Question

A large retailer such as Tesco possesses power over smaller suppliers. Tesco could force these suppliers to sell on payment terms that were well beyond a typical industry norm. In your opinion is there any ethical issues involved in such practice?

Answer 1

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Tesco wants to keep the terms in their own favour (just like any prudent business wants to do). To do this it will pay late to the supplier and may be at discounted rates.
As it will be paying later to the suppliers it's cash cycle will decrease as the day's payable outstanding increases.
It will improve the liquidity of Tesco, which in turn will improve its working capital management and day to day operations.

The supplier will face the exact opposite of what Tesco gains. Its cash conversion cycle will increase. It will have liquidity problems and maybe a liquidity crunch. The suppliers needs to have more capital as working capital, which will, in turn, increase their day to day operational costs because of interest on additional capital.
If Tesco forces additional discount then it will harm the supplier still more.


Are there ethical issues involved?

Yes,
Because business needs to be done on fairgrounds. Ethically what's the use of such a profit and business which comes from the loss of others. The best situation in the business is the Win-Win Situation. Suppliers are also stakeholders of the business. In business, we should also make a profit and also ensure the profitability of the stakeholders. Relationships are very important in business. That's why Tesco may keep its supplier's policy harsh but it should NOT keep it predatory.