Managing Risk When Doing Business Abroad

Chuck Williams

By: Chuck Williams - Dean, Butler University College of Business

Category: Globalization

More Indiana companies are doing business in international markets. Eli Lilly is expanding in China, and Governor Mitch Daniels had conducted trade missions to Germany, Italy and the United Kingdom in May of this year, with Japan and China following in the fall.

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In addition to cross-cultural issues, the biggest risk companies face abroad is the Foreign Corrupt Practices Act. Passed in 1977, the FCPA prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the United States, from “corruptly paying” or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business.

Over the last decade, FCPA enforcement has increased because:

--More U.S. companies are doing business in overseas markets, with some 50 percent of the revenue of the S & P’s 500 now coming from overseas.

--The Sarbanes-Oxley Act of 2002 requires public companies to disclose if they find any material weaknesses in their internal controls.

--Most FCPA violations come to light because the companies involved voluntarily disclose them. Such Indiana companies as Lilly and Zimmer Holdings have disclosed FCPA issues. The Department of Justice tends to deal less harshly with companies which come forward.

Yet many small to medium-size companies do not understand the law. Some businesspeople think of the act as forbidding the passing of suitcases full of cash to foreign government leaders to get government contracts. It does, but the FCPA is far more wide-reaching than that.

Indiana companies doing business abroad are working with companies owned or controlled by foreign governments; securing foreign licenses, permits and certifications; engaging in sales and markets; moving products into and out of countries; and engaging foreign agents and representatives to assist in business development. All these areas represent FCPA risks.

Take the state’s $69 billion life sciences industry, with Indiana companies competing for their slice of overseas sales worth nearly $100 billion, according to a 2009 survey by the Pharmaceutical Research and Manufacturers of America.

Potential problems arise because in many countries, the entire health system is under state ownership and control. The U.S. government interprets the “foreign official” in the FCPA to include employees of state-owned entities. As a result, in a November speech, Assistant Attorney General Lanny Breuer said the pharmaceutical industry would be subject to increased enforcement of international anti-bribery statutes.

Leaders of Indiana companies need to understand how they’re getting business in Beijing or Moscow because the FCPA can follow them anywhere. The DOJ can bring FCPA violations against a U.S. company even if the improper conduct takes place thousands of miles away from corporate headquarters. This includes improper conduct by a third party, such as a foreign sales representative, acting on behalf of an Indiana company.

Given that foreign bribes were legitimate tax deductions in many European countries as recently as 10 years ago, how can an Indiana company protect itself and still compete effectively in global marketplaces?

--Set the correct tone at the top. Company leaders should make sure all employees know what the FCPA prohibits and that such conduct is unacceptable. Understand how you’re obtaining business in each market, and monitor your company’s spending practices there to prevent abuses from occurring.

--Train your employees so they understand a particular culture’s values and beliefs that drive expectations and behavior. Russia, for example, has a centuries-long history of bribery, where gifts were considered part of building a relationship. However, an anti-corruption law was passed in 2008, and more than 50 international companies are pledging zero-tolerance of bribery in Russia.

--Learn how to communicate upfront your position on anti-corruption to your international partner. If a Russian businessperson says, “We still accept bribes,” for example, an American manager needs to say, “My company abides by the rules of the FCPA and doesn’t give bribes. I understand your position, you understand my position. So let’s move on from there and see how we can do business.”

Chuck Williams is dean of the College of Business at Butler University. Mike Koehler, assistant professor of business law and Yulia Tolstikov-Mast, management instructor (formerly with the COB), contributed to this article. For more information on the College and its “real life, real business” approach to business education, visit www.ButlerRealBusiness or e-mail Chuck at

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