Jextra Neighborhood Stores Case Analysis This report analyzes the ethical dilemma faced by Jextra’s country manager, Tom Chong, who was responsible for Neighbourhood Markets in Malaysia. Jextra Stores was a Hong Kong based company that operated retail stores in China, Hong Kong, Philippines, Malaysia, Thailand, Singapore, and Vietnam. In 2005, the company successfully entered Malaysia, operating supermarkets under the name of Neighborhood Markets (Inkpen, 2010). Jextra identified a promising site in Klang, near the capital of Kuala Lumpur, to open a new supermarket (Inkpen, 2010).
Mr. Chong needs to evaluate a proposal made by the Mayor of Kang, which might be considered bribery. In this case, Mr. Chong faces social and ethical challenges that may affect the company’s operations, performance, and competitiveness in the region as well as Mr. Chong’s career. The major social issues include those related to law, culture, and ethics. The report also analyzes anti-bribery corruption enacted by the U. K Bribery Act and the U. S. Foreign Corrupt Practices Act (FCPA).
The report concludes with recommendations to Jextra such as seeking proper legal advice, implementing an effective business code of conduct, providing inter-cultural and ethics training to managers, using a geocentrism approach and conducting an internal investigation for the Malaysian category manager. Analysis Social, Ethical, or Legal Challenges International firms operating abroad often face social challenges because they operate in markets with different legal and political systems (Daniels, Radebaugh, & Sullivan, 2010, p. 111).
Each country has a legal system that provides “the rules that regulate behavior, the processes by which laws are enforced, and the procedures used to resolve grievances” (Daniels, Radebaugh, & Sullivan, 2010, p. 111). In the case of Malaysia, the country relies on a dual legal system based on common law and theocratic law. English Common law is based on tradition and judicial precedents (stare decisis). This type of legal system is used in, among others, U. S. , U. K. , India, Canada, Hong Kong, Australia, and New Zealand (Daniels, Radebaugh, & Sullivan, 2010).
Malaysia also relies on Muslim law (or Sharia), which is based on religious precepts and beliefs. Muslim law prevails in Turkey, Kuwait, Indonesia, Saudi Arabia, Iran, etc. (Daniels, Radebaugh, & Sullivan, 2010). In developing countries, such as Malaysia, foreign companies and managers, such as Mr. Chong, may encounter legal risks due to the legal framework and the effectiveness of the legal system (Ling & Hoang, 2010). In recent years, Malaysia has opened its market towards liberalization of trade and services and globalization (Tahir & Ismail, 2007).
Like other emerging markets, such as Mexico, China, India, and Brazil, Malaysia represents an attractive market. However, MNEs are bound to face legal challenges in emerging markets because they have an inadequate commercial infrastructure, weak legal system, and high-risk environment (Pearson, 2011a; Pearson, 2011b). For instance, Malaysian civil and commercial laws regarding business payments for social purposes are not clear. It is a common practice in Klang and Kuala Lumpur to make social contributions for community projects, such as schools and roads (Inkpen, 2010). Additional legal issues that Mr.
Chong may face in Malaysia are the “insufficient legal infrastructure for enforcing legal judgment” and “uncertainty and unfairness of court justice” (Ling & Hoang, 2010, p. 157). In Malaysia, the regulations regarding foreign investment lack transparency (Inkpen, 2010) and there had been many cases of bribery involving public officials. Malaysia has a high tendency toward corruption, which refers to “the misuse of entrusted power for private gain” (Daniels, Radebaugh, & Sullivan, 2010, p. 191). According to the TI Corruption Perception Index (2010), Malaysia was ranked 4. on of a scale of 0 (more likely to pay bribe) to 10 (less like to pay bribe) (Daniels, Radebaugh, & Sullivan, 2010). Russia, People’s Republic of China and Italy precede Malaysia in terms of frequency and size of bribes (Daniels, Radebaugh, & Sullivan, 2010). Mr. Chong knows about recent cases of corporate bribery in Malaysia and in the retail industry. There had been scandals regarding foreign investors who bribed public officials or financed government programs to obtain business privileges or competitive advantage (Inkpen, 2010).
Moreover, there was a recent case of bribery involving a Jextra’s country manager in the Philippines. More likely, this manager also encountered similar ethical dilemmas like Mr. Chong. Some individual factors that may have driven him to act unethically in the Philippines could have been pressure from the company to expand and gain competitive advantage in the region. Alternatively, he might have simply wanted to advance his career as a country manager, lacked of ethics or did not know the local laws regarding bribery.
Additionally, he might not have received or requested support from the top management regarding the social and ethical issues raised in the Philippines. Mr. Chong, as an experienced manager, should have anticipated that he would encounter legal and ethical risks in Malaysia. Mr. Chong face major challenges due to the weak legal framework and wide spread corruption in Malaysia. Additionally, Mr. Chong is not familiar with Malaysian domestic law and International law. For instance, Mr. Chong does not know whether accepting the Mayor’s offer would breach Malaysian law.
It is against the International law to offer money, directly or indirectly, to officials of foreign governments (in this case the Mayor of Klang), to obtain a business advantage (help Jextra with the landing zone) (Inkpen, 2010). According to Daniels, Radebaugh, and Sullivan (2010), it is crucial for foreign firms and managers that operate overseas to be familiar with domestic law and international law. Moreover, Mr. Chong does not know the legal policies of his home country, and therefore, if contributing to obtain a business benefit would be considered illegal in Hong Kong, if it were not through the right channel (Jextra Social Fund).
Jextra Social Fund provides financing for educational and social projects (Inkpen, 2010). However, Mr. Chong is not sure whether he should go through this channel to make the contribution in order to expedite the zoning process. Additionally, Jextra’s Business Code does not help Mr. Chong to make a decision regarding this matter. Mr. Chong is not sure whether financing the primary school in Klang would be against Jextra’s Business Conduct Code. Jextra’s Business Conduct Code states “employees could not offer benefits to third parties in connection with business matters” (Inkpen, 2010, p. 3). However, Mr.
Chong does not know if the contribution would really benefit the community or individuals, such as the Mayor of Klang or his sister; the sister of the Mayor is a member of the school board. Mr. Chong also faces challenges with regard to the differences of culture between Malaysia and his home country, China. Research shows that individuals from different cultures may face challenges in understanding the behavior and values of others in the host country. Thus, this can cause a cultural clash (Tahir & Ismael, 2010). However, China and Malaysia are culturally close, so it can be expected that Mr.
Chong adjust more easily than if he were to do business in countries with more cultural distance, such as France, U. S. or Germany (Daniels, Radebaugh, & Sullivan, 2010). Both, Malaysia and China present many similarities regarding its culture. Based on Hofstede’s cultural dimensions theory, both countries have a high degree of power distance (PDI), collectivism, masculinity (MAS), and high uncertainty avoidance (UAI). (Daniels, Radebaugh, & Sullivan, 2010). Additionally, Mr. Chong may have a different level of ethical sensitivity than its counterparts in Malaysia (Chan & Cheung, 2012).
People from different cultures have different ethics, which are influenced by their beliefs and cultural values (Chan & Cheung, 2012). Other challenges that may rise are problems regarding communications. As noted by Daniels, Radebaugh, and Sullivan (2010), “cross-border communications do not always translate as intended” (p. 67) and can lead to misunderstandings. For instance, Mr Chong is not sure about what the Mayor meant when he asked to pay for the primary school; whether he asked to pay the entire cost of the school or just a part (Inkpen, 2010). Resolving the Mayor’s Requests
Accepting the Mayor’s offer and financing the project without using the right company’s channel (Jextra Social Fund) would be illegal. It also might go against Jextra’s corporate culture and Business Conduct Code. Bribery is wrong and unethical, and as noted by Daniels, Radebaugh, and Sullivan (2010), “it affects both company and country economies” (p. 192). Research shows that high levels of corruption have a strong correlation with low levels of per capita income and low national growth rates (Daniels, Radebaugh, and Sullivan, 2010). Having another bribery scandal would erode Jextra’s reputation and image.
It would compromise the legitimacy of the company worldwide and its operations (Daniels, Radebaugh, and Sullivan, 2010). It is challenging for foreign managers to avoid bribe payments when these are regarded as a usual business practice in the host country (Daniels, Radebaugh, and Sullivan, 2010). Even though, it would be easier for Mr. Chong to just pay the bribe to the Mayor of Klang and “fall back on the standard of cultural relativism” (Daniels, Radebaugh, and Sullivan, 2010, p. 195). As a manager, Mr. Chong should act responsibly and ethically, nd in compliance with local law, corporate culture and International law. The best approach for Mr. Chong would be to report to the Regional Operating Officer responsible for Malaysia, Singapore and Thailand and to the CEO, and CFO of the Supermarket and Hypermarket Divisions of the company in Hong Kong (Inkpen, 2010). Definitely, Mr. Chong should consult this issue with top management. Jextra and Mr. Chong should also receive legal advice from a reputable law firm in Malaysia regarding the legality of the Mayor’s offer, and if accepting the offer would constitute an offense under the U.
S. Foreign Corrupt Practices Act (FCPA) and the U. K. Bribery Act. If it does constitute bribery, then the best option for Mr. Chong would be to reject the mayor’s offer and proceed through formal channels to get the zoning approval (Inkpen, 2010). U. S. FCPA and the U. K. Bribery Act Even though Jextra is based in Hong Kong, the company is not exempt from the extraterritorial reach of the U. K Bribery Act and the U. S. Foreign Corrupt Practices Act (FCPA) (Arnold & Porter Advisory, 2012). The FCPA refers to legislation enacted in 1977 that outlaws bribery (Arnold & Porter Advisory, 2012).
It makes illegal bribery payments by U. S. companies to political parties and foreign officials. This legislation applies to operations in the U. S. and international operations as well, and to company’s employees and their agents abroad (Daniels, Radebaugh, & Sullivan, 2010). Not only U. S citizens, U. S companies or “issuers of securities on US exchanges” (Arnold & Porter Advisory, 2012, p. 3) are potentially liable under the FCPA, but also individuals of any nationality that make bribery payments to any foreign government official while staying in the U.
S. (Arnold & Porter Advisory, 2012, p. 3). There is lack of consistency in the provisions of FCPA. For instance, it is not legal to pay to public officials to facilitate business transactions (referred to as “facilitating payments or grease money”) (Daniels, Radebaugh, & Sullivan, 2010, p. 194). However, payments must be made to officials who are directly responsible for the transactions. In 1988, the FCPA enacted a new amendment that excludes grease money from bribery (Daniels, Radebaugh, & Sullivan, 2010, p. 194).
In that case, under the FCPA, if Jextra finances the primary school through the Social Fund and make the payments directly to the Mayor’s sister in order to expedite the landing zone, it may not be unlawful. The payments should be made to someone who is directly involved with the primary school, such as the Mayor’s sister or other member of the school board and cannot be made to the Mayor directly. The U. K. Bribery Act became effective on July 1, 2011 and as the FCPA, it has a vast jurisdictional reach (Arnold & Porter Advisory, 2012, p. 3).
The Bribery Act provides legislation regarding acts of bribery, and makes it an offense for companies that do not prevent bribery (Arnold & Porter Advisory, 2012). The jurisdictional reach of the Bribery Act is wider when companies or individuals with a close relationship to the U. K. Additionally, under the Bribery Act, foreign individuals who commit bribery overseas while residing in the U. K could also be prosecuted, commit offenses (Arnold & Porter Advisory, 2012). Foreign companies, such as Jextra, can be also subject to FCPA scrutiny; even though its business activity has little relation with the U.
S. and the company mainly operates in Asia. Non-U. S. companies could be found liable for conduct outside the U. S. that constitutes an offense under U. S. Criminal law (Arnold & Porter Advisory, 2012). FCPA incorporates extraterritorial provisions in its legislation. Therefore, as noted by Arnold and PorterAdvisory (2012), it is important that MNEs, consider “the potential liability under the FCPA to which their operations may be exposed” (p. 3), whether conducting business in the U. S. or outside. Mr. Chong should act in compliance with the FCPA and Bribery Act.
Managers are responsible when corruption is afoot and need to be vigilant with their actions. In addition, Jextra is responsible for ensuring that its “anti-corruption measures satisfy both jurisdictions” (Arnold & Porter Advisory, 2012, p. 6). In today’s global economy, international companies, such as Jextra have may worldwide connections through its suppliers and subsidiaries. Under the Bribery Act, it could be established some type of association, for instance through a Jextra’s parent company or subsidiary, so that if the company was to commit bribery it could still be prosecuted in the U.
K. Therefore, Jextra and Mr. Chong should be extremely cautios and take into consideration that both the Bribery Act and the FCPA may have direct impact on the company’s operations; even if the company has little connection with U. K and U. S. (Arnold & Porter Advisory, 2012, p. 6). Chong’s Recommendations to Jextra Malaysia lacks of a developed legal system and has a risky business environment, which make it challenging for foreign companies, such as Jextra, to conduct business in an ethical, fair, and responsible manner.
Chong’s recommendations to Jextra include seeking proper legal counsel regarding Malaysian commercial and civil laws, and payments to government officials. An additional recommendation is to implement an effective internal business code of conduct. A clear code of conduct would mitigate some of the problems that Mr. Chong faces. The code should set global policies for Jextra’s employees and any individual working for the company (Daniels, Radebaugh, & Sullivan, 2010). The code of conduct should not only be communicated to all Jextra’ s employees, but also to its suppliers and contractors.
Additionally, the code of conduct should ensure that its policies are carried out. For instance, Jextra should make employees sign a written agreement conforming that they read and understood the code of conduct (Daniels, Radebaugh, & Sullivan, 2010). Additionally, Jextra should require managers to go through a formal program that teaches them the company’s ethical code of conduct. It is vital for Jextra to implement the right measures and procedures, as well as strictly enforce these measures, to prevent bribery and other unethical behaviors among its employees.
This would help the company to avoid potential prosecution and civil litigation under the FCPA and The Bribery Act. A third recommendation would include an internal investigation regarding Mr. Alam conduct. As a category manager, Mr. Alam may be using his position in the company for personal gain (Inkpen, 2010). Mr. Chong as a supervisor of Mr. Alam need to ensure that Mr. Alam is not taking bribes or gifts from suppliers, or benefitting his father-in-law. An additional recommendation include inter-cultural training for Jextra’s managers assigned abroad.
When conducting business overseas, it is imperative that managers receive adequate training regarding the legal and political environment, international law, and national culture of the host country. Managers should also receive training in ethics to avoid unethical conduct. Additionally, when conducting international business, geocentrism is a good approach. According to Daniels, Radebaugh, & Sullivan (2010) geocentrism requires firms “to balance informed knowledge of their own organizational cultures with home- and host-country needs, capabilities and constraints” (p. 4). Jextra should integrate its own company practices, Malaysian practices, and new practices as well (Daniels, Radebaugh, & Sullivan, 2010). Conclusions and Lessons Learned Legal policies, which include domestic law and international law, play a major role in determining how global companies can conduct businesses abroad (Daniels, Radebaugh, & Sullivan, 2010). International firms should act responsibly and ensure that its employees act in accordance with the domestic law where they operate and do not commit any offense under the FCPA and Bribery Act.
By acting ethically, companies can create competitive advantage, shared value, and avoid being perceived as unethical and irresponsible by the local and global communities (Daniels, Radebaugh, & Sullivan, 2010; Porter, 2010). As a potential global manager I learned that it is crucial for global firms to set clear codes of conduct, ensure compliance with the codes (training, auditing programs), and enforce the policies in the code (Daniels, Radebaugh, & Sullivan, 2010).
However, foreign managers will still face ethical dilemmas when working in a different legal and political environment. Managers need to be knowledgeable about cultural, legal, political, and ethical factors in order to succeed in their assignment overseas (Daniels, Radebaugh, & Sullivan, 2010). Therefore, managers should receive adequate inter-cultural training and counseling about the host country’s values, norms, legal and political system. Managers should be a role model for other employees by showing cultural awareness and ethical behavior.