Bribery in international

BRIBERY IN INTERNATIONAL

MARKETING

Bribery in international markets is a fact of life that can lead to astonishment, bewilderment and misunderstanding for expatriates, at both organizational and personal levels. This article examines bribery from two viewpoints and tries to develop procedures to bridge them. The first viewpoint is relativist, accepting that different cultures have different ethical values and not imposing an expatriate’s values onto another culture. The second viewpoint is universalist, averring that ethics apply anywhere in the world, and is based on psychological and economic grounds. To resolve these two approaches, it is suggested that trying to understand the cultural forces that determine home and overseas’ attitudes to the many forms of bribery, is a first step to adjustment. The next step is the development of a global or regional code of conduct that allows flexibility within a ‘gray’ zone. The result could be an evolving code that adapts to the many dimensions of bribery for each country’s situation, in a manner that is a negotiation between the cultural, psychological and economic values of an expatriate’s organisation and of local officials.

Introduction

International marketing is complex because foreign environments are different from home environments; for example, they differ on physical, cultural, legalpolitical, economic, competitive and distributive dimensions (Ball and McCulloch 1996). Because of these environments, marketers can adapt parts of the marketing mix for each overseas country or region (Hoang 1997), for example, a company might alter its packaging, distribution channels and advertisements in each of its international markets. These marketing mix issues are not the only ones facing international marketers. Cultural management issues are important and bribery is the most important of these, at least for Australian and US marketing managers (Armstrong et al. 1990). For example, should a firm pay a customs official to process a shipment through normal channels? Should a firm pay education expenses in its home country for the child of a prince in an overseas country that the firm wants to enter? Shouldpayments to distributors be paid into two separate accounts when one is apparently illegal? Should funds in the public relations budget be paid to someone who appears to do nothing for public relations other than being related to someone in power? Issues like these are important to someone from a culture where these activities are unusual. 1937 Nevertheless, little research has been done on the ethics of international marketing (Armstrong and Sweeney 1994) and interest in ethical issues in general has been mainly empirical (Donaldson 1989). Moreover, levels of corruption vary widely around the world (shown in a survey of 52 countries by Transparency International (1997)). Furthermore, the issue of bribery in particular is often considered within only one of the six different environments above. For example, bribery is sometimes discussed in the legal environment chapter of a textbook (for example, Keegan and Green 1997) where the effect of the United State’s Foreign Corrupt Practices Act (FCPA) on that country’s ability to compete with Europe in international markets is covered (Graham 1984).

Alternatively, bribery is sometimes in the public relations part of a textbook (for example, Phillips Doole and Lowe 1994) where it is discussed along with concern about corporate citizenship and employee safety. In addition, bribery can be treated as a separate, ethical issue, usually based on cultural issues (for example, Donaldson 1996). However, the aim of this paper is to consider bribery from across several environments such as legal, cultural, economic and competitive, in order to develop a managerial approach to the issue. Our contribution is an integrated and up-to-date review of these several viewpoints in a form that international marketing managers might find useful. As well, our review is from a non-US view, while several other papers have a US view that is different from other developed countries (Donaldson 1996; Mayo 1992; Across the Board 1993). We conclude that managers can develop a code of conduct for the several dimensions of bribery that bridges the relativist and universalist views.

The paper has four main sections. Firstly, bribery in developing countries is looked at from Western expatriate eyes, to show the roots of bribery may be common to both. This leads into a cultural, relativist view of bribery, which suggests that bribery is appropriate if it is normal in the culture of an overseas country. But counter arguments to this relativist view are then presented, including psychological and economic arguments. Finally, facing these two contrasting positions, the paper considers how management could handle bribery. In this paper, bribery is defined broadly: “bribery is offering, or promising to pay, ‘anything of value’ to influence an act or decision by officials in a foreign government, including politicians, a political party or a bureaucrat to assist in obtaining, retaining, or directing business to any person” (based on the FCPA’s definition). This definition does not cover issues such as human rights (for example, child labor use), sexual harassment or industrial espionage. Our definition of dealing with officials about business matters is the one of major concern to marketing managers in particular.1938

Four Roots of Bribery

To a Western expatriate, bribery sometimes appears to be caused merely by the greed of locals, especially poor locals. But bribery has four, more complex roots which appear to exist in both Western and developing countries. First, a bribe can be likened to a “tip” to insure promptness at a restaurant. Just as a restaurant kitchen can sometimes have inefficient processes that require human involvement to overcome, so can the bureaucracy of a developing country. Bribes may be seen to be a way of ‘purchasing’ government services when a government cannot afford to provide salaries that are adequate for the service to be provided free to every person (Tullock 1996). Thus bribery may be a form of privatization that makes the wealthy who can afford it, pay for a service. Indeed, the relatively high-principled FCPA that tries to limit the involvement of US firms in bribery, actually permits payments to officials to do their normal duties while disallowing payments to high-level officials for special favors. For example, a US business person can bribe a customs officer to expedite an inspection but not to skip it altogether. But the next three roots of bribery may not be allowed by the FCPA. Second, a bribe can be considered to be a normal promotion activity. For example, BMW cars are provided free to family members of politicians in Western countries for the spillover effect on the prestige of the car. If the wife of the Premier of Victoria, Australia has free use of a BMW, why cannot officials in overseas countries who are close to real power also be given ‘gifts’ to help promotion? Similarly, many Western companies provide ‘corporate hospitality’ at sporting venues such as Ascot, Henley and Wimbledon in the name of promotion (Ramsay 1990). How is this promotion different from some bribery in developing countries? Which leads to the third root of bribery, which is related to the general idea of gifts to show respect and gratitude to a person in a relationship, at certain times. Gift giving is common at Christmas time in Western countries, and gift giving at birthday and holidays may serve the same purpose in overseas countries (Onkvist and Shaw 1997). As interactions between buyers and sellers proceed, a social relationship is developed that can be enriched by gift giving. ‘Social relationships are often characterised by the exchange of gifts and hospitality as trust develops between the parties… In seeking to build relationships of trust, the exchange of gifts may be seen as an entirely appropriate act of social bonding.’ (Wood 1995,p. 11)

Cultural View of Bribery

Implicit in the discussion above is a relativist, cultural understanding of bribery -‘that what is right or wrong, good or bad, depends on one’s culture’. But this argument implies that there are no ‘golden rules’ underlying most human behavior (Way 1996, p. 19), that is, one’s own culture is the major influence on views about bribery. This concept of culture therefore deserves to be explored further. Culture has five dimensions: the relationship between the individual and the collective group, power differentials within society, masculinity and femininity, dealing with uncertainty and Confucian dynamism (Hofstede 1991). Several of these dimensions influence views about bribery. The first dimension of individualism/collectivism would appear to be the most related to bribery (Tanzi 1995; in Onkvist and Shaw 1997, p. 175). Developing countries are more collective than developed countries, that is, officials place greater emphasis on their responsibilities to their own extended families and friends, than do Western business people.

However individualism/collectivism is not the only cultural dimension affecting bribery. Developing countries are often high on the second culture dimension of power distance, that is, people such as the officials with which marketing managers deal have major obligations to their supervisors. Thus the officials will support a bribery culture if it is related to power as some of the four roots of culture above were shown to be, and especially so if their own superiors accept and foster bribery. In addition, some Asian countries are more concerned with 1940 virtuous behavior than abstract truth (which is related to the dimension of Confucian dynamism). An official’s actual behavior toward his or her immediate and extended family, and toward friends and superiors is more important than abstract ‘universal’ values applying to all humans, to which some Westerners cling (Hofstede 1991). Onkvist and Shaw (1997, p. 175) appropriately sum up this relativist, cultural view of bribery: … the concept of arm’s-length relationships would seem strange and alien. It would even seem immoral. The idea that, economically speaking, one should treat relatives and friends in the same way as strangers would appear bizarre. In brief, a cultural view of bribery initially suggests that expatriate marketing managers should simply fit in with local bribery practices wherever he or she goes. But the cultural relativism approach to bribery developed above cannot be the basis for a marketing manager’s approach to bribery, because awareness of cultural differences is only the starting point for international cooperation. That is, a marketing manager cannot completely adapt to a different culture and deal in bribes with no regard for his or her own cultural values, for an appreciation of another’s culture does not mean forgoing one’s own culture. ‘Successful intercultural encounters presuppose that the partners believe in their own values. If not, they have become alienated persons, lacking a sense of identity’ (Hofstede 1991, p. 237). To handle the issue of bribery comprehensively for a real world person involved in business, managers need to consider issues other than cultural differences per se, and we turn to these relatively universalist issues next.

Economic and Managerial Issues of Bribery

Economic advantages of bribery for the receiving official and for the company that receives preferential treatment ahead of its competitors, are obvious. However, there are economic disadvantages for both the taking and the giving country. First, bribery can send incorrect signals about demand price and supply cost in a market economy. More directly, bribery adds to the cost of contracts and goods by five percent in Asia (Kraar 1995), perhaps even more in some instances. Second, it distorts the decision-making processes. When contractors are selected on the basis of what the decision-maker will receive personally rather than the contractors’ ability to do the best, lowest cost job, then the whole economy suffers misallocation of resources. This form of bribery was perhaps a major influence in the recent meltdown of some Asian currencies. Thirdly, bribery can lead to industrial standards being dropped with social and economic repercussions upon the firm. For example, workers may work in substandard conditions that may impair productivity, people may die in buildings that collapse because building standards were not met, and the environment and firm’s future may be hurt by over-zealous timber-felling. 1941 Moreover, there are other disadvantages of bribery that are particularly important for the giving country. First, home and foreign customers help pay for ‘uneconomic’ spending in bribes, often for the enrichment of a few overseas individuals who become more wealthy than ordinary citizens of the giving country. In 1995, bribery cost business almost $45 billion worldwide (Kaltnhauser 1996). Second, bribery could be used against the giving organisation, for example, managers returning to the home country and rejoining the salesforce at home could accept bribes for practices that the giving organisation does not want done at home. That is, a relativist position that allows a match between expatriate individuals and the ‘corrupt’ organizations overseas, may also foster at home the separation of personal and organisational moral standards, with consequences at home that the organisation does not want.

In brief, bribery has economic and social disadvantages that a purely cultural understanding leading to a relativist attitude to it, may hide.

How Can Managers Handle Bribery in a Competitive Market?

Given the two contrasting views about bribery above, what can managers in a non-US company do to bridge the gap between a relativist and a universalist approach to ethics? What managers in a US firm do is clear from US textbooks: they obey the FCPA or get around it by channeling funds through an agent who then handles the bribery behind a screen. Some managers might try to offset a competitor’s bribe with a better, total product – ‘You might offer a lower price, a better product, better distribution or better advertising to offset the benefit of the bribe to the decision influencer’ (Keegan 1989, p. 201). This US position is an ‘idealist’ position that many non-US managers may not adopt, for it assumes that the better, total product will win the contract, when in fact bribery occurs to oftentimes successfully ensure that it does not. Moreover, competing firms from European countries and Australia are allowed to treat bribes as a tax-deductible business expense, reducing the after-tax effect of the bribe. In April 1996, the OECD passed a resolution saying bribes should not be taxdeductible and in 1993, Transparency International, a not-for-profit organisation with chapters in 40 countries, has tried to increase awareness of bribery’s existence, but anti-foreign bribery legislation outside the United States does not yet exist.

Moreover, one is never sure of the level of bribes that competitors are offering for a project, and so deciding on how much to improve the total product to fight bribery is difficult. In addition, bribery is sometimes paid for day-to-day operations as well as a project, and so discussion of a better, total product may be of limited usefulness. For example, if bribes are not paid by one firm, it may experience bureaucratic delays on wharves and in warehouses and its goods may 1942 be stolen, while its bribe-paying competitors do not experience these costly problems. In brief, curbing bribery from an idealistic position may be quixotic until the United Nations or a similar organisation arranges for a multinational, legal approach to it. Given the present, imperfect world within which companies operate, some more options to handle bribery are available. One option is to choose to internationalize into the less-corrupt countries. Examples of corrupt countries are China, Indonesia and India, which are rated among the most corrupt countries to do business in the world after Russia; indeed, corruption in Indonesia…”is almost a way of life”. Only Singapore is more squeaky-clean than most Western countries (“Hard graft in Asia” 1995, p. 61).

Organisation code of ethics. There is another option to approaching the ethical gaps in international marketing. Firstly, within the home firm, managers could develop an organisation code of ethics for any non-home country within which it operates, or maybe for a particular region of many countries. For all these countries, this code would outline the degree of standardisation and adaptation in each of eight or so dimensions of bribery such as expediting bureaucratic processes, promotion, corporate hospitality, gifts, dual prices, wage rates, occupational health and safety standards, and lobbying to influence government policies. The code would take into consideration the cultural, legal-political, economic, competitive and distributive environments of each foreign market and the home organisation. For example, it might specify when bribes appear on an invoice and when they may not (adapted Cadbury 1987). Moreover, acknowledging the greatest differences between an expatriate’s and his or her home organization’s ethical systems, and the local environment’s ethical standards, this code might specify when some purchases or tenders are outsourced away from the organisation to a local agent. familiarization tour of the home organisation would help home country managers appreciate overseas operations, and helping with scholarships to home country universities would foster long-term links when the students return. Of course, managers need to know relevant national and international laws or hire reputable lawyers who know local laws and customs. Although local legal and judicial systems can be ‘underdeveloped’, flawed and flouted (for example, with bribes), a firm may have in its global code that local laws will always be observed, even if only because of the risks involved in flouting them, even though competitors may be prepared to take the risks. Finally, to help implementation of the code, the organisation could institute and code of ethics sensitization training before managers enter an overseas country and when they return, based on cross-cultural sensitization sessions like those discussed in Hofstede (1991, p. 232). Ethics audits could also be carried out, emphasizing improvement and learning about the processes used like TQM continual improvement programs do. These audits would foster an evolving awareness of ethical considerations for each of the eight dimensions in a particular organisation and in a particular country.

Conclusion

Bribery is a fact of life in international marketing that can lead to astonishment, bewilderment and misunderstanding for expatriates at organizational and personal levels. Two viewpoints about bribery were examined. The first viewpoint was relativist, accepting that bribery has the same roots in Western and other countries and so different ethical systems may be simply the result of different cultural values. In contrast, the second, universalist viewpoint is that a set of ethical values applies anywhere in the world, based on psychological and economic grounds. To bridge these two views, it was suggested that trying to understand the cultural forces that determine home and overseas’ attitudes to the many forms of bribery, is a first step to adjustment. The next step is to develop a global or regional code of conduct that allows flexibility within a gray zone for some situations in particular countries, based on win-win adjustments. The result could be could be an evolving code of conduct that adapts to the many dimensions of bribery for each country’s situation, in a manner that is a negotiation between the cultural, psychological and economic values of an expatriates’ organisation and of local officials. 1945

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