The Bribery Scandal at Siemens Ag

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1.

• In your opinion, is “bribing” unethical & illegal or just a cost of doing business? Discuss this in light of Siemens’ bribery scandal.

We believe that bribing is unethical because it takes away the fairness of a business transaction between bidders of a contract. Bribing also has a negative impact on competition because it allows for oligopolies and monopolies to emerge in an industry due to smaller competitors being unable to financially compete with the amount of the bribes. This in turn  creates a barrier for entry for prospective companies and promotes the oligopoly or monopoly in place. The lack of competition affects consumer choice by reducing their options which then stifles innovation within the industry as there is no need to generate a competitive advantage to attain customers. The legality of bribing depends on the laws of the home country that the business is based from. For example, Siemens is a German based business and German law states that bribing officials of another country to win business contracts is illegal. So, under German law, Siemens was guilty of bribing an official when it bribed employees of the Italian company Enel to gain a contract as Enel was 68% owned by the Italian government. The counter-argument is that bribing is the cost of doing business. We disagree with this because the economic benefits gained from bribing are not outweighing the cost to a company’s reputation. As we see in this case, Siemens paid a 6 million euro bribe to secure a contract valued at 450 million euros which would seem like a cost of doing business for Andreas Kley and Horst Vigener but the legal and political cost almost triple the value of the contract in euros and a loss of reputation. These executives were fortunate to escape imprisonment for the illegal actions that were committed. A company must avoid bribing government officials to win business contracts however they can ask their own government for some type of aid in the situation. We believe that having your home government involved in fostering or mediating the trade relationship with another company can potentially give better results than bribing. Siemens should have gone on a business trade mission with German officials to another country because trade missions can help form a relationship and are sources of contacts which are valuable tools to win business contracts.

• What options do companies have to win business contracts without bribing, especially in foreign countries?

Companies can use a combination of a number of alternatives to gain a business contract without violating the law. Internally, the organization can build a better product through investing money into research and development which would then provide them with a competitive advantage to entice other businesses to choose them over a competitor. Externally, the organization can (1) contribute to the host country, (2) use complementary relations, (3) establish the status as a market leader, (4) provide attractive business trade agreements, (5) offer outstanding business intelligence, and/or (6) differentiate service with quality contractors. Contributing to a host country would include assistance in a country’s development in terms of infrastructure, job generation, investments, and through imports. The use of complementary relations is a common practice in the business world. An example would be the relationship between car manufacturers and host countries. For a foreign company to enter the Chinese auto market, they need to establish a joint venture agreement with a local car manufacturer. It is a policy that the Chinese government imposed to protect the local auto business from strong foreign competitors. (source cited http://factsanddetails.com/china.php?itemid=349&catid=9&subcatid=62 ) Establishing the status of a market leader is less risky for a company with strong sales and a promising market for its products. This can...
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