Kitchen Best - Ethics When Doing Cross-Boundary Business in Southern China - Case Study Example

Case Study of the of the Contents Answer 3 Answer 2 3 Answer 3 4 Answer 4 5 Answer 5 6 Answer 6 6 Answer 7 7 Answer 8 8 Conclusions and lessons 9 References 10 Answer 1 The culture of China is largely influenced by a traditional value system and this is evident in their businesses too. The major social challenge which SMEs face during cross-border business is coping with the different culture and customs. For example, drinking during formal meeting is common in western countries, while it is still rare in smaller MNCs, which are basically family businesses. The ethical and legal challenges come in the form of business processing. For instance, giving gifts and freebies to clients and suppliers is an age old tradition in Chinese business (Hornsby, et al., 1994). However, this act of giving gifts is considered as bribe in many other nations. Thus, Chinese traditional business patterns might get labelled as unethical and illegal, while doing international business. Another legal challenge, which Kitchen Best and other SMEs face, is regarding vetting or guidelines procedures. Most of the Chinese small and medium businesses take place in an informal process. Often, the business occurs on vocal agreement alone, without any written agreements. This might create legal problems, while doing business with global firms, which are very strict regarding agreements and formal business regulations and rules. Providing entertainment or dining facilities to suppliers is also a prevalent business act in China. In other nations such as, US and other British nations, provision of entertainment to suppliers or third parties is strictly prohibited. Thus, Chinese MNCs, doing business in global continents, might face charges with illegal and unethical business conducts, which might hamper their business relationship. Answer 2 Offering kickbacks and entertainment to potential business partners and clients is a common practice in Chinese business. However, this practice is considered unethical and sometimes illegal in various other nations. For instance, providing entertainment facilities to clients and business partners is considered as bribery in various global firms. Another issue evolving from the case study is the act of breaching contacts. It has been found out that employees and higher level officers in Chinese MNCs compromised with the quality of deliveries for personal gains such as, gifts and free tours. This has posed a serious threat in terms of company’s business relationship with its clients as well as termination of its license. Accepting personal gains by compromising on product qualities is a serious legal offence, leading to termination of the employee, huge fine as well as cancellation of the firm’s licence. Answer 3 The governance and management system of Kitchen Best can be considered as loosely managed. Controlled by a single member working as Chief Executive, many of the legal procedures and guidelines are overlooked. For example, the firm lacks any clear guidelines or formal management system for the various expenses incurred from entertainment services or kickbacks to customers and suppliers. As a result, a lot of illegal transfer of money is done off the books. Being the single controller of Kitchen Best withholds the CEO from managing every tiny exchange of money within the system. Kitchen Best also lacks a proper guidelines system for employee conduct as well as rules and regulations regarding supplier and client management (Goo & Loo, 2011).  In order to prevent any unethical behaviour and to strengthen overall internal controls, Kitchen best can employ various measures. First, the company can establish proper guidelines and procedures of doing business within the organisation. This can either be done by setting formal meeting with the senior management team or hiring external law consultants. Second, the firm can also establish rules and proper guidelines for suppliers and third party vendors. Third, Kitchen Best can establish control management system such as, regular visits to suppliers and clients, factories and manufacturing sites as well as surprise visits to these places, in order to detect any act of misconduct (Lim, 2001). The bribery and corruptions acts of US and UK are well-known and regarded as major standards for practicing. Also, they are widely followed because of the huge political and economic influence of the above nations across the globe. These two acts can help Henry Chan in understanding the standards of conducting global business. This will also aid him in preparing legal rules and courses of action, which will meet maximum criteria for international business. Answer 4 According to the case study, Horatio Sze and Ma Luk were senior executives working with Kitchen Best for a very long. As a result, they were given both powers and control over the company’s operations. Henry had trusted these two senior executives. The issues regarding Sze and Luk can be attributed to mismanagement of the staff. Some of the probable reasons behind the illegal acts of these employees might be fewer packages, decreasing importance in terms of control and authority as well as greed. The firm might have not given any consideration to their requests regarding better packages and other amenities. The company also overlooked the accounts and other financial details, which allowed these employees to misuse them. Thus, it can be said that a loose and overlooked approach of the company, towards its business ethics and financial details, resulted in the loss of overall company’s reputation. Answer 5 Many instances can be quoted, which strengthens the argument that bribery and corruption are more visible and prevalent in higher management positions. However, going deep into the daily management practices, it can be seen that corruption is prevalent everywhere. For instance, security guards taking bribery; employees taking undue advantage of newcomers and fresher employees; and senior employees slipping their tasks and duties to their subordinates. Nonetheless, it has also been observed that organisations, where senior management are completely ethical and transparent regarding their work business practices, transactions influence their employees and subordinates in a positive manner, thereby preventing them from engaging in ethical or illegal practices. Recent cases of corruption and subsequent surveys have revealed that, organisations, where senior management are engaged in unethical practices, give away room for their subordinates and ground level staffs to practice the same. Therefore, it can be said that though senior managers cannot be blamed entirely for corruption and malpractices in firms, yet they can surely pave a path to be followed by the entire organisation. Answer 6 Most of the SMEs are characterised by shared expectations and informal understandings. Ethical principles and values are more often implicit and rarely expressed in formal terms (Fritzche, 1995). Compared to this, global organisations completely run on programmes, codes and ethical policies. Lack of proper resource and finance also prevents these SMEs to create a workplace with formal cultures and code of conduct. In order to grow the business and expand on a global platform, SMEs need to build business relationship with global MNCs. This requires a formal management system as well as knowledge of global ethical standards. As a result, it is very important for SMEs to monitor as well as control their behaviour and management of ethics. In order to enhance his role in management of ethical practices in Kitchen Best, Henry should develop as well as implement global ethical practices and standards. Firstly, he should define and identify the core values of his business. These values and objectives should be implanted within the employees as well as senior and junior management. Secondly, he should be the front runner, in terms of practicing ethical and standard rules and behaviours, while conducting any business. A transparent business transaction from the company’s CEO will definitely motivate the employees in following a similar path and embed the system in their daily business practice. Answer 7 Referral money and payoffs are a tradition in many business practices across the globe. It is an age-old custom. Customers, clients as well as suppliers are habituated with the practices. This means that any firm which goes against this practice or tries to establish new ground rules, suffers heavily in terms of loss of productive suppliers, clients and even customers. However, in case of any local expectations regarding entertainment or referral money and payoffs, it should be strictly prohibited. Rather, suppliers and clients should be compensated with effective training programs and educational courses, helping them to grow their business. Guidance can be taken from the senior management, who in turn can take help from outside consultancies such as, law firms or private legal consultants. However, in case of a lack of proper guidance, the best course of action will be to act according to the available corporate guidelines, which may be company’s objectives, policy or standard legal codes of conduct followed in that nation. Answer 8 With the objective of building strong corporate image, Henry can take the following measures; 1. Providing a more accurate insight into various inter-cultural variations, with respect to ethical values and practices, which are socially responsible as well as important for the long-term benefit of the company and transferring these values to the employees. 2. Promoting a more implicit understanding, in terms of relationship between personal values and corporate objective, among employees, staff, suppliers as well as other business parties. This will allow internal and external business partners to understand as well as comply with the right work culture and embed them in their daily work practice (Quinn, 1997). 3. Identify the various socially responsible and ethical practices, which are followed and implemented by the firms and organisations with which Kitchen Best has been doing business. This will help in measuring the business practices and guidelines followed by majority of Kitchen Best’s clients and business partners (Fülöp, Hisrich & Szegedi, 2000). 4. After identification, the senior management can amend its own business guidelines and follow them rigorously. Though it is not possible to entirely eliminate the malpractices and unethical behaviour, which have been followed by the company staffs for a long time, it is, however, possible to minimise them through well-drafted and rigorously followed guidelines and policies. Once the senior management starts adopting these rules and guidelines in a transparent manner, the junior as well as ground level staffs will follow, thereby establishing the company as an ethical firm. Conclusions and lessons Kitchen Best and other SMEs in China need to realise that importance of a socially responsible and ethical business practice. Being an ethically correct and morally high firm not only enhances the overall working standards, but also helps the firm in becoming globally competitive. As a future manager, the biggest lesson from this analysis is the increasing importance of being an ethically correct organisation. Global firms, in today’s work environment, not only look for partners who are competent in terms of service or products, but also those highly established in terms of ethical and moral values. Hence, establishing and following ethical and standard guidelines should be one of the priorities, while doing any business with global organisations. References Fritzche, D. J. (1995). Personal Values: Potential Keys to Ethical Decision Making. Journal of Business Ethics, 14(11), 909-922. Fülöp, G., Hisrich, R. D. & Szegedi, K. (2000). Business Ethics and Social Responsibility in Transition Economies. The Journal of Management Development, 19(1), 5-31. Goo, S., & Loo, G. (2011).  Kitchen best: Ethics when doing cross boundary business in Southern China. Retrieved from http://hbsp.harvard.edu.  Hornsby, J. S., Kuratko, D. F., Naffziger, D. W., Lafollette, W. R. & Hodgetts, R. M. (1994). The Ethical Perceptions of Small Business Owners: A Factor Analysis Study. Journal of Small Business Management, 32(4), 9-16. Lim, L. (2001). Work-Related Values of Malays and Chinese Malaysians. International Journal of Cross Cultural Management, 1(2), 209-226. Quinn, J. J. (1997). Personal Ethics and Business Ethics: The Ethical Attitudes o Owner/ Managers of Small Business. Journal of Business Ethics, 16, 119-127. Read More