How to do business with countries that have poor human rights records

Open this photo in gallery:

Companies might think twice before entering markets in Saudi Arabia, Iran or Myanmar for ethical, image or financial reasons, especially as human-rights abuses in those countries make headlines.

Yet other countries with continuing human-rights violations such as China – now Canada’s second-largest and fastest-growing trading partner – are sought out by Canadian businesses. China’s prosecution of human-rights activists includes the recently deceased Nobel Peace Prize laureate Liu Xiaobo, and non-citizens such as Taiwanese pro-democracy activist Lee Ming-che, who was jailed while travelling in mainland China.

So what should Canadian small and medium-sized enterprises (SMEs) consider when choosing to do business with a country that has a questionable human-rights record?

Last spring, Nicholas Reichenbach, founder of Flow Water Inc., a brand of Canadian water, went to China as part of trade mission run by the City of Toronto and World Trade Centre Toronto, an arm of the Toronto Region Board of Trade.

While Flow Water is strongly committed to the environment, uses 100-per-cent recyclable Tetra Pak cartons for its product, and is a Certified B corporation for meeting the highest standards of verified social and environmental performance, China’s politics on human rights didn’t factor into the Toronto-based firm’s decision to sign trade deals.

“Our brand and company doesn’t have a political opinion,” Mr. Reichenbach says. “I’m not here to judge other people’s practices in life.”

Instead, Mr. Reichenbach sees Flow Water as being a non-political agent of positive change, bringing goodwill to China and setting an example of sustainability. As a founding member of #unplastictheplanet, a global plastic reduction strategy, he says promoting their product as eco-friendly will be one of the key pillars in all of their advertising going into China.

“Our partners and retailers in China are a lot like our partners in North America and the European Union, which have a high standard for premium products as well as waste reduction,” Mr. Reichenbach says. “We’re sold within those types of retailers, so in the boutique high-end grocery and specialty stores in China.”

Because Canada has a strong relationship with China and heavily endorses trade between the two countries, he didn’t necessarily see any red flags about trading with China.

“The government actually helps us go into China,” Mr. Reichenbach says. “We went with a government program, supported by the province of Ontario and the City of Toronto. They helped us navigate to the right partners and people that we should be dealing with, in line with our values and the values of the Canadian citizen.”

While China has a record of human-rights abuses, it’s not that difficult to trade with them, says Andreas Schotter, an associate professor of international business at the University of Western Ontario’s Ivey Business School in London, Ont.

Aside from human rights, Dr. Schotter has developed a guide to measure what he calls the “hassle factor” on doing business in foreign countries. He currently rates China with a medium-low hassle factor, while countries such as Sudan or Iran come in at the highest. Before SMEs with limited resources even set foot on the ground, he advises them to get support from global companies such as Control Risks in Britain which can check and investigate supplier relationships.

There can be consequences for both big and small companies when operating in countries such as Saudi Arabia or China, Dr. Schotter warns. If human-rights abuses start to be as prominent as they are right now with Saudi Arabia, trade could be stopped by Canada, international courts or by other countries. If an SME does business with a country banned by the United States, its products could be blocked from entering the United States.

“The relationship with the United States is a very critical one for Canadian companies,” Dr. Schotter says. “They can throw a curveball at activities in certain countries at a certain time, particularly with the new USMCA trade deal [United States-Mexico-Canada Agreement] and having to negotiate with someone as unpredictable as Donald Trump. That’s scary.

“Operating in countries with human-rights abuses could also alienate your existing employees as well as customers, or have a negative effect on employees you have working in that country. You may lose talent because people just don’t want to work for you anymore, or you may not be able to send someone to such a country to do business.”

He doesn’t expect a Canadian company selling water to China to have any issues, but says it’s much more sensitive for knowledge-based companies.

“I’m cautious right now about the political climate that’s happening in China and their use of technology in their surveillance of people [by their body shape and walk],” Dr. Schotter says. “The exponential rise in computing power and technology is enabling them to monitor individuals 24/7 in the remotest locations. That’s a dimension we don’t even imagine. What they’re doing is really straight out of the movies.”

Technology is also allowing Canadian SMEs to participate in the growing Chinese market via e-commerce operators such as Alibaba and JD.com without having to set foot in China, says David T. Fung, vice-chair of Canada China Business Council and co-founder of the Vancouver-based ACDEG Group of Cos., a global technology integrator.

He suggests there are now fewer reasons not to help Canada balance the lopsided Chinese surplus in Canada-China bilateral trade. As for human rights, he advises that SMEs moral compass in trading with China be guided by Canada’s interest. And he reminds Canadians not to be smug.

"Let’s trade with China on a win-win basis. China will sort itself out and catch up with Canada on the number of human rights it can implement in its territory. Seventy years ago, I would not have been allowed to enter Canada under the Chinese Exclusion Act. Canada has made enormous progress. Let the other countries have a chance to do the same without gloating.”