Bribery – the Dilemma

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Everyday U.S. managers in developing countries face the dilemma of furthering their business concerns in countries such as India, China, Russia and Mexico where bribery is commonplace while at the same time trying to ensure that they do not violate their companies code of conduct or worse the government’s Foreign Corrupt Practices Act (FCPA). It is a fine line they walk. This paper will help those managers by explaining what bribery is, why it is thought to be an issue, show recently where companies have bribed and been caught as well as offer suggestions that will enable the U.S. manager in Mexico to accomplish what bribery accomplishes but is not unethical or illegal or in violation of a company policy that prohibits bribery.

Bribery is the act of accepting or offering something of value where the person who accepts the bribe is expected to perform a service which goes beyond his or her normal job description. To be considered a bribe, the object of value must be offered and accepted with the understanding that the person who accepts the bribe will be doing something in return. Managers must also understand the cultural differences of the countries they are doing business in because they can sometimes lead to confusion. In some cultures offering payment for a service may be considered a bribe and in others, a failure to do so would be construed as offensive. For example, in the Middle East they have the concept of baksheesh which is from a Persian word meaning “present” and it is an integral part of daily life. Government employees use baksheesh to support their minimal government income and they are quite open about their requests and will quote customers a direct amount that it will cost to say pass through customs without inspection, get through a heavily controlled border or receive some other service. (What is Baksheesh?) A manager whose business is expanding into a developing country where bribery is the norm must be careful to ensure that the benefits will outweigh the losses. Bribery is prevalent in most Asian, African and Middle Eastern nations regardless of its legality. In some African nations bribery is a strong and common norm that overrides the law. In developing countries government workers have low salaries and high-ranking officials become wealthy or can supplement their salaries through widespread bribery which appears to be common and acceptable practice. (Saee, 2009) Some feel that bribery gives multinational corporations an unfair competitive advantage over those that do not use bribery. For example, in the case of Wal-Mart who allegedly paid over $24 million in bribes to obtain construction permits, their goal was to expand faster than any of their competitors in Mexico so that none would be able to catch up. (Josh, 2012) The Wal-Mart gains are impressive; they experienced a 12% sales growth in Mexico from 2000 to 2010 as compared to the same time period in the United Kingdom where they only averaged an 8% sales growth. But some contend that the gains are less impressive once the hidden costs are factored in. The hidden costs being that companies actually end up spending more time negotiating with bureaucrats since the hopes of a pay-off give officials an incentive to haggle over regulations. One study found that firms that paid excessive bribes spent about 30% more time with government officials than firms that didn’t and of course a U.S. firm needs to factor in that if caught bribing an official they face steep fines and even jail time. According to Bloomberg, citing a study released by the Business Coordinating Council’s Private Sector Economic Studies Center, companies pay about 10% of their earnings to corrupt officials. (Powell, 2012)

The problem is that emerging markets right now account for the bulk of the world’s economic growth, as well as about 30% to 60% of the revenues at many U.S. multinational firms. Throughout the downturn one of the reasons the stock...
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