CASE STUDY 1

Case Study

What are typical integrity management challenges faced by an SME doing cross-border business?

The pressure to succeed in foreign or cross-border markets puts an SME in a precarious position in regards to observing integrity in their operations. In addition, the integrity issues are further complicated by the prevail culture in market with some markets considering enticing suppliers and consumers through gifts and monetary kick-backs part of the normal business transaction (Irwin, 2012). Some of the common integrity challenges include bribery, facilitation fees, corruption gift giving and inappropriate gratuities. In addition, the integrity issue is further complicated by conflict of interest particularly because most of the SME proprietors operate their businesses using trusted individual that have been part of the business, fraudulent financial reporting, vendor collusion and commercial briberies (Khan, 2014).

In some cases, the unfamiliarity with the culture of the foreign land compels proprietors to rely on individual they have trust in rather than merit or performance (Irwin, 2012). The integrity challenges faced by SME in cross-borders business have been clear demonstrated in the Kitchen Best’s case study. With the focus on expansion of the business and generation of more profits, bribery and corruption kick in different forms and eventually creep into the internal operations of the business as evident in the Kitchen Best’ case (Asian Case Research Centre, 2016).. For example, the owners’ of the business allowed integrity comprise to creep into the business inform of recruitment of some employees by virtue of referral rather than merit, kickbacks received by the purchasing and production manager, commercial bribery by Qinghua, falsification of invoices for reimbursements of expenses incurred in the process of business transactions and advancement of monetary advantages among others (Asian Case Research Centre, 2016).

Some of the Shortcomings of the Management and Governance Systems of Kitchen Best 

Like many SMEs, the owner of Kitchen Best’s settled for the paternalistic style to run his business which later proved to be highly risky. The approach allowed him to rely on trusted individuals to run the business and despite proving to be successful in the beginning, it became a challenge as the business expanded. This approach particularly undermined his powers to demand for accountability, integrity and honest. Mr. Chan, the owner failed to establish proper standard operating procedures for his business thus relying on decisions agreed upon based on circumstances (Asian Case Research Centre, 2016). This prevented the business from experiencing a smooth transition when the owner finally became unable to oversee running of the business. Mr. Chan failed to establish proper control mechanisms especially in the procurement and financial departments of the business. Kitchen Best lacked a well outlined governance structure capable of promoting accountability, a phenomenon that saw individual open accounts with different stakeholders without the knowledge of the management(Asian Case Research Centre, 2016). Such shortcoming exposed the organization to increased malpractices to the extent of threatening the SME survival.

Mechanisms Kitchen Best should put in place to prevent unethical behavior and malpractice and to strengthen system control

The first step that Kitchen Best should take is to reorganize its organizational structure and put in place an organizational structure capable of encouraging accountability and transparency. The organizational structure should have specific positions including an internal audit and counting department to ensure that all company financial transactions are accounted for by the different department or divisions of the organization (Corkindale, 2011). This would particularly help the management in controlling financial malpractices that not only threaten its profitability but its reputation in the market.

The second most important mechanism that Kitchen Best should have in place is an internal standard operating procedures aligned with international business practices. The standard operating procedures should particularly stipulate procedures in the purchasing and procurement section as one of the most vulnerable areas for malpractices (Corkindale, 2011). The procedures should however be reviewed frequently to meet the dynamism of the international markets. Thirdly, the organization should come up with values that the organization must abide to including honest, transparency and integrity that must be inculcated into all employees including new recruit.

The management should invest significantly in developing a culture of honest, transparency and integrity in all its subsidiaries. The new CEO can begin to still values that uphold the standards of business operation in the company. Lastly, the company needs to establish stringent control measures including strategies for controlling malpractices such as encouraging whistleblowing. Standard accounting procedures and remedies should be well stipulated to allow the management to act against individuals involved in malpractices. This would give the top management the power to put the company under stable control without even the presence of the owner (Clayton, Staden & Lynch, 2010). An ethics code should also be developed alongside the standard operations procedures and made known to all the organization’s staff and other stakeholders.

References

Asian Case Research Centre. (2016). Kitchen Best: Ethics when doing cross-boundary business in Southern China. ICAC.

Clayton, B., Staden, C & Lynch, B. (2010). The impact of social influence pressure on professional accountants’ ethical reasoning. Deakin University.

Corkindale, G. (2011). The importance of organizational design and structure. Harvard Business Review. Retrieved from https://hbr.org/2011/02/the-importance-of-organization

Irwin, J. (2012). Doing business in China: An overview of ethical aspects. Occasional Paper 6. Retrieved from http://www.ibe.org.uk/userfiles/chinaop.pdf

Khan, M (2014). Challenges for MNEs operating in emerging markets. Retrieved from http://www.aabri.com/LV2014Manuscripts/LV14045.pdf

Appendix

Ethical Framework

Ethical Issue

One of the ethical issue that emerges from the Kitchen Best case revolves around testing and certification scenario involving a German retail chain Haus de Metro. Despite the products from Foshan not meeting the required safety standards, Kitchen Best colluded with Keemark Testing Services to interfere with the samples during the inspection. The presence of hazardous substances such lead and mercury puts the lives of many at risk compared to the monetary value from the consignment.

Affected people and their Rights

The affected people this case include the targeted consumer whose right to consumer safety has jeopardized through offering of bribery to Keemark to interfere with safety inspection. Therefore, the lives of many consumers was put at risk and their ultimate right to safety compromised.

The other affected persons were the owners of the affected companies by virtue of risking a major loss from the rejected products. Their right to a fair process involving the inspection authority was compromised through the bribery.

The most important right was that of the consumers because they trust the companies and the safety regulatory bodies to protect them from unscrupulous business people or companies

The alternative course of action: Following the utilitarian ethical theory which revolves around determining whether the end is worth the means. In this case, rejecting the goods is worth the means because it saves a lot of lives of consumers and possible legal actions against the company in the future which could prove to be extremely costly. Declaring the products as substandard would have impacted negatively on the company’s reputation but the risk was greater in not allowing them into the market regardless of the justification provided.

The rights framework would not cause any auction to be eliminated because the emphasis lies in protecting the welfare of the consumers which cannot be substituted for anything else.

The appropriate course of action in this case is to recall the goods from the market and prosecute the Kitchen Best, Keermark, and the Foshan Company.