Business Beyond the Reef

• Why do new exporters always want to sell in China?  I see so many neophytes try to conquer the Chinese market and get their heads handed to them.  I have lost so many potential clients by telling them to go to Hong Kong or Singapore first – markets where they have some chance of understanding what is going on and actually getting some good business done.  Here’s another reason to hit these markets first: they have richer customers than China does.  A survey of affluent consumers by HSBC reveals that rich folks in Hong Kong have average liquid assets of US$301,289 and that Singapore’s wealthy have $183,145.  Rich Chinese, though touted in the press for their lavish spending, have average liquid assets of $126,537 – only 42% of Hong Kong’s richest.  The Chinese, too, are quite nouveau riche, averaging 36 years old.  The Hong Kongers are 48, the Singaporeans 44.
• One of Hawaii’s most delightful exports is its coffee, among the best in the world to this biased observer.  (I drink two mugs of Kona blend every morning.)  See these articles from the Honolulu Star-Advertiser, published this week: here, here and here.  Gotta try the one with bacon in it.
• I saw a new (to me) on-line scam yesterday.  I received an email, purportedly from Amazon, that looked a lot like Amazon”s usual order confirmation messages.  Except that the items ordered weren’t listed, and the message tells you to click on a link to see what is was you had “ordered”.  The first link, in a message loaded with links, was really to Amazon, but all the others were for a site called raceobject.ru8080, which I take to be a Russian mob site.  Beware.
• USA Today just noticed that Asia is a big market for U.S. companies.  Too bad they only talked to giant corporations who have already spent years and many millions to enter these markets.

• Trade stinks.  That’s the conclusion one might draw from Sweden’s seizure of 28 tons of smuggled Chinese garlic.  The garlic was hidden (how can you hide 28 tons of garlic?) in a truck crossing the Swedish border from Norway.  Norway has no duties on garlic, but Sweden is in the European Union, which has a 9.6% customs duty on the stuff – giving incentive to the smuggling trade.  The seizure, however, is only a small part of the 1,200 tons of garlic that Brussels says came in through Norway in the past year.  China, by the way, produces about 75% of the world’s garlic.
• Special for trade policy wonks: the Peterson Institute for International Economics has examined protectionism by the G20 countries – and finds most of them wanting.  Here are the rankings for most protectionist actions implemented or proposed between July 2008 and April 2010:

Who knew that Saudi Arabia would be the G20's best free-trader?

• I didn’t watch President Obama’s latest speech about the National Export Initiative until after yesterday’s post about the NEI was published.  But I didn’t hear anything to change my opinion.  The NEI is mostly good rhetoric, but the same rhetoric that has been used by every president since Lyndon Johnson (and probably earlier).  An increased export promotion budget is the main event here, and possibly better availability of small business export credit.  Obama reiterated that he plans to reopen the FTA with South Korea to renegotiate something that has already been negotiated twice.  Bet the Koreans hang tough this time.
• The Federation of International Trade Associations (see link to the right) had a couple of interesting links in its weekly e-newsletter, both dealing with living and working abroad.  One was to a site called International Business Etiquette, which is self-explanatory but with some good stuff in it.  The second site, International Living, takes a bit more explanation.  The site is aimed at people considering retirement overseas, but there is a lot of cost and other information that might be useful in investment decisions, or for marketing if your company targets lucrative expat communities.

Fraudulent plastic?

USA Today had an article last week about the rampant spread of credit and debit card usage in Asia.  Card transactions in Asia, collectively, reached $1.8 trillion in 2009 – an increase of 158% in five years.  The point of the article was that credit and debit cards are likely to break down Asia’s historically high savings rates, boosting the market for consumer goods of almost all types.  And this will be accelerated by the new swipe cards and by the ability to do transactions on your cell phone.

Measured in cards carried per capita, the Japanese have already surpassed the Americans, carrying 2.5 cards each.  South Korea has caught up to the United States, each with two cards in their wallets.   But that doesn’t mean that Asian spending on cards has climbed anywhere near U.S. levels.  Debt per card in the United States is $1317.  The Chinese are the most profligate in Asia, with debt per card reaching $194.49, less than 15% of the American debt level.  So the flood gates of consumer debt have not exactly opened in Asia.

Hong Kongers and Singaporeans, who you might expect to be in the forefront of adopting credit cards, still only carry 1.33 and 1.15 cards each.  And, in the Philippines and giant India, cards are still rare, the average citizen carrying only .06 and .02 cards.

While USA Today focused on the consumer sales impact of credit and debit cards, they neglected a huge downside that has direct implications for exporters to Asian markets.  The Commercial Service office of the American Embassy in Singapore has issued a warning to U.S. exporters about fraudulent credit card orders from Asian “customers”. The Embassy warns that American companies are receiving orders from buyers “purportedly” in Singapore who pay by credit card and request delivery to a Singapore freight forwarder.  The “buyer” normally places an order, by phone or email, for between $5,000 and $30,000, but wants to split the “purchase” among several credit cards or has to make numerous attempts (with different cards) to get approval for the transaction.  Having worked through those delays, the “buyer” then asks for expedited air freight to deliver the goods.  The seller falls for this, the goods are dispatched to Singapore, the freight forwarders efficiently send them on to addresses in other countries – all before the seller discovers that the card numbers are all fraudulent.

The U.S. Commercial Service, America’s FBI and the Singapore Police Force are working together to stop the perpetrators, but – even if they are successful – you can expect the scam to move to other transhipment airports and continue.  The key warning sign is the use of multiple cards, usually from a first-time customer, and the eventual request for expedited air shipment.  Use all the security services provided by the credit card companies and use your common sense.

Designed by Circuit City?

It’s a success by definition, but look beneath the surface of the Shanghai Expo – and the associated U.S. Pavilion – and you would be forgiven for having some doubts.  The South China Morning Post reports today that Nick Winslow, CEO of the U.S. Pavilion at the Expo, unexpectedly stepped down this week.  Martin Alintuck, who succeeds Winslow, says the resignation is “completely unrelated” to recent suggestions of improprieties in procurements during construction of the pavilion.  Of course.  Nothing to do with Winslow’s purported conflict of interest when he awarded a $23 million contract to a company with which he has a “working relationship”.  Surely there can’t be a connection.

On May 31, Bob Jacobson published an article on the Huffington Post entitled “U.S. Pavilion in Shanghai Fails To Do It’s Job: San Antonio Threw a ($500,000) Party And No One Came”.  Jacobson points out that the Bush Administration knew since 2006 that this Expo was coming, made a decision early on not to use Federal funding for the Pavilion, but then failed to raise the private-sector funds needed to do the job.  The Obama Administration gave the fundraising job to Secretary of State Hillary Clinton who raised some $100 million in record time from about sixty American and Chinese executives and their companies.  Even Hillary was apparently surprised by how commercial the Pavilion turned out, though I’m not sure what she might have expected.  The Washington Post‘s Ezra Klein compares the U.S. pavilion to a Circuit City store.  The pavilion seems to portray America as the stereotypical land of giant companies, featuring, of course, the giant companies that paid for it: GE, Citibank (didn’t we just bail them out?), Pfizer, PepsiCo, Chevron, Johnson & Johnson, Disney and the like.

To be fair, the U.S. Pavilion is not all bad.  It is said to have attracted a million visitors in the first month of the Shanghai Expo, so there must be something people, mostly Chinese, like about it.  Still, the reviews are not glowing and one has to wonder if it is all worthwhile.  The City of San Antonio is certainly wondering.  San Antonio decided that the Expo was a great opportunity to promote Chinese investment in their fair city and signed up for three “San Antonio Days” at the U.S. Pavilion, including special exhibits, parties, press ops and more.  The three days cost the city a cool $500,000.  (Curious that corporations that paid $1 million get to use the Pavilion for a full six months, not just a few days.)  And what did San Antonio get for it?  A flock of new investors?  Not so you would notice.  The San Antonio News Express reports that the city put on a seminar for potential investors at the U.S. Pavilion – and eleven, count ‘em, eleven people showed up.  Now let’s see, that’s a bit more than $45,000 per person to get people to listen to your investment pitch.  Surely, there is a better way.

Hawaii is in Shanghai as you read this.  And Tennessee, Texas and Chicago are lined up.  Hawaii’s Governor Linda Lingle has led a delegation of 32 government reps, Hawaii musicians and hula dancers to do what San Antonio couldn’t accomplish.  Hawaii certainly got a better deal than San Antonio, budgeting $448,000 for a full week at the U.S. Pavilion.  Maybe the world’s largest aloha shirt (size 400-XL), coupled with macadamia nut handouts, will do the trick.  Or the Aloha Day dinner for 100+ VIP guests.  The venture is largely organized by the Hawaii Tourism Authority, so is naturally canted towards attracting tourists rather than investors.  Hawaii tourism, however, is already well showcased in Shanghai, HTA and the Governor having staged several huge Hawaii shows in Shanghai in the last few years.  This time, the delegation includes such stellar attractions as the Speaker of the State House of Representatives and a state senator.  When was the last time you decided to take a vacation because a politician visited your city?  Or were you enticed by an aloha shirt the size of a house?

So what are Chinese visitors to the Shanghai Expo and the U.S. Pavilion to make of all this?  The visitor counts are high, though China will do everything possible to make sure the numbers are high.  But reactions seem tepid at best.  A friend in China tells me that the Expo is something of a joke among the Chinese.  Shanghainese are said to be saying “if you want to break-up with your girlfriend, take her to Expo”.  The verdict is in: Expo is boring.

For those of you curious about the headline, shibai is a Japanese word that has become part of Hawaiian pidgen.  Loosely speaking, shibai refers to anything that is a bit shady, below the belt, not especially honest.  Bovine excrement.

Hollywood should be following the bribery scandal over French sales of stealth frigates to Taiwan’s navy.  We appear to be nearing the end of this decades-long drama with a court decision last month that may cost French suppliers $861 million.  Defense Industry Daily has a good summary of all the moves and countermoves, including the murder of a Taiwanese naval officer who tried to blow the whistle on the French.  The BBC reports there have been at least eight unexplained deaths among people related to the case. The bottom line is that a Taiwanese court has found Elf Aquitaine guilty of paying bribes to French and Taiwanese officials, using Thomsen-CSF (now known as Thales) as a go-between to deliver the cash via Swiss banks.  Taiwan had planned to purchase several small coastal defense frigates from the French, but somehow – after the cash was paid – the deal had morphed into buying six larger, and more expensive, Lafayette class frigates at a price-tag of $2.8 billion. Gotta be a script in there somewhere.

But the French never delivered all the high-tech weapons systems these ships depend upon – and don’t seem likely to anytime soon, according to an article in Asia Times.  In a seeming tit-for-tat after the court ruling against the French companies, the French government has withdrawn its military technical support from Taiwan, making it extremely difficult for Taiwan to maintain and develop the fighting qualities of the frigates.  As compelling as all this may be, what catches my attention is the connection between the frigate scandal and the Taipei subway system.

Taipei MRT

You see, the frigate trial has been pushed under instruction from Taiwan’s president, Ma Ying-jeou, as a showpiece in his anti-corruption campaign.  Ma was mayor of Taipei from 1998 to 2006, during the final construction and opening of Taipei’s Mass Rapid Transit (MRT) system.  The Taipei MRT was originally composed of six rail lines, for which the contracting was conducted in 1986-1988.  Five of the lines were heavy rail lines (the classic subway), while one was a medium line that is largely elevated.  As head of the commercial unit at the American Institute in Taiwan (AIT) during the competition, I was intimately involved with the efforts of U.S. companies to win the prime contracts for designing and building the MRT lines.  We almost had a clean sweep; American firms won the prime contracts for five of the six lines – the five heavy rail lines.  The sixth contract, for the medium line, was won by France’s Matra.

We never had absolute proof, but it was common “knowledge” among the American bidders and some Taiwanese officials that Matra had “paid” for the contract by making its aerospace and weapons technology available to Taiwan’s military on “favorable” terms.  I don’t know if this was true or not, but it was the “scuttlebutt” at the time.  What is undeniable is that the Matra-built line caused more headaches for Taipei’s city government, including Ma Ying-jeou’s administration, than all the American-built lines combined.  Somebody was cutting costs in construction.  What we don’t know is if the costs were re-couped by Matra to make up for payments related to the contract, or if it was simply lax oversight of the local companies that were building the above-ground stations and the massive pylons of the elevated system.  We do know that Ma Ying-jeou was unimpressed.

In a touch of poetic justice, I was in the American embassy in Singapore (1993-1996) supporting the efforts of a U.S.-Canadian consortium to win the initial contracts for Singapore’s light-rail system.  Our primary competitor was, you guessed it, Matra.  The French government was applying considerable pressure on Singapore to select Matra, including, we were told, offering landing rights in France for Singapore Airlines.  Appreciating how “squeaky clean” Singapore is on corruption, I went to the decision-makers for the light rail system, told them of the rumors and suggested they talk to the management of the Taipei MRT about their Matra-constructed line.  The Singaporeans seemed quite interested and, just coincidentally, Matra was tossed out of the light rail competition for violating Singapore’s procurement rules.

Don’t go to China for business.  I have been preaching that mantra to neophyte exporters for years – not that they listen.  And there is a growing chorus that adds fuel to my view.  U.S. Secretary of Commerce Gary Locke is in China right now trying to convince Beijing to put a stop to its protectionism.  As the South China Morning Post‘s Tom Holland points out, the British tried the same thing in 1793 and received a lecture from the emperor: “We possess all things … and have no use for your country’s manufactures.” Locke is likely to hear a variation on the theme.

For decades, surveys of foreign business in China have highlighted how tough it is to do business.  Western companies rush to China whenever they see the prospect of something opening up and, almost invariably, their hopes are dashed as China swings the doors closed again.  The largest, smartest companies in the world have gone to China – and many have had their heads handed to them.  I won’t deny that some companies have done very well in China, but – in almost all cases – it is only after many years of determined effort.  Yet another article in this vein appeared yesterday in the New York Times.

Despite all this, I see a stream of small companies, often neophytes in international business, insisting that they must go after the Chinese market.  These are often companies that have never tried Hong Kong or Singapore, or other Asian markets where they might have a chance of understanding what is happening and have a rule of law that is comprehensible.  I ask such companies why they are headed into China, and their thought process has rarely gone beyond “Oh, because the market is so huge!”  They don’t take it kindly when I ask questions about getting paid, protecting intellectual property, or if they have the capacity to handle a huge order from China.  They just don’t want to hear it.  I have likely lost more potential consulting contracts over this issue than all others combined.  My accountant would love it if I could just bring myself to gush over China and simply disappear when my erstwhile clients lose their proverbial shirts.

Go to Hong Kong, skip China. (Image: Pwojdacz)

I spent Friday at an excellent conference in Honolulu about using Hong Kong as a gateway to doing business in China.  The program featured a stellar cast of experts on Hong Kong and southern China.  All were upbeat about Hong Kong and its prospects, most made the obligatory obeisance to the hugeness of China, but there was an undertone that the reason to go into China via Hong Kong, using Hong Kong reps, is that China is just too darn tough to do it on your own.

The side conversations, as often happens, were the most revealing.  Even using a Hong Kong connection is no guarantee.  Several Hong Kong consumer goods companies have returned home with their tails between their legs when they have tried to place products on mainland store shelves.  It’s not just the exorbitant, unpublished fees for stocking on desirable shelves, but the grease necessary to move product in and the seemingly endless array of new requirements with which foreigners (even Hong Kongers) are surprised.  And it is not just foreigners.  I heard about Chinese manufacturers who have decided to go exporting because they find it easier to get into a foreign market than to sell their goods in the province next door.  The word is that corruption remains rampant and woe betide any incoming company that competes with a locally-owned manufacturer.

One owner of a company that has been in China for many years told me that his company had to get approvals from more than a dozen different ministries, each of which claims superiority over all the others, and must file monthly reports with each of those ministries.  The paperwork alone is staggering and the prospects for corruption in such a “system” are mind boggling.

So, for small companies especially, just don’t go there.  There are plenty of easier, lucrative markets.  Use those markets to get some cash flow started.  Go to China when you are so rich you no longer care.

The Nigerian scam persists, but keeps morphing into new forms.  Being in international business, I get deluged by the slimy things and have learned to recognize them.  But I saw a new form of the scam this week that is pretty clever.

A friend’s GMail account was hacked and the hacker changed the password, so my friend could not access his account, could not receive email and could make no changes to his account (like changing the password).  In the meantime, the hacker sent out the following message to each address in my friend’s GMail address book:

Hello,

How are you doing? Hope all is well with you and family, I know this might be a surprise to you but I am sorry I didn’t inform you about my traveling to Scotland for a Seminar.

I need a favor from you because I misplaced my wallet on my way to the hotel, my money and other valuables are gone including my credit cards. I will like you to assist me with an urgent loan of £1,500 British Pounds to sort-out my hotel bills and get myself back home. This is one favor I will show gratitude throughout my lifetime.

I will appreciate whatever you can afford to help me with and I promise to refund the money as soon as I return home. Please do this for me and I will be grateful. Let me know if you can help me out so I can send you the details for making a transfer through Western Union.

Regards

The message comes from a trusted address and is signed with the friend’s first name.  Be warned.

So what did he do about it?  He went to Google and found he couldn’t contact a human.  He found a form to fill in when you suspect your account has been hijacked and, last I heard, was still waiting for a response from Google.  I found him an obscure Google customer service number (which does NOT appear on the GMail help pages).  He is still trying to sort things out and recover control of his email account. 

He filed a report with his local police, who were moderately interested.  And he called Western Union (mentioned in the scam message) to ask them to block money transfers in his name.  WU wasn’t interested in the slightest, telling him that there could be many people with his name and they weren’t going to turn away business.

I’ve got three takeaways from this.  The scammers will never give up (there are too many gullible people out there).  Each of us, especially if your line of work attracts international attention, needs to use hard passwords for any vital account.  And Google (or other email providers) need to establish crisis centers staffed by humans who know how to handle such things.  It may not be a crisis to Google, but it certainly is a crisis to whoever gets hacked and exposes friends and business contacts to a scam.

Are they backing down?

Back in December, Beijing came up with an intriguing variation on a “Buy China” procurement policy.  They amusingly chose to call it an “indigenous innovation” policy, demonstrating Chinese subtlety.  What it did was create an extra hurdle to getting your company’s products listed in the book of approved suppliers that procurement officers all over China use to source goods for government agencies and government-owned firms.  Yes, they are “free” to purchase things that aren’t in the book, but it is not clear that would be beneficial to one’s career, shall we say.  “Indigenous innovation”, simply put, requires that many “high tech” products sold to the Chinese government must have had their R&D work done in China, conveniently excluding most of the technologies that Western companies have developed over the years.  The policy insisted that products on the approved list must “have Chinese intellectual property and proprietary brands” and that any intellectual property must be “totally independent of overseas organizations or individuals.” Beijing expressed surprise that anyone might think this could be  discriminatory.  You can read more of the details here.

“Indigenous innovation”, predictably, caused an uproar among the many companies that have invested in China, but use non-Chinese technology, and among those who have sold or have visions of selling their tech products in China.  The policy contributed greatly to a sharp decline in impressions of China in a recent survey of members of the American Chamber of Commerce in China.  I am sure that companies such as Apple, Intel and others have taken it up forcefully in meetings with Chinese counterparts, as have the American and other western embassies.  That it came in the same timeframe as the Google withdrawal only added to the bad timing and ill-considered policy development.

The Wall Street Journal reported Wednesday that China’s Ministry of Science & Technology has issued a new draft procurement policy that leaves out most of the “indigenous innovation” policy, including the passages quoted above.  Instead, the new rules merely require that companies wishing to sell to the Chinese government must own or have a legal right to use their IPR in China.  Can’t quarrel with that.

But non-Chinese companies are still suspicious, given the upset caused by the previous rules and general discontent with conditions for doing business in China.  Companies and embassies are combing the new draft to see what lies beneath the surface and to make sure that “indigenous innovation” doesn’t come back to bite them.  As one industry spokesman put it: “We have to fully digest this. The language is still vague.” The dragon is not trusted, it seems.

My old friend John Fogarasi made a huge difference in corporate behavior in Hungary in the late 1990s with a comprehensive program to encourage good corporate governance.  Remember, that was when all of eastern Europe was creating new corporations out of the dregs of former state-owned operations.  Good governance wasn’t high on their target list, but John’s work helped put it there.  His Hungary programs were among the catalysts for the U.S. Commerce Department’s Good Governance Program.

I’ve been up to my eyeballs, so today I am republishing an article by my former colleagues about growing good governance in Latin America.  They are starting up programs in Mexico, Barbados, Jamaica, and Trinidad and Tobago this summer.

***********************

by Mike Calvert and Tipten Troidl

Sergio Bustamante of Transparencia por Colombia leads a discussion on business ethics. (U.S. Dept. of Commerce photo)

The impact of corruption on U.S. commercial interests is immense. According to the United Nations, corruption adds 10 percent or more to the cost of doing business in many parts of the world and as much as 25 percent to the cost of public procurement. Corruption also impedes economic growth, distorts competition, and creates serious legal and reputational risks.

The Department of Commerce’s Good Governance Program (GGP) works with the private sector to create more transparent business climates. The GGP was first launched in Russia in 1998 and was designed to improve commercial dispute resolution conditions in that country’s nascent market economy. The program has since expanded to 15 additional countries in Central Asia, Eastern Europe, and Latin America. The latter region is the program’s current focus, under the aegis of the Americas Project Team within the International Trade Administration’s Office of the Western Hemisphere.

Currently, programs are operating in seven countries in Latin American: Colombia, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Paraguay.

The GGP is unique among anticorruption efforts because it focuses on strengthening the private sector’s leadership and on being involved in the anticorruption dialogue. It does so through a variety of measures, including collective action, capacity building, and public awareness campaigns.

Through its collective action strategies, the GGP assists local businesses, business associations, and civil society in forming coalitions that then work together to reform business climates and to promote a higher standard of business ethics. “The theory,” says Alysia Wilson, director of the GGP team at the Department of Commerce, “is that a coalition of businesses will be more willing and more effective in targeting and identifying corruptive practices.”

For example, in 2004 the GGP began working in Paraguay with the American Chamber of Commerce and the Advertisers Association to create a local partnership of companies and associations called the Pacto Ético Comercial (PEC). The PEC is committed to responsible business practices. With support from the Inter-American Development Bank, the PEC successfully implemented a certification system for its member companies. By spring 2009, the first certified companies reported benefits from the certification process, such as improved access to financial services and expedited customs facilitation.

The GGP provides ethics training designed to strengthen the private sector’s ability to implement sustainable business ethics programs. This training involves intensive, three-week “train the trainer” workshops. Those workshops have provided expertise in business ethics to more than 50 participants from 12 countries. The trainees are expected to multiply the training by sharing their expertise with members of the business community in their countries.

Over the years, program trainees, alumni, and working group partners have achieved a great deal. For example, one program alumnus wrote an antibribery clause that is now included in all contracts awarded by the Panama Canal Authority. The potential impact of this one clause will be substantial because the authority has begun awarding contracts totaling approximately $5 billion for the canal’s expansion and modernization.

Lastly, the GGP works with the private sector to raise awareness of the cost of corruption on economic growth and of the importance of business ethics in society. The public awareness campaigns target various stakeholder groups, such as university students, small and medium-sized enterprises, and professional groups that represent a broad cross-section of the economy. Various media are used, including radio, newspapers, billboards, and advertisements. For example, in Guatemala, the GGP supported Proética, a coalition of Guatemalan businesses and business associations. In 2006, Proética created a special business ethics campaign, which subsequently won a gold Effie Award from the American Marketing Association.

In September 2009, the GGP launched its most recent activity in Colombia, where it conducted a series of 11 workshops on integrity and responsible corporate practices. Approximately 50 company managers participated in the workshops, which were given near the port city of Barranquilla. They were organized in partnership with local organizations, including the Barranquilla–American Chamber of Commerce and the Universidad del Norte. Because of the success of the initial workshops, efforts are in progress to establish similar integrity programs in other regions of Colombia.

“Through its 12 years of existence, the Good Governance Program has demonstrated that the private sector can be a powerful agent for change when it comes to corruption and transparency,” noted Wilson. “In the coming years, it will continue its work to make progress on this critical business issue.”

Mike Calvert and Tipten Troidl are international trade specialists in the Market Access and Compliance unit of the International Trade Administration, U.S. Department of Commerce.

Gottlieb Daimler: What would he think?

Bribery may get you some deals, but it always comes back to bite you where it hurts.  And it is about to bite Daimler, which appears to have run afoul of America’s Foreign Corrupt Practices Act.  The U.S. Justice Department filed a case Monday that alleges that Daimler paid tens of millions of dollars in bribes to win contracts in 22 countries during a decade that ended with 2008.  Why should it be the Americans that prosecute the case, and not the Germans where Daimler is domiciled?  You’ll have to ask Berlin why they weren’t watching (my suspicions are not kind).  The Justice Department had jurisdiction, however, when the alleged bribery began to involve Daimler subsidiaries and plants in the United States.  And, as you will recall, Daimler owned Chrysler for much of the decade in question.  I don’t know if their Mercedes production in Alabama is involved in the case or not.

Non-Americans and many U.S. citizens don’t realize how tough the Foreign Corrupt Practices Act is.  To grossly simplify things, the FCPA outlaws any payment of any kind that is designed to favorably impact the outcome of purchasing decisions overseas.  The Act recognizes that bribery and other forms of corruption exist worldwide and actually allows certain types of payments.  But once your payments begin to involve somebody who makes the decision on whether or not you get the business, you are toast in the eyes of the law.  Exceptions are allowed for so-called facilitating payments that don’t affect if you get the contract, e.g., things like greasing someone’s palms to move your perishable cargo out of the sun in a tropical port.  (See the very useful Layperson’s Guide to the FCPA from the Justice Department.)

I spent years in South East Asia and often got questions from U.S. companies about the FCPA.  These companies, understandably, were worried that foreign competitors who pay bribes would get the business and the poor schnooks from America would get left out.  Actually, just the opposite proved the case.  In a major procurement competition, we discovered that one of our non-U.S. competitors was offering bribes and presented our evidence to the buying government.  Our competition was promptly tossed out and the U.S. company won a mega-buck contract – precisely because they followed the FCPA to the letter.

I have seen U.S. companies use the FCPA as an unassailable defense when they have been approached by bribe-seekers, enabling them to respond that the business wasn’t enough to risk lengthy jail terms and huge fines when they return home.  This is generally respected overseas and makes negotiations far more straight-forward.

The ability to use the FCPA as an excuse not to bribe saves companies from starting down the slippery slope of bribery.  Once it becomes known on the grapevine that a company pays bribes, that firm will get asked for bribes in every subsequent competition and will find it nearly impossible to stop paying.  Not good for the bottom line.

Daimler is about to learn the benefits of staying clean.  Many countries, including some developed nations in western Europe, have even allowed companies to deduct the cost of bribes from their corporate income taxes.  I guess they simply see bribes as a marketing expense.  They are about to find out different.

By the way, the markets in which Daimler is said to have made improper payments include China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia, Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan and Vietnam.  Seems widespread enough.

Whew!  That was quick!  Just as I finished drafting this post, news came across that Daimler offered yesterday to pay $185 million in fines to make the FCPA charges go away.  This is a company practiced at making quick payments!