Part-2: Country Differences

DQ No 2.1. Choose two countries that appear to be culturally diverse. Compare the cultures of those countries and then indicate how cultural differences influence the (a) cost of doing business in each country, (b) the likely future economic development of that country, and (c) business practices.

DQ No 2.1 Answer

I would like to choose two countries such as America and China that appear to be culturally diverse in terms of cost involved, future economic development, and business practices. In the United States, doing business can be very easy as everyone does businesses in comparison to China. However, cultural differences teach different values, norms, beliefs, language, educational institutes, religions, and aesthetics etc. so that for instance what might be polite in the U.S. could be highly insulting in China. Some of the major cultural differences between America and China are as follows:

a)      Cost of doing business in each country: In the US, it could be easy to set up any businesses due to liberal policies regarding business activities whereas China has strict policies to open up new businesses. Unlike the US, China has more economical factors of production such as men, machine, material and management. China has totalitarian economic system so that it could take years to get permissions for doing business activities. On the contrary, America has free market economic system so that running everything is quite easy but of course labor costs are very high in the US.

b)     The likely future economic development: Although there are no much more differences in the economic growth, according to world bank report, economic growth of China were10.6% in 2010, 9.5% in 2011, 7.8% in 2012, 7.7% in 2013, and 7.4% in 2014 whereas American’s economic growth were 2.5% in 2010, 1.6% in 2011, 2.3 % in 2012, 2.2% in 2013, and 2.4% in 2014 respectively. The difference in economic growth indicates that China is going to be world’s economic growth by 2025, followed by the US, India and Japan respectively.

c)      Business Practices: Chinese businessmen want to value more on building relationship with buyers but American don’t like to do so. In the same way, Chinese want to interact face-to-face whereas American avoids this system. While this can slow down the pace of business, trust is at a premium in the Chinese business culture. Don't be surprised if a business partner asks you about your personal life or even your finances. This is a sign of interest, not indication of rudeness or disrespect. While making business decisions, Chinese believe in group decision, and finally say by the “boss”, American, on the other hand, believe in individual and made by a single person. Chinese are quite, reserved and often make a clumsy communication but most of American are outspoken, eloquent and make an effective communication.

In short, we can say that there will always be differences in doing businesses in different cultures or nations. Thus, businessmen should be able to address these differences before entering into an international business so that they can be successful and achieve a competitive advantage over its rivals.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

(n.d.) Retrieved August 3, 2015 from http://www.1000ventures.com/business_guide/crosscuttings/ccd_ex_china-us.html

DQ No2.2 Is it ethical for a firm to outsource production to an emerging nation where labor costs are lower when such actions also involve laying off long-term employees in the firm’s home country?

DQ No 2.2 Answer:

An ethics can be defined as a belief of assuming right or wrong based on available information or data. In these modern days, many and many organizations are starting to outsource their business activities in order to reduce the costs and increase profit potential. Outsourcing means a practice of giving or hiring an outside individual or firms to perform contracted works instead of doing this by company itself. Some people believe that obligation of the company is to protect the job of its parent’s country’s citizen. However, other people argue that outsourcing can reduce cost of making a product thus it should be applied no matter what it takes in.

It is would be ethical decision to outsource production to an emerging nation like China where labor cost is very low, and at the same time, laying off long-term employees in the firm’s home country if the company is significantly striving to make a profit rather than other things. On the other hand, sometimes it could be unethical to lay off the employees all of a sudden without a prior notice. In today’s world, most of organizations are just ready to outsource in order to remain competitive in the marketplace.

In summary, we cannot say that whether it is ethical or not because it’s totally depends on the situation. If the main purpose of the company is to maximize the profit then it cannot be unethical because the company has no other best options to pursue so that it strives to reduce the costs and improve the productivity by outsourcing the qualified people. However, if the company is social organization and want to serve the society and help people rather than focusing on earning profit then it should not follow outsourcing.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

DQ No. 2.3. Case Study on “Wal-Mart’s Foreign Expansion”

Translating Wal-Mart’s merchandising strategy wholesale to another country

It is obviously true that different countries have different cultures, and when a company from one country enters into other countries then it must be able to translate their business strategy to fit the respective market needs. In the case, Wal-Mart also has done to appeal to the local market. For instance, In Mexico, Wal-Mart adjusted its strategy to meet the local conditions, hired local managers who understood the Mexican culture, letting those managers to control merchandising strategy, built smaller stores that people could walk to, and stocked fresher. On the contrary, Wal-Mart failed in South Korean and Germany due to not understanding the needs of people where they prefer high quality and a costly product. Hence, having said this, to be successful, Wal-Mart has to adjust their merchandising strategies in each country they operate otherwise results would be like in Germany and South Korea. Therefore, I think that Wal-Mart should be able to cope with cultural differences of each country to succeed although it could be difficult to adopt at first.

Wal-Mart’s Success in Mexico         

In my opinion, there are several reasons why Wal-Mart was successful in Mexico. First of all, it was able to do a joint venture with one of the largest local retailer, Cifra so that Wal-Mart got an opportunity to understand the local market needs and preference. Another reason would be the hiring strategy of employees from the local markets who had fully understood their local cultures. In addition to these, Wal-Mart adjusted and customized their strategies and policies to attract the more customers, for example, the customization, persistence, and low prices paid off were other major reasons for Wal-Mart to be successful.

Wal-Mart’s failure in South Korea and Germany

Wal-Mart in South Korean and Germany couldn’t get the same success as in Mexico and China. The main reason for this was that the consumers in Germany and South Korea preferred to shop at rival famous retail stores that offered the high-quality products rather than just lower prices offered by Wal-Mart. In South Korea and Germany, they couldn’t match the needs of local people choices and preferences, and they couldn’t fight with competitors who were offering a better quality product so that Mal-Mart failed in these two countries.

There were quite differences between these two countries and Mexico. Some of the major differences are that in South Korea and Germany, customers are more likely to prefer the quality products whereas in Mexico, customers prefer low price products. Similarly, In South Korea and Germany, there were more competitors which were offering quality products as desired by their customers whereas in Mexico, Wal-Mart joined with one of the largest local retailer-Cifra.

Wal-Mart’s possibility to succeed in China

It seems that the strategy used by Wal-Mart in Mexico was similar to strategy used in China. Wal-Mart was slowly expanding its markets in China due to cultural problems at first, but when it understood the Chinese culture then it became quite fast in opening new branches. For example, one of the things that Wal-Mart has learned is that Chinese consumers price conscious like American, and they insist that food must be freshly harvested or even killed in front of them.

Later on, Wal-Mart realized that they need to embrace unions to ensure its success in the Chinese markets. This decision has led the company to purchase a stake in China’s Trust-Mart chain, which should allow Wal-Mart to expand even further. Wal-Mart claimed that China is one of its most important growth markets in the world so that its branches will continue to grow at a “double digit rate” in China. Hence, I strongly think that Wal-Mart’s business in China is reasonably on the track it should be.

Changing the culture of the nation by Wal-Mart

It is unavoidable to stop the change in the world. But changing the culture of one country by a company is very difficult in the short term period. However, the companies like Wal-Mart, can change, to the some extent, the culture of any country only in the long run. In the case, it was mentioned that Wal-Mart was able to change the shopping habit of the customers in Mexico as well as China. In some countries like South Korean and Germany, it was quite difficult for Wal-Mart to adjust and change the culture of these countries. It is also true that initially when companies like Wal-Mart should understand the culture of any country, and then copes with it and after a long time; it can be possible to change the same culture when customers will become more loyal and addicted to the company’s products and services.

DQ No 2.4.  Case study on “Wal-Mart’s Chinese Suppliers”

Legitimacy for Wal-Mart to demand that its suppliers adhere to a code of ethics

Yes, it is legitimate for an enterprise like Wal-Mart to demand that its suppliers adhere to a code of ethics. As you know, Wal-Mart is one of the largest retail stores in the world so that it must maintain the ethics as set up by the culture or company act. For adhering to a code of ethics, suppliers do not employ underage labor, must pay minimum wage for that country, do not enforce employees to work for extra hours for free, and ensure the basic safety of work standard.

Some of the benefits of this practice are, equality and justifiable can be created among employees, employees satisfaction will be increased, productivity and performance increase, measurement of working is possible so that auditing can be done very easily. On the other side, it can be costly because it may require a third party to inspect so that they must be paid so that cost can go up. Sometimes it can lose the supplier due to a strict code of ethics so that supply chain can be disrupted and production should be halted.

Impact of Wal-Mart’s lowering prices from its suppliers upon ethical behavior

As lowering the prices of products are main agenda of Wal-Mart, it must set up a minimum level of price and it should not go beyond it so that suppliers are not likely to be hampered. When it comes to ethics, Wal-Mart first counsel with its potential suppliers and agreeing upon a certain price could be ethical. But if Wal-Mart decides or reduces its prices without consulting to its suppliers then it would be unethical. When the companies like Wal-Mart do not follow the ethical then it is very difficult for suppliers to adhere a code of ethics in the same way. I, therefore, strongly believe that both of them should adhere to a code of ethics from their sides then only there will be no conflicts between them.

Act of Wal-Mart to ensure that suppliers adhere to its code of ethics

Wal-Mart is doing an auditing to ensure that whether suppliers are adhering to its code of ethics or not. It seems that Wal-Mart is striving to adhere its code of ethics very strongly because in 2006, 2.1% of all factories audited fell into high risk violations and 0.2% of them were permanently barred from producing goods for them. In addition to this, Wal-Mart must visit to its suppliers’ factory, look around and ask their employees to know regarding whether they are following or not these ethical conducts. Thus, in my view, Wal-Mart should hire some employees whose responsibilities are to check suppliers’ codes of ethics, and it must be done frequently so that there will be no any problems in the future.

Doing business in countries where falsified behavior is widespread

It is true that doing business in the countries where falsified behaviors are higher is of course very difficult and quite challenging as well. But it doesn’t mean that business cannot run smoothly like doing in other countries. I think only one way to halt this falsified behavior is making a law from government because if these behaviors are widespread then only they can be stopped by the respective government by making a reasonable law. It’s also a government responsibility to create a healthy working environment so that any companies like Wal-Mart can run without any falsified behaviors. In the same way, companies like Wal-Mart should make a code of ethics as it is doing for its suppliers so that these kinds of behaviors can be drastically reduced and no such behaviors can be a problem anymore.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

Lesson-2: Case study on Mired in Corruption-Kellogg, Brown, and Root in Nigeria

Introduction

As attempts to examine the case on Mired in Corruption, a detail study has been done. At the time of acquiring Kellogg by Halliburton in 1998, it looks like a good deal. Kellogg was already involved in four Liquefied Natural Gas (LNG) in Nigeria. The worth of LNG project in Nigeria exceeded $8 billion by the end of 2003. No matter how excellent Halliburton to acquire more contracts, Halliburton had to sell Kellogg consortium due to the alleged kickbacks and other scandals. However, the wrong way of doing contract was started well before the Halliburton acquired Kellogg. The inability of Halliburton to figure out the wrong practices in Kellogg before its acquisition eventually led to its sale in 2005. Furthermore, it can be the subject of a government investigation in Nigeria, France and the United States of America till 2009.

Facilitating Payments and Speed Money Under the FCPA

Facilitating payments can be defined as speeding up transactions or procedures for instance government services, paper work, and delivery etc. whereas speed money is the use of a valuable items for instance cash in exchange for consideration for contracts or business deals. In the case, it seems that Jeffery Tesler’s actions were considered as “speed money” because of two reasons. First, act of transferring $2.5 Million into Dan Estete account. Second, formally written notes from Kellogg’s former executive recommending the bribe. On the other hand, the large amount of money facilitated by KBR to Nigerian government doesn’t fit within the definition of “facilitating payment”. The payment made by KBR should be a bribe, which is made in order to persuade Nigerian government to act on their favor i.e. for the license of LNG plants worth $2 billion dollars.

KBR to hire Tesler as an intermediary

It is true that hiring of Tesler by KBR in the verge of their contract jeopardy was a matter of controversy. What I think is that it was not reasonable for KBR to hire Tesler as an intermediary because Tesler had long old relationship with the Nigerian government and officials, and Kellogg also had a relationship with Tesler.

Policy to Deal with Bribery and Corruption

In 1999, Nigeriag gave $2 billion LNG project to KBR consortium. Nigeria government planned to open more LNG project due to a significant success of LNG plant. Kellogg was involved in four LNG plants in Nigeria and the contract associated with these plants exceeds $8 billion by 2004. In that case, surely they should have had a policy to deal with bribery and corruption. Likewise, their policies look like

Kellogg should have walked away from LNG

Although Kellogg was a big multinational company, Kellogg was using unethical activities in Nigeria. Whether it was big or small, it should adhere strictly to the code of conduct from its parent’s nation. Thus, KBR should have walked away from the Nigerian LNG project because bribes are illegal in United Nation, and it should have been aware of the consequences it might faces due the illegal activities it practices in Nigeria. In 2009, KBR LLC pleaded guilty to Foreign Bribery Charges and agreed to pay $402 Million Criminal Fine (The United States Department of Justice, 2009). I personally think that failing to walk away from LNG as soon as it was aware of payment of a bribe to secure the contract lead to its downfall of image and fine of $402 in 2009.

Ethical Climate in Kellogg and KBR

It is true that Kellogg and KBR used to pay a kickback for Nigerian government for securing the contract. They thought that giving kickbacks was one part of governmental process to acquire more contracts in Nigeria. Thus, they started to think that it was commonly ethical to take kickbacks in the organization. Even former head of Kellogg and KBR, Jack Stanley, and other employees start taking bribes, as it is ethical in that context such as the culture of Kellogg and KBR in Nigeria. So, former chief and other employees continually used to give and receive the bribe as a part of the culture, which is ethically considered as right.

Halliburton should Held Accountable                    

In my opinion, yes, Halliburton should be held as a liable because being the parent company they are responsible for controlling the operations within the subsidiary. Not only that much, executive members were also aware of the issue. In addition to these, the company strived to distance themselves from the actual bribe by hiring a third party. Therefore, I believe that Halliburton should be fully held responsible for their subsidiary’s unethical activities although some were initiated before their ownership.

Summary and Conclusions

In this case, Kellogg was getting a huge success during 1994 to 2005. It is known that they acquired the majority of government LNG project contract by persuading (bribing) to Nigerian General and officials. Within a span of 10 years, Kellogg project exceeded $8 billion. After all, the way of doing business by them was totally wrong and thus their success couldn’t last longer. The main reason why they gained failure was that their negative scandals and forces to Halliburton to sale KBR in 2005. In a nutshell, unethical ways of doing business practices such as Kickbacks and bribing could only lead to the success for a few years, but in the long-run to be in the success, the company must adhere the high ethical business standard and policies as mentioned by the laws.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

Nichols, P. M. (2013). Are Facilitating Payments Legal? Virginia Journal of International Law, 54(1).