Make More Money By Ending China Kickbacks

Would that it were so easy. 

Kickback schemes are rampant in China.  If you have Chinese employees and you buy or sell product in China, there is a good chance you are losing money from kickbacks and perhaps even violating Chinese and U.S. (or European laws). 

American Public Media's Marketplace just did a brief radio story on kickbacks in China, entitled, "Playing straight sometimes misses bottom line: In most countries, scandal is bad for business. But in China, being on the up and up can mean lost business."  Click here to listen to the story. 

The story starts out talking about the currently pending investigation involving bribery charges against "seven multinational companies, including McDonald's and Whirlpool":

Twenty-two people have been detained. Suspicion is they took half a million dollars in kickbacks from computer equipment suppliers. In most countries scandal's bad for business. But Jocelyn Ford reports sometimes, being on the up and up means lost business.

The radio story takes place on a bus chartered by "That's Beijing" magazine, to take a group of advertisers "on an all-expenses-paid trip to the ski slopes."  "That's Beijing's" Manager, talks about how he does not allow his ad sales staff "to lure customers with kickbacks," even "though that's common practice in the magazine industry": 

WESTER: You know one time, when we first started out, this guy pulled us aside from a real estate company and he said, "You guys are fools. Look at this sales kit."

It gave the actual price of an ad, and the advertiser said it was way too low.

WESTER:"I'm telling you. You know what you need to do? Make it 10 times that. But when you come to sell me an ad, give me 50 percent off first of all. Then, give me a massive kickback, and I'm gonna book ads like crazy." He's like "That's the way it works, don't you know? Don't you understand?" And we were kinda like "Ohhhh my God, what have we gotten ourselves into?

Wester reports "That's Beijing" magazine has a "zero tolerance" rule for ad sales people who accept kickbacks.  Corporate investigator, Peter Humphrey of ChinaWhys Company, Ltd. states "most multinationals in China suffer from a horrendous amount of employee corruption and petty fraud, a lot of which goes unnoticed": 

HUMPHREY:Most of it involves kickbacks taken from suppliers. Across the board in every imaginable industry. Every imaginable thing that a company might need to buy in China. "Humphrey says a lot of the foul play goes unnoticed by foreign executives. Especially if the foreigners don't speak Chinese. HUMPHREY: Maybe you have an American company running a big factory with 2,000 people. And what happens is that there's a lot going on beneath the surface that they don't notice. The Chinese staff all know what's going on. They gossip about it in their canteens and so on, they all know. But the expatriate management usually do not know.

Until, for example, there's a company audit. Or a whistle-blower sends an anonymous e-mail or fax.

Humphrey says that's what happened in the recent case of the seven multinationals whose employees were caught.

Corporations like McDonalds and Japan's Fuji Xerox might be embarrassed by the investigation. But Humphrey says it's good news the police are starting to enforce the law against kickbacks.

Though "That's Beijing" occasionally loses ad sales due to its unwillingness to pay kickbacks, "Wester believes the short-term loss is a long-term gain. He'd rather sell ad space to people who believe his readers actually might buy their company's products. He says those people are more likely to come back to advertise issue after issue."

How can you stop your China employees from taking or paying kickbacks?  There are no easy answers and oftentimes the best you can hope for is minimization, rather than elimination.  I had a client who hired a private investigator to determine whether any of his seven Chinese employees were getting kickbacks and he learned they all were.  He fired three of them and warned the other four. 

Here are some tips for keeping a lid on kickbacks:

1. Make clear, in writing, in both English and Chinese, that kickbacks are not allowed, will not be tolerated, and automatically lead to firing and reporting of the incident to the appropriate authorities.  Provide examples of what is allowed and what is not.  Set up an ethics or kickback line, direct to you or to someone you trust, so doubts can be quickly resolved.
2. Retain skilled professionals to investigate who at your company is involved in kickback schemes. A private investigation firm can set up a "company" and periodically test your employees.
3. Conduct thorough background checks on those you are planning to hire.
4. Stay on top of your China office.  Know who is doing business with whom and know the numbers.  Ask questions.  When the cat is away, the mice will play.

Would that it were so easy. 

What do you do to fight against kickbacks in your company?