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Home >> Business
UPDATED: 15:04, November 17, 2006
Commercial bribery--foreign companies adapt to local market in wrong way
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When former bank head Zhang Enzhao was given a 15-year sentence for corruption, the news made headlines, but Zhang was not the only guilty party. U.S. computer giant IBM is also embroiled in the scandal.

Zhang, former chairman of the China Construction Bank, was accused of taking a 4.15 million yuan (520,000 U.S.dollars) bribe to arrange loans and facilitate contracts. IBM was only one of a number of foreign companies which had secret deals with Zhang.

When IBM CEO Sam Palmisano visited Beijng this week, he was happy to speak about the company's newly-inked one-billion-dollar contracts with China, but shied away from questions about IBM's offer of 225,000 U.S. dollars to Zhang Enzhao to win an order from the bank for financial software.

Corruption is widespread in Chinese business and the multinationals that swarmed into the Chinese market to seek their fortune when the country opened its doors, must bear part of the blame.

Multinationals were hailed for introducing concepts of market-driven competition and business fair play, and for bringing in capital, but it seems that many of them have adapted to the local business environment in the wrong way.

Before the scandal came to light, Sam Palmisano said that IBM's two biggest challenges were churning out high value added products -- and dealing with bribery.

Big Blue is not the only foreign company caught up in a raft of business scandals involving foreign investors, bankers and government officials in China.

A survey launched by Anbound, a Beijing-based information consultancy, shows that foreign companies were involved in 64 percent of the 100,000 corruption scandals that have been investigated in China over the past ten years, and the number keeps rising.

As China has opened to the outside world, foreign investors with an eye for an opportunity have flocked into the untapped market and learned as quickly as they can to adapt to the local business environment... and its invisible rules.

Cash, property and luxury gifts for local companies and officials have been viewed by many foreign firms as an indispensable sweetener if they want to win contracts in China.

Their actions nurture the country's fraud and undermine China's anti-graft efforts.

"If corruption and public outrage continue to swell, China would prefer to slow down the opening of the government procurement market", said Mei Xinyu, an expert with the Ministry of Commerce, in response to a recent EU policy paper asking for more access to Chinese government orders.

After nearly three decades of working with foreign partners, China has realized that foreign management expertise and technological know-how are more important to the economy than the simple injection of funds.

Bribery, and a string of scandals implicating industry heavyweights such as IBM, Lucent and Wal-Mart, who stress business integrity and honesty in their homeland, have made the Chinese less enthusiastic about foreign partners.

"Their squeaky clean image at home doesn't translate into what they are doing abroad", said Casey Kelso, member of the Transparency International (TI), a leading anti-corruption group.

What makes multinationals behave so differently in China? Are they exporting dishonest practices or are they simply adapting to a situation in which business opportunities abound and corruption is endemic?

TI's 2006 Bribe Payers Index shows that emerging export powers, such as India, China, Russia and Turkey, are among the most likely to offer bribes when doing business abroad.

For many foreign companies, bribery is a shortcut to winning a contract in a transitional economy, like China, where personal affiliations and relationships still count for a lot in the business world.

"It is easier for overseas firms to rake in huge profits in China if they bend themselves to those underlying rules", said Cheng Baoku, a law professor studying commercial bribery with the Tianjin-based Nankai University. "When in Rome do as the Romans do."

Bribery can take many forms. Foreign companies have offered officials luxury sightseeing tours disguised as business trips, paid huge tuition fees so the client's children can study abroad, and offered free EMBA training, all in order to acquire cheaper land and gain swift official approval.

"China's current anti-graft solutions are unable to deal with well-hidden bribery cases", said Mei.

He called for trade partners to cooperate in bringing all the dubious practices to an end. "China cannot achieve the goal alone", he added.

Some experts point out that weak law enforcement is another factor in corruption. The Tianjin subsidiary of California-based DPC Co. Ltd, a medical equipment producer, is a typical example. The company was charged with offering bribes totaling 1.62 million U.S. dollars to Chinese medical staff in exchange for purchase orders.

But the medical staff and hospitals involved were protected by local authorities and got off scot free.

Ironically, it was DPC Corp which had to face court proceedings, not in China but in the United States. An action was brought based on the 1977 Foreign Corrupt Practices Act aimed at combating business crimes overseas. The company ended up being fined 4.8 million U.S.dollars.

Legal professionals have repeatedly called for tougher anti-corruption legislation targeting foreign companies operating in China. "Otherwise the biggest loser will be Chinese enterprises", expert said.

As American economist James R. Hines put it in his thesis "Forbidden Payments:Foreign Bribery and American Business After 1977": "Some people say America's business performance abroad dropped off after the anti-corruption law was adopted, especially in countries plagued by scandal. But in the long run, America's corporate competitiveness was sharpened all over the globe", he said.

It pays to keep business clean and transparent.

As mother says, "Honesty is the best policy."

Source: Xinhua

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