CWS 3.0: November 16, 2011 - Vol. 3.33

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Compliance: Risky Business Customs in Asia Pacific

The Asia Pacific region continues to attract U.S. and European companies looking to expand their contingent workforce programs. Starting this week, CWS 30 will carry a series of articles outlining specific risks of doing business in that region.

While the opportunities from doing business in Asia Pac are tempting, CW managers would be wise to take the time to educate themselves on the background and reputation of potential business partners.

Of course, is not possible for any one person to become thoroughly knowledgeable about doing business in every country in the Asia Pac region. The best you can hope for is to have a good grasp of the common practices that may impact your business. Readers should seek specific advice before taking any action with respect to the matters discussed in this article. That said, it’s also an astute professional that takes the time to learn about some of the inner workings of the country he or she is looking to do business in — and any laws that might come into play. Here’s why.

A couple of years ago, I was invited to meet the head of one of the districts of Shanghai. Prior to the meeting I was given a lesson in Chinese etiquette and introduced to the concept of guanxi. Guanxi describes the basic dynamic in personalized networks of influence; I was told having good guanxi with this official would create business opportunities for our company. In order to nurture this relationship I was advised that it is a Chinese tradition to present a gift to one’s host. In our case, the gift was merely a token of appreciation, but in many cases, cash is given. That’s where U.S. companies can get themselves into trouble.

Bribery is a fact of business in many parts of Asia. Indeed, research has shown that 67 percent of businesses in Vietnam pay bribes as a way of getting things done; in Thailand, 79 percent of businesses have had to bribe officials and administrators to obtain desired contracts of services, according to research from the Business Anti-Corruption Portal.

While the offer of payment to officials may the norm in certain parts of Asia, for a U.S. company, such a practice constitutes a violation of the Foreign Corrupt Practices Act (FCPA), which could result in criminal sanctions, as well as hefty penalties levied by the U.S. government. In 2007, Lucent Technologies was ordered to pay $2.5 million in fines for having spent millions of dollars on trips for Chinese government officials.

These countries’ business customs should not deter companies from wanting to engage in economic activity there. But at the same time, it is important that CW mangers stay alert to the risks. Conduct appropriate due diligence to determine whether there may be FCPA violation concerns regarding a company and/ or its principals, to include whether an individual you are doing business with has extensive political connections. For additional assurance, be sure to look into the background and practices of potential business partners.

As the Chinese proverb notes: “Deep doubts, deep wisdom; small doubts, little wisdom”.

Martin Glick is senior associate of global compliance with Brightfield Strategies LLC, which helps Fortune 500 companies with contingent workforce strategy initiatives such as program design, VMS/MSP sourcing and selection, and global program compliance. He can be reached at mglick@brightfieldstrategies.com.

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