The art of reaching true agreement with a foreign distributor is a delicate dance. At the beginning, the relationship is full of possibilities and enthusiasm. Both companies want to reach agreement and get down to the business of selling things as soon as possible.

But, when it comes to negotiating international distribution agreements there is a lot of room for error, which can lead to some major hiccups and ultimately cost your business time, money and customers.

Here are the top ten misconceptions floating around out there, and the solutions to protect your bottom line in distribution agreements.

Myth #1: We don’t have time for a contract – we need to get busy selling!

Many companies will only do a legal agreement if their legal department insists on it, and if they don’t have a legal department, it probably won’t happen.

Even companies with written agreements may think of the contract as something to be done at the end of the negotiations—a necessary evil to tidy up the little details, but that delays getting on with the business at hand.

But they’re missing a great opportunity: the contract negotiation process ensures the parties truly have clarity and consensus, and as an added benefit, builds the all-important relationship between supplier and distributor.

Through the contract negotiation process, a good international lawyer helps reveal gaps in understanding that are never an issue in domestic negotiations, and coaches and guides the parties to a better partnership. Working through small conflicts as part of the negotiation builds trust as they gain confidence they can successfully work through inevitable disagreements.

Myth # 2: How we found our distributor is totally separate from our contract

Many may ask: what does that have to do with the distribution contract?

It matters because the best foreign distribution agreements start long before sitting down with a written document.

A supplier with a distributor recruitment process has thought pretty carefully about its objectives for its distribution business. These objectives can be clearly articulated, which leads to discussions with distributors that are more productive for both companies. They see mutual interest right from the outset of the relationship (or the lack of real interest becomes clear very quickly).

The contract negotiation process is consistently smoother when suppliers do a lot of the contract pre-work by thinking carefully about what they want in their distributors, envision what a great distributor looks like, and then go find those distributors.

Due diligence also helps create better agreements because it weeds out distributors that are bad fits long before wasting time finding that out through a painful contract negotiation process.

Myth # 3: Contract templates are great, because that way we can skip the legal review costs.

Templates are a great place to start. But they are only the START, and should not replace competent legal review.

These days, it’s easy to find templates on the internet. You can purchase them online, or obtain them from colleagues, trade associations, or government agencies. Even most lawyers will admit they start with a document repurposed from somewhere. Make sure the one you use fits your situation.

Some questions to ask to ensure you’re starting with a good template:

Do I have an agent or a distributor? The legal agreements for the two types of arrangement are totally different. If you pull a “distribution agreement” off the internet, but you have an agent, you’re not even starting with the right kind of agreement.

Does the template cover all the key points? Make sure your template is comprehensive.

Does it adequately address services or software? Distribution templates are typically product-focused, and may not address related service and software issues. Today, there is often a service component to many product sales. For example, is installation required for your products? What about trouble-shooting, maintenance, upgrades, and warranty repairs?

Second, templates are NOT a substitute for competent legal review

Used wisely, a good template can facilitate the negotiation process. Unless you’re very experienced with legal agreements, however, you’ll benefit immensely from having a qualified lawyer review the document with you.

Agreements without legal review often omit important provisions. Many are worded poorly and the interpretation is subject to dispute.

Myth #4: We Can Just Have Our Local Contracts Lawyer Review Our Agreements

Just because a signed contract says something doesn’t make it so.

When you have a contract with a foreign distributor, you now have two completely different legal systems—yours, and that of your distributor. The contract interpretation becomes much more complicated and much less predictable. Expert legal advice is needed to sort out the rules that will apply, and how they will apply.

Balancing all this is complicated, and depending on the amount at stake, requires not only an experienced international attorney in your home country, but selective consultation with their counterpart in the distributor’s country. And the lawyer in the distributor’s country cannot be just any local commercial lawyer, but a lawyer who also is experienced with cross-border transactions.

For these reasons, you should NOT have your international distribution agreement reviewed by the local lawyer who helps your company with other business, even other contracts—unless they also happen to be an experienced international lawyer, which is unlikely.

Myth #5: We hope our foreign distributors don’t hand out bribes, but if they do, it’s really not our problem.

Most companies today know that foreign bribery is bad and  illegal. They may have heard of the U.S. Foreign Corrupt Practices Act (FCPA), or the UK Bribery Act, and other similar laws.

But there are plenty of companies that export using distributors still don’t understand that they can be held accountable for bribes their distributors make. Maybe it’s because it seems far-fetched that a completely independent company like your distributor can put you at risk for their actions. Maybe it’s because it seems unlikely your distributor or you will get caught.

Whatever the reason, the truth is: more and more companies are finding themselves subject to FCPA enforcement because of their distributor’s bribes.

According to the U.S. government, here’s what every U.S. company needs to do with their foreign distributors to avoid liability:

• Conduct thorough due diligence, which may include regular background checks and investigations on distributors.
• Include anti-bribery language in all distributor agreements (which presumes you must have written contracts) that clearly allows you to terminate if you discover bad behavior.
• Train your distributors (as well as your employees who interact with them) regularly on anti-bribery compliance.
• Clearly understand how your products are reaching the end customers and confirm if there are any other intermediaries.
• Prohibit use of sub-distributors, agents, or other intermediaries by your distributor unless you have investigated appropriately and provided written approval.
• Make sure your distributors’ customer margins, and any other compensation you pay them, are reasonable and customary.
• Have controls in place to make sure any red flags are raised and addressed.
• Have your internal audit or finance function monitor this program regularly.
• Document everything that you verified, as well as how any issues or problems were investigated and resolved.

By the way, bribes are still pretty common in many countries. So make sure you get good legal advice when exporting so that you can assess bribery risks and create an anti-corruption program that works for your company.

Myth #6: Two extremes: We never give exclusivity unless forced to, or, we give exclusivity freely.

Virtually every international distributor will ask for (or insist on) exclusivity. A frequent question in contract negotiations is whether you can or should give it to them. It’s an issue worth weighing carefully.

There is no single rule about granting exclusivity. It depends on the geography, local laws, what is customary in your industry, and practical business considerations.

The best we can do is set out some of the most common factors to consider.

Does local law permit the type and extent of exclusivity you are considering?

When granting exclusivity, it is expected to have minimum purchase requirements. You will still want to understand which these will be enforceable under local law, especially regarding “take or pay” minimum purchase provisions.

If a distributor insists on exclusivity, but is unwilling to agree to enforceable minimums, think long and hard before moving forward with this partner.

You will also need to weigh the practical and business considerations. In some cases, you may have no real choice on exclusivity. If there are only two qualified distributors in a market and your competitor already works with one, you have limited negotiating leverage.

Are you are willing to invest in the distributor, and vice versa?

Ensure that you contract allows you to terminate exclusivity without terminating the entire agreement. 

Understand clearly the local law requirements for terminating exclusivity, including the grounds for termination and whether any payments will be due.

Myth #7: If We Set Aggressive Deadlines to Finalize Our International Contracts, We’ll All Stay Focused and Get it Done More Quickly!

Negotiating a cross-border agreement flat out takes a lot more time to negotiate than the same agreement within your country, or between a U.S. and a Canadian company. Expecting negotiations to move at the pace of a typical domestic agreement is almost guaranteed to result in disappointment and frustration.

This concept is simple on its face, but in reality is often very difficult for some to accept. The reasons these agreements take so much longer varies. Time zone differences and language issues definitely play a role. Differing cultural expectations, though, usually have a larger impact. To effectively negotiate great distributor relationships in the international arena, you need to get a bit zen. Negotiating styles vary widely from country to country, and you must accept that your distributor is not going to change their culture suddenly to meet your arbitrary timelines.

It helps a lot to relax, and just enjoy the process of seeing the many different styles of negotiation. Getting frustrated will not force your foreign partner to be more like you!

In the end, continuing to build a good relationship with the distributor is most important – if you have that, you are much more likely to have a productive business partner and a better agreement than by simply rushing to meet artificial deadlines. And you may also need to help educate your own bosses to help manage their expectations.

Myth #8: We don’t need to spell out operational details in the contract—that’s business stuff, not legal!

Operational issues generally make or break client-distributor relationships. And the time to think through and discuss them is during contract negotiations. If the parties have detailed discussion and put their agreement in writing, there tends to be fewer issues later.

Here are some of the most common sources of disputes, and some questions to consider:

Investments: How many people will the distributor dedicate to selling and supporting your products? What kind of skill sets do they need? Do you want the right to interview, veto, or replace these people? When there is turnover of personnel, how quickly should these positions be filled, and what recourse should you, the manufacturer have, if the positions aren’t replaced? Which of you will pay for product training, congresses to promote your products, or the creation of localized marketing materials?

Forecasting & Demand Planning: There is nothing worse than having your distributor provide you an aggressive sales forecast, and you purchase or make products based on this forecast, only to find the orders never come. The reverse is equally bad: the distributor suddenly wants lots of unforecasted products shipped immediately, and you don’t have them available.

Logistics and Supply Chain: When are rush or air freight shipments appropriate? How long are manufacturing lead times? How are product shortages rationalized? Will the distributor incur penalties in their customer contracts if delivery is delayed? What shipping metrics will you use?

Reporting and Business Reviews: Will there be an agreed business plan? Will there be quarterly business reviews? Will there be minimum purchases, and how and under what circumstances will they be adjusted? What metrics, besides minimums, are you expecting your distributor to meet? Do you expect sales tracings reports? If so, how often, and in what format?

After-Sales Support: How will returns and repairs be handled? What tasks are the distributor able to handle? Should they receive special training to do certain after-sales support activities? Will the manufacturer or a third party handle? How quickly can repairs be done? When is replacement appropriate?

Take the time to discuss these and any other relevant operational detail with your new distributor. Memorialize these in your contract. Think of your distribution contract less as a document you pull out of the dusty files when things have gone wrong, and more like a blueprint for governing your distributor relationship.

Myth #9: We don’t spend much time negotiating termination, because it will spoil the enthusiasm.

No one (except, of course, the lawyers) want to think about how to end a relationship when it is only just beginning and full of promise. However, most agreements eventually end, and that’s why it’s worth spending time thinking about termination—especially while the relationship is amicable.

You should always plan for termination in the context of how you would transition to a different distributor or your own stand-alone sales office. (It’s always easier to torch and run from the market, but the reality is that you should think hard about entering a market if you think that’s how it will end.)

Goodwill payments: Make sure you clearly understand any goodwill payments that may be due on termination. Think about how long-term customer contracts and government tenders should be managed to avoid disruption to the customer.

Inventory: Think through how the distributor’s existing inventory should be handled. Consider buying back some or all the inventory (other than maybe excess no-move inventory) to essentially buy their goodwill so that your brand isn’t ruined.

Product registrations and other key files: If you’re in a highly-regulated industry, think through how all the registration documents and files should be handed over. This can significantly shorten your new partner’s time to market, and may be worth a generous payment to your old distributor.

Customers: Ultimately, protecting your brand is about making sure the end customers are happy or at least accommodated. Agreeing that your distributor will provide a list of customers and key contract terms will allow a much smoother termination.

Myth #10: We’ve Invested So Much Time in This Relationship – We Can’t Give Up Now!

Whether in contract negotiations or in a long-term business relationship, human psychology is definitely at work.

Companies often feel like they’ve invested so much already that they need to slog through and finish the negotiation or continue the relationship.

All too often, suppliers keep distributors around whose poor results suggest they should be replaced. If you are clear about your exit strategy (even if that strategy evolves over time), it will guide you to a decision about whether it’s time to put in place a direct sales force, find a new distributor, or leave a market altogether if certain results aren’t met over a specific time.

Similarly, having a backup plan (again, it’s OK if that plan morphs over time) helps you keep you’re your walk-away point clearly in focus. If you don’t have Plan B, human psychology again will come into play, and you’re likely to settle for sub-par results because making change is hard and requires focus.

Having a Plan B is especially important in emerging markets. Huge currency fluctuations, political unrest, and sudden regulatory changes can happen, and the market that was once attractive no longer is. But it’s also important almost everywhere in today’s business environment, where technology changes, mergers and acquisitions, and factors have accelerated the pace of change. Being flexible and adaptable is one of the most important attributes for success in global markets.

Your distribution business will be more successful if you always keep your walkaway point in mind, and know when it’s time to pull the plug, regardless of the investment made already—that’s a sunk cost that can’t be recovered. Know when you want to exit, and how you want to exit by being prepared with a backup plan.

This article series originally appeared in Global Trade Magazine. You can view the series here.

The post Debunking the top 10 myths about international distribution agreements appeared first on Trade Ready.

Philosopher and novelist Ayn Rand recognized in her masterpiece “Atlas Shrugged” that corruption leads to the interference of trade and, eventually, to a doomed society.

Several different studies and articles confirm the negative consequences and costs of corruption for a country.

But it does not stop there. As business is part of society, corruption also dooms companies.

The known corporate corruption cases of the past show that it is impossible to control bribery and limit it to just one area or region. Even if corruption is practiced only in receptive sectors and/or countries, it is not a sustainable business strategy.

The infection can begin with one simple bribe

Companies are like living organisms that can be infected by the virus of corruption.

Similar to a viral contagion, corruption will spread throughout an organization if not treated intensively at the onset of symptoms with an antibiotic called “zero tolerance.”

To illustrate this point, let’s imagine that a sales employee pays a bribe to a procurement person at a potential customer’s company to ensure a project win. From this point in the decision-making process, the combination of price and quality plays only a subordinate role.

The winning factor is the bribe.

Inside the selling company, the impact is a decline in the importance of production and project management relative to sales. Management attention and employee focus shifts to sales, as this function is considered most valuable for the company.

In this situation, the selling company ensures business by strengthening relationships through illegal payments.

Production and project management employees are less motivated, as they feel they are no longer valued.

In response, these teams produce lower-quality work. Poor motivation leads to a decreased sense of employee loyalty, which can result in higher rates of theft, sabotage, internal fraud and employee turnover.

Meanwhile, management loses interest in how tasks are achieved, preferring instead to focus only on sales results.

The virus easily spreads from department to department

The growing infection soon spreads to the procurement department. As the internal priority is clearly the “successful” sales department, procurement loses its independence and is now advised by sales.

Procurement is pushed to use certain providers, based on whether the bribery model requires a third party or if the supplier is a family member of the prospective customer. As with the production team, we find the same effects of employee demotivation.

Corruption is not part of a culture, but a learned behavior often used to create a shortcut through complex legal environments. Many companies have an extensive system of guidelines, policies and tools.

Employees who see that bypassing external laws is acceptable corporate behavior may also assume this practice applies to internal regulations.

Conflicts of interest can increase, as internal connections become more important than the quality of employee output.

A common result is that talented employees offered the opportunity to work elsewhere will leave, while less talented employees remain.

In addition to the psychological effects on employee behavior, corruption also affects transparency and internal processes.

Winning a project with a bribe sends the wrong message to the development team, as they can only analyze the relationship between price and quality to the project win rate, but cannot include illegal payments as a key factor.

The infection starts effecting quality of work, competitive edge

Due to this hidden information, the development team wrongly concludes that the company’s solutions are competitive and that investment is unnecessary. In contrast, competitors that work with full transparency foster the development of better solutions.

Over time, the company that succeeds because of bribery loses its competitive edge. To compensate for this weakness, it has to increase the size of bribe payments – a situation that the potential recipients exploit.

Eventually, the bribes are not large enough to justify the difference in competitiveness. And if a significant number of talented employees have left to work at another company, it will be difficult to switch strategies to foster the development of superior products or identify less costly production methods.

By this time, the virus has also infected the bribed company. Because of bribe payments, the procurement employee has selected a sub-optimal solution for the company. Now this company is not using the best and/or the most cost-effective materials for its own production.

It becomes less competitive and no longer offers attractive solutions. A sales employee working for the bribed company needs to find another factor to win business, and may be tempted to offer a bribe.

You can kill the virus

If we see a company as a living organism, then some kind of preventive treatment should be prescribed for this disease.

Compliance workshops can work much like vaccinations. With relevant case discussions and role-playing exercises, employees can learn about potential situations they could face, how to react, and what consequences could occur.

Like an antivirus, this knowledge stays inside the employee and can be activated when needed.

Bureaucracy provokes corruption and vice versa.

To avoid this downward spiral, a company should establish internal processes that are as simple as possible to ensure transparency and employee accountability. Compliance Officers cannot do their jobs only from behind closed office doors.

They must be easy to reach and well-known across the company. Trusted employees can be offered the additional role of “Compliance Promoter,” and IT tools can ensure that an anonymous reporting system is available 24 hours a day.

Compliance training sessions cannot be limited to presentations about rules and regulations. It they are, employees will only behave if they feel controlled.

Instead, companies need to establish a values-based culture where employees understand their role inside the organization and how corruption could affect their job.

In this culture, everyone is equipped to face difficult situations – and not just employees in typical risk groups such as sales or procurement.

Is your company protected against this kind of “corruption contagion”? What kinds of “vaccinations” does your company have in place to stave off bribery and corruption?

The post How corruption spreads like a virus and what you can do to stop it from infecting your company appeared first on Trade Ready.

Vicente Garcia, 65, of Miami, pled guilty to a one-count information charging him with conspiracy to violate the anti-bribery provisions of the FCPA.

While sentencing is scheduled for December 16, 2015, he agreed to a monetary fine and penalty for his SEC violations. It included disgorgement of $85,965, which is the total amount of kickbacks he received, plus prejudgment interest of $6,430 for a total of $92,395.

A deeper look at the dark side of global business

The bribery scheme lasted from 2009-2013. Garcia sought a multi-million dollar contract to provide a Panamanian state agency with a technology upgrade package.

Garcia admitted that he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official, with the understanding that a portion of the money would be paid to the third official.

Garcia used sham contracts and false invoices to disguise the bribes.  Most interestingly, according to the DOJ Press Release, “Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.”

The bribery scheme netted the Panamanian SAP channel ops partner at least one contract valued at $14.5MM.

The SEC Press Release further specified some of the conduct Garcia engaged which violates the FCPA. It reported “circumvented SAP’s internal controls by submitting various approval forms to SAP that falsified the reasons for the excessive discounts to the local partner.”

Garcia used both his “SAP e-mail account and his personal e-mail account to communicate details of the bribery scheme and even identify the government officials and intended monetary amounts.”

Garcia also conveyed part of the bribery scheme through old-fashioned mail, when he sent “a letter on SAP letterhead detailing fictional meetings in Mexico as requested by the official in order to justify a trip there on false pretenses.”

While there has been no criminal or civil action involving Garcia’s employer, SAP International, a US based subsidiary of the German headquartered parent, SAP SE; such action could well occur.

A wake up call for the tech sector

Even at this point, with no DOJ or SEC action against SAP, there are several lessons for compliance practitioners.

First for any company in the tech sector, this enforcement action should serve as a double shot of espresso to give you a wake-up call.

While the first shot came back in 2014 with the HP FCPA enforcement action, this matter continues what is the clear trend that a tech sector sweep is going on regarding potential FCPA violations.

This is the same pattern used by the DOJ in prior industry sweeps through the energy and pharmaceutical sectors. Once the DOJ figures out how the industry conducts its business, it uses that model to investigate other companies going forward.

The message is more than that the tech sector is not immune from FCPA investigations or enforcement actions. It is that if you are in this space, you need to prepare now for the government to come knocking.

Be proactive in your third party management to avoid corruption

Next is the continuing issue of third parties as the leading source of FCPA violations. In the Garcia case, he employed consultants to facilitate the bribery scheme.

According to the FCPA Blog, “Garcia conspired with SAP advisors and consultants to bribe two Panamanian government officials, and the agent of a third official on the understanding that some money go to the official.”

This means that you need to get a handle on the third parties your company is using, both on the sales side of your business and those third parties which contract to do work with your company through the supply chain.

I advocate a full review of the five steps in the life-cycle of third party management.

These five steps are:

1. Business justification

2. Questionnaire to third party

3. Due diligence and evaluation

4. Contract

5. Management of the relationship after contracting

Not only should you review each of these steps to ascertain that any third parties you employee have gone through the process, but also document the process and your review. If you do not have full documentation, you cannot prove to a regulator you are in compliance with the FCPA.

Identify risk sooner rather than later

The next step is to update your risk assessment. This enforcement action makes clear that even a relatively small business opportunity can lead to a catastrophic failure of your compliance regime.

Do you know where you are doing business in addition to how you are doing business, whether through direct sales by employees or through third parties?

If you have not done a risk assessment in the past 12 months, I would suggest that you retain a reputable outside counsel or consulting firm to do so sooner rather later.

Take a stand against bribery from the top down

Finally, you need to bring this matter to the attention of your Board of Directors or Audit Committee of the Board.

Every significant FCPA enforcement action is an opportunity to engage the Board and influence the time, resources and attention they will give to your compliance program.

Each case presents its own unique of facts and gives you the opportunity to educate the Board about the need for an appropriate tone from the top.

Remember the DOJ had said Garcia believed it was “necessary to secure both the initial contract and additional Panamanian government contracts.” Your message to the Board should be that there is never a situation where a company representative feels like it is ‘necessary’ to pay bribes.

The tone against bribery starts with a Board and flows to the company’s senior management. They must communicate the message down to the middle and below that bribery and corruption to do business will not be tolerated.

Know when to walk away, know when to run

There is almost always a manner in which to do business which does not violate the FCPA. But if you cannot do business in a country or with a government official without paying a bribe, employees need to know that it is not only right and proper to step away but that is what the company expect from them going forward.

I do not think we have seen the end of the Garcia matter as there may well be other enforcement actions, which come out of this matter. You should use this opportunity to put these lessons learned into practice in your company.

Does your business have any initiatives in place that could prevent a similar situation?

The post Lessons for compliance practitioners in the tech sector – Garcia FCPA enforcement action appeared first on Trade Ready.

OK, that’s probably not objectively true, and I do exaggerate a bit to make a point – not because I am a particularly nostalgic sort, but to position the key idea of this article.

The ‘old-fashioned’ notion of ethical conduct in international business, and doing what’s right (for its own sake, can you believe it??!) has somehow gotten terribly lost, and risks being lost even more strikingly when businesses of all sizes and businesspeople of all levels venture into international markets.

That statement may sound a bit North America-centric, but the ‘loss’ can happen from many points of view, and from many markets to many other markets.

The geography of international business ethics

The concept of ethical behaviour is not exclusive to one or even a few ‘worldviews’, though its exact nature can vary significantly.

Need an example or two? Canada, the U.S. and Europe (among others) place great value on protecting intellectual property, based on a combination of commercial considerations and a sense of ‘rightness’ about doing so. This can pose a challenge when dealing in markets where the failure to protect trade secrets or IP are seen as weaknesses to be exploited.

Would a Canadian, American or European company lose its ethical worldview, or compass, when establishing a local presence in such markets? Let’s just say there have been numerous examples of this has happening, to the indignation of the home-based press and the chagrin of shareholders awaiting the impact of having been caught.

On the “other side of the coin”, I had a memorable and striking conversation with a Saudi-based banker while at a meeting in Ankara a couple of years ago. This gentleman expressed genuine dismay at the fact that bankers and investment financiers are seen as ‘kings of the world’ in some markets.

He and his colleagues felt (is there a flavour of ethical thought and conduct here?) that farmers who feed human beings and others who create value and improve life deserved greater recognition for their efforts.

Bankers, he argued gently but persuasively, ought to be reminded that they are, in reality, facilitators of far more important activity than their own.  Could such an ethical compass face the risk of losing its reference point in a major financial market?

Following your ethical “True North”

At home, or in similar environments, familiar reference points and a trusted internal compass can combine to at least hint at the position of “True North”, offering perhaps just enough of a glimpse of ‘the right thing to do’, in most scenarios likely to be encountered.

Operating in international markets, it can be surprising to find that the trusted compass has been demagnetized by the combined influences of local practice, cultural and social differences in what are deemed ‘acceptable’ behaviours, and a conscious (or unconscious) choice to let those influences override that compass.

Even a subtle shift can allow the seed of a disastrous decision to be planted: the illusory comfort of pleading alignment with local practices, even as a competitive countermeasure, offers little protection when the ‘wrong’ is ultimately subjected to the bright light of scrutiny.

Know which way your compass points ahead of time

I was invited for a drink some years back by a gentleman who was introduced through a mutual contact in London.

The purpose of the meeting (over some of the best fruit juice I have ever tasted, incidentally) was to propose an engagement where I would be linked to this chap’s client as an independent and trusted third party, to offer an objective opinion about a decision that might involve my host’s firm as a service provider. Not an uncommon request, and under the right conditions, quite workable.

The discussion evolved well until about the last bit of juice in the tall frosty glass. At that moment, a sentence began about ‘certain ways things are done in this part of the world…’ – can you hear the alarm bells going off?

The proposal was that my recommendation to the ultimate client should be crafted to lead to the selection of the firm whose senior local representative had so courteously extended an invitation to meet. Well, so much for a promising and potentially interesting assignment!!

I put a polite but firm end to the discussion, on the basis that we do not do business in this way, and in any event, it would be illegal (with serious consequences) for a Canadian firm to be engaged in such practices.

The question of ethical conduct is not a theoretical one. Any business with decent levels of international activity, no matter how small, will inevitably run into gray areas at minimum and dangerously serious illegal propositions at worst.

One way to address this likelihood is to make decisions ahead of time about how your business (and your individual leaders or executives) will deal with the situation when it arises. If in doubt, seek the advice of your closest Embassy, High Commission or Post: you will get the right advice!

Taking a stand for another kind of ethical worldview

Is this really a discussion about ‘going old school’? Were past generations truly more ethical, or are we so well and so instantaneously informed today, that we are simply more aware of the massive transgressions (long list of examples and related adjectives deleted!) that have done decades or more worth of damage?

If it truly is a case of greater visibility, are we simply on a collective “trip” to one or the other end of the spectrum of ethical conduct, and can we as individuals and businesses make a difference in what the destination looks like?

I firmly believe the answer is “Yes”.

In some contexts, the ability to apply superior financial resources to win a contract, to gain access to influential parties, or to put a competitor out of commission is seen as nothing more than good business.

The nuances here are reflected in the fact that even institutions advocating anti-corruption measures had, for a time, to recognize the notion of a ‘facilitation payment’ as a relatively legitimate disbursement of funds, to be distinguished from a ‘bribe’.

Can an ethically-grounded position withstand the pressure of competition, and the subtle nudge to ‘adapt’ to local practices, especially after a material investment of time, resources and finances to enter a particular market?

Sometimes, the answer will simply be “No, it cannot”, and this is where a reminder can be helpful: this is a commercial decision with potential consequences that extend far beyond the commercial context to nothing less than life and death, especially in global supply chains so often anchored in developing markets.

Overheard once, a remark by a serial international entrepreneur: “Darn (OK, that’s not exactly the expression used – paraphrase, not quote!), I lost the deal to license this market by bribing the wrong official, AND not bribing him enough!”

Short-term financial gain at the expense of irreparable damage to a personal or company brand?

If the pure issue of ethical standards and conduct is not sufficiently compelling, perhaps a consideration of the economic consequences of following a demagnetized compass will motivate an alternate choice.

Standing at the crossroads and choosing our direction

It appears that we are, in several contexts from fair trade to anti-corruption measures, at a stage in our collective development, where an economic or financial inducement to do the right thing is still needed: it makes financial sense to support sustainable sourcing, we say.

It is economically important to support SMEs, to assist microenterprises in frontier markets to access global supply chains. It is necessary to assure our long-term access to resources, to engage in environmental assessments in the extractive industries or in the financing of long-term projects…

Is it really the case that ethical conduct is unfashionable, or has somehow lost ranking in our collective priorities, or were we ‘never as good as we thought we were’, and thus still in mid-voyage to a state of affairs where ethical conduct is indeed pursued for its own sake?

If we need the economic argument for now, let us by all means put more focus on it, but perhaps do so without losing sight of the larger objective and the loftier end-state.

There are already numerous initiatives, some international in scope, suggesting that success in commercial endeavours ought to be about more than numbers reported in a set of financial statements, and certainly should look beyond the next fiscal quarter.

As those transformational thoughts take hold, ethical conduct will shift from an unfashionable notion (even one rooted in economics) to a critical imperative, perhaps even pursued for its own sake.

Gotta go folks, time for another foray into markets that will stretch my worldview, sometimes test my compass, and perhaps offer a unique experience or two, like dining on black nut chicken in Singapore: the Buah Keluak nut is sufficiently toxic that its preparation includes (you are told upfront!) burying it in soil for forty days to extract the poisons…

How do you define what type of conduct is ethical when doing business in international markets?

What else does Alexander do?

Learn more about the intricacies of Trade Finance from one of the leading subject market experts on the topic. His critically acclaimed book Financing Trade and International Supply Chains will give you deeper insights into nature of trade finance at its core, and of the versatility of this discipline in enabling trade flows involving businesses of all sizes.

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