Strands of profits
SeeU Copper Industries was a producer of copper wiring based in British Columbia, Canada. It was a relatively small producer, and the prices for copper supplies had risen dramatically in recent years, but wise management of company operations and several large deals had resulted in SeeU becoming very profitable.
However, competition in the Canadian market was fierce, and the closest market, the U.S. was even worse. SeeU wanted to become a larger company; one that was a leading provider of copper wire. This would mean expanding overseas. SeeU needed to find a market that was not already saturated, one that offered potential for growth, and one in which it could become a dominant player.
Making all the right moves
SeeU was in a healthy position financially, and planned its international expansion carefully. It analyzed its internal resources, strengths, and weaknesses against its strategic objectives and determined that it needed help to find a market to enter. It would also need help with international sales, but could cope with the manufacturing and financial demands of an export operation.
SeeU commissioned a market research company to investigate the best markets for it to enter. After careful consideration of the options presented, SeeU settled on Indonesia. There were many reasons for this selection. Indonesia was in a period of rapid industrialization and modernization and needed vast amounts of copper wiring. Imports of copper had already risen 195 percent in the years from 2005 to 2008. There were no restrictions on copper wire imports and foreign investment in the country was being actively welcomed by the Indonesian government. Economic growth was rapid and healthy. Facilities and employees were inexpensive.
SeeU sent representatives to Indonesia on a trade visit. They were welcomed by construction companies and by government procurement departments that were responsible for many major construction and infrastructure expansion projects. SeeU's management was excited at the possibility of obtaining government contracts.
However, to do business in Indonesia, SeeU knew that it needed help with translation and advice about the culture, customs, and ways of doing business in Indonesia. The decision was made to find an Indonesian agent to represent the company and invest in a production site in Jakarta, the capital.
FITTskills: International Market Entry Strategies Case Study #5: Hidden Market Entry Pitfalls © FITT 2
A dangerous offer
At first, all went well. Construction of the wire manufacturing plant proceeded smoothly and it was soon ready for operations. Employees were trained and hired. SeeU was willing to take a small loss before production started in order to gain a large market share. SeeU also appointed an agent who seemed delighted to be representing the company and who had numerous contacts within government procurement departments.
The agent soon announced that he had negotiated a major deal with a provincial government department - providing copper wire for a telecommunications infrastructure upgrade across a province. The contract was worth about $200,000. There was only one snag. The government representative who the agent had negotiated with was seeking reelection. If he was not reelected, the deal might fall through. The agent therefore recommended that SeeU forward some funds to the representative's bank account to help him become reelected.
SeeU's management refused to make the payment, which they saw as a bribe. The agent became furious and told them that it was how business was done in Indonesia. Without facilitating payments, they would be unlikely to make deals. He announced he would not work for the company any longer.
QUESTIONS:
1. SeeU planned their market entry carefully. What might they have done differently to avoid this situation occurring?
2. Was the facilitating payment requested by the agent really a bribe?
3. If bribery is a common and accepted way of doing business in a market, should companies go along with it in order to compete with domestic companies? Explain your reasoning.