Ethical issues have become a very important aspect when evaluating the success of a business. This report was prepared to find out whether ethics have positive impact on long term growth of a company. Through an in-depth analisis it revealed that there is a strong positive relationship with the long term growth of an organization and business ethics. Information was collected from various researches, academic literature and real world examples. This also revealed that ethics plays a major role in a business’s success and its importance will increase in future as well.
Table of Contents
General public has been increasingly interested about the ethical conduct of businesses in past few years. Because of this organisations pay their heavy attention on ethics. They have to consider ethics as a part of their process. Retailer in other hand should consider about ethics more than other businesses. It’s because retailers are consumer touch points in supply chains.
Consumers today don’t just buy goods. They have lots of questions to ask. Now they are more concern about ethical business practices than ever. Consumers don’t even hesitate to react to unethical business practices.
This report discuses about important ethical issues to retail such as Corporate social responsibility, Product safety, Green issue, Product sourcing and how they affect retail industry. This report further discuses about why should businesses be ethical and the benefits of being ethical. This report talks about whether ethics help to increase sales or not. Real world examples of retailers who practice ethical retailing are also given in this report to justify the findings and ideas.
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3.0 Why being ethical is important in today’s business
Being ethical is very important in today’s business world. Irrespective of the business sector, manufacturing retail or whatever, ethical behavior has become a part of the business. Recent survey by Lander Associates, the branding company found that 77% of the consumers think that it’s important for organisatins to ethical and social responsible (Gustin, 2012).According to ICM research 2009 for Retail Week 37% of the 2045 adults have mentioned that they consider ethical and environmental stance of the retailers when choosing place to shop.
Fig 1.In general, how much do retailers ethical and environment stance influence choosing a shop
[Source: ICM Research 2009]
In the other hand customers and companies are likely to avoid organizations which develop unethical reputations. Sometimes the companies who ignore their social responsibilities are likely to get in to legal troubles. In this modern world, customer can have information very quickly. Every god and bad news spreads quickly. Particular company’s environmental records and labour practices are no longer a secret to the society (Gustin, 2012).According t ICM research 2009, 31% of the people are considering ethical and environmental now than 2 year ago.
Fig 2.Are you less likely to consider environmental and ethical issues now than two years ago
[Source: ICM Research 2009 ]
Today, consumers are not only interested in new products. They require more information about manufacturers, labour conditions under which products are assembled (Shawn and Clarke 1998, Harrison et al 2005).Consumers have become more sensitive and responsive to ethical behaviours.They are more aware about product evaluations(Hemingway and Maclagan 2004).Because of this organizations should become more and more ethical in order to satisfy consumer needs. Unethical businesses will be no longer tolerated by consumers. hats why being ethical has become very important in business field.
4.0 Ethical issues that can affect retail industry
4.1 Corporate Social Responsibility
CSR has increasingly become the corporate buzz word. It is an enlarged concept responsibility. It is a general evaluation of “values” linked to the relationship a business organisation and its environment. In organisation perspective, it is responsibility towards the customer (Pepe, Fabbio and Mario, 2010). CSR is concerned with the integration of
Environmental, Social, Economic and Ethical considerations into business Strategies and practices (Jones et al 2007).
CSR has become a major component in businesses last few years. Ten years back very few companies issued CSR reports. But now more than 8000 organisations around the world have signed the UN global compact pledging to show global citizenship in areas like Human rights, labour standards and environmental protection (Gustin 2012).Below figure shows how much CSR is important as a business ethic to organisations.
Figure 3. Number of companies in the World publishing CSR reports 1996-2006
[Source: (Jones et al, 2007)]
According to CSR literature, Customers are interested in the social behaviour of organisations. Those behaviours have a major impact on customers purchasing decisions. In most occasions, customers themselves claim that CSR profile of a company pays a major role in what brands they choose to purchase (Castalado et al 2009).Retailing plays a major role global supply chains. They become the guarantors of entire value chain. Because they are the once who face the end consumer in supply chains. Particularly those of their own brand products are directly reflect their corporate image (Pepe, Musso and Risso 2010).
Due to fierce competition in retail environment, retail organisations find it difficult to differentiate their business from others. Today consumers are not always going after product attributes like quality and price. Today they evaluate organisations on their ethical attributes (Homberg, Hoyer and Fassnacht 2002). CSR is the best way to address customers’ ethical needs. In fact CSR is one of the main ethical attribute that customers consider when evaluating companies. So it’s really important for a company to become a good corporate citizen through CSR.
4.2 “Green” issue
In past few years green issue has become a hot topic in the business world. Majority of the organizations wanted to go green and many have done it. Going green means simply reducing the impact or damage which can happen to the environment because of a business. It includes reducing CO2 emission, reducing wastage, reducing the power usage and using environmental friendly power sources. Green consumerism is worth £35.5bn (Grant 2009).
Companies like wal-mart have already taken actions towards green retailing. They did it in business purpose. They installed small generators in its feet of 7200 rig trucks so engine can be turned off while trucks are parked along with other fuel efficiency measures. With that they saved $200 million a year. By shrinking the package by 5%, they saved $3.4 million a year. They are also planning to eliminate 30% of energy use. Two green stores already there in Colorado and Texas.IN those stores, energy is generated from wind mills. Energy efficient LED bulbs are there replacing normal bulbs (Dolan 2011).Even Marks & Spencer is also moving towards green energy (Grant 2009).
Green products are normally expensive. But in 2009 and 2010, the number of green products rose from 2700 to 4700 a 73% increase (winston 2010).But UK shoppers are least likely to pay more for green products. Only 28% f the consumers are willing to pay a premium for green products (Berwin 2008).Verdict research 2010 show that UK consumers doubt that whether UK retailers are really environmentally responsible
Figure 4. Consumers attitudes to how environmentally responsible UK retailers are
[Source: Verdict research 2010]
Environmental issues were the earliest and are now the most commonly reported issue among the top retailers in the world. All the top retail organizations highlight the environment as a key driver in their agenda of ethics (Jones et al 2007).It shows how important is to be ethical in environmental aspects.
Safety is a basic consumer right. It is safe guarded by the product safety act which ensures only safe products are available in the market (Vella 2013).Product safety refers to the degree of risk associated with using of product. Normally any product involves some degree of risk. But that risk should be under the “acceptable” risk range.
It’s every ones responsibility in the supply chain to ensure the safety of the product. In clothing industry, manufacturers should safe materials and chemicals. Clothing retailers should be well aware of what they are selling. Like that, each and everyone in the supply chain have their own responsibilities to assure the safety of the product (Vella 2013).Selling unsafe product can destroy the customer faith. It can even lead in to bancropsy. It is that much important to assure the safety of the product. Specially in retail industry.
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4.4 Ethical sourcing
This is the most important ethical issue to clothing industry. Socially responsible trading became a growing issue during the 1990s when companies with global supply chains- particularly those in the clothing and food industries- were coming under rising pressure from consumer groups, governments and trade unions to ensure decent working conditions for those producing their goods. Since then numerous media campaigns highlighting the poor working conditions in factories and farms in developing countries have been behind the drive for fair trade and ethically sourced products. In 2009, major retailers like Gap, Next and Asda where among the headlines because of unethical sourcing of some of their subcontractors’ unethical standards (Morell 2010).
More recently, growing environmental concern has also increased consumer awareness for sustainable sourcing, with many now opting for clothing made from organic cotton, hemp or other low-impact raw materials and garments designed to be washed at lower temperatures (Flakoll & Reynolds 2009). As a result, ethical sourcing is now part of the corporate responsibility agenda of most major organisations. Many corporate investment companies today screen their ventures according to a range of social and environmental criteria, including an organisation’s efforts to secure adequate labour conditions in their supply chain, and retailers are increasingly implementing corporate codes of practice to ensure that the working conditions of those producing their goods meet or exceed international labour standards. Retailers are now facing the challenge of monitoring not only their immediate suppliers, but also their suppliers’ suppliers, to ensure satisfactory ethical standards are met (Morell 2010). What’s more, ever increasing customer demand for responsibly sourced items means this aspect of supply chain management is gradually descending from niche to mainstream.
With this demand, savvy retailers and businesses are increasingly realising that a reputation for fairness is invaluable. For example, Primark’s rating in consumer polls fell dramatically in the wake of BBC Panorama’s damning expos in June 2008, which revealed that some of Primark’s suppliers were using child labour. Indeed a survey conducted for Drapers following the programme revealed that 44% of Primark shoppers were likely to switch to another chain (Flakoll & Reynolds 2009).
In contrast, Marks & Spencer was rated highly due to their ‘Plan A’ initiative, which included carrying out lifecycle assessments on their clothing and setting up a clothes recycling scheme with Oxfam.After that Primark changed suppliers and created a website promoting its ethical trading record in response to the child labour allegations. This emphasises just how important it is for companies to be able to show their customers that they are sourcing responsibly (Morell 2010).
5.0 Benefits of being ethical
5.1 Improve financial performance
Being ethical has a positive impact on company profits. Many researchers found that there is a positive connection with CSR and Corporate Financial Performance (CFP). Modern theoretical and empirical analyses indicate that firms can strategically engage in socially responsible activities to increase private profits. Given that the firm’s stakeholders may value the firm’s social efforts, the firm can obtain additional benefits from these activities, including: enhancing the firm’s reputation and the ability to generate profits by differentiating its product, the ability to attract more highly qualified personnel or the ability to extract a premium for its products (Rubén and Christopher 2009).
A real world example for this is GAP. They were suffering from stagnant sales for long time. They increased their sales through increasingly leverages social and environmental awareness programs to appeal to its young and progressive clientele in 2010. Gap recently received 270,000 pairs of old jeans that it will turn into insulation for homes. In return, everyone who supported the project was handed a 30 percent discount on a new pair of “1969 Premium Jeans” from the Gap (Malhothra 2010).
There is ample data to confirm this profit-generating potential. More than half the consumers surveyed by Havas media lab want to reward responsible companies by buying their products. 53% would even pay a 10% premium for those products. But the benefits don’t stop at the check-out line. They extend to stock value as well, as suggested by Harvard Business School data confirming that this new species of socially responsible company gets more favorable ratings from securities analists (Levick 2012). Companies who are engaged in CSR activities are more likely to improve the performance or the overall profitability of the firm (Orlitzky, Schmidt and Rynes 2003). There is enough evidence to prove that being ethical helps to improve profits. But some researches shows mix results. Brands that make CSR a priority are showing great business success, such as Canada’s own Lululemon, and Wal-Mart (Mikakakis 2012).
5.2 Enhance the reputation of brand value
By practicing better ethical business practices, Companies can increase the brand loyality.CSR and going green particularly helps to raise the brand loyalty along with other ethical practices.CSR helps to increase customer and worker loyalty (Pepe 2003).Well planned CSR activities can create an emotional connection with the brands which will increase the brand loyalty.
5.3 Helps long-term growth and success
CSR builds relationships with customers. CSR, through which a company incorporates social, environmental, and ethical aspects into its business model, has become integral to
Long-term growth and success (Minakakis 2012).CSR is very important for long-term sustainability for companies and their employees (Jones et al 2007).
5.4 Reduces operating cost
CSR activities and going green specially helps to reduce the operating cost. As mentioned in this report previously, Companies like wal-mart and Marks & Spencer saves huge amount of money each year by going green .Wal -mart saves $200 million annually in fuel cost by implementing green practices. They also stand to save $ 3.4 billion a year by reducing the packing by 5%. It also helps to reduce the marketing cost.CSR enhances word-of-mouth and the reduction of expensive marketing investments (Pepe, 2007).
5.5 Competitive advantage
CSR,going green and other ethical practices helps to create an competitive advantage for organizations. Some organizations particularly differentiate their business by going green. Some use SCR activities to differentiate their business (Piacentini, MacFadyen and Eadie, 2000). Central to the conceptualisation of corporate social responsibility as a business orientation is the pursuit of a positional advantage. Such as business orientations are transformed into positional advantage, which in turn results in superior organizational performance (Matear, et al., 2004). Through CSR, retailers can enhance recruitment and retention rates and strengthen their bottom line. In fact, there is growing evidence that companies with CSR strategies outperform their counterparts (Minakakis 2012).
According to the main findings of this report, ethics have a positive relationship with the success and the long term growth of the company. Major ethical activities like CSR and going green help the long term growth of a company along with other ethical practices. Most important contributor to the long term growth of a company is consumer trust and loyalty.CSR activities and fair trade is main ethical practices which develop this consumer trust and loyalty.
Another main finding is that consumers’ interest towards ethical stance of a company has increased a lot in past few years. So it’s very important to engage n ethical retail in today’s business world. Another increasing trend is going green. Major retailers have already moved in to green retailing. Consumer attraction and the number of green products are also increasing. In time t come, green retailing will be the main stream. So it’s important to stay focus n the green trend as a retail company.
The ultimate conclusion is that ethics is vital for the long term growth of the business and company should focus on it.
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