The Great Debate

What Beijing can learn from Wal-Mart

“So, how?”

The question, short for “So, how do you want to handle this?” is a common, subtle way to invite someone to offer you a bribe in Asia. A traffic cop pulls you over for running a yellow light. He’s at your passenger window, a leather strap covering his name tag. He tells you to follow him to the police station so he can process your $100 fine. “So, how?”

If you slip 10 dollars into his ticket book — 20 dollars if you’re a foreigner — he’ll close it, and you’ll both be on your way.

It’s small scale — not like the graft that accompanied China’s high-speed rail system — but it happens all the time in Asia’s developing countries: in traffic, at customs offices, while getting and keeping licenses of all sorts. Nowhere is the bribery problem more severe, and more relevant to the rest of the world, than in China. Three years ago, China’s central bank reported that up to 18,000 officials have fled the country since the 1990s, taking some RMB 800 billion ($128 billion) with them. China lost almost $3 trillion in illicit financial outflows — crooked officials and businesspeople moving their dirty money out of the country — between 2000 and 2009, according to estimates by Global Financial Integrity, a Washington, D.C. financial watchdog. Because China is the world’s largest exporter, bribery in manufacturing and food production — and the related quality control issues — is a global problem.

Wal-Mart is in the news this week for not paying bribes in China — or at least, that’s the underlying premise in the retailer’s three-year-long struggle with Chinese authorities. On April 13 the Wall Street Journal reported that the Chinese government has fined Wal-Mart $9.8 million for infractions ranging from having the words “net weight” in a too-small font ($486) to botching the genus and species on an almond label ($2,323). China’s domestic companies rarely face such scrutiny.

Anyone who has ever run a retailer in a developing country can see how these fines come to be — and how they are often avoided. It’s easy to picture government inspectors in pursuit of extra income, swarming stores across China, finding minor infractions, and asking “So, how?”

Wal-Mart’s bribery is sadly unsurprising

The recent New York Times revelation that Wal-Mart paid bribes to grease the skids of rapid expansion in Mexico is not shocking to anyone who has built a retail business in a developing country. It would be shocking if they hadn’t.

Retailers paying bribes is a normal cost of doing business for some in developing markets. I was CEO of a chain of 75 specialty coffee shops around Asia for 10 years. It’s almost impossible to do business in places like the Philippines and Indonesia without someone communicating – usually tacitly – that they could make things hard for your business if you didn’t take care of them. We were smart enough not to try to do business in Indonesia. I wish I could say the same about the Philippines.

Here’s how it works.

We were based in Kuala Lumpur and roasted our coffee there. We saw the huge success of Starbucks in the Philippines and opened an office in Manila in late 2000 to get into the market. Our country manager was an ex-hotel executive, a Filipino, who had lived in Malaysia for many years and wanted to move home. Our Malaysia team was excited about our first expansion abroad.