Week 5 Case Study: Ethical Decision Making and Grassroots Diplomacy – Neem

Part 1: Ethical Decision Making

  • Neem is a tree indigenous to India that is sacred
  • Medical purposes, food production, toiletries, fuel, and pesticides
  • Neem industry in India employs about 100k people
  • Pesticides are used widely across India
  • Chetan operates a small business of neem tree products including: pesticides, skin creams, contraceptives, lamp oil.
  • He employs 60 people
  • Tom Johnson’s company (OOPS) invested $5M to develop neem based pesticides and conduct safety and performance tests over the last decade after he realized its commercial applications from a visit to India
  • OOPS has a worldwide patent to sell pesticides based off neem
  • OOPS wants to sell their product in India
  • OOPS is demanding a royalty from Chetan’s business and other small industries that make neem-based insecticides

The ethical dilemma is if OOPS is willing to profit off of royalties of a small business they will likely outcompete because of lower prices anyway.

STAKEHOLDERS AND MOTIVATIONS

  • Chetan
    • Wants family business to continue without royalties and to continue employing his workers
  • OOPS
    • Wants to maximize profits and are willing to uphold their patent royalties in India
  • Tom Johnson
    • Would like to make a profit and to be successful in his business
  • Chetan’s Family
    • Desire for the business’ legacy to continue
  • Chetan’s employees
    • Want a stable job to bring in an income for their families
  • OOPS investors
    • Want the company to act ethically but more importantly ensure they generate as large a profit as possible
  • Other small Indian ventures that will have to pay royalties
    • They have the same motivations as Chetan essentially, to continue generating a profit while employing their workers
  • Indian People
    • Would like the price of neem based products to be as cheap as possible
    • Would potentially prefer a local brand, but likely not at a higher price

POTENTIAL SOLUTIONS

There is no clear-cut solution in this case as a patent is a legal document and Chetan will need to pay royalties, it just may not be ethical.

Situation 1: The patent is binding and OOPS has no obligation not enforce the patent, so they do not. Their products enter the market and edge out neem businesses out while lowering the price of neem products overall

  1. Pros:
    • Prices for neem based products lower
    • OOPS’ profit increases
  2. Cons:
    • Small businesses are shut down
    • Many of their employees are left unemployed

Ethical Principle: Consequence Based- OOPS is only concerned with profiting and enforce their intellectual property rights to the patent and sell to the Indian market.

Situation 2: Chetan appeals directly to the government to place tariffs on OOPS (and other imports) to ensure they cannot enter the market or to require OOPS to not enforce royalties

  1. Pros:
    • the Indian based neem industry is protected
    • Thousands of jobs saved
  2. Cons:
    • No increased profit for OOPS
    • Decreased efficiency in the economy
    • Sets precedence of not enforcing IP laws (could be controversial/cause issues in the future)

Ethical Principle: Duty-based- thinking the Indian government has a duty to protect their own citizens’ livelihoods over the interests of a foreign company

Situation 3: OOPS enters the neem industry but doesn’t charge royalties to Chetan because of an agreement

    1. Pros:
      • the company can still make a profit
      • will likely edge out other neem producers due to economies of scale
    2. Cons:
      • Loss of profit for OOPS
      • Sets precedent not to uphold IP laws

Ethical Principle: Virtue-based – OOPS believes removing hundreds of employees and shutting down businesses is ethically wrong, so does not do it.

IMPLICATIONS OF THE SOLUTION

This case is difficult, because the issue itself isn’t ethical. OOPS has a patent and ethically and legally have no obligation to not uphold it, however, local Neem companies, like Chetan’s will go out of business from the royalties and competing businesses. Even if they didn’t apply royalties, OOPS would most likely outsell small companies just because of simple economies of scale. To say that OOPS should not sell in the international market because it will put smaller companies out of business goes against the idea of capitalism and is a slippery slope. Unfortunately, it is also unethical to say that OOPS specifically cannot sell or uphold their patent because they worked to earn it and go earn it.

Situation 1 is most likely to occur if OOPS enters the market, charges Chetan royalties for their IP, and edges out any competition. Situation 2 is less likely as the Indian and American governments have close ties, and India would not wish to jeopardize this relationship over saving several small companies. In addition, not allowing OOPS to enforce the patent would set a negative precedence in the area of IP. Situation 3 assumes OOPS will be willing to compromise, which it is not, making it an unrealistic expectation for a corporation to turn down royalties from a company they will likely outcompete.

In situation 1, OOPS will generate economic profit which will allow their business to grow, outcompeting smaller Neem companies, including Chetan’s. Will this revenue, they will be able to hire new employees and expand operations, stimulating the local economy and likely engaging in new research and development of their product. The growth of the neem industry, however, could impact the environment negatively in unforeseeable ways.

 

Part 2: Grassroots Diplomacy

FACTS OF THE CASE

OOPS launched 6 months ago, crushing the market

  • OOPS has over 20 different neem based products being sold in supermarkets
  • OOPS wrapper features a photo of Tom Johnson
  • Chetans wrapper features a photo of his great grandfather, who is a local legend
  • Chetan has tried to persuade Tom to leave the market or collaborate
  • Tom is open to collaboration if it will make him money
  • Chetan’s business if suffering and he will have to lay off half his staff by the end of the month
  • His employees and their families have worked with him for generations
  • Employees feel cheated and abandoned
  • Some are confident in Chetan but others want to physically want to beat Chetan up

STAKEHOLDERS AND MOTIVATIONS

OOPS is dominating the neem industry and small business owners like Chetan and his employees are in danger of going bankrupt and want tom to leave the market or collaborate. Chetan needs to find some way to save his business and/or his family legacy.

  1. OOPS
    • They want to keep their business growing and keep control over the market
  2. Tom
    • He wants OOPS to grow and make more money by providing neem products for indians.
  3. Chetan
    • His family legacy is on the line and after generations working for his family, he has a duty to his employees to ensure they remain employed
  4. Chetan’s family
    • Want to maintain family legacy/name/reputation
  5. Chetan’s employees
    • Personal: Likely have personal ties to Chetan and the business and have been working with him for a long time
    • Professional: Need the money to make a living so they can’t be fired.
  6. Employees’ family
    • Personal/professional: they need to make money to provide for their families
  7. Neem customers
    • Personal: Desire to get products at the lowest price
  8. Other small neem product businesses
    • Professional: Continue making money/grow profits
    • Personal: Keep their employees’ jobs
  9. Neem farmers
    • Personal/Professional: Want to make income selling neem

 

POTENTIAL SOLUTIONS

Solution 1: Chetan closes his business and negotiates with Tom to find jobs for him and his employees at OOPS

  • Pros:
    • Jobs are saved and his employees have an income
    • Chetan saves relationships with employees
  • Cons:
    • Chetan’s reputation for the business is impacted negatively
  • Implications on relationships
    1. Short-term:
      • Chetan will maintain his relationship with his employees and form a relationship with Tom and OOPS
      • Relationship with his family will likely worsen because he closed the family business
    2.  Long-term:
      • Chetan’s relationship with his employees could remain strong
      • There could be increased tensions with other Indian Neem businesses and their employees
      • His relationship with his family may not recover (family legacy)
  • Implications on the venture
    1. Short-term: Chetan’s venture will no longer exist but his employees will keep their jobs
    2. Long-term: Same

Solution 2: Chetan makes a deal with Tom to use his business image alongside Tom’s to bring in additional profit Chetan receives compensation from this deal and his employees receive jobs.

  • How does it solve the problem?
    1. Pros:
      • Chetan gets to continue employing his workers
      • Family’s legacy will continue
    2. Cons:
      • Will likely have to surrender capital and/or oversight
      • Chetan may not be able to influence how the business is run
  • Implications on relationships
    1. Short-term:
      • Chetan will maintain his relationship with his employees
      • Forms relationship with Tom and OOPS
    2. Long-term:
      • Chetan’s relationship with his employees could remain strong
      • There could be increased tensions with other Indian Neem businesses and their employees
  • Implications on the venture
    1. Short-term:
      • No need to lay off employees
      • Management will likely change with OOPS having main control
    2. Long-term:
      • Employees will keep their jobs and make (potentially) more money from OOPS
      • Business structure will be permanently changed and restructured
      • Will edge out other small Neem businesses

Solution 3: Chetan and Tom do nothing and Chetan will help his employees find jobs

  • How does it solve the problem?
    1. Pros:
      • Minimizes the tension between Tom and Chetan
      • Chetan’s employees can still bring in an income
      • Some of the employees (at least) will remain employed.
    2. Cons:
      • Chetan’s family legacy is lost and he gives up his profitable venture
      • Chetan does probably resent Tom since he had to give up the business
  • Implications on relationships
    1. Short-term:
      • Tom and Chetan likely will have reduced tensions but Chetan will still resent him
      • Former employees may resent and distrust him
    2. Long-term:
      • Tom and Chetan will have no reason to continue a relationship
      • Employees will still distrust him and his family will likely have negative feelings towards him as well.
  • Implications on the venture
    1. Short-term: Chetan’s venture will no longer exist but his employees may find new jobs
    2. Long-term: Same

IMPLICATIONS OF THE SOLUTION

In Chetan’s community, it is essential to save face and maintain relationships if he wants to engage in business later down the road.

The worst option is Solution 3, because although Chetan will still have personal financial support, his employees don’t, and he would “destroy face” to employees, his community, and his family. Solution 1 is a better solution as his employees will still have jobs and Chetan can use his knowledge in Tom’s corporation. However, he will be destroying family legacy and may have a strained relationship with his family. Solution 2 is the best solution for all parties involved because OOPS can gain an additional edge in the Indian market and may get more national loyalty with a local collaboration with Chetan. Chetan can offer his great grandfather’s image for OOPS’ packaging in exchange for jobs for his employee and both parties will win: a positive international appearance for OOPS and as well as for Chetan, his family, and his employees.

Chetan simply should pitch this solution in his negotiations with Tom. If Tom is not receptive, he can fall back on Solution 1 in order to continue to save face with Tom and his employees. OOPS’ new products will be produced with the new images and the companies will be integrated.

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