Business Ethics - Cross Border Business

Cross –Border Business

With the trend of globalization among the world, business of enterprise no longer limit on specific region, but can be expanded everywhere on the earth. Cross-border business allows enterprises to trade easily, which not only increase the revenue and reputation across different territories, but also convenience that people can purchase the goods and services without the boundary.

Meanwhile, cross-border benefits the enterprises to minimize the costs of production and laboring by located certain units in some low cost regions. Such practice obviously takes place in developing countries, like China, India, Vietnam, etc.

In the mid of 20 century, development of light manufacturing mostly dominated by small-and medium enterprises (SMEs) boosted in Hong Kong. Such development supported great portion of the economy in different areas like employment, import/export, wholesale and retail, etc.

Since 1987, China government executed an open door policy, SMEs in Hong Kong took such advantage to re-site their manufacturing and operating units back to Mainland which could enjoy the lower wages and operating costs derived in China.

Although the financial advantage maximize the profit cross-border business brings, couple of integrity management challenges SMEs would face during the relocation.

Integrity Management Challenges

Conflict of Interest

In China, the establishment of a trade or business relationship usually does not base on the price or quality of goods or services, but mostly on the personal relationship of the director or top management. It is not difficult to observe this “practice” in Chinese enterprises that the business partners mostly linked in various ways, maybe family member/relative, or maybe through the friendship.

Bribery and Corruption

Even though bribery and corruption is violated the criminal law of PRC, enforcement measures seemed not that enforceable, and ignored by the public as usual. In order to make a deal or affect someone to act/forbear, an inducement (pecuniary or non-pecuniary advantage) can be treated as rewards, or what Chinese called “sincerity”.

Lack of Quality Assurance

With the benefit of low manufacturing cost, enterprises can produce the goods in high quantity and take the advantage of economic of scale. However, enterprises seem emphases on the profit maximization, and neglect the quality control on what they have made. From the news, we can see that the quality control of the goods produced from mainland raised certain problems, especially in the safety, chemical used, as well as the maintenance service after sale.

Check and Balance

As the directorship and managing power of SMEs are focused on minority of people, ability of monitoring and equal authority are definitely invalid among Asian enterprises. The decisive right, voting power, even the decisions made are reluctant to disclose as much as they can. The external stakeholders probably obtain the information which have already modified and cannot reflect the real financial and non-financial situation of the institutions.

Embezzlement

In the preceding paragraph mentioned, lacking an effective check and balance mechanism will cause several ethical issues. Embezzlement is one of the problematic causes due to low transparency and poor internal control procedure. Colleagues abuse or occupy the company’s asset without tracing or penalize. It seems conniving and encouraging such unethical behavior, and no longer treats as a problem.

Legal Risk

To build/maintain a business relationship, Kitchen Best offered entertainment and kickbacks to potential clients and business partners. In fact, for the multi-national company like Kitchen Best, it needed to obey the law in different countries it operated at. Moreover, CEO Henry Chan appointed his fellows to take the tasks even he did not know or pursue the illegal practices his fellows used, Kitchen Best was still liable for offence committed.

The Shago Incident

In the deal with Shago, Kitchen Best requested to source the gift set of microwavable tableware for the 40th anniversary collection of Shago. However, Kitchen Best breached the contract as it provided the tableware which were not microwavable.

According the Misrepresentation Ordinance (Cap. 284 of the Laws of Hong Kong), the innocent party (“Shago”) allow to apply to court that treat the contract as discharged and sue for compensation and refund from the defaulting party (“Kitchen Best”) due to a condition (to provide microwavable tableware) is breach. Kitchen Best was liable for misrepresentation as the order of Shago was inconsistent with the actual goods received from Kitchen Best.

Under the Criminal Law of the PRC Article 163, “any employee of a company, enterprises or other unit taking advantage of his position demanding or illegally accepting money or property from another person in return for the benefits he seeks to provide for such person.”

In the same issue, Horatio Sze, the purchasing and production manager who responsible for sourcing the tableware was discovered to award the contract to a factory in Dongguan that was owned by his brother-in-law, in the return of free Europe tour. This act violated the Article 163 mentioned in preceding paragraph, which Horatio must not take advantage of his position to accept the bribe.

Haus de Metro: Testing and Certification Issues

Similar to the case of Shagon, Kitchen Best unable to provide the cargo of electric water dispensers to Haus de Metro (“HdM”) with a satisfied safety requirement as stated in the satisfactory testing report received by Kitchen Best. It exposed a legal risk that HdM reserved a right to sue and demanded compensation from Kitchen Best on misrepresentation through civil route.

To go more further, it discovered that Qinghua Electrical Appliance Ltd, a subcontractor of the HdM’s order, offered a bribe to Keemark Testing Services, an independent testing agency, to report the product testing and inspection result to Kitchen Best with false data in order to pass the HdM’s Restriction on Hazardous Substances (“RoHS”) standards. For the sake of inducing Keemark to do the favorite of Qinghua, Qinghua deposited bribe money into the Keemark team leader’s wife Hong Kong bank account in return of interfered the laboratory testing by replaced a satisfied test sample.