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Abstract
When it comes to international management one of the biggest challenges is gaining a comprehensive understanding of the local laws and regulations governing your target markets. From tax implications to trading laws, navigating legal requirements is a central function for any successful international business. Eligibility to trade is a significant consideration, as are potential tariffs and the legal costs associated with entering new markets. The U.S. Justice Department and Securities and Exchange Commission have been investigating Wal-Mart under the Foreign Corrupt Practices Act, which prohibits and monitors improper international dealings like bribery. In some areas of the world, bribing officials is an accepted practice to obtain building permits or licensing and to close business deals. Its not exactly fair from the perspective of the U.S. government, however, as Wal-Mart Stores Inc. and its Mexican division, Walmart de México, have found. U.S. investigators looking into Wal-Marts dealings there eventually expanded their investigation elsewhere, including Brazil, India and China. Walmart has agreed to pay $282 million to settle a seven-year bribery investigation by the U.S. government concerning certain payments that were made to foreign officials in places like Mexico and China. The Securities and Exchange Commission said in June of 2019, that it had charged the world’s largest retailer by sales with violating the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for companies to bribe foreign officials.
There are many challenges companies are faced with when it comes to international management. Along with getting your company structure in place, gaining a comprehensive understanding of the local laws and regulations governing your target markets is key. From tax implications through to trading laws, navigating legal requirements is a central function for any successful international business. Eligibility to trade is a significant consideration, as are potential tariffs and the legal costs associated with entering new markets. It is important to note that employment and labor requirements also differ by country. Beyond abiding by official laws, engaging in international business often requires following other unwritten cultural guidelines. This can be challenging in emerging markets with ill-defined regulations or potential corruption. In response, companies doing business in the United States must abide by the Foreign Corrupt Practices Act, which aims at eliminating bribery and unethical practices in international business. A good rule of thumb is to beware of engaging in any questionable activities, which might be legal but could have future reputational repercussions.
So far this year there have been major enforcement actions taken against alleged bribery and corruption in jurisdictions across the world. At present, more than 150 investigations into violations of the Foreign and Corrupt Practices Act are being carried out by the US regulators, the Securities and Exchange Commission and the Department of Justice. Part of the reason for the rise in enforcement actions is that the U.S. is no longer acting alone. The aggressive enforcement of the Foreign Corrupt Practices Act has encouraged non-U.S. authorities to pursue violations of their own anti-bribery laws. Many of these laws include extraterritorial provisions that enable cross-border investigations and enforcement actions in multiple jurisdictions. Companies should apply a higher level of due diligence when doing business in these industries.
Of the main legal areas to consider when it comes to doing international business, tax compliance is perhaps the most crucial. Accounting can present a challenge to multinational businesses who may be liable for corporation tax abroad. Different tax systems, rates, and compliance requirements can make the accounting function of a multinational organization significantly challenging. Accounting strategy is key to maximizing revenue, and the location where your business is registered can impact your tax liability. Mitigating the risk of multiple layers of taxation makes good business sense for any organization trading abroad. Being aware of tax treaties between countries where your business is trading will help to ensure youre not paying double taxes unnecessarily. A focus on tax efficiency is often the aim of international accounting efforts. An obvious risk for international business is political uncertainty and instability. Countries and emerging markets that may offer considerable opportunities for expanding global businesses may also pose challenges, which more established markets do not. Before considering expansion into a new or unknown market, a risk assessment of the economic and political landscape is critical. Issues such as ill-defined or unstable policies and corrupt practices can be hugely problematic in emerging markets. Changes in governments can bring changes in policy, regulations, and interest rates that can prove damaging to foreign business and investment.
Marketers often find themselves at the forefront of a companys global expansion. The marketing team is usually responsible for carrying out the market research that will determine where a company should expand, and its usually charged with creating a plan for attracting customers. When it comes to international business, the most common mishaps are not specifying countries, not paying enough attention to internal data, and communication difficulties and cultural differences. Executives tend to think about overseas markets in vague regional terms, but this oversimplification is problematic. Customers identify at the national level, and marketers need to remember that every country has its own local laws, cultural norms, forms of currency and payment, and unique business practices.
Developing a global market entry strategy requires more complex and specialized market research. In the vast universe of data that can help you figure out which markets are best for you, the most important data points are how much estimated opportunity is available in that market, how easy it will be for your company to do business in that market, and how much success youve already had with that market. Many companies, especially Western ones, believe they can enter new markets by following the same playbook that brought them domestic success. While brand consistency is important, different markets favor different sales and marketing approaches. Good communication is at the heart of effective international business strategy. However, communicating across cultures can be a very challenging. Effective communication with colleagues, clients, and customers abroad is essential for success in international business. And its often more than just a language barrier you need to think about nonverbal communication can make or break business deals too.
The best possible outcome for Walmart would be for the statute of limitations to set in. The statute of limitations is a law passed by a legislative body in a common law system to set the maximum time after an event within which legal proceedings may be initiated. The allegations that are being investigated outside of five years cannot be investigated therefore saving Walmart from a huge lawsuit from the FCPA, which prohibits U.S. firms and individuals from paying bribes to foreign officials in furtherance of a business deal. The FCPA places no minimum amount for a punishment of a bribery payment. It would be a smart thing to do if Walmart were to fall back on the statute of limitations because that way they will not have to pay all that money in fines. Since Walmart violates the Foreign Corrupt Practices Act, they may be able to say that they were paying the officials with the facility payment. The facility payment is the only exception to the FCPA and could maybe also save them from the huge lawsuit.
The accounting department should be further investigated to find out who was knowingly involved in these bribes with Mexico. Who covered these bribes up and who was in charge of handling the money that was exchanged? These questions should be further investigated and should be taken very seriously because they have a negative effect on how business affects our global economy. The Department of Justice should attempt to strengthen the FCPA into allowing punishment for companies that have violated the FCPA since its existence. By revising and strengthening the FCPA, the Department of Justice will reduce international corruption overall and possibly prevent violations from companies like Walmart in the future. Strengthening the FCPA could also further the already positive benefits of the FCPA, benefits like U.S. business being able to expand into countries where bribery is common. Some other solutions could be incentives to keep these companies on their best behavior. Incentives like tax breaks or more foreign involvement would help the industry to better their habits and strive to do the right thing. Many problems with international management have many solutions, but theres always ways around it. The best actions to be taken would be to regulate and create laws to protect from these behaviors.
Companies could also take the following approaches to anti-bribery management, monitor developments in anti-bribery laws and standards around the world, put in place clearly-defined internal anti-bribery policies and train and educate staff and business associates, identify the level of risk of bribery and corruption posed by third parties. Factors affecting the level of risk can include the third partys country of origin and the industry in which it operates. Put in place a due diligence process which allows third parties to be screened against sanctions lists, negative news coverage and legal sources. Commercial databases can quickly screen thousands of names against these lists, and update this system regularly to take into account new enforcement actions and changes in sanctions lists.
Let’s face it, when you do business outside your own borders, a lot of your activities become out of your control due to the vastness of the geographic reach. Add to that an ever-widening supply chain and an indirect route to international expansion and it further reduces effective control measures. Companies should designate someone at the top to be responsible for FCPA compliance and be accountable for the FCPA program. Companies should steer clear of U.S.-centric language in their codes of conduct. Dont assume that best practices for drafting an employee handbook for a U.S. corporation will translate into an enforceable global code of conduct. To be enforceable, a code of conduct must not only comply with U.S. laws, but must avoid violating foreign data privacy and employment laws. Companies should also avoid over-inclusiveness.
References
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