Doing Business in Emerging markets
Homework 2: Starnes-Brenner Machine Tool Company- to bribe or not to bribe
Silvia Mattei

1. Introduction to the main issue Corruption, bribery and other unethical behaviours are still one of the major concerns in International Business, influencing not only the companies’ performance in local markets, but also mining competition and the welfare of the countries in which this practices are considered part of the culture as such. In particular for very large international companies, with subsidiaries spread all over the world, to keep track of unethical practices may be difficult, as to maintain the integrity of the corporate culture in all the people involved in the organization, from the employees, sales managers and top management. Every country has a different culture, and every culture has its own level of tolerance against corruption. Since bad practices like bribery are well ingrained both in the countries’ culture, as well in the companies’ culture, it is evident that changes do not happen over-night, and to draft an anti-bribery policy and post it in the office blackboard is not enough. The aim of this paper is to analyze several perspectives on the topic, taking the reader into the discussion by giving him/her pro and cons by analyzing a specific company and his cultural and managerial issues when facing a period of internationalization and internal changes. 1.2 Company profile Starnes-Brenner Machine tool company is an international company situated in Iowa city, United States, that owns a small-one man sales office in Latino, South America, headed by a very successful man but with an unique style in his method of operating, called Frank Rothe. He has worked in Latino, one of the major Latin-America country, for a long time and he is going to retire in a short time, 8 months. Under the direction of a branded new CEO, the company is facing a period of radical organizational changes, shifting from being a merely exporter of machine tools to an international company that focus on world-wide operations, with the institution of several foreign divisions that have to be controlled centrally with specific focus on overseas operations. Part of the success of the company is due to the unethical practices carried out by Frank in Latino, where small bribes are part of the every-day business life since a long ago. But now he’s going to be replaced by Bill Hunsaker, that morally refuses to act unethically and is convinced that the business can be carries anyway without paying bribes. So, the company is changing directions in the formal structure, but is it actually committed to have also an internal restructuring, changing the practices through which the company operates in the local market and accepting the consequences that such choice carries?

1.3 The Latino context: Corruption in Latin America Latin America is still one of the country more involved in corruption practices around the world, as showed also in the study conducted by Transparency international, the global civil society organisation leading the fight against corruption. The 2013 report disclosed by the company on Corruption Perception index (CPI), that measures the perceived levels of public sector corruption in countries worldwide, scoring them from 0 (highly corrupt) to 100 (very clean), attributes a high risk of corruption to Latin America. Making a comparison with the previous years CPI, the situation seems like have not changed consistently, and this shows how persistent and deep is the issue, not only in the public sector, but also in the private one. Even if practices like corruption are hidden from prying eyes, in many countries of Latin America they are seen as informal rules: people know them, know that other people know them and they are used and they use them to strategically act in the local environment. The reasons why in Latin America the phenomena is so systematic and recurring are several, but in my opinion the most influencing one are: a complex and bureaucratic procedures and regulations, since grease are often used to lubricate and cut on long procedures; a confused and redundant legal system accompanied by a weak control and insufficient political will. But most of all the attitudes and conventions of the Latinos that do not reflect the extent of the problem, such that in the end bribery and greases are seen as a local custom situation
2. The 2 sides of decision making: ethics and culture
2.1 Frank: the local business man Frank has been very successful as foreign representative, even if he completely refused to act according to the company’s rule when they were not fitting him. He regularly paid bribes, or mordida, of different types while carrying the company’s operation when “he has to do it”, as he sees them as the normal and accepted way of carrying the business over there. This embodies one of the contradiction in adapting to the local culture of the country. His mentality is embodied in the “When in Rome, does as the Romans do” and he refuses to see unethical issues in the way he behaves even when he’s given evidence that these practices are illegal, or immoral. He thinks that bribes makes an economic contribution to the local community as they integrate payrolls, like tips integrate the wage of a waiter in the United states
2.2 Bill: the antithesis Bill is 36 years old, a good salesman and administrator and in particular he has the reputation of being fair and honest. He’s going to replace Frank in the new stage of internationalization of the company’s life, even if he never had foreign experience. But at the same time he has strong capacities as an organization man, believing in co-ordination and co-operation as key to success. When exposed to see Frank paying a small bribe to a local, he refuses illegal and unethical practices as a way to prosper the business, busted by the conviction to have the possibility to build an healthy and profitable business without incurring in them.
2.3 The best way of conducting the business: ethic or unethical? The question is whether Frank’s way of conducting the operations is creating a business grounded on truth, integrity, morality and honesty. I think this one are the best characteristics to build a business that is sustainable in the long run, even if it is necessary to face short-term losses due to a change zero-tolerance policy about bribery. The fact that bribery is a local custom should not be considered as a justification for it, and the managers should be the first to take steps against it. Can we allow a culture of deceit inside of our company? The answer for me is no. Bill embodies the right quality of a good manager for the business. In my opinion the best way of conducting a business is through integrity, that is doing the right thing even when no one is looking at you, and this is exactly what Bill wants to incorporate in the company’s culture. I think that it is important to achieve the goals, and that a person have to act in the best way to achieve this goals, but at the same time there must not be an attempt to achieve them at all cost. There are some limits that are dictated not only from morality, but also from the understanding that certain practices in the long run may hurt the company itself.
2.4 The important role of the ethical president: an alternative course of action “if he’s making money- and he is- then leave the guy alone”. This is how the former President at Starnes-Brenner reacted when he knew about Frank’s code of conduct, and this is not acceptable in an era of globalization and major concerns about corporate social responsibility. First of all because is not moral. Second, if the bad fact will come out in the next years, as it is probable since the company is internationalizing, then the whole image of the company would actually suffer, and in that case we are talking of both fines from the American authorities and lost in sales due to consumer imaginary about the company. But of how much money are we talking about? It is important to stress that Frank’s contribution to the company has increased over the year and his knowledge is fundamental to carry the business properly, so Bill’s responsibility in this sense is very high, as the company may suffer big financial losses under his control. He may be considered personally accountable and even fired if in the future the company’s financial position will go worse because of the-against bribery behaviour that is down to implement, so I think that one of the main course of alternative that must be implemented is a good understanding of his superiors about the profit losses that may derive from it. The President of the company should represent an example for everyone, stressing the importance of ethical behaviour, as it shapes the whole organization way of thinking and make people act in accordance to it. He embodies the corporate culture of the all organization and to make these efforts enforceable he should be understanding and tolerant in this sense, considering that short term losses that Bill may face in the short-term are made in face of long-term gains, in particular in a period of stronger international presence, as it will be explained in the next section.
3. Bribery in international Business In this section I will analyze whether in the Starnes-Brenner case is necessary or not to develop a set of anti-bribery rules in the face of the upcoming global expansions, giving pro and cons of these practices in the international environment, and lastly I will give recommendations about possible alternatives in facing the bribery dilemma.

3.1 The problem of bribery: market and competition Bribery is one of the most critical and challenged ethical issues in international business, and in particular in the last decade greater attention has been concentrated on the argument, as the concept of sustainable business has deepen and customers are more sensible to the subject. It is challenging because in my opinion is not only about ethic, or carrying the business in a good or bad way, but it is actually a technical problem in conducting businesses in situations where corruption and bribery is in the roots in the country’s culture and, I may be misunderstood if I say that is publicly accepted, but at least is tolerated more than in developed countries because of their own cultural heritage. When I say that it is a technical problem, I actually mean that some businesses in some countries may not survive and catch up with the competition if they do not engage in unethical behaviours and pay bribes to have access to fundamental channels necessary for the business.
3.2 Differences in bribery at Starnes-Brenner: government safety official and unloading at boarder Frank describes two different kind of bribery that take place in Latino, and they have a different ethical nature in my opinion. The first bribe takes the form of an extortion: it is a payment $1,200 per machine induced by a jefe, that is a Latino’s government office, to correct a “not-existing” defect before the actual sale. It is considered illegal according to the Foreign Corrupt Practices Act (FCPA) as amended by the Omnibus Trade and Competitiveness Act of 1988 The second bribe instead consist in a smaller amount that take the form of a kind of “tips” to the docks to speed the process of unloading the machines at the border. This is not considered illegal, but is not morally acceptable and is a waste of resources in conducting the business.

3.3 Pro and cons in bribery: why is better to avoid bad conduct at Starnes-Brenner Excluding for a moment that to bribe is illegal according to the US Foreign Bribery Act, and to different extent whether it is a grease payment or a bribe, it is possible to define pro and cons related to these practices. One positive aspect is that bribery help the business as it enables to guarantee contracts against competitors and, as in our example, it enables to have the service done more quickly and in a more efficient way, as in the case of grease payment at the border when they were transferring the machines to a Latino truck. Furthermore, bribes may help the local community and workers in case in which they do not receive an adequate remuneration, so they are seen as an integration to their payroll: this is not a justification for the first case of bribery instead, where it deals with public bribery and the involvement of Government officers in it. Another positive aspect is that Bribing helps to cope with slow and unclear bureaucratic procedures, that can damage the business efficiency and slow-down procedures. On the other end, bribery is bad, and it carries a long series of disadvantages and of long term consequences that may be out of control to the company at a certain point. First of all, bribery has been declared illegal in most jurisdictions, and bad conduct may lead either to a very big fine or prison term or bot. So the losses for bad conduct at Starnes-Brenner may be greater than the actual avoidance of bribery paying, damaging also the image of the whole company and of the executives responsible for it directly. Secondly, as it’s also the case in our example where they asked a second bribery for the same transaction, it represents a “vicious circle”, whose requests may increase over time and it is out of the control of the company, that will have to pay even amount out of their financial capabilities to get access to services or contracts.

3.4 bill’s two alternative actions to avoid bribery Since Bill is going to replace Frank, he has to decide his own course of action, and each carries a series of advantages and disadvantages 3.4.1Leave the Latino’s Business: one possible option available is to exit the Latino’s business and engage in other countries where there is no conflict of interest between the sales officer and the local culture. This option will make Starnes-Brenner losing one of his main business, but it is consistent with the new direction that the company is taking, allowing to maintain integrity of the people working for it and avoiding possible problems in the future when the company will get larger and the public attention will be more focused in its bad/good actions in conducting the business. 3.4.2 development and enforcement of a bribery zero-tolerance set of policies: When shifting from a business that engage regularly in this practice to a business that instead adopts a zero-tolerance policy is a necessary condition but it is not easy to implement, in particular if the practices have been carried out for a long period, widespread in all the layers of the business model and involving the all managers and employees of the organization. For this reason I think that a radical reshape of the organization is necessary to achieve this goal. In Starnes-Brenner, the change in both the president and the sales office head already represent a good achievement to develop a good set of anti-bribery rules, that must be embedded in the corporate culture and should be clear and transparent. As long as a good ideas without the proper communication are not going to work efficiently, think that it is of fundamental importance that the company creates an internal network with all the employees, to do not only clearly communicate the anti-corruption policy, but also to challenge all together the subject and understand why it has to be considered an unethical behaviour, despite the fact that is common sense and tolerated to conduct the business in many countries. The main advantage is represented by the higher control that the company can exercise when internationalizing. As opposed, implementing such set of policies may be very costly, as such the implementation, but in my opinion the cost associated with bribery (both as payment and as future legal consequences for the company) is much higher. 4. Conclusion Considering all the above facts and all the possible course of actions that can be taken, it is obvious that Bill will find himself facing critical dilemmas about bribery. The company is in the Latino business to make money, but if they keep on losing money the dilemma of bribe or not to bribe will still exist, and it could be rethink. But I think that with Bill’s right mindset about ethical behaviour, the right set of anti-bribery policies, a good implementation of the rules and the right communication to all the employees than the business will go on in an healthy way and, in addition, with integrity in the corporate culture, that is fundamental in today’s world business.

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