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IBM501 International Business

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IBM501 International Business

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Course Code: IBM501
University: Mount Kenya University

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Country: Kenya

Question:
You should utilise your knowledge of international business to undertake an analysis of the ‘reported practice or action’ of a real organisation. You may choose an organisation from the local environment or from overseas. Business press is full of reports about different aspects of international business actions implemented by local and global organisations.
Your first step should be to choose a recently reported event (from past one year) in the business world that highlights a significant international business action. It is recommended that you look for business developments from credible business publications such as The Wall Street Journal, Business Week, The Economist, Fortune, and Forbes. Major newspapers can also be used to identify the event.
The next step should be to analyse the relevance of the reported actions. You should be able to justify or refute the actions based on the theory and models of international business. It is essential that you are able to assess if the reported actions are “theoretically sound and justified”?
Identify and critique the International Business practice of an organization.

Answer:

Introduction
The paper intends to evaluate the bribery scandal associated with the heir to the Samsung empire who was charged with the offense in 2017, incarcerated and then even before one year ended, he was freed. The paper will demonstrate how bribery as a business practice is against international business practices. The analysis will reveal that the move by South Korean court to free Mr. Lee is unacceptable move and it encourages bribery and that it is against the international convention on bribery and corruption.
Samsung Bribery Charges
According to Harris (2018) the heir to the Samsung empire was sentenced in 2017 by South Korean justice to five years in prison for corruption in the resounding scandal that swept away South Korean President Park Geun-Hye. This ruling could deprive the world’s leading maker of captain’s smartphones for a long time, and thereby hinder its ability to make crucial investment decisions. But Samsung Electronics has ensured a strong team at the rudder. The prosecution had required 12 years in prison against Lee Jae-Yong, vice president of Samsung Electronics and son of Samsung group president Lee Kung-Hee (Harris and Jung-a 2018).
Mr. Lee, 49, was found guilty of bribery, abuse of social good, perjury and other counts in connection with payments to Ms. Park’s shadowy confidante, Choi Soon-Sil. Lee Jae-yong, who, according to the Financial Times, is possibly the most powerful man in his country, was notably accused of having promised 43.3 billion won (35 million euros) to foundations created by Choi Soon-sil, friend and confidante of President Park Geun-hye (who was dismissed and incarcerated in March) (Sang-Hun, 2018). In return, the government supported the merger, in 2015, of two subsidiaries of the group, Samsung C & T and Cheil Industries, a highly contested operation that was primarily intended to strengthen the hold of Lee Jae-yong on Samsung (Harris and Jung-a 2018). The court has estimated that it has paid a total of 8.9 million won (6.6 million euros) to buy the government’s support for the generational handover to the top of the group following the heart attack of his father in 2014 (Financial Times Limited 2018). Mr. Lee denies everything, his defense explaining that he was not aware of these transfers and did not approve them (Harris and Jung-a 2018).
However, one year later, Mr. Lee was freed. According to Sang-Hun and Zhong (2018) Mr. Lee barely spent one year before he was freed. Sang-Hun and Zhong (2018) further revealed that in South Korea, tycoons are not punished. There is no way in which 15 years can be reduced to less than one year.
Analyzing the case from international business practices
In this section, I will demonstrate that the action taken to prosecute Mr. Lee due to bribery case is theoretically sound and that it is an affirmation of the international laws on corruption and bribery. Bribery and corruption are two vices that hinder fair trade. However, the action to free him after barely one year is unacceptable. It is an indication that the powerful are above the law and this is not good in business world (Bomann-Larsen and Wiggen, 2005)
One of the theories that can explain the situation facing Samsung is Principle-Agent-Client theory proposed by Banfield in 1975. The theory believes that corruption is committed by a combination of three players; principle, agent and influencer.. For the case of Samsung, the principal is the President Park. Park was bound to be the major beneficiary of the bribery. Mr. Lee represents the agent. The third party is royal family. The family are truing to obtain benefits from the Samsung company and hence are indirectly sponsoring the bribery. The rational choice theory reveals that an agent is likely to execute corrupt deals if the returns are favorable. And he did that exactly. But what about the consequences? International business practices expect that the competition and business practices are fair to all parties.  In international realm, corruption represents a major threat to sustainable development (OECD, 2013). Shattering the democratic process of commercial practices?the multiplication of corrupt pacts breaks the equality of commercial actors, just as it distorts the free competition. Mechanisms, imposed or voluntary, which establish the relations between the business world and criminal circles are more and more protean to the point of raising, today, the problem of organized business crime (Donaldson and Preston, 1995). Obtaining contracts by international commercial transactions, administrative and fiscal derogations, the takeover of companies following the acquisition of information, which occur through the payment of hidden commissions, are all acts benefiting speculators few scrupulous at the expense of other investors. The consequences, adverse effects on entire populations and the credibility of companies, are colossal. First, with regard to the effects on the populations, and particularly on the states experiencing economic difficulties, the lack of transparency and responsibility of the public and private sectors is the fertile ground facilitating the payment of bribes: a payment of a commission of one million euros can lead to a loss one hundred times higher for a country then undergoing a cancellation of the projected development plans (Bonell & Meyer, 2015).
Corruption permeate all countries. In South Africa, the Shaik lawsuit has highlighted the responsibility of multinationals for the payment of bribes in arms market transactions involving French companies. Moreover, corruption does not only concern states experiencing economic difficulties (Ghoshal and Moran, 2005).
Nevertheless, there is an awareness of the need to fight against such a scourge. Following the signing of the OECD and UN conventions, many countries have adapted their legislation on corruption, particularly since 2005 (OECD 2009).
Today, the new articles 445-1 to 445-4 of the Penal Code from the 2005 Act deal with bribery in the private sector and penalties applicable to natural persons and legal persons. This is an additional penalty of the business sector materializing the fight against corruption.
Thus, “the offering (or assigning), at any time, directly or indirectly, of offers, promises, gifts (Graycar & Smith, 2011), presents or any advantages to obtain from a person who, without being a depositary of the public authority or a public-service mission carries out, in the course of a professional or social activity, a management function or a job for a natural or legal person, or any body, whether refrain from performing an act of his activity or function or facilitated by his activity or function (Graycar & Smith, 2011), in breach of legal, contractual or professional obligations “. From now on, the repression of corruption in the private sector is no longer exclusively reserved for employees (Wuthi-Udomlert, 2013).
More concretely, and by comparison with public sector corruption, any private law person under the above conditions can be prosecuted for both passive and active bribery (Prahlad and Hammond, 2002). If in the public sector, the leaders of private commercial companies can be prosecuted for active bribery, in the private sector, any person (the company manager, the partner, the shareholder, the auditor, the analyst the lawyer, the notary, the accountant, the journalist or the employee) can be prosecuted for active or passive bribery (Banisar, 2011). The result is a growing criminalization of the business sector to cover all forms of illicit pacts. This endorsement of the Framework Decision is based on an economic and competitive logic. This broadening of the criminalization of corruption extends and formalises the ethical imperative of business investment. The terms are quite broad, which makes the text repressive. Thus, the means of corruption can be varied (remunerations, sums of money, tables, commissions, leisure travel, loans at reduced rates …).?
The penalties incurred by individuals is five years imprisonment and 75,000 euros fine. Moreover, the criminal liability of legal persons is also enshrined in the matter: it extends to five times the fine incurred by individuals (Biegelman  & Biegelman, 2010). But legal persons also incur penalties such as the prohibition of exercise, the exclusion from public contracts, the confiscation of the thing used to commit the offense, as well as the posting and dissemination of the decision to conviction. These sanctions are intended to separate the leaders and legal persons having made corruption a company strategy (Wells, 2015).
It is this development that must be emphasized in the sense of an international fight against corruption. We know that the repressive domain is an integral part of the sovereign power of the state. This is one of the expressions of state sovereignty. With the exception of the International Criminal Court?competent to judge crimes against humanity, the authorities of prosecution and judgment cannot act outside their territories. This is why the ratification of international conventions and the integration of Community framework decisions constitute the compromise of cooperation to fight against corruption (Harris, 2003). These instruments make it possible to change the laws of each State in the sense of making them compatible or in the sense of harmonization. The latter then allows each state authority to apprehend and repress internationalized corruptive actions according to national laws in accordance with the conventions.
Establishing the link between international practice and Samsung case
It is undisputable that if Mr. Lee could not have been charged with bribery, fair competition could have been inhibited. According to some observers, Lee Jae-yong’s condemnation could be an opportunity to solve the long-standing problem of the chaebol [Korean conglomerates] model – the opacity of governance and transfer of power within the family of the founder, via means often illegal, the newspaper adds.  The Lee family holds less than 5% of the group’s shares, but controls the technology giant via an enigmatic network of cross-shareholdings. The move taken by South Korea to jail and then free Mr. Lee signifies that there is real problem (Roy, 2004). It shows that South Korea is not yet ready to implement the international convention on corruption. It should be noted that several countries have demonstrated their willingness to fight bribery (Hawley, 2015). In Europe, until very recently, a company that wanted to win a market could pay a commission to an intermediate public buyer. This mechanism, which existed in France, allowed an enterprise to credit a numbered account for the benefit of the intermediate decision maker and to obtain authorization from the Ministry of the Economy and Finance for this payment and for the tax deductibility thereof (Hawley, 2015). Today, such actions are incriminated for corruption because they lead to a breakdown of equality between the various commercial actors.
In the United States, while the Sarbannes-Oxley Act’s assessment has allowed for a certain streamlining of activities and information flows, the fight against corruption has had to be strengthened, particularly following the awarding of public contracts in Iraq (Hawley, 2015).. In Japan, despite the 2005 reform of the state agents’ code of ethics, information leaks from senior government officials to commercial companies for the procurement of public contracts revealed unfounded sums at the expense of other companies.
There is indeed a general evolution of states and companies following the signing of the United Nations Convention against Corruption in 2003, ratified by France in July 2005 (OECD 2009). The fight against corruption is indeed a necessity on the international level as the phenomenon includes elements of foreignness (Roy, 2004). Actors’ actions are rarely limited to one territory. This is why the imperative of fighting corruption has been incorporated by many states. This consecration is all the more understood through the influence of the international standard since it favors the adaptation of national legislation (Hawley, 2015).
The OECD Convention of 17 December 1997 on Combating Bribery of Foreign Public Officials in International Business Transactions has been transposed in many states (OECD 2009). Most nations are harmonizing their laws to match the international conventions (Roy, 2004). In fact, 37 countries have ratified the OECD Convention and are moving their legislation towards harmonization, which makes it possible to incorporate the principle of equivalence of incriminations between states (OECD 2009).
It is this principle of reciprocity or equivalence of incriminations that lays the foundation for the international fight against corruption. Thus, for example in Finland, a law was passed in 2005 condemning any company that paid a bribe, regardless of whether the beneficiary of this counterparty is a person with or without public authority (OECD 2009).
In Brazil, a new law regulating public-private partnerships has made it possible to develop greater transparency on infrastructure development, thus attracting many commercial actors (OECD 2009). Similarly, in Japan, the Prevention of Unfair Competition Law and the Code of Ethics have been amended in the sense of transparency of public and private procurement. In the United Kingdom, the UK’s public export credit insurance firm stepped up bribery and corruption enforcement in 2004 (OECD 2009).
Then, as part of the trend of greater ethical governance, the penalization of these behaviors plays a preventive role: it induces companies to behave in the sense of a credibility and reputation protected. Indeed, more than ever the credibility of the commercial actors is put on the agenda.
Corporate financial scandals such as Enron show how disloyal actions have disastrous consequences for companies, shareholders and employees (McClean and Elkind, 2003). The interest of shareholders, investors and partners, suppliers and customers are the arguments put forward to stop the phenomenon of corruption international.
Conclusion
From the foregoing analysis, it is apparent that the business practice exercised by Mr. Lee is unacceptable. It constitutes a form of bribery and corruption. As indicated, corruption and bribery hinder fair competition. International conventions do not encourage any company to engage in any form of corruptions. Individuals states are expected to harmonize the local laws to meet the international convention. The analysis demonstrated that the move taken by the South Korean court to jail Mr. Lee was good. However, the same court later released him before completing the jail term. This is unacceptable and it encourages other companies to engage in bribery and corruption.
References
Banisar, D (2011) ‘Whistleblowing: International Standards and Developments’ in Irma E Sandoval, ed, Contemporary Debates on Corruption and Transparency: Rethinking State, Market, and Society (Washington, DC: World Bank, Institute for Social Research, UNAM, Available from: https://ssrn.com/abstract_id=1753180 [Accessed on 10/6/18]
Biegelman, MT, & Biegelman, DR (2010) Foreign Corrupt Practices Act compliance guidebook: protecting your organization from bribery and corruption. Hoboken, N.J., John Wiley & Sons, Available from: https://public.eblib.com/choice/publicfullrecord.aspx?p=510112 [Accessed on 10/6/18]
Bomann-Larsen, L and Wiggen, O (2005) Responsibility in World Business: Managing Harmful Side-effects of Corporate Activity, United Nations University Press, USA.
Bonell, MJ, & Meyer, O (2015) The impact of corruption on international commercial contracts, Available from: https://public.eblib.com/choice/publicfullrecord.aspx?p=4072035 [Accessed on 10/6/18]
Donaldson, T and Preston, LE (1995) ‘The stakeholder theory of the corporation: concepts, evidence, and implications’, Academy of Management Review, 20 (2008), pp.65–91
Financial Times Limited (2018) Remove the taint of cronyism in South Korea, Financial Times, Available from: https://www.ft.com/content/eea25cde-0b39-11e8-8eb7-42f857ea9f09 [Accessed on 10/6/18]
Ghoshal, S and Moran, P (2005) ‘Towards a good theory of management’, in Birkinshaw, J. and Piramal, G. (Eds.): Sumantra Ghoshal on Management: A Force for Good, Prentice-Hall, NY, pp.1–27 Bomann
Graycar, A, & Smith, R G (2011) Handbook of global research and practice in corruption, Available from: https://www.elgaronline.com/view/9781849805018.xml. [Accessed on 10/6/18]
Harris, B (2018) Samsung Electronics chairman indicted for alleged union sabotage, Financial Times, Available from: https://www.ft.com/content/7e7fd8c2-c223-11e8-95b1-d36dfef1b89a [Accessed on 10/6/18]
Harris, B (2018) Smog, scandals and Samsung, Financial Times, Available from: https://www.ft.com/content/40808a4c-3193-11e8-b5bf-23cb17fd1498 [Accessed on 10/6/18]
Harris, B and Jung-a S (2018) Samsung shake-up addresses ’emperor’ image problems, Financial Times, Available from: https://www.ft.com/content/7a4d937c-2e3d-11e8-9b4b-bc4b9f08f381 [Accessed on 10/6/18]
Harris, R (2003) Political Corruption: In and Beyond the Nation State, Routledge, London.
Hawley, S (2015) “Yawn and You’ll Miss It: New EU Debarment Rules, Old Problems”, Corruption Watch, Available from: www.cw-uk.org/2015/03/04/yawn-and-youll-miss-it-new-eu-debarment-rules-old-problHawleyems [Accessed on 10/6/18]
McClean, B and Elkind, P (2003) The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron., Portfolio, NY.
OECD (2009), Working Group on Bribery in International Business Transactions, “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions” Available from: https://www.oecd.org/daf/anti-bribery/44176910.pdf [Accessed on 10/6/18]
OECD, (2013) Working Group on Bribery, Canada: Follow-Up to the Phase 3 Report and Recommendations (2013) at 6–7, Available from: www.oecd.org/daf/antibribery/CanadaP3writtenfollowupreportEN.pdf [Accessed on 10/6/18]
Prahlad, CK and Hammond, A (2002) Serving the World’s Poor, Profitably’ reprinted in Harvard Business Review on Corporate Responsibility, 2003 Harvard Business School Press, Cambridge, Mass.
Roy, A (2004) ‘A CRDM model for multinational business managers’, A paper published as Proceedings of the 8th Post Graduate Researchers Conference, University of Waikato, NZ
Sang-Hun, C (2018) Former South Korean President Gets 15 Years in Prison for Corruption, The New York Times, Available from: https://www.nytimes.com/2018/10/05/world/asia/lee-myung-bak-south-korea-convicted.html [Accessed on 10/6/18]
Sang-Hun, C and Zhong, R (2018) Samsung Heir Freed, to Dismay of South Korea’s Anti-Corruption Campaigners, The New York Times, Available from: https://www.nytimes.com/2018/02/05/business/samsung-lee-jae-yong-appeal.html [Accessed on 10/6/18]
Wells, J (2015) “Corruption in the Construction of Public Infrastructure: Critical Issues in Project Preparation”, Available from: www.u4.no/publications/corruption-in-the-construction-of-public-infrastructure-critical-issues-in-projectpreparation [Accessed on 10/6/18]
Wuthi-Udomlert, V (2013) Corruption in international business transactions. [Place of publication not identified], Grin Verlag.

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