Corruption In China

Essay by PaperNerd ContributorUniversity, Master's March 2001

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. Throughout this case there were many corrupt ways of doing business presented. One of the most common practices when negotiating large trade deals with foreign companies seems to be offering trips abroad. Offering trips is extremely popular when dealing with officials in China because they often do not get to travel abroad. If the trip includes learning more about the product, or the contract is always signed in a particular place, then the trip is perfectly legal. On the other hand, if you are just offering the person a luxury vacation for two weeks and all expenses are included then it is illegal under the Foreign Corrupt Policies Act because it is considered a bribe.

Many foreign companies request or demand something before they will sign a contract. They could ask that their child's U.S. education be paid for, that you give them an all expense paid trip, or they may just simply ask for money.

One MNC paid for a Chinese person's entire education, car, and all of their expenses. This is without question illegal and known as extortion. If the firm doing the deal refuses to meet the requests and demands, they may very well loose the contract.

The black market is also a huge problem. Foreign traders sell their products on the black market most commonly when their product is not allowed into the U.S. For example, the Chinese buy licenses to export their garments into the U.S. You can also buy inspection licenses on the black market to sell poor quality products. Seals with signatures can be bought for roughly two hundred U.S. dollars.

On the subject of inspection, subornation is also illegal, but common in foreign countries. One Japanese firm wanted to avoid having their industrial equipment inspected upon arrival into China, so they invited the CIB, Commodity Inspection Bureau, on an "inspection" trip to Japan. They offered the trip to get the officials to look the other way when their product entered into China.

Another corrupt policy in China is the redirecting of ships to the southern port to avoid high tariffs and duties. It is claimed that if you enter China through its southern port rather than the northern you can receive a fifty- percent reduction in duties, which by far exceeds the transportation cost. This is illegal on the customs side, but firms using the southern port are not paying the officials for these savings. Their behavior is more unethical then illegal. They know that they are doing something wrong, but they are not giving anything for this special consideration.

6. After some extensive research, I found it very difficult to find alternatives to bribery in the foreign market since it has become such a common practice. One alternative to bribery would be in the way your business is set up. Before you even enter into the foreign market, make it known that all of your contracts are to be signed in Hawaii, maybe even but your international headquarters there, so that a nice vacation is always included. It won't matter who the company is or what you are contracting; everyone doing business with you will have to go to Hawaii to sign the contract. It is perfectly legal to have such a stipulation, and it also looks very nice to the other side.

Another alternative would be to include a signing bonus. Set a deadline, although you need to watch what country you do this with because some look down upon setting deadlines, to when the contract needs to be signed. If it is done in the specified time frame, you should give a discount on the products being purchased. Everyone likes to save money and this would be a great opportunity to save those purchasing from you quite a bit. This is legal and would probably be respected my most except for those who do not like to pressured when it comes to time.

My final alternative to bribery is to simply give an honest offer, but not before you have done extensive research on all of your competitors that will also be giving offers. Try to set your price much lower than your competitors, but be sure that your firm is still making a profit. The lower price should be enough to attract those involved in the deal, unless someone else is offering a huge bribe to them.

Even though bribery may seem like the only way to close a deal, there are other honest ways of doing business. Whether you get a contract honestly or you loose one to someone else's bribe, there is still plenty of other honest business people out there and plenty of deals to make with them. Sometimes you have to draw the line and just say "No", even though you may loose a wonderful deal.