governance - parallel to markets and hierarchies and facilitates economic exchange and resource allocation. The key mechanism within relationships is trust, which can be compared with price mechanisms within markets and authority within hierarchies. All these factors impact on the conception of market strategy and implicitly on the role of marketing strategists. The authors, citing their 1998 work, conclude that in business markets, the relationships of a company -to customers, suppliers and others- become the main assets and liabilities of a company and that the boundaries of the company become less clear cut than usually assumed. Moreover, citing Astley (1984), they suggest that "in business markets, every single's company strategy is to some extent collective (p.8) A company's market performance is defined by the creation of value for its customers, but the issue of interdependencies existing in relationships as well as blurred boundaries created by these interdependencies limit the companies' autonomy in creating value. Market performance is difficult to separate from overall business performance, and because of this, market share and competitiveness become less relevant. What matters now and marketing strategists should be aware of is that a company's strategic choice is limited and impacted upon by others, especially when entering into partnerships with other organizations.
What your partners do can affect your reputation
This analysis provides us with a first good reason why marketing strategists should ensure that management in partner organizations adhere to a strict code of ethical practice. What your partners do matters and impact on the company's strategy formation and delivery. For example, in the case of a buyer-supplier relationship, unethical behaviour on the supplier's part will impact negatively on the reputation of the main company. Reputation is one of the most critical assets a company possesses (Falkenreck and Wagner, 2010). "It takes 20 years to build a reputation and five minutes to destroy it"(Warren Buffett, cited by Dalton 2008 p. 106). To ensure consumer confidence, companies must place new importance on quality assurance by building more accountable, transparent and ethically managed supply chains (DeLaurentis, 2009, p.38). MNC's face moral issues associated with the production of low-cost goods at the expense of labour health and consumers shun products which contain materials produced under sweatshop conditions. Also, bad publicity can damage brand image and erode market position. (Jiang et al 2007). Tainted reputation also creates breach of trust between marketer and consumer, which is very difficult to overcome. The latest example is provided by undercover work done by a Channel 4 reporter, who investigated work conditions in a few Leicester factories producing clothes for big retail names on the British high street: Bhs, New Look, Peacocks, C&A and Jane Norman. The reporter discovered that the employees worked in pressurised sweatshop conditions, received half the legal minimum wage and were forced to work faster under the threat of sack (Hickman, The Independent, 2010). This behaviour can lead to consumer boycotting, which is on the increase and can lead to commercial loss. For example, high profile boycotts against Nike and Gap make these two well known ethical offenders, which can erode their brand image and value (Shaw et al 2006).
Risks involved in strategic alliances
The previous example regards how unethical behaviour on a company's partner organization can impact on the consumer perceptions and judgements about the company in question. There are other instances where unethical behaviour in the partner's organization management can impact directly on the marketing strategist's role as well as having devastating consequences for the overall well-being and success of the organization. In order to highlight these instances, we will look at different forms of strategic alliances.
Due to ever rising technological complexity, increased competition, increasing globalization and the demands of a networked, fast-paced economy, joint ventures and alliances have become more popular across a broad spectrum of industries, companies and nationalities. (Arino, de la Torre and Ring 2001). The authors (p .110) define alliances as " formal agreements between two or more business organizations to pursue a set of private and common goals thorough the sharing of resources ( intellectual property , people, capital, organizational capabilities and physical assets) in contexts involving contested markets and uncertainty over outcomes". Their raison d'etre can be purely economic, like search for scale or proficiency, or strategic, like learning new technologies or gaining political advantage. The strategic alliances give more opportunities to unethical behaviour on the part of the partner organizations.
This increased interest in strategic alliances has brought about a shift in the marketing field as well, with the rise of the relationship marketing concept. Morris et al (1998 p. 361) suggest that relationship marketing is based on the concept of exchange and mainly relational exchange, which involves extended time horizons, high investments by the parties, interactions that have both economic and social dimensions, strategic decision making, significant interdependencies and overlapping benefits to the parties.
Naude and Holland (1996 p. 40-41) highlight another important change in the marketing field. They argue that, due to fundamental technological changes in the power of IT and the innovative ways marketing strategists make use of it, information exchange becomes central to all marketing activities and marketing should be viewed by as an information-handling problem.
Discussions of ethics in alliances are centred on the immoral behaviour of one partner, which may jeopardize the trust required to establish an agenda. Typical issues within this type of arrangement are hidden agendas (ulterior motives, which rank above shared objectives) or opportunistic conduct. Also, management in the partner organization should never exhibit "schizophrenic attitudes towards partners, while behaving unethically towards employees or suppliers (Argandona 1999, p. 224).
Lee and Trim (2008)look at the issue of sensitive data being shared between partners and argue that corporate intelligence should be incorporated with the marketing function as corporate intelligence staff can help marketers with best negotiating strategic partner alliances with individuals from different countries and cultural backgrounds. Marketing strategists must be aware of the risk of sensitive data falling into the hands of competitors while negotiating business deals. In a partnership arrangement, corporate intelligence provides a mechanism for implementing counter intelligence measures to safeguard corporate data and secrets. A successful partnership is highly beneficial to both partners and the companies become learning organizations, which allows them to be flexible and adaptive. For this relationship to survive, trust must be treated as a core value and supported by management in both organizations. Any unethical behaviour adopted by one of the partners leads breach of trust, without which partnerships cannot function. Marketing strategists must find a way to link trust to improving the performance of existing products, improving innovation, reducing costs, minimising risks and eliminating opportunistic behaviour (Trim and Lee 2006).
Trim (2004 p. 245) citing Prescott and Gibbon talks about a shift from military to economic warfare, which is related to ethical issues. Marketing strategists should be aware of the fact that ethical behaviour can and does vary from one cultural setting to another and they must take this into consideration when looking for global strategic alliance partners. For example, in South Korea, corruption, the standards of corporate governance and the employees' willingness to speak up are some of the most salient business ethics issues in facing companies operating in South Korea today (Irwin, Institute of Business Ethics, 2010).
Another example of unethical practice and source of instability in strategic alliances (eg joint ventures ) is competitive learning , as learning and acquisition over time alters the bargaining power of partners, undermining the initial balance of collaborative relationships. Jiang et al (2008, p. 177 ), citing Hamel, argue that alliances are "races to learn" and suggest that whoever accomplishes it learning objectives will leave the alliance. They provide the example of Chrysler and Mitsubishi and the termination of the Diamond Star Alliance in 1991, when Mitsubishi took over the jointly owned assembly plant, which was possible because the Japanese partner developed distributions channels quickly in North America, while Chrysler failed to acquire the manufacturing technology from Mitsubishi. This risk should be considered by marketing strategists when they choose a strategic alliance partner.
Although the benefits of strategic alliances - sharing of costs and risk of innovation, obtaining access to new markets, expeditizing the commercialization process (Lee at al 2007) are numerous and sought after, marketing strategists should also be aware that there are also costs involved in some forms of strategic alliances: for example, in the case of joint ventures, some of the risks are shared ownership and partial control, which lead to a firm running the risks of its proprietary resources being appropriated by the venture and utilized outside the scope of the alliance for private benefits. This risk is highly salient in the case of joint ventures, as they involve incomplete contracts which do not fully specify ex-ante how a parents' firm resources can be utilized by partners (Kumar 2006). Case et al (2007 p.112) support the same idea, arguing that collaborative alliances "threaten the sanctity of intellectual capital" and firms place their intellectual capital at risk when engaging in joint ventures. The authors add that joint ventures expose shared intellectual capital to third party appropriation risk, if partners choose to enter into another partnership with a competitor.
Also, marketing strategists must be aware that in the case of horizontal alliances, such as new product alliances managers face the challenge of cooperating with firms that offer little complementary knowledge and this prospect of knowledge redundancy will make managers reluctant to share information. They also face the difficulty of balancing the tension between cooperation and competition (Rindfleisch and Moorman 2001).
Morris and Cadogan (2001) suggest that partner conflict, be it functional or dysfunctional, is caused by partner fit, power symmetry, mutual commitment, mutual trust, opportunistic behaviour and collaborative trust. Examples of unethical practice in a partner organization are: one partner withholding information from another, hostility and distrust during partner behaviour, one partner overstating their needs to influence the joint ventures behaviour. Citing Das and Tang, the authors also highlight the creation of obstacles which impede the decision making process as well as gatekeeping and distortion (p 227). Assymetric commitment can also lead to dysfunctional conflict, as the less commited partner will leave the alliance if and when it proves more beneficial. Joint ventures are fertile areas for unintended resource transfer through opportunism, especially technological and managerial know-how and companies are at risk of losing their competitive advantage.
In conclusion, marketing strategists should ensure that management in partner organizations adhere to a strict code of practice as not doing so can have fatal consequences for their company and its survival. Trust lies at the foundation of any successful partnership. Partnerships where one partner behaves unethically, so a breach of trust occurs, will not be successful and will not achieve its primary goals. A vital contribution lies with the marketing strategists as they have an important say in choosing a suitable partner in the first place, as well as managing the relationships in such a way that organizational goals are reached, but not by paying the price of losing core competencies or losing their competitive advantage. Another reason why marketing strategists must ensure partners behave ethically is because in the current business environment, marketing exchange is mainly based on knowledge and information exchange and loss of this knowledge could prove fatal for the future of any organization. Moreover, the overall strategy of any company and its performance, as well as its ability to create value for its customers is limited and impacted on by its partners. Finally, marketing strategists build and maintain relationships with the consumer and their job would be close to impossible if their company is associated with unethical partners.