Question

Rice Products in Bangladesh

Business behavior is derived in large part from the basic cultural environment in which the business operates and, as such, is subject to the extreme diversity encountered among the various cultures and subcultures. Here in particular we explore the necessity for adapting to cultural differences and how that can at times conflict with business ethics. This activity focuses on corruption, bribery, and ethics as it applies to adaptation. It deals with the concepts of ethics and corruption in international business.

Management styles differ around the world. Some cultures emphasize the importance of information and competition. Others focus more on relationships and transaction cost reduction. Businesspersons must be sensitive to the business environment in the foreign country in which they work and adapt accordingly. Knowing when to adapt is most important. Understanding the culture you are entering is the only sound basis for planning.

Read the case below and answer the questions that follow.

Rice Products, Inc. (Rice Products) is a relatively large New York corporation, hoping to be among the “Fortune 500,” although it has quite a way to go. The company has a few international operations. It is in the business of importing and exporting, growing, processing, and distributing rice and rice products throughout the world. It has a significant amount of experience in doing business in nations of varying stages of development and of political and economic philosophies.

Rice Products has been in Asia for more than 75 years and in Bangladesh for about 50 years. It has either directly purchased or grown rice in Bangladesh during that time. Rice Products purchased Bangladesh rice for processing in Europe and the United States. It had never established a processing plant in Bangladesh.

In 2003, however, at the urging of the Bangladeshi government, Rice Products agreed to establish a small rice processing plant in Bangladesh. Bangladesh had been one of the largest producers of rice during the British occupancy, but had lost that capability over the time. Now, the government wanted the company to offer a minority equity position to Bangladesh. But Rice Products was able to convince government officials that the enterprise should be a wholly foreign-owned subsidiary, even though the then-applicable Bangladesh foreign investment law prohibited more than 49 percent foreign equity. In 2003 Bangladesh was ruled by a military junta.

Rice Product's officials, at company expense, wined and dined members of the Bangladesh government over a three-month period during the process of persuading officials to exempt the company from beginning a joint venture with Bangladeshi equity and to grant the necessary licenses. Rice Products also made several campaign contributions to some key Bangladeshi legislators who faced re-election, and who at first opposed the wholly foreign-owned subsidiary, but were persuaded to change their minds.

After this period of wining and dining and after receiving a permit to construct the processing plant, and after further negotiations, Rice Products agreed to establish employee housing, construct recreational facilities adjacent to its plant, and subsidize employee transportation from the center of Dhaka, Bangladesh, to the plant on the outskirts of the city. The reason they gave publicly and privately was that it made good business sense.

The government had tried to convince Rice Products to locate the plant in a rural area, far from Dhaka, where unemployment was particularly high. Rice Products was able to convince the government officials that the plant should be near Dhaka. After all, Dhaka is the largest population center, with the most advanced infrastructure.

The final contract with the government was signed in early 2004 at Rice Product's executive offices in New York City. The company had flown on the corporate jet the eight most involved Bangladeshi officials and their spouses to New York for the ceremony. They were given a tour of various company facilities and for several days attended sports and cultural events in various parts of the United States, including Las Vegas. They very much enjoyed the hospitality of Rice Products.

Unfortunately, the good times did not last long. The Bangladeshi plant functioned profitably for only a year. There were occasional difficulties and delays with the importation of machinery to mill the rice and packaging.

The normal processing for clearing customs often took several months. On more than one occasion, when the company feared the possibility of delays in production and laying off Bangladeshi workers, cash payments of about $500 were given to several different Bangladeshi customs officials, who in return gave priority status to the clearance of the containers. To have lost the employees represented a very serious issue. Their ability to get them back once they had gone to the countryside made such delays economically very difficult. Many of the customs officials were related in one form or another to the military junta.

In late 2005, several other Asian nations that were the principal markets for Rice Products' prepared rice drinks shifted their purchases to other sources. Because of political violence and demonstrations seeking higher wages, the production began to suffer. Bangladesh rice was becoming less competitive than that grown in several nations close to the major markets of Rice Products. Rice Products has been reluctant to participate in joint ventures in developing nations. It has always preferred to have wholly owned subsidiaries. But it has agreed to joint ventures in several developing nations.

This led the Board of Directors of Rice Products to approve the sale of the Bangladeshi processing plant. It informed the government that it was seeking potential buyers and inquired whether the government might like to purchase the plant. But an offer by the government was only 60 percent of what the company believed was a fair price, and the offer was courteously rejected. After further months of searching, a Japanese food processing company with extensive operations in Asia agreed to Rice Products’ price. For reasons not given to Rice Products, the Bangladesh government continued to delay granting required for approval of the transfer.

After months of frustration, Rice Products was approached by a consulting firm in Dhaka. Owned and staffed exclusively by Bangladeshis, the firm was known to Rice Products as having excellent contacts with the Bangladesh government and especially with the military junta. The senior staff members were former high-level government officials and ex-members of the military. It had a reputation for “getting things done” and suggested to Rice Products that government delays often were occasioned by inefficient procedures, a maze of bureaucratic regulations and other minor obstacles with which they had experience surmounting. The fee of $1,000,000 for obtaining approval of the sale at first appeared to Rice Products to be exorbitantly high. But it was not unreasonable in view of the company's desire to withdraw, and the serious reduction of production efficiency in the plant since the news of its impending withdrawal had become known to the employees. In fact, employees were starting to abandon their positions.

Wanting to move quickly before the plant became completely non-operational, the company paid the fee and in doing so, expressly told the consultants that the company did not need to have any accounting as to how the money was used. In 2008, within two weeks of Rice Products’ retaining the consulting firm, the proposed sale of the plant was approved by the government.

Three months later it was disclosed in newspapers in Dhaka, the United States, and Europe, that some of the money that had been paid to the consulting firm in turn had been paid to several Bangladeshi government and military officials. The press reports created a public relations nightmare.

In late 2008, the company, the president, the vice president of the international division, all the members of the board of directors, and the former managing director of the Bangladesh plant were indicted in federal court in the United States with having violated the U.S. Foreign Corrupt Practices Act by making improper payments in Bangladesh. The only record kept of any of the payments were listed under, “ordinary promotional expenses.”

1) Cash payments of about $500 were given to several different Bangladeshi customs officials, who in return gave priority status to the clearance of the containers. If the officials were not prohibited by law from receiving such payments, it would be an example of

A) lubrication.

B) routine business.

C) subornation.

D) utilitarian ethics.

E) extortion.

2) According to the Foreign Corrupt Practices Act, U.S. executives are prohibited from bribing foreign officials in the attainment or retainment of business. Which of the following represents questionable conduct by Rice Products?

A) payment of the $1,000,000 to the consulting agent

B) wining and dining of Bangladeshi officials for three months to change joint venture law

C) rice products agreeing to establish employee housing and construct recreational facilities adjacent to its plant

D) All of the answer choices are correct.

3) Besides the various potential violations of the Foreign Corrupt Practices Act, “subornation” may be best argued in which of the following examples?

A) wining and dining of Bangladeshi officials and their wives before and after signing the contract

B) the $500 payments made to customs officials

C) the $1,000,000 fee paid to the consulting firm

D) the establishment of employee housing and construction of recreational facilities

4) Perhaps the most blatant disregard of the FCPA is

A) the $1,000,000 consulting fees.

B) the wining and dining, both to change the law or after contract has been signed.

C) the lack of proper record keeping, in particular, the entry ''ordinary promotional expenses''.

D) the $500 customs fees.

Answer 1

1) A. Lubrication.

2) D. All the choices are correct.

• payment of the $1,000,000 to the consulting agent.
• wining and dining of bangladeshi officials for three months to change joint venture law.
• rice products agreeing to establish employee housing and construct recreational facilities adjacent to its plant

3) C. The $1,000,000 fee paid to the consulting firm.

4) C. The lack of proper record keeping,in particular,the entry "ordinary promotional expenses".