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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.

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Apr 15, 2004


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