COMMENT To bribe or not: That is the question in
China By Li YongYan
BEIJING -
What does it take to compete successfully in China's
market? Is it advanced technology, presence, post-sale
service, price or a combination of all of them? All
correct, but off the mark, because the ability to come
out ahead in China's business arena depends first and
foremost on guanxi, or relationships, with your
clients. Okay, you say. So let's go and develop
guanxi with them. It cannot be more difficult
than developing the next generation of high-performance
chips and airframes. The sales manager has an expense
account, too.
Unfortunately, relationship
cultivation in China is not about entertaining a few
local procurement managers in a Beijing roast duck
restaurant. It takes a great deal more than a lavish
dinner or free trip to visit your plant in Seattle or
New Jersey. As China's market grows in volume and
importance for an increasing range of products, so does
the appetite of those purchasing managers who already
have eaten it all and seen it all. Now they want it all.
Between the greedy clients and the eager vendors, the
line separating legitimate corporate gifts and illegal
bribes becomes so blurred that ethics and profits are
mutually exclusive.
Last week, Lucent
Technologies Inc, a United States telecommunications
equipment manufacturer, took an unprecedented
house-cleaning step by purging its China operations
president, chief operating officer, a marketing
executive and a finance manager. These four executives
were held responsible for "internal control
deficiencies" involving the US Foreign Corrupt Practices
Act, Lucent said in a filing with the US Securities and
Exchange Commission. The nature of the "deficiencies"
was not disclosed but Lucent said it uncovered problems
in audits conducted in its operations in 23 foreign
countries, including Brazil, China, India, Indonesia,
the Philippines, and Russia, among others. The Foreign
Corrupt Practices Act makes it a crime to acquire
business deals through bribes in foreign countries.
Obviously Lucent has learned its lessons well. A
high-flying telecom player in the soaring 1990s, it
crashed hard after the irrational exuberance evaporated
in 2000 and angry investors sued the company for
financial frauds and disingenuous accounting practices.
Last year, the company was forced to settle the lawsuits
with more than US$500 million.
Lucent's
dismissal of the four top managers underscores a dilemma
facing all self-respecting multinational companies doing
business in China. On one hand, China is seen as large
potential market for products ranging from commercial
aircraft, fiber lines to pulp and iron ores. On the
other, this market also presents difficult challenges in
political, legal, regulatory and cultural areas. For
example, every marketing handbook begins with a chapter
on the importance of learning about, and adapting to the
local conditions and climates. There is no secret here:
when in Rome, do as the Romans do.
The mare
won't run on an empty stomach Exactly how do the
Chinese do it? Tip No 1, your Chinese partners and
employees will tell you, is a Chinese proverb: There is
no such thing as a mare that runs on an empty stomach.
Tip No 2 is another proverb: power is like a ticket with
an expiry date - use it while it is still valid. The
problem is, those powerful horses are always hungry -
for things that your company policy and especially your
own national and local laws forbid. Free trips to Las
Vegas are so yesterday. Now those hungry horses
want their young colts to get a job in your company, a
kickback in an offshore account or cold hard cash under
the table.
A hard choice arises. If you join the
force that you can't defeat, you violate anti-corruption
laws like the US Foreign Corrupt Practices Act, and open
yourself to blackmail as well as investor lawsuits. If
you refuse the corrupting influences and assimilation,
you will lose business opportunities and demoralize your
local troops who, having been immersed in the culture
all their lives, will regard this refusal as a lack of
understanding and support from an excessively demanding
and naive management. Your troops will tell you that
corruption is so widespread and deep-rooted that bribery
has become the grease that oils the wheels, the grain
that makes the mare go - a way of life - and certainly
an unwritten rule in Business 101 in China. "Everybody
does it."
It is all very true. But at the end of
the day, one will be better off more often than not to
resist temptations. Look at those Wall Street power
houses that were forced to cough up billions of dollars
in settlements with government and investors over shady
deals. And ask those former Enron and Drexel Burnham
Lambert executives who walked into court in handcuffs.
Keep in mind, too, that political instability in lesser
developed countries brings about dark uncertainties. In
the late 1960s, as soon as Colonel Muammar Gadhafi
seized power of Libya via a coup, he expropriated an oil
concession of an American investment group, on the
grounds that it had been obtained through illegal
practices. Using similar tactics, he went on to
nationalize 51 percent of the concession Occidental
Petroleum had bought with bribes to officials in the
previous regime. Honesty may not always pay. But
crime sure costs. The good news is that a foreign
company can expect to get a piece of business and still
keep itself clean and honest. One way of doing that is
to excel in your technology and improve your services.
Even the most corrupt customer needs safe airplanes and
reliable communications lines. Another cause for
optimism is that starting May this year, SA8000
standards, or social accountability certification, will
be widely implemented through the business sector in the
world, bringing further pressure on less inhibited
countries. For sure, clashes between different
civilizations will continue. Meanwhile, it will be
interesting to see which side will prevail. Either
outsiders succumb to local practices or the natives
adopt a new set of standards for conduct.
(Copyright 2004 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
Apr 15, 2004
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