Paradigm Shift in the Music Industry

Introduction

In the traditional music business, during the last decade, the common thing for an artist was to be signed by a record company which financed the recordings and distributed and marketed the music to reach the public audience. The overall greatest revenues came from CD sales and royalties through radio stations and networks. There were six main labels and they pretty much controlled the music industry. However, in the 21st century revenues for CD’s dropped rapidly and the industry saw a lot of layoffs and everyone in the industry had to seek new models for success. The six big labels became five, then four and then finally the big three. People’s way of getting access to music became much more based on the IT-development and internet instead of the traditional analog way. It is this shift in the music industry we will take a look at more closely.

This paradigm shift has happened both mentally and physically. Thanks to the Internet, social networking, and mobile smart phones the music industry as we knew it from 1990’s will probably never be the same. New ways and habits of consuming music have emerged, causing the landscape and the dynamics of the music industry to change. Players in the music industry have been pushed to change their business models, seeking alternative routes to get paid for their products. However, retailers and record companies are still seeing their sales steadily declining.

During the last decade, alternative channels such as Internet downloading has emerged as natural source of acquiring music. In 1999, Napster emerged as the biggest player in this new market, but was quickly followed by other software developers and social networks.  Currently roughly 2.5 billion illegal downloads are being made every month. Apparently this new way of consuming music soon became a natural part of many people’s lives. As such, illegal downloads makes up roughly 80 % of all total music downloads. While there is an increase in purchases on websites like Wal-Mart.com, iTunes.com, and other online digital music retailers, record companies are still seeing their revenues declining.

Coupled with these developments, a myriad of music streaming services have emerged, where consumers can legally access music. Globally, subscription services to music such a Spotify, Wimp, Deezer, grooveshark, and Rhapsody have approximately five million paying subscribers. However, individuals using free versions of these software’s, often financed by commercials, by far outnumber the number of paying consumers. The music streaming market is however a fast growing market, boosting an impressive 80 % growth during the last year (Di.se). Could this perhaps be the way forward?

Public Internet forums such as Youtube, Myspace and blogs have changed the dynamics of entertainment and media. In these public forums and communities, anyone can consume music for free and become an overnight star. What does this do for the mentality of people consuming the music? Does it push the limits of what is considered public property, making people less prone to pay for the artistic expressions and their work? What remains is that people are increasingly demanding that these kinds of products should be for free.

Are these developments simply a response to the technological advances of the Cyberage, or do practices such as illegal downloading represent something bigger - a shift in people's morals and mentality?

Globalization

The shift in the music business can be seen from a global perspective since it is very much affected by, and also affects, the globalization due to the close connection to the IT-development in recent years. The days when the artist would record a song, get it played on the radio, sold in stores and then go touring and make big money are definitely over. The music today is instead organically spread through different channels and is easy to access wherever you are in the world without limitation of geographical boundaries. As one of the old big four labels, EMI, put it: “music surrounds people more than ever, in online videos, interactive streams, advertisements, feature-length films, television shows, mobile apps, and so on. They just don’t buy it as much as they used to.” This in fact is a very good explanation of what is happening in the music industry today. It is no wonder that EMI has made this recognition though since the effects of the shift in the music industry has been very obvious both to them and the other actors in the music business. There has been a large concentration of record labels since the shift began and many of the companies have either ceased to exist, been objectives for M&A:s or been joint with some of the competitors in the market.

The artists’ perspective:   

It is today much easier for people who might never have succeeded in the more traditional, old music business to reach the spotlight. The traditional music industry could be very selective in who they wanted to record and could also, through much advertisement, choose who came to the spotlight and reached the public eye. Today there are however many forums that make it possible to succeed even without the support of the music industry. There are many examples of artists who after competing in various talent shows on TV in seconds have reached enormous popularity among the viewers and thereafter have been able to build a career as musicians. Some of these are people that might have something speaking against them, such as not having the “traditional” appealing appearance and looks. This could have led them to not getting the chance to be heard otherwise. There are also many artists that have succeeded after releasing one or two songs on the internet on sites such as YouTube or Myspace, songs that short after have been spread all over the internet much faster than the traditional music industry ever could have managed to do. This has also enabled music producers all over the globe to make recordings much more effective and working on the same project with co-producers and artists all over the world.

The customers’ perspective:

As a natural part of the globalized world as we know it today, we are used to have the luxury of easily accessing music whenever and wherever we feel like it. Whatever our needs are in terms of wanting to find new artists or music styles that we like, we can easily fulfil this with a few clicks. The customers nowadays can look up almost all kinds of music and not only the ones that record companies have chosen for them. More and more people are getting this chance as more countries in the world rapidly develop. And as the world becomes more and more globalized we have an even greater opportunity to explore more kinds of music as music tastes around the world are being mixed. Internet has indeed changed the way people think about obtaining, listening and paying for music.

In an article in Mashable Social Media today's young music customers are described as “Millennials” and “Digital Natives”. The Millennials are now aged 16-24 years old and are adjusted to the paradigm shift in the music business and can easily use the digital ways of listening to music. However, this group started out in the analog era in a young age and are therefore still subconsciously trying to recreate the analog ways of creating music, like downloading from iTunes and burning CD’s. The Digital Natives, 12-15 years old, are however born into the digital era and it is these individuals we should look at to get a glimpse of what the future for the music business looks like. This group does not care about ownership or origin of the music; it is all about experiences and creating soundtracks to the social environments in their lives. This if something is a sign of globalization and it is indeed a trend that will continue to grow.

The Political, Legal, and Technological Environment of Globalization

As discussed, technological advancements have created new ways of consuming music such as downloading and streaming services. In response to this, consumers have increasingly stepped away from traditional ways of consuming music, such as buying physical CDs, instead favouring the new solutions of the IT area. This paradigm shift in consumer practices raises questions in regards to the technological and legal effects of globalisation.

How should regulatory bodies meet the increasing use of these services? Even though wheels are in motion, seeking to regulate these new practises, it has been shown to be a tremendous task to create a uniform and enforceable statutory framework regulating these new practices. This goes to show that although we have, during the last 20 years, seen a rapid decrease in the cost and availability of communications, perhaps creating a more globally uniform consciousness, and intertwined relationships between states, we still find ourselves lacking in ability to navigate and regulate on important global issues such as this one.  

A recent discussion and laws on their way suggests internet service providers to store information on the online activities of their users, making it possible to track illegal file sharing. These proposals have however been met with severe critique, pointing out that it represents a huge infringement in the private lives of individuals. This is certainly a valid argument, pointing out that the means does not always serve the end.


It should here be recognized that governments mandating about file sharing in general needs to be thorough and all-inclusive throughout the legislative process. It is a large concept, regulating the flow of information on a forum such as internet, which has the potential to do a lot of damage not only to the music industry but also to technology companies themselves and freedom of information in general. If handled badly, it could have deep ramifications. Intervention must be designed to embrace new horizons and must be fit and proper for use in a modern world, a modern society and a modern culture.

Internet has in a way acted as an Schumpeterian shock – an innovation resulting in a necessary degradation of existing structures, facilitating new developments and new learning. This is a form of creative destruction, where new technology is utilized to tear down existing structures and innovate. This is certainly a vital part of the continuous development our society seeks. It is hard to argue against that new technologies such as file sharing does not result in infringement on the rights of artists and copyright holders, but that might be the price we need to pay for progress. The winners will be those who are able to use the new technology to their advantages and losers those who missed this development and continue to follow old business models.

Crisis Management and New Business Models

During the last decades the revolution in digital formats that has changed the music industry has also given rise to a growing demand for new business models along with the rapid development in information technologies, which in turns has given rise to new channels in music distribution. To adapt to the new circumstances both artists and record labels are forced to apply new business models in order to survive which require constant effective management and it could even be said it requires effective crisis management considering the constant Schumpeterian shocks in technology as described above, even though the trend of the industry has been ongoing for a longer period of time.

Considering that CD-sales are declining with a constant rate, and has been doing so during the last decade, both artists and record labels are now trying to find new ways in generating revenues. Artists as well as record labels and promoters are trying to adapt different strategies that sometimes mean joint venture and collaboration and sometimes mean greater distance and Independence.

The Artists’ Perspective:

The shift in the global business practice in the music industry has made some artists thinking outside the box in creating new means of distribution. Perhaps one of the most discussed examples today is the British rock-band Radiohead and the release of their album “in rainbows” in 2007. Fans were then given the opportunity to download the album online at the band website and on I-tunes and pay whatever amount they felt like paying. In this way, Radiohead is allowing the user to decide how much they want to pay for the album. This risky move proved to be very smart and revenues soon started streaming in (Financial Times).

As record sales are declining live performance has become of great importance in order to success in today's music industry. In 2010 overall revenues rose with 4,7 % in the British music industry thanks to the increased popularity for live performances while the record sales continued to decline with 3,5 %. Some live orientated artists today are moving away from record labels claiming their independence. An example of this new business practice is Madonna leaving her old record label and instead signing a 360-deal with Live Nation, a promoting agency (Financial Times). This is one example of the growing importance of live performances in general when it comes to generating revenue today. Hence, this development has created pressure on the artists to sound as good live as they do on the record. But as live concerts become of great importance the popularity and market is growing (Recordconnection.com). This goes to show how major artist and players within the music industry are starting to branch away from the traditional music label business model.

At the same time artists that were big during the 90’s and still relying on to old business models are disadvantaged, there are a lot of artists in the market today that has reached a level of success that they would not have earlier. These artists have the development and technologies to thank, with the free services on the market today such as Myspace, Youtube etc. smaller artists and indie artists has been favoured (Evolvor). This may be one consequence to the growing success and popularity for independent artists like sing and songwriters during the 2000’s.

The Record labels perspective:

As mentioned earlier, the burst of P2P file trading as a result of the development in information technology has changed the traditional business model including mass production and distribution of music in physical form. Traditionally CD’s were distributed through music-stores, on-line ordering and concerts halls. The new business models are based on on-line distributing of music in digital form that has forced record labels to adjust from a “lawsuit model” towards a marketing and promotional orientation (Vaccaro, Cohn 2004). The harsh times for record labels and the development of the market of record labels can also be regarded as a result of poor crisis management, which depended on the absence of understanding the crisis that lied ahead as well as strong dependency on old technology and business models. The rapid development of new channels for distribution of music that did not suit established business models created obstacles for change. In the three stages of crisis management developed by Coombs 2001, there could be argued that many record labels failed in the pre-crisis stage and therefore found themselves powerless in the crisis-event stage. As the information technologies are constantly evolving the post crisis stage are yet to come. Hence, to develop suitable business-practices in order to keep up with the technology and constantly changing conditions is becoming more and more important (Jaques, T 2009).

The old ways of distributing music are also getting less attractive among the artists because of the easiness and technology evolution that enable them to make high quality home recordings at the same cost of a couple of recording hours at a professional studio (Financial Times). But at the same time technology has made it easier for artists to make and distribute music on their own it has become more difficult to get backup from record labels and for record labels to invest in potential artists. During the 90’s and early 2000’s when the record sales were thriving the big record labels could, due to their strong financial situation, take bigger chances in their investments. With greater margins there were room for less successful investments in less successful artists and bands. Nowadays artists and bands need to reach a certain popularity on their own before record labels show any interests in them due to the importance to ensure return of investments. Because of this, Record labels are trying to find new ways of doing business. Record companies today are forced to diversify their business models in a far more greater extent than before, integrating other kinds of revenue streams into the business as, live concerts, merchandise etc. One example of this is the ATC management established in 2002 and their new type of business model where they are trying to get away from the copyright trading model towards more of a venture capitalist model and “360-solution”. Instead of regulate copyright on the material the income from all revenue streams like records, concerts and merchandise are split between artists, managers and record labels. Still this has made contracting more difficult considering the requirement for details (Financial times). The fact that artists are required to sound as good on stage as on record has also created a pressure on record labels. If record engineers today are making the artists sound much different than on stage, fans will be disappointed and revenues will decline (Recordconnecion.com). This is why most record labels today only are willing to invest in artists that has proven to be successful live.

Other than the so called 360-models and change in contracting there are labels adapting strategies even more outside the box in order to tackle today's situation. One of these labels is Label2.0 with a new set of rules and ways of doing business. Instead of investing a lot of money or trying to conquer artists that has already come far and are quite self made, they are helping and coaching artists to promote themselves and reach success and build a fan base on their own by using free online channels such as Myspace and social networks. Today almost every artist is using social media to reach out to the market but obviously that does not automatically lead to success. According to the CEO of Label2.0, success depends on how you use the communication channels. Today it’s not just about the music it’s about creating new solutions and a package of experiences. By creating experiences it’s possible to build a fan base through interaction (Evolvor.com).

Streaming Services

The emerge of streaming services today provide a new kind of business model for artists and record labels that is somewhat controversial and the outcome of this development is still ambiguous. Still with new technologies comes new possibilities and some believe that this is the future of music distribution while others are concerned about the development. There are those that doubt this business model will be profitable for all parties in the long run. There has also been substantial criticism toward the very small compensation to artists, receiving roughly one US cent per stream in royalties. Some studies has also shown that at the same time streaming services enable consumers to easily access music it also reduces the overall willingness to pay for records. On the other hand, according to Spotify, they have developed an alternative for music distribution that decrease illegal downloading and increase number of paying music consumers. According to Spotify the revenue stream will continue to grow over time, furthermore Spotify state that the company has generated more than 150 million US dollars in revenue to rights holders during the first three years of existence (Techland.times.com). But taking the legal streaming sites aside there are a numerous of free streaming sites in the market as well which can be regarded as some kind of legal gray-zone and are constant victims of lawsuits and criticism today.  

Market Outlook

The prospect of streaming services is hard to forecast but it becomes clearer that this technology will continue to have a great impact in the music distribution in the future. Questions remain regarding who will benefit from this development, how to prevent misallocation of revenues and how to bring justice to rights holders and artists. What is definitive is that the old business models are dead and that the search for new ways in generating revenues will continue so that creativity can be emphasized and prosper in the future. The new business models for artists has created many positive effects for the music consumer today and it could be argued that consumers seem to benefit more today than the artists and producers.

Business and Cultural Ethics

The global shift of the music industry has led to loosening of morals and ethics in society. Since we were children we learn to be kind to others, pay for things we want to have from the store and simply do things the right way.  However, since Internet entered the world stage the music industry as we knew it from 1990 to 2000 changed and will most likely never be the same again. During the last decade people have started downloading music and other available things on the internet for free and see it as a legal right. In addition to that it was in 2005 that a new law entered force forbidding downloading music from the internet. So how come so many people still continue downloading? As discussed before profits in the music industry has been continually declining due to this product piracy. Nearly 80 % of all the music available on the internet is transferred illegally. Is it really ethically correct to do this? And what should we be morally obliged to pay for?

This unethical consumer practices have cut greatly into company profits so there are multiple issues and reasons for people to engage in this behaviour that may have serious implications for marketers and the music industry. What happens if piracy downloading becomes increasingly accepted by society, and ethical attitudes throughout the world permits large scale piracy-downloading? From a strictly practical perspective, artists and industry players will increasingly lose their incentives to invest and create new content, increasingly moving away from the music industry, seeking their fortune and creative outlet through other means. To tackle this, companies and industry players must go beyond lobbying governments for tougher enforcements of piracy laws and seek to influence the ethical mindset of society. In this way, citizens must be made to understand the consequences of piracy, encouraging an evolution of  a different ethic towards the practice of illegitimate downloading.   

It is hard to argue against that the music industry as a whole has been too slow to keep up with the major industrial changes, failing to realize what a huge impact and shift information technology has brought. Instead of trying to prevent people from downloading perhaps they should have adapted directly and changed their business strategy. In the seventies, audio tape cassettes went through the same discussion as today’s talk about copying music. Everyone could tape the songs they heard from the radio without buying the real album. Still you needed to buy the tapes and also the tape recorder. When downloading from the internet you are still required to pay for a high speed internet connection through companies. As such, illegitimate sharing of copyrighted material is no new phenomena it simply takes another form through the possibilities provided by today's high tech environment.

However, downloading music and videos from other people on the Web without paying is certainly a tough choice, forcing people to take a moral standpoint. In an ethical way it is wrong to steal others work without giving anything in return. However, people still do it. One reason might be because it is not something physically and therefore it does not feel like you actually are stealing. It does not cost anything for the artist either if a person happen to download one song. It is one song that the person would not have bought in the store anyway. Another argument is that there are millions of people around the world who download so there is a very small chance that you actually will get caught. But how valid are these argument, based on group mentality really?

At the same time one can look at it from another perspective that is in a commercial way. When music is available and free on the internet more people will enjoy the work, artists gain publicity and fans which may lead to larger demand in concert tickets, creating a positive loop. This thought process is in line with Confucian mindset and cultures, which stress that what is created by individuals, should be shared with society as a whole. In this way, file sharing can be seen from a positive perspective, having the potential of raising the utility of society as a whole.

So in the end, is it not better for all if the music is free? This question can be discussed over and over and there are different ways of looking at it depending on what side you are on. Today you can become a star over one night just by putting out your music on the web. Letting people download it for free will make it easier for new artist to gain fans. How about after a while when the artist is well known, does he benefit from people downloading? This is probably not the case. People need to realize how much work and effort that is put down by the artist doing music and that they do it for a living.

Conclusion

To summarize this blog, the music industry has mainly changed because of the IT-development and internet which is a cause of the growing globalization. This shift has forced new business models and effective management to make strategies in how to make revenue, since artists and record labels are struggling to prevent people from downloading their music illegally. It is morally and legally wrong to download, but the new generation of teenagers does not seem to care about copyrights. Therefore it raises questions if we are simply loosening our moral and ethical values. In the shadow of this illegal downloading, the streaming market has had a fast growth during recent years.  However there is still a larger amount of people who do not utilize these more legitimate solutions and it is these people the music industry need to find a solution for. Everybody has different wills and interests depending on what interest group they belong to and ethical standpoint they choose. Taking a look at this issue from a perspective of management, the music industry need to figure out how to motivate a service that cost money and go from there. It is hard to figure out what path the music industry will take in the future, we certainly do not have the answer. What is certain is that the shift in the music industry has also led to a shift in the moral and ethical values of society.

Sources

Internet:

http://www.musicdish.com/mag/index.php3?id=12734

http://www.wired.com/epicenter/2010/06/music-revolution-forces-major-label-emi-to-evolve/all/1

http://mashable.com/2011/02/04/music-industry-digital-natives/

http://www.ft.com/intl/cms/s/2/92d98d1c-bae9-11df-9e1d-00144feab49a.html#axzz1pXUcbHeG

http://articles.businessinsider.com/2011-07-15/tech/30067272_1_music-industry-music-service-spotify

http://evolvor.com/2009/08/04/label-2-0-turns-the-classic-record-label-business-model-upside-down/

http://techland.time.com/2011/11/22/the-day-the-music-died-why-labels-are-abandoning-streaming-

music-services/

http://www.recordingconnection.com/reference-library/recording-education/diversification-marketing-recording-industry-0611

http://musicbusinessresearch.wordpress.com/2010/03/29/the-recession-in-the-music-industry-a-cause-analysis/

http://musicproducerinfo.com/the-paradigm-shift-in-the-music-business/

http://www.pbs.org/mediashift/2007/01/music-industry-losing-control-over-album-sales022.html

http://musicproducerinfo.com/the-paradigm-shift-in-the-music-business/

http://www.artistshousemusic.org/videos/the+paradigm+shift+in+music+distribution

http://mobil.di.se/c.jsp;jsessionid=55A1C3AD6B32891C948F2B38DE1C5402.aldo4?cid=25400741&articleId=260879

Articles:

Jaques, T; Issue and crisis management: Quicksand in the definitional landscape, Public Relations Review 35 (2009) 280–286

Globalization: A World-Systems Perspective, Chase-Dunn, Kawano, Nikitin, Department of Sociology, Johns Hopkins University, Baltimore, USA

When is different different just different, and when is different wrong, article course litteratur

Vaccaro, V; Cohn, D; 2004; The Evolution of Business Models and Marketing Strategies in the Music Industry, The International Journal on Media Management, 6(1&2), 46–58

Moral and ethical issues in the micro-loan industry

- Is SMS-loans, as a phenomena, an example of unethical business practice?

Introduction

Through out the last decade a new and growing form of credit-loanes has emerged in several markets all over the world. This financial product has come to be known as SMS-loans and reached Scandinavian markets in early 2006. The phenomena is also present in countries such as Canada, USA, South Africa, UK and most European countries today. The existence of these services in each country are due to local legislation, still these services are legal in many countries in the world. The introduction of these kind of services has given rise to debates regarding ethical and moral issues as well as corporate social responsibility. The questions raised whether this kind of business practice is moral and ethical is based on several factors that is to be discussed further more in this blog.  

What are SMS-loans?
SMS-loans, also known as micro-loans or instant loans are short term loans given to borrowers from private credit institutions and lending firms. These loans are characterized by smaller amounts ranging from 50 to 500 euros and usually comes with a pay-back time of 15 or 30 days. In Great Britain there are lending firms offering up to 100 pounds. The applications for these loans are usually made trough instant messages or SMS via mobile-phones or the Internet. By typing in a social security number and bank account number, money arrives tho the bank account almost instantly or within half an hour.

How does it work?
By just a click away, it is easier than ever before to borrow money. The credit companies allows any person to borrow money without any security and check-up on the borrower in question. Due to certain lack of regulations regarding loans with amounts that are considered to be “small” there are less requirements for these companies to make a background-check on the borrower and the economic situation of that person. This enables the companies to give loans at very high total costs which are not highlighted in the marketing and advertising. The loans are often presented as free of interest rates instead there is a fee charged when taking the loan. When adding the fees and interest rate divided with the total credit term you get the effective interest rate that sometimes exceeds over 600 %.

The cases of unpaid SMS-loans in Sweden showed a decrease since the peak in 2007. Among young people there has been a 10 % decrease in 2011 compared with 2010 but in 2012 the amount of unpaid loands increased again with 18% according to authorities. The amount of unpaid loans are most common among younger borrowers between the age of 18 and 25. Unpaid SMS-loans are also more common among women then men.
 

Efforts has been made from authorities in Sweden through changes in legislation that regulates the credit market. Credit institutions are no longer allowed, in the same extent as before, to provide short term credit loans without proper background checkups. Information campaigns in the society has also made young people aware of the risks associated with taking these loans. These are thought to be the contributing factors to the 40% decrease in 2011. Unfortunately the increase during 2012 indicates that it is hard for the authorities to make an impact regarding this big problem in society.

Further more there has been extensive critic towards the credit institutions in their way of marketing these short term credit loans. In the advertising only the positive sides of the loans are emphasised like the rapidity, easiness, and “no questions asked” attitude, while the costs and disadvantages are often hidden.

The problematic and debate

SMS-loans has enabled people who usually were barred from receiving loans, like teenagers or other low and no-income groups to borrow, which in a way could sound positive, however there is reason to be seriously concerned about this development. Is this form of business really appropriate from an ethical standpoint?

A lot of the individual that finds themselves in these payment difficulties associated with taking these loans are often individuals in difficult economic situations. There has been many cases concerning people that don’t see other possibilities in providing for themselves and for there families like single mothers and unemployed. There has also been cases with gambler addicts  financing their on-line gambling through SMS-loans. A growing number of individuals trapped in debts and with no possibility to clear these debts will have consequences that creates a huge burden for society in the long run. Regarding that young people account for one out of five cases of unpaid SMS-loans, the worsening economic prospects for these individuals may lead to consequences in future life. Where lies the responsibility? Among individuals, corporations or authorities?

Business Ethics

Today it is often argued that businesses need to take responsibility in how they affect the society in an economical and environmental way, but also from a social perspective. Ethical implications can be seen in regards to whom these kind of companies choose to target and market themselves to, being mainly individuals in vulnerable and often desperate economic positions. Lending institutions have received strong critique by media and regulatory bodies in regards to the lack of clarity in the information presented to potential customers. It is often pointed out that the cost structure is hard to understand by the average customer and that numbers presented fail to present the actual cost of taking a loan from these lending institutions. In this way, loans are often presented as quick fixes, promising to alleviate the economic burden of individuals in the need of immediate funds.

However, few realize the possible implications of taking these kind of loans, resulting in great problems paying them back in due time. As a result, additional costs in the form of hugh effective interest rates due to additional fees are applied by the lending institutions. Furthermore, failing to meet the deadlines set up by the lending firms, the borrowing individuals face risk in getting permanent payment difficulties which can have far-reaching consequences. As such, lending individuals might find themselves in a “debt trap”.

It should be noted that organisations in cultures with different standards on ethical behaviour might  take different routes in their pursuit to excell in the marketplace. In addition, different nations implement various legal frameworks and thresholds to restrict the freedom on the market. This is partly to regulate the competition of the market, but also to protect the consumer from the greedy wolves that inhabit it. Is it morally responsible to simply use the threshold stated by the law in using credit checkups, lending funds to individuals who might not be able to bare the burden of these loans? Or ought these organisations go beyond these minimum obligations?

It could be said that these companies merely optimizes their positions in relation to existing laws and market rules, and are as such within their own right. On the other hand it could be argued that these practices breaks one of our society´s core human values: exploiting unfortunate and desperate people. The media and popular out roar has clearly illustrated that vulnerable individuals may take great harm from these practices. Who bares the final responsibility in these transactions? Is it society, the lending firm or the individual? No matter what position one takes, it remains that companies must take responsibility in distinguishing between practices that are merely differentiating and those that are wrong.

Corporate Social Responsibility

An increasing number of firms and business sectors have responded to increased pressure of socially responsible activities, allocating resources either to mend their tarnashed reputation, maintain their image or simply to act as good citizens. However, as illustrated by this case, these forms of Samaritan practices are far from universal.

has been said that “If you play by the rules you are finished”. (Article: “China real time report: Business in China”) This is a controversial standpoint because it in a way justifies companies right to do exactly what they think is necessary to succeed. By always playing by the rules you might be doing the “right” thing from a social perspective, but to what limit will a company do the “right” thing before putting their own gain in the first hand and  also, where is the line drawn? If the consequences of these companies actions lead to economic burden for society in the long run could these firms really be said to take social responsibility?

A cultural perspective

In sharp contrast with the liberal and individualistic values promoted in the Western markets and societies, one can look towards the East and perhaps notice a different reality. These markets, although having adapted to the logic of the western markets, are more collectivistic. Here, business practices which are widely used in the west might be perceived as strange and perhaps unethical.  

In contrast to the free market and liberal attitudes of the Western societies, Confucian philosophy, being influential in Eastern societies, takes a largely different approach. Here, the focus of the ethical debate is on promoting well-fare of the society as a whole, valuing collective wealth and stability. It recognises that the way we treat people and how we are treated by others will echo in and influence future decision making, largely shaping the way we perceive our reality and shape our society.

In this context, the practices discussed above will inevitably be regarded as controversial as they mean business taking advantage of marginalised individuals, using them as a means to reach their goal. These practices bare the risk of creating a harsh and hostile society, where might means right and the disadvantaged individuals of society are further diminished.

Taking this perspective, ethical and socially responsible business practices largely means acknowledging implications of all stakeholders involved, and recognising them as equals. By doing this, one can take equal weighing of participants involved in a transaction, making it possible to maximise  the total utility and well-being of the business relationship. As such, it is not enough simply to meet the standards outlined by current legislature, one must go beyond this, setting a standard of behaviour and ethical conduct. Without this, one can hardly achieve a harmonious and civilised society.

Conclusion and further discussion

Of course it’s fair to argue that every human being has an own responsibility for her actions.
As Milton Friedman once argued, social responsibility can not be placed on corporations since every individual is responsible for their own decisions. This point of view is contrary to the belief of corporate social responsibility. Moreover, a market that enhance exposed individuals in taking on debts they cannot handle has consequences for society in the future. Is this kind of business practice immoral or is it the way these corporations present and market these services that should be discussed? Should there be regulations in the market that prevent these kind of greedy wolfs from exploit these loopholes in society? Or is this a completely legit business practice since all individuals has a personal responsibility that should not be placed on society or corporations?

Following quote could be useful to bare in mind when thinking about these questions from a big perspective.

“A global marketplace has emerged and we are still struggling to develop some sort of world society ethos where the growing concentration of wealth does not come at the expense of the majority of world inhabitants who have no net wealth; and where the earth's natural resources are not being consumed by a minority at the expense of today's majority, or the natural inheritance of future generations.“  

Extension on blog

We are very glad you enjoyed our blog. As suggested by commentators, it  is important to remember that the businessmodel was initially introduced to   provide poor people with small credits, a small amount of money that could permit them to start up a small business successful enough to permit them to give back the money. This has been an international success, helping many people out of poverty.

We also agree with many of you in the fact that the moral issues of this business is very interesting, raising many aspects that should be considered by businesses and organisations, regardless of their industry. Here, organisations need to take responsibility and realise that what they do affect real people and society as a whole. These must realise their action have far reaching consequences. In this regard we feel there is a great need to highlight the importance of sustainable business models and CSR – raising the bar and expectations on organisations to act ethically correct.

Some readers suggest organizations simply acts within their right and in line with rules and regulations set up by regulatory bodies. However, we feel that the regulatory control and legislatory process is lagging, and as such not in line with what they actually ought to be in the modern society we live in today. In line with this, we again feel that businesses need to step up their game and perhaps use this as a differentiation strategy to excel over their rivals.

As some of you mentioned it is hard for goverments to regulate these lending institutions, but nowadays legal restraints in the freedom of doing proper background check-ups are applied in many markets which has turned out to be successful in many cases.

To conclude this discussion one can say that even though this kind of business models could be seen as  unethical it is impossible for govenments to prohibit these companies and their ways of doing business in order to have a free market economy. Even though some people are getting used and people in difficult ituations get even more trapped in the debttrap every single person still has an individual responcibility of his or her actions.

Sources

1.http://kronofogden.se/nyheterpressrum/presstjanst/pressmeddelanden/2011/pressmeddelanden/smslanenfortsatterattminska.5.70ac421612e2a997f858000102230.html

2. http://svt.se/2.22620/1.2680502/stor_okning_av_obetalda_sms-lan

3.http://kronofogden.se/nyheterpressrum/presstjanst/pressmeddelanden/2012/pressmeddelanden/okningavobetaldasmslan.5.71004e4c133e23bf6db800022971.html

4. Course literature, article: https://eportal.cityu.edu.hk/bbcswebdav/pid-1256756-dt-content-rid-6314191_2/courses/02MGT4221/Etlhics%20and%20Doing%20Business%20in%20China.htm 

5.http://www.textloanstoday.co.uk/sms-loans.html

6. Course literature, article: “When is different just different, and when is it wrong”


7. Course literature, article: “China real time report: Business in China”