Faculty of Law & Management Graduate School of Management

CORPORATE GOVERNANCE

Lecturer: Richard Underwood

Individual essay

Bribery, giving and taking, is an unfortunate consequence of engaging in international trade but is necessary to pursue an organization’s objective of maximizing return on investment.

Student name: Vu Thi Hoang Yen

Student ID: 15994331

Bribery in international trade has become increasingly popular all over the world. When engaging in international trade, many businesses have to concern about whether bribery is an effective way to reach their target of profits maximization. This essay will discuss about the impact of bribery on organizations’ profits in international trade. The first part will explain the definition of bribery in international trade and provide some fact and figures about the popularity of bribery in business today. The second part will investigate how bribery helps organizations to maximize return on investment. The final part will look at negative influences of bribery on the performance of the business

According to The Organization for Economic Cooperation and Development (OECD) (2009), bribery is a specific form of corruption that can be defined as the voluntary giving of something of value to influence performance of official duty either by doing something improper or failing to do something they should do within the authority of their position. In the international business, bribery is regarded as action that one business firm from one country offer monetary or non financial inducements to officials of other country to win a commercial benefit. OECD (2009) reported that any business sectors where technical know-how is a key element can find corruption in operating. Some of industries, such as construction, mining or gas and oil, as well as some public works are sectors that might be prone to bribery. The bribes such as monetary, material or social assets were given the government officials of the host countries by foreign companies which were willing to obtain a contract or a project to export or invest in those countries (Hung En-Sung, 2005). Bribery appeared in doing business abroad from mainly firms which belong to emerging economic giants, such as Russia which country was orders the last place on the 2008 Bribery Index, or China with a score of 6.5 out of a very clean 10, just above Russia (Transparency International Report, 2008). From one of the United State Export Strategy Report, it was showed that 80% of all contracts were made decision by bribery. (Scott et al, 2002). Due to its increasing rapidly, the OECD Working Group on Bribery in International Business Transactions, which is invented of the 30 OECD countries and 8 other countries who have accepted to sign the OECD Bribery Convention on Dec 9, 2009, to establish new measures, will emphasize efforts to eradicate, detect, investigate and punish foreign bribery (Kavanagh, S, 2010).

In the fact, bribery has brought frequent benefits to foreign firms that go ground to achieve their targets for three reasons. Firstly, the use of payments helps international companies to win good business opportunities, especially when they operate in the countries that bribery became a part of compensation system. Admittedly, paying bribes may be widespread and accepted as cultural norm in certain countries. For instance, the practice of bribery has traditionally been quite regular in Russia in the mid-1990s (Sanyal,R., 2005). Although most foreign enterprises are aware of the wrong of the bribery, they yet engage in it because simply “everybody do it”. If they do not connect in buying-off, there will be numerous other similar companies who will be ready to do it, as a consequence that they will lose the business opportunity and competitive advantage. A highlight example from BP operating in Angola in 2001 was cited by Bailes,R. (2006). Because of pressure from some domestic firms, such as Sonangol - the Angolan State oil company as well as the presence of other large firms for example Exxon-Mobil, Shell in the offshore oil of Angola, BP have to play their rules, otherwise they will get out. Consequently, BP made decision that they would establish all the payments for Angolan government to obtain the operation trade there. It is easy to understand their announcement that is because if they do not accept, their plan can not simply complete. Some firms who refused to engage in payoffs lost a number of good opportunities and some beneficial contracts. Take the US firms as an example. From 1994 to 2001, it was estimated more than 400 international business contracts which US firms was defected to by other foreign competitors that could use bribery to obtain (Hung En-Sung, 2005). In spite of the fact that US firms could be unlikely to have a weak standard of competitiveness, they resigned going out of the game because of disagree on paying bribe.

Secondly, some international firms reduced considerable costs in doing business due to paying bribes. According to Sanyal,R.(2005), economic factors is one of determinants of bribery which lead to lower the costs of doing business. As a result of the fact that in the process of entering another foreign market, the company faced difficulties such as high taxes, regulations of the country, customer duties or import quotas. As can be said by Rose-Ackerman, S. (1999), the practice of giving bribes seemed to be a way to avoid greater harms. Thus, the managers of multinational companies might have engaged in bribery which they could offer gifts to officials of the country to take the remission of the procedures when importing a product in that country. Lovell,S.et al (1998) also assumed that bribery might have been a economic necessity because it made a contribution in start-up cost lower. For that reason, bribery was regarded as a component of firm’s international business strategy.

Thirdly, some companies believed that bribery is to build relationship with international partners. For example, in China, bribery that is considered as the concept of guanxi is as integral part of their business in order to build friendships and relationships (Pedigo,R.L & Marsholl,V., 2009). Some foreign firms agreed with the ethical values of others when they want to find business relationship. They considered the use of bribery in some countries where have the high tolerance of corruption as the respect of the cultural of those countries, which was called “when in Rome do as the Romans do”, so they do it for better transaction. Most of foreign companies who tend to create a long-term partnership with some Japanese enterprises might have to engage in bribery because gift-giving was familiar with local custom that giving and taking gifts was a measure of reciprocal thanks (Pedigo,R.L & Marsholl,V., 2009). Research studied by Zurawicki.L & Habib.M (2010) indicated that foreign investors can gain from the variety of partnerships with local business through using bribery.

In short, the practice of giving and taking bribes might have brought numerous benefits for international transactions of the companies, which are to take advantage of competitiveness, to reduce costs and to build many better relationships with foreign partners.

On the other hand, bribery has been negative influences on the business performance of firms. First and foremost, dependence on bribery to gain business advantage in the enterprise can make the foreign firms not positively focus on improving product quality, services, management processes. Then, it could lead to less competitive, in the long term affect the business results. As a consequence of negative side of bribery, Srivastava, C. P. (2001) believed that bribery might have been a heavy economic cost, as well as raised transaction costs and twisted the operation of fore market In addition to this, although some researches considered bribery as an essential part of the doing business, Bailes,R (2006) indicated that it might be unsuitable strategies. If bribery appeared in the past, it seems to be continued in the future. Consequently, the costs of companies can not be truly reduced, which would be rising in operating. Besides, it raised pressures for the managers who always have to make appropriate decisions to bring the sale for their company.

One more consequence is to affect to firm’s reputation. If the company that engaging in bribery is defected, they will have negative relations with the trustful ness of their partners as well as the loyal of their customers, thus, it lead to decline their profits and their brand name. Take Lockheed Martin Corporation as an example, Lockheed Martin’s bribes in Europe and Asia were wiling to achieve competitive advantage over Boeing and Grumman. As a consequence of the scandals, not only lost Lockheed Martin more than that they earned, but they themselves also decrease their reputation in global environment. In business history, Lockheed Martin case appeared as a red flag to other US firms who can be likely to exposure the use of bribery as an activity in their business strategy abroad (Scott et al, 2002). Admittedly, a reputation seems to be a competitive advantage as well as gain which can make a profit for enterprises in the future.

Last but not least, the foreign companies are likely to face heavy losses about the cost when their bribery practice was detected. The paying bribes might have seemed as a small value for the business to pay to win the sale, the judgment, however, that was rewarded was more than double the earnings that the corporation got in the bargain. Many companies have to pay higher value than the amount of paying bribes such as two companies again coming from US. Lockheed Martin Corporation, as mentioned above example, was also fined $24.8 million for $1 million in bribe to an official of Egyptian government because of the sale of three Lickheed aircrafts to the Egyptian air force. Similarly, Napco International Inc., was one of the first foreign military sales company, had paid $1 million in penalties because they offered $130,000 to governmental officials of the Republic of Niger in order to win the contract of the aircraft service that significance approximately $3 million (Scott et al, 2002). Furthermore, base on the ethical standards for corporate, Scott, et al (2002) argued that bribery is criminal status. The use of kickbacks and illicit payments to obtain competitive advantage are considered as stealing from which a company captured the business of others and lack of responsibility for community and competitor. Nowadays, most the governments and organizations such as OECD Anti-bribery Convention and Transparency International have made some efforts to criminalize bribery and diminish out of control corruption in world economics.

In conclusion, bribery has been a wrong business and unnecessary to appear in operating business because it negatively may affect the equity among international business transactions. Actually, the use of bribery to obtain contracts and sales in foreign countries has arisen as a new barrier to free and fair trade. Giving and taking bribe should be also viewed as reaching unfair business advantages against competitors among foreign enterprises and breaching personal ethical. Some large international firms who refused to offer any kinds of bribers found numerous losses of business opportunities and most of the beneficial contracts. Thus, it can be assumed bribery as illegal. In globalization, all of the foreign corporations need to approach a cleaner commercial transaction and become a fairer and more honest competitor in trade in cross country. The relationship among different parties should be based on four characteristics, which are the most important in the international market, namely integrity, mutual trust, respect and honesty. That is a long term business relationship without wrong behavior, which international transactions have to obtain in globalization. It is necessary to continue making some efforts for the fighting bribery; in particular, the intervention of all of the governments and international organizations plays an important role in the success of the combating.

REFERENCES

Bailes,R, 2006, ‘Facilitation payments: culturally acceptable or unacceptably corrupt?’, Business Ethics: A European Review. Vol 15, No 3, pg 293-298

Hung-En Sung 2005, ‘Between demand and supply: Bribery in international trade’, Crime, Law and Social Change, Vol 44 (1), pg 111. [Online] Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 1061477961. Access date: August 22, 2010

Kavanagh, S, 2010, ‘OECD Recommendations on Bribery Include Strong Push for E & C Programs’, Federal Ethics Report, Vol. 17 (2); pg. 1-3. [Online] Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 1973236031. Access date: August 22, 2010

Lovell, S, Ledeneva, A, & Rogachevskii, A, 2000, Bribery and blat in Russia: negotiating reciprocity from the middle ages to the 1990s. Published in Basingstoke: Macmillan in association with School of Slavonic and East European Studies, University of London, pg 273

OECD 2009, Bribery Awareness Handbook for tax examiners, viewed August 20, 2010

Pedigo,K.L & Marshall,V, 2009, ‘Bribery: Australian Managers’ Experiences and Responses When Operating in International Markets’. Journal of Business Ethics, Vol 87 (1), pg 56. [Online]. Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 1736409461. Access date: August 15, 2010.

Rose-Ackerman, S. 1999, Corruption and government: causes, consequences, and reform. Published in New York: Cambridge Unversity Press

Srivastava, C. P. 2000, Corruption: India's enemy within. Published in New Delhi: Macmillan India, pg 194

Scott,J, Gilliard,D. & Scott,R. 2002, ‘Eliminating bribery as a transnational marketing strategy’, International Journal of Commerce & Management, Vol 12 (1), pg 1-17, [Online]. Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 124923281. Access date: August 15, 2010

Sanyal,R. 2005, ‘Determinants of bribery in international business: The Cultural and Economic Factors’, Journal of Business Ethics, Vol 59 (1-2), pg 139, [Online] Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 876465961. Access date: August 15, 2010

TI Report 2008, Emerging economic giants show high levels of corporate bribery overseas, viewed August 20, 2010

Zurawicki, L. & Habib,M. 2010, ‘Coruption and Foreign Direct Investment: What have we learned?’, International Business & Economic Research Journal, Vol 9 (7), pg 1-9, [Online] Available: ProQuest databases. La Trobe University Library. ProQuest document ID: 2094772081. Access date: August 15, 2010