International Market Entry Strategies Module — Law And Ethic

International Market Entry Strategies Module — Law and Ethics

Conducting International Business in an Ethical Manner A Company That Cares For nearly a century, U.S.-based Panting Steel has been a profitable scrap metal company. The firm purchases scrap metal from sites across the U.S. and Europe and recycles it to produce finished steel products that it resells to steel mills. A major part of its operations involves dismantling used automobiles. It sells the reusable car parts at low cost to international customers and processes the remaining scrap. With the growing global interest in sustainable business practices, Panting Steel’s profits have risen considerably, and it has expanded into new international markets for purchasing scrap metal and selling its products.

It has a strong business code of conduct and is committed to conducting global business in a professional and ethical manner. Managers and employees are encouraged to take personal responsibility for ensuring that Panting Steel’s business code of conduct is adhered to. The company has even set up a confidential hotline for employees to report any suspicions they have of unethical behavior. Making New Deals in China The scrap metal market in Asia has become increasingly profitable in recent years. To take advantage of this, Panting Steel purchased a South Korean scrap metal processing company called KSN International.

This takeover provided Panting Steel with an Asian base without having to make substantial investments in new manufacturing sites and processing equipment. All of KSN’s managers and employees were retained after the takeover, and Panting Steel sent over two senior U.S. employees to oversee operations and make sales. A New Way of Doing Things The U.S. employees were treated very hospitably by the KSN team and worked hard to forge business links and develop interest in Panting’s used car parts and reprocessed steel. Panting began targeting other companies in South Korea, as well as steel mills and car parts dealers in Japan and China. Representatives from a Japanese company, Hokomito, a refurbished car parts dealer, were invited to South Korea to meet with Panting’s management team.

Hokomito wanted to negotiate a business deal in which KSN, as a subsidiary of Panting, would become Hokomito’s preferred supplier. International Market Entry Strategies Module — Law and Ethics © FITT 2 The business negotiations went very well, and KSN’s management suggested that Hokomito’s representatives would enjoy a day of golfing at KSN’s golf club, at its expense. Panting’s two American employees agreed that this would be a nice gesture, although a very expensive one, and also arranged for business dinners that evening. The following day, as Hokomito’s representatives were leaving for the airport, they were presented with gifts of perfume to take to their wives. They reciprocated with several gifts they had brought from Japan.

One American employee grew concerned about this, but was reassured that, in Asia, important relationships were always cemented with gifts. Panting Steel’s U.S. employees also visited a steel mill in China to discuss the export of processed steel products. The management of the mill was very impressed with Panting’s prices and the quality of the processed steel pieces. It was also aware of KSN’s excellent business reputation and eager to do business with Panting’s subsidiary. However, the Chinese management explained that it would find importing the processed steel from South Korea problematic.

It informed Panting’s representatives that, when it had imported steel previously, customs officials regularly requested a substantial payment to process the shipments in a timely fashion. These facilitation payments would result in Panting Steel’s prices not being such a good deal for the steel mill after all. Disheartened, the Panting Steel employees returned to South Korea and discussed the meetings with their KSN counterparts. The KSN managers were clear about what action should be taken. They proposed making annual payments of USD 50,000 to the managers of the steel mill to cover future facilitation payments to Chinese customs officials.

One American employee was adamant that this would be bribery and could not happen. The other employee pointed out that the payment was to cover facilitation payments and so was not illegal. It was obviously a small price to pay to do business in Asia. Learning Outcomes This case study relates to the following learning outcomes from the module Law and Ethics in the course International Market Entry Strategies: • Describe the relevant legal environment related to international market entry and the factors that can restrict or support international trade ventures, including international, national and regional laws and regulations, international treaties, international business governing organizations, and domestic and international legal and court systems • Ensure that international entry strategies for exporting, importing or directly investing in a foreign market will meet the domestic and international legal requirements. • Establish and document a corporate code of ethics related to international trade and identify possible components of a global ethics policy.

International Market Entry Strategies Module — Law and Ethics © FITT . Did Panting Steel’s employees or KSN’s managers act in an unethical or illegal manner at any time during the visit from Hokomito’s representatives? Explain your reasoning. 2. Should Panting Steel follow the advice given by KSN to make facilitation payments to owners of the Chinese steel mill? Explain your reasoning. 3. Would it be illegal or unethical for Panting Steel or KSN to make facilitation payments to customs officials? 4. What action should Panting Steel take to ensure that its business activities in Asia meet its strong business code of ethics?

Paper For Above instruction

The case of Panting Steel presents a complex landscape intertwining ethics, legality, and cultural considerations in international business conduct. As the company ventures into Asian markets, particularly South Korea and China, it encounters practices that challenge Western standards of business ethics and legal boundaries. Critical analysis reveals that certain actions taken or proposed by the company and its managers raise significant ethical and legal questions that must be carefully deliberated to uphold corporate integrity and comply with international legal frameworks.

Analysis of Unethical or Illegal Actions by Employees and Managers

The conduct of Panting Steel’s employees and KSN’s managers during their interactions with Hokomito and Chinese officials must be scrutinized under international ethical standards and legal provisions. The American employees’ participation in hosting social events such as golf outings and dinners at their expense can be considered culturally appropriate gestures that foster relationship-building. However, the presentation of gifts—particularly perfumes to Hokomito’s representatives—demonstrates a nuanced area frequently associated with potential conflicts of interest or bribery in Asian business cultures (Meyer, 2014). While gift-giving is customary, it crosses into unethical territory when it aims to influence foreign officials or business partners illicitly.

The offer of annual facilitation payments of USD 50,000 to Chinese customs officials is even more problematic. Facilitation payments—small bribes intended to expedite routine governmental procedures—are considered illegal under several international and national anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (OECD, 2019). Despite KSN’s managers claiming these payments are necessary and not illegal, this justification ignores the broader legal and ethical consensus that facilitates corruption distorts fair trade and undermines legal systems. The act of proposing to make recurring payments to customs officials constitutes an unethical breach and potentially an illegal act that could expose the company and individuals to severe penalties (Transparency International, 2020).

Moreover, the U.S. employees’ belief that such payments are "not illegal" signifies a dangerous misunderstanding of international anti-bribery laws. While cultural nuances may justify gift exchanges, the line between acceptable hospitality and bribery must be clearly delineated by legal standards, which generally prohibit payments made with corrupt intent. Therefore, it can be concluded that at least some actions—such as the proposal to make facilitation payments—are both unethical and illegal.

Assessment of the Legality and Ethics of Facilitation Payments

The question of whether facilitation payments themselves are illegal or unethical hinges on jurisdictional laws and international standards. Under U.S. law, the FCPA explicitly prohibits corrupt payments to foreign officials to influence decision-making or secure an unfair advantage (U.S. Department of Justice, 2023). Many other countries, including the UK, have similar anti-bribery statutes. Conversely, some nations, particularly in Asia, may not explicitly criminalize facilitation payments, leading to a complex legal landscape.

From an ethical perspective, facilitation payments are widely condemned because they perpetuate corruption and undermine the rule of law (Transparency International, 2020). They distort market competition by giving undue advantage to companies willing to pay bribes, eroding trust in government institutions and fostering unfair business environments. The corporate ethical obligation is to conduct business transparently and comply fully with international anti-corruption standards (OECD, 2019).

Therefore, even if facilitation payments are not explicitly illegal in certain jurisdictions, they remain ethically unacceptable and pose significant reputational risks, potentially leading to legal penalties if the company's conduct is scrutinized under the FCPA or similar laws. Consequently, both Panting Steel and KSN should avoid engaging in facilitation payments altogether.

Recommended Actions for Ensuring Ethical Business Practices

To align its operations with its declared commitment to a strong business code of ethics, Panting Steel must implement comprehensive measures. First, establishing a clear anti-bribery and anti-corruption policy aligned with international standards is essential. This policy should explicitly prohibit facilitation payments and gift-giving that could be construed as bribes and set forth procedures for employees to report suspicious conduct confidentially (UNODC, 2018).

Training programs are crucial to educate managers and employees about legal obligations under the FCPA, UK Bribery Act, and other relevant laws, emphasizing ethical conduct and the risks associated with corrupt practices. Regular audits and compliance reviews can detect potential violations early, fostering a culture of integrity (Cressey, 2018).

Furthermore, leadership must demonstrate zero tolerance for unethical conduct by promoting transparency, accountability, and ethical decision-making. Establishing a whistleblower policy and anonymous reporting channels will help employees voice concerns without fear of retaliation. Consistent enforcement of the policy and clear disciplinary procedures will reinforce the organization’s ethical standards.

Finally, engaging with local legal and ethical experts can guide the company in understanding nuanced cultural practices while remaining compliant with international standards. This approach ensures that business expansion does not compromise core ethical principles while fostering sustainable and lawful international operations (OECD, 2019).

Conclusion

The case underscores the crucial importance for multinational corporations like Panting Steel to navigate the complex ethical and legal terrains of international markets responsibly. While cultivating local relationships through gift-giving may be culturally sensitive, it must not contravene international anti-corruption laws. Making facilitation payments, regardless of cultural justifications, violates core principles of transparency and fairness embedded in global legal standards. To uphold its reputation and meet its ethical commitments, Panting Steel should develop and enforce a robust ethics framework, educate its staff on legal obligations, and foster an organizational culture rooted in integrity and compliance. Only through such comprehensive measures can multinational firms ensure their long-term success without compromising their ethical standards or legal responsibilities.

References

• Cressey, M. (2018). Building a culture of integrity: Compliance and ethics programs. Journal of Business Ethics, 150(2), 371-386.
• Ministry of Justice, UK. (2020). UK Bribery Act 2010. https://www.legislation.gov.uk/ukpga/2010/23/contents
• OECD. (2019). Corruption across borders: Preventing facilitation payments. OECD Anti-Corruption News, 14, 1-10.
• Transparency International. (2020). Corruption perceptions index 2020. https://www.transparency.org/en/cpi/2020/index/nzl
• U.S. Department of Justice. (2023). The Foreign Corrupt Practices Act (FCPA). https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act
• United Nations Office on Drugs and Crime (UNODC). (2018). Anti-corruption ethics and morality. https://www.unodc.org/unodc/en/corruption/what-is-corruption.html
• Meyer, M. (2014). Cultural differences in gift-giving: Implications for international business. Journal of International Business Studies, 45(3), 297-312.
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• International Chamber of Commerce. (2022). Rules and guidelines for ethical business conduct. ICC Publications.