By Nida Qasim Khan

The outbreak of COVID-19 has severely affected the Pakistani economy and its micro, small, and medium-sized enterprises (MSMEs). The Rawalpindi Chamber of Commerce and Industry (RCCI) President Saboor Malik said in a statement that due to the lockdown, the businesses of cottage industry, small industry and furniture retailers have been adversely affected. The National Incubation Centre (NIC) also noted in its report “Impact of Covid-19 on Pakistani start-ups and the way forward”,  that start-ups were hard hit by the pandemic. The report stated that while before the pandemic, e-commerce, health-tech and ed-tech were the most popular sectors to attract investment, this type of investment stopped or was halted during the pandemic. The NIC said that 28% of start-ups lost imminent investors while 22% of start-ups reported delays in the transfer of funds.

What did the Pakistani government do to assist SMEs during the pandemic?

To mitigate the losses that SMEs faced during the pandemic, the government of Pakistan allocated a financial package of Rs.100 billion for SMEs in its COVID-19 fiscal stimulus package that included payment of electricity bills. Small businesses with a commercial connection of fewer than five kilowatts and people running small businesses, i.e. tailor shops, small markets, and industrial units, could have their electricity payments made by the government during the months of May, June, and July. The State Bank of Pakistan (SBP) made it one of its initiatives to incentivize businesses to avoid laying off workers during the pandemic. The SBP also introduced various temporary measures to aid SMEs, including the increase of the regulatory limit on the extension of credit to SMEs by 44 percent to Rs 180 million.

Unethical business practices during the pandemic in Pakistan

The pandemic gave rise to an increase in unethical business practices around the world, and Pakistani businesses did not shy away from such practices either. Taking advantage of the high demand for essential food and health commodities during this time, many businesses sought to make a profit by hoarding goods, increasing prices of items (sometimes as much as double or higher), and selling fake products, compromising both the public and the government’s trust.  

Incidents of fraudulent sales made by sellers on Daraz.pk increased during the pandemic and continue to occur owing to the lack of regulation in the field of e-commerce in Pakistan. An official from the Federal Investigation Agency (FIA) said: “People in Pakistan are turning to e-commerce and are buying online which increases chances of fraud. Consumers are shown a branded mobile phone online but an unbranded mobile phone is delivered to them. The challenge in Pakistan is that online businesses largely go unchecked. Securities and Exchange Commission of Pakistan (SECP) regulates physical businesses but no institution has been set up for online entities.” These fraudulent sales, and lack of action against them, do little to help customers gain the trust of e-commerce websites, which is a necessary step to allow the upcoming e-commerce sector to grow in the country. 

The Covid-19 pandemic created an avenue for merchants of essential commodities to take advantage of the pandemic by increasing prices. Taking advantage of buyers’ frenzy to stock up on basic supplies, many merchants gouged their prices to make profits during this time. 

This meant that resources often ended up going to those who had greater purchasing power. Producers and suppliers also struggled to afford raw materials to produce medicines. One retailer complained that the raw ingredients for antimalarial drug hydroxychloroquine had gone up significantly in price by hundreds of dollars. After receiving many reports of hoarding of essential food items and health supplies during the outbreak, Pakistan passed the COVID-19 (Prevention of Hoarding) Ordinance 2020 and similar provincial laws to prevent artificial scarcity leading to inflated prices. However, Pakistan has existing laws that seek to prevent profiteering through hoarding and price gouging which suggests the new ordinance may have limited impact. Existing laws have proved unsuccessful in preventing businesses from engaging in such practices or in ensuring consumer protection during the pandemic.

In yet another way to profit off people’s demand for health supplies during the outbreak, some businesses created fake products to meet their demand. Such incidents were reported in Karachi where a customer pointed out fake Dettol products being sold at shops. 

Why unethical practices are bad for business

According to two political analysts Lahore University of Management and Sciences (LUMS), rational sellers only engage in unethical business practices if the rewards are greater than the costs. This is influenced by four major factors: a) the potential profits from the practice; b) the likelihood of being arrested; c) the severity of the punishment if arrested; and d) possible losses such as a breach of trust or tarnishing of brand reputation amongst their customers. In the instance of incarceration, costs incurred by hiring legal help and the loss of one’s income should also be taken into account. This implies that so far the rewards for those engaging in hoarding in Pakistan have outweighed the costs, leading them to continue these practices. 

However, when businesses lose credibility and trust among consumers because of unethical business practices, they also lose their influence with the government – losing their power to help influence policies in their favor. They lose that power because it is both unsustainable and risky for any government to facilitate businesses that engage in frequent unethical practices such as price gouging, selling of fake items, and making false claims, etc. Once a business or an industry/corporation loses its credibility in the public eye by indulging in unethical practices, it loses out on crucial public and governmental support. So that when and if they do reach out to the government with genuine concerns, they are unlikely to get a positive response. This both stifles the growth of a business, and reduces its chances of being assisted by the government. 

The current state of business ethics in Pakistan 

Although cases of unethical business practices are quite often reported by the media in Pakistan, consumers have somewhat adapted to a hostile business environment. If the consumer does however hold some social or financial power, the suppliers tend to give in and settle the dispute through compensation.

In a study conducted by the Far East Journal of Psychology and Business on “Business Ethics Perceptions of Public and Private Sector Respondents in Pakistan”, researchers found that Pakistani respondents with longer work experience in the government sector scored lowly on their business ethics scale. Surprisingly, respondents with higher levels of education also did not score significantly higher on the scale of business ethics. While speaking to people working in both the private and public sectors of Pakistan, the study found that people from both sectors felt a need for ethics training and development in organizations. Respondents expressed a general acceptance of compromises in ethics (based on necessity) especially in the public sectors of Pakistan. 

The world moving towards greater business ethics

According to Investopedia, “the purpose of business ethics is to establish trust between people doing business. Over time, the reputation of a business is built on its demonstrated pattern of ethical (or unethical) behavior. A company’s business ethics should be codified in policies that cover a wide range of practices and pitfalls regarding corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities”.

The concept of business ethics began in the 1960s as corporations became aware of a consumer-based society that was concerned about issues pertaining to the environment, social causes, and corporate responsibility. Since that time, the concept of business ethics has changed. Today, business ethics goes far beyond simple morality; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. 

Businesses today are being held accountable to ensure fair and ethical practices in their business and in their supply chain. This is becoming more important as businesses around the world are moving towards greater transparency and accountability in their procurement practices while taking into account environmental, social, and governance indicators. 

The issue of “business ethics” in the USA gained a lot of traction over the past many years. The Human Resource Institute of the United States conducted its survey of major issues having an impact on business and found that “the HR executives responding to the survey rated “Ethics in business” as the third most critical issue among 120 issues up from 10th in 2001. In terms of its perceived importance 10 years into the future, ethics in business rated eighth in 2003, up from 21st in 2001.” 

Why being ethical will benefit Pakistani businesses 

Businesses building trust between the business and consumers is an essential cornerstone for establishing a sustainable business. If consumers feel comfortable enough to place their trust in a business, they will more likely choose that business over its competitors. Some businesses even utilize business ethics as a marketing tool while highlighting popular social issues. This can help to improve their brand image and attract support from the public. 

Ethical businesses hold the power to attract investors and shareholders. Investors are more likely to invest in companies that comply with standard ethical business practices than those that don’t. Businesses could use this to their advantage to achieve great success.

Compliance with business ethics can also benefit the business’ employees and operations. Ethical businesses can attract talent more easily as its practices assure employees that the business will act in their best interests. This can encourage greater dedication in employees and also cut recruitment costs.

Businesses in Pakistan stand to enjoy great benefits by taking on some of these practices as laid out by international standards of business ethics. These include – but are not limited to – practices such as complying with laws and regulations, putting customer needs first, being transparent, prioritizing workplace diversity, ensuring product sustainability, producing fair advertisements, rejecting bribes, respecting customer confidentiality, resolving customer complaints, and providing resources for reporting unethical behavior, among others.