Question

In countries where corruption is part of culture norms, to bribe or not to bribe could be a question (or a challenge) for business. Some U.S. managers argue that not to follow local norms may reduce U.S. business’s competitive advantages in foreign countries. What is your take on this statement?

Can you think of any alternatives to paying bribes in international markets? Please discuss the pros and cons of each.

Answer 1

Basically our learning Objective is given below,

1.Understand the potential benefits of competing in international markets.

2.Understand the risks faced when competing in international markets.

The United States, as a single country, has the world’s largest economy. Collectively, the European Union (EU) has a higher GDP than the United States, but of course it is composed of a group of nations. As an illustration of the power of the American economy, consider that, as of early 2011, the economy of just one state—California—if it were a country, would be ranked eighth largest in the world, between the UK and Russia. The U.S. capacity for production of manufactured and agricultural goods is far greater than can be consumed in America alone or NAFTA (North American Free Trade Agreement; includes Canada, Mexico, and the United States). As a result, the overall size of the U.S. economy has led American commerce to be very much intertwined with international markets.As primarily a trading nation, Canada has also benefited from the rapid growth in international trade and globalization. Given our immense shared border with the United States, it is not surprising that Canada and the U.S. are each others’ largest trading partner, and the world’s largest trading partnership. In fact, it is fair to say that every Canadian business is affected by international markets to some degree, although services are typically affected to a lesser extent. Tiny businesses such as individual convenience stores and clothing boutiques sell products that are largely imported from abroad. Many Canadian manufacturing firms would be hard pressed to produce for only the Canadian market, as the volumes of potential sales would not allow them to achieve economies of scale. Many large corporations, on both sides of the border (e.g., General Motors (Canada), Coca-Cola, Blackberry, and Microsoft) conduct much of their business internationally .

When a large corporation decides to enter a foreign market, it must usually secure a number of licenses, permits, registrations, or other government approvals. Certain types of business may be even be impossible or illegal unless the corporation is first able to obtain a change or adjustment to the nation’s laws or regulations. Since the power to authorize the foreign corporation’s activities is vested in the hands of local politicians and officials, and since corporations have access to large financial resources, it should not be surprising that some corporate executives resort to financial incentives to influence foreign officials. While certain financial incentives, such as promises to invest in local infrastructure, may be legitimate, any form of direct payment to the foreign official that is intended to influence that official’s public decisions will cross the line into illegal subornation, also commonly referred to as bribery.

Bribery is one of the archetypal examples of a corporation engaged in unethical behavior. A number of problems can be attributed to business bribery. First, it is obviously illegal—all countries have laws that prohibit the bribery of government officials—so the foreign company engaging in bribery exposes its directors, executives, and employees to grave legal risks. Second, the rules and regulations that are circumvented by bribery often have a legitimate public purpose, so the corporation may be subverting local social interests and/or harming local competitors. Third, the giving of bribes may foment a culture of corruption in the foreign country, which can prove difficult to eradicate. Fourth, in light of laws such as the US Foreign Corrupt Practices Act (FCPA) and the Organization of Economic Cooperation and Development (OECD) Convention on Anti-Bribery (discussed in greater detail below), bribery is illegal not only in the target country, but also in the corporation’s home country. Fifth, a corporation that is formally accused or convicted of illicit behavior may suffer a serious public relations backlash.

Despite these considerable disincentives, experts report that worldwide business corruption shows little signs of abating. Transparency International (TI), a leading anticorruption organization based in Berlin, estimates that one in four people worldwide paid a bribe in 2009. It appears that the total number of bribes continues to increase annually. The World Economic Forum calculated the cost of corruption in 2011 at more than five percent of global GDP (US$2.6 trillion) with over $1 trillion paid in bribes each year.1

Governments and intergovernmental organizations have redoubled their efforts to combat the perceived increase in international business corruption. Globalization, which accelerated in the final decades of the twentieth century, is often cited by specialists as contributing to the spread of corruption. Corporations and businesses in every nation have become increasingly dependent on global networks of suppliers, partners, customers, and governments. The increased interaction between parties in different countries has multiplied the opportunities for parties to seek advantage from illicit incentives and payoffs. Although outright bribery is clearly unethical and illegal, there is great deal of behavior that falls into a gray zone that can be difficult to analyze according to a single global standard. When does a business gift become a bribe? What level of business entertainment is “right” or “wrong”? Over the past two decades, governments and regulators have sought to clearly define the types of behavior that are considered unethical and illegal.