PART SIX cases 2 THE CULTURAL ENVIRONMENT OF GLOBAL MARKETING OUTLINE OF CASES 2-1 The Not-So-Wonderful World of EuroDisney—Things Are Better Now at Disneyland Resort Paris 2-2 Cultural Norms, Fair & Lovely, and Advertising 2-3 Starnes-Brenner Machine Tool Company: To Bribe or Not to Bribe? 2-4 Ethics and Airbus 2-5 Coping with Corruption in Trading with Vietnam 2-6 When International Buyers and Sellers Disagree 2-7 McDonald’s and Obesity 2-8 Ultrasound Machines, India, China, and a Skewed Sex Ratio 2-9 Coping with Piracy in China cat42162_case2_01-031.indd 1 10/21/15 11:12 AM The Not-So-Wonderful World of EuroDisney*—Things Are Better Now at Disneyland Resort Paris CASE 2-1 BONJOUR, MICKEY! In April 1992, EuroDisney SCA opened its doors to European visi- tors. Located by the river Marne some 20 miles …
cases 2 THE CULTURAL ENVIRONMENT OF GLOBAL MARKETING
OUTLINE OF CASES
2-1 The Not-So-Wonderful World of EuroDisney—Things Are Better Now at Disneyland Resort Paris
2-2 Cultural Norms, Fair & Lovely, and Advertising
2-3 Starnes-Brenner Machine Tool Company: To Bribe or Not to Bribe?
2-4 Ethics and Airbus
2-5 Coping with Corruption in Trading with Vietnam
2-6 When International Buyers and Sellers Disagree
2-7 McDonald’s and Obesity
2-8 Ultrasound Machines, India, China, and a Skewed Sex Ratio
2-9 Coping with Piracy in China
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The Not-So-Wonderful World of EuroDisney*—Things Are Better Now at Disneyland Resort Paris
BONJOUR, MICKEY! In April 1992, EuroDisney SCA opened its doors to European visi- tors. Located by the river Marne some 20 miles east of Paris, it was designed to be the biggest and most lavish theme park that Walt Disney Company (Disney) had built to date—bigger than Disneyland in Anaheim, California; Disneyworld in Orlando, Florida; and Tokyo Disneyland in Japan. Much to Disney management’s surprise, Europeans failed to “go goofy” over Mickey, unlike their Japanese counterparts. Between 1990 and early 1992, some 14 million people had visited Tokyo Disneyland, with three-quarters being repeat visitors. A family of four staying overnight at a nearby hotel would easily spend $600 on a visit to the park. In contrast, at EuroDisney, families were reluc- tant to spend the $280 a day needed to enjoy the attractions of the park, including les hamburgers and les milkshakes. Staying over- night was out of the question for many because hotel rooms were so high priced. For example, prices ranged from $110 to $380 a night at the Newport Bay Club, the largest of EuroDisney’s six new hotels and one of the biggest in Europe. In comparison, a room in a top hotel in Paris cost between $340 and $380 a night. Financial losses became so massive at EuroDisney that the president had to structure a rescue package to put EuroDisney back on firm financial ground. Many French bankers questioned the initial financing, but the Disney response was that their views reflected the cautious, Old World thinking of Europeans who did not understand U.S.-style free market financing. After some acri- monious dealings with French banks, a two-year financial plan was negotiated. Disney management rapidly revised its marketing plan and introduced strategic and tactical changes in the hope of “doing it right” this time.
A Real Estate Dream Come True The Paris loca- tion was chosen over 200 other potential sites stretching from Portugal through Spain, France, Italy, and into Greece. Spain thought it had the strongest bid based on its yearlong, temperate, and sunny Mediterranean climate, but insufficient acreage of land was available for development around Barcelona. In the end, the French government’s generous incentives, together with impressive data on regional demographics, swayed Disney management to choose the Paris location. It was calculated that some 310 million people in Europe live within two hours’ air travel of EuroDisney, and 17 million could reach the park within two hours by car—better demographics than at any other Disney site. Pessimistic talk about the dismal winter weather of northern France was countered with references to the success of Tokyo Disneyland, where resolute visitors brave cold winds and snow to enjoy their piece of Americana. Furthermore, it was argued, Paris is Europe’s most-popular city destination among tourists of all nationalities.
Spills and Thrills Disney had projected that the new theme park would attract 11 million visitors and generate over $100 million in operating earnings during the first year of operation. By summer 1994, EuroDisney had lost more than $900 million since opening. Attendance reached only 9.2 million in 1992, and visitors spent 12 percent less on purchases than the estimated $33 per head. If tourists were not flocking to taste the thrills of the new Euro- Disney, where were they going for their summer vacations in 1992? Ironically enough, an unforeseen combination of transatlantic air- fare wars and currency movements resulted in a trip to Disneyworld in Orlando being cheaper than a trip to Paris, with guaranteed good weather and beautiful Florida beaches within easy reach. EuroDisney management took steps to rectify immediate prob- lems in 1992 by cutting rates at two hotels up to 25 percent, intro- ducing some cheaper meals at restaurants, and launching a Paris ad blitz that proclaimed “California is only 20 miles from Paris.”
An American Icon One of the most worrying aspects of EuroDisney’s first year was that French visitors stayed away; they had been expected to make up 50 percent of the attendance figures. A park services consulting firm framed the problem in these words: “The French see EuroDisney as American imperialism—plastics at its worst.” The well-known, sentimental Japanese attachment to Disney characters contrasted starkly with the unexpected and widespread French scorn for American fairy-tale characters. French culture has its own lovable cartoon characters such as Astérix, the helmeted, pint-sized Gallic warrior, who has a theme park located near EuroDisney. Hostility among the French people to the whole “Disney idea” had surfaced early in the planning of the new project. Paris theater director Ariane Mnouchkine became famous for her description of EuroDisney as “a cultural Chernobyl.” In fall 1989, during a visit to Paris, French Communists pelted Michael Eisner with eggs. The joke going around at the time was, “For EuroDisney to adapt prop- erly to France, all seven of Snow White’s dwarfs should be named Grumpy (Grincheux).” Early advertising by EuroDisney seemed to aggravate local French sentiment by emphasizing glitz and size rather than the variety of rides and attractions. Committed to maintaining Disney’s reputation for quality in everything, more detail was built into EuroDisney. For example, the centerpiece castle in the Magic Kingdom had to be bigger and fancier than in the other parks. Expensive trams were built along a lake to take guests from the hotels to the park, but visitors preferred walking. Total park construction costs were estimated at FFr 14 billion ($2.37 billion) in 1989 but rose by $340 million to FFr 16 billion as a result of all these add-ons. Hotel construction costs alone rose from an esti- mated FFr 3.4 billion to FFr 5.7 billion.
*The Official name has been changed from “EuroDisney” to “Disneyland Resort Paris.”
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EuroDisney and Disney managers unhappily succeeded in alienating many of their counterparts in the government, the banks, the ad agencies, and other concerned organizations. A barnstorming, kick-the-door-down attitude seemed to reign among the U.S. decision makers: “They had a formidable image and con- vinced everyone that if we let them do it their way, we would all have a marvelous adventure.” One former Disney executive voiced the opinion, “We were arrogant—it was like ‘We’re building the Taj Mahal and people will come—on our terms.’ ”
STORM CLOUDS AHEAD Disney and its advisors failed to see signs at the end of the 1980s of the approaching European recession. Other dramatic events included the Gulf War in 1991, which put a heavy brake on vacation travel for the rest of that year. Other external factors that Disney executives have cited were high interest rates and the devaluation of several currencies against the franc. EuroDisney also encoun- tered difficulties with regard to competition—the World’s Fair in Seville and the 1992 Olympics in Barcelona were huge attractions for European tourists. Disney management’s conviction that it knew best was dem- onstrated by its much-trumpeted ban on alcohol in the park. This rule proved insensitive to the local culture, because the French are the world’s biggest consumers of wine. To them a meal without un verre de rouge is unthinkable. Disney relented. It also had to relax its rules on personal grooming of the pro- jected 12,000 cast members, the park employees. Women were allowed to wear redder nail polish than in the United States, but the taboo on men’s facial hair was maintained. “We want the clean-shaven, neat and tidy look,” commented the director of Disney University’s Paris branch, which trains prospective employees in Disney values and culture. EuroDisney’s manage- ment did, however, compromise on the question of pets. Special kennels were built to house visitors’ animals. The thought of leaving a pet at home during vacation is considered irrational by many French people. Plans for further development of EuroDisney after 1992 were ambitious. The initial number of hotel rooms was planned to be 5,200, more than in the entire city of Cannes on the Côte d’Azur. Also planned were shopping malls, apartments, golf courses, and vacation homes. EuroDisney would design and build everything itself, with a view to selling at a profit. As a Disney executive commented, “Disney at various points could have had partners to share the risk, or buy the hotels outright. But it didn’t want to give up the upside.” “From the time they came on, Disney’s Chairman Eisner and President Wells had never made a single misstep, never a mistake, never a failure,” said a former Disney executive. “There was a ten- dency to believe that everything they touched would be perfect.” The incredible growth record fostered this belief. In the seven years before EuroDisney opened, they took the parent company from being a company with $1 billion in revenues to one with $8.5 billion, mainly through internal growth.
Telling and Selling Fairy Tales Mistaken assump- tions by the Disney management team affected construction design, marketing and pricing policies, and park management, as well as initial financing. Disney executives had been erroneously informed that Europeans don’t eat breakfast. Restaurant breakfast service was downsized accordingly, and guess what? “Everybody
showed up for breakfast. We were trying to serve 2,500 breakfasts in a 350-seat restaurant [at some of the hotels]. The lines were horrendous. And they didn’t just want croissants and coffee, they wanted bacon and eggs.” In contrast to Disney’s American parks, where visitors typically stay at least three days, EuroDisney is at most a two-day visit. Energetic visitors need even less time. One analyst claimed to have “done” every EuroDisney ride in just five hours. Typically many guests arrive early in the morning, rush to the park, come back to their hotel late at night, and then check out the next morning before heading back to the park. Vacation customs of Europeans were not taken into consider- ation. Disney executives had optimistically expected that the arrival of their new theme park would cause French parents to take their children out of school in mid-session for a short break. It did not happen unless a public holiday occurred over a weekend. Similarly, Disney expected that the American-style short but more frequent family trips would displace the European tradition of a one-month family vacation, usually taken in August. However, French office and factory schedules remained the same, with their emphasis on an August shutdown. In promoting the new park to visitors, Disney did not stress the entertainment value of a visit to the new theme park; the emphasis was on the size of the park, which “ruined the magic.” To counter this, ads were changed to feature Zorro, a French favorite, Mary Poppins, and Aladdin, star of the huge moneymaking movie success. A print ad campaign at that time featured Aladdin, Cinderella’s castle, and a little girl being invited to enjoy a “magic vacation” at the kingdom where “all dreams come true.” Six new attractions were added in 1994, including the Temple of Peril, Story book Land, and the Nautilus attraction. Donald Duck’s birthday was celebrated on June 9—all in hopes of positioning EuroDisney as the number 1 European destination of short duration, one to three days. Faced with falling share prices and crisis talk among share- holders, Disney was forced to step forward in late 1993 to rescue the new park. Disney announced that it would fund EuroDisney until a financial restructuring could be worked out with lenders. However, it was made clear by the parent company, Disney, that it “was not writing a blank check.” In June 1994, EuroDisney received a new lifeline when a mem- ber of the Saudi royal family agreed to invest up to $500 million for a 24 percent stake in the park. The prince has an established reputation in world markets as a “bottom-fisher,” buying into potentially viable operations during crises when share prices are low. The prince’s plans included a $100 million convention center at EuroDisney. One of the few pieces of good news about EuroDisney is that its convention business exceeded expectations from the beginning.
MANAGEMENT AND NAME CHANGES Frenchman Philippe Bourguignon took over at EuroDisney as CEO in 1993 and was able to navigate the theme park back to prof- itability. He was instrumental in the negotiations with the firm’s bankers, cutting a deal that he credits largely for bringing the park back into the black. Perhaps more important to the long-run success of the ven- ture were his changes in marketing. The pan-European approach to marketing was dumped, and national markets were targeted separately. This new localization took into account the differing
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tourists’ habits around the continent. Separate marketing offices were opened in London, Frankfurt, Milan, Brussels, Amsterdam, and Madrid, and each was charged with tailoring advertising and packages to its own market. Prices were cut by 20 percent for park admission and 30 percent for some hotel room rates. Special pro- motions were also run for the winter months. The central theme of the new marketing and operations approach is that people visit the park for an “authentic” Disney day out. They may not be completely sure what that means, except that it entails something American. This approach is reflected in the transformation of the park’s name. The “Euro” in EuroDisney was first shrunk in the logo, and the word “land” added. Then in October 1994 the “Euro” was eliminated completely; the park was next called Disneyland Paris; and now Disneyland Resort Paris. In 1996, Disneyland Paris became France’s most visited tourist attraction, ahead of both the Louvre Art Museum and the Eiffel Tower. In that year, 11.7 million visitors (a 9 percent increase from the previous year) allowed the park to report another profit.
THEME PARK EXPANSION IN THE TWENTY-FIRST CENTURY With the recovery of Disneyland Paris, Disney embarked on an ambitious growth plan. In 2001 the California Adventure Park was added to the Anaheim complex at a cost of $1.4 billion, and Walt Disney Studios Theme Park was added to Disneyland Paris. Through agreements with foreign partners, Disney opened Disney-Sea in Tokyo and Disneyland Hong Kong in 2006, and plans are underway for a theme park in Shanghai scheduled for 2016. A decade after being slammed for its alleged ignorance of European ways with EuroDisney, Disney is trying to prove its got- ten things right the second time around. The new movie-themed park, Walt Disney Studios adjacent to Disneyland Paris, is designed to be a tribute to moviemaking—but not just the Hollywood kind. The Walt Disney Studios blends Disney entertainment and attrac- tions with the history and culture of European film since French camera-makers helped invent the motion picture. The park’s gen- eral layout is modeled after an old Hollywood studio complex, and some of the rides and shows are near replicas of Disney’s first film park, Disney-MGM Studios. Rather than celebrating the history of U.S. Disney characters, the characters in the new theme park speak six different languages. A big stunt show features cars and motorcycles that race through a village modeled after the French resort town of St. Tropez. Small details reflect the cultural lessons learned. “We made sure that all our food venues have covered seating,” recalling that, when EuroDisney first opened, the open-air restaurants offered no protection from the rainy weather that assails the park for long stretches of the year. On the food front, EuroDisney offered only a French sausage, drawing complaints from the English, Germans, Italians, and everyone else about why their local sausages weren’t available. This time around, the park caters to the multiple indigenous cul- tures throughout Europe—which includes a wider selection of sausages. Unlike Disney’s attitude with their first park in France, “Now we realize that our guests need to be welcomed on the basis of their own culture and travel habits,” says Disneyland Paris Chief Executive. Disneyland Paris today is Europe’s biggest tourist attraction—even more popular than the Eiffel Tower—a turnaround that showed the park operators’ ability to learn from their mistakes.
The root of Disney’s problems in EuroDisney may be found in the tremendous success of Japan’s Disneyland. The Tokyo Park was a success from the first day, and it has been visited by millions of Japanese who wanted to capture what they perceived as the ulti- mate U.S entertainment experience. Disney took the entire U.S. theme park and transplanted it in Japan. It worked because of the Japanese attachment to Disney characters. Schools have field trips to meet Mickey and his friends to the point that the Disney experience has become ingrained in Japanese life. In the book Disneyland as Holy Land, University of Tokyo professor Masako Notoji wrote: “The opening of Tokyo Disneyland was, in retrospect, the greatest cultural event in Japan during the ‘80s.” With such success, is there any wonder that Disney thought they had the right model when they first went to France? The Tokyo Disney constitutes a very rare case in that the number of visitors has not decreased since the opening.
2005—Bankruptcy Pending In early 2005, Disneyland Paris was on the verge of bankruptcy. The newest park attraction at Disneyland Paris, Walt Disney Studies, featured Hollywood- themed attractions such as a ride called “Armageddon—Special Effects” based on a movie starring Bruce Willis, flopped. Guests said it lacked attractions to justify the entrance price, and oth- ers complained it focused too much on American, rather than European, filmmaking. Disney blames other factors: the post-9/11 tourism slump, strikes in France, and a summer heat wave in 2003. The French government came to the aid of Disneyland Paris with a state-owned bank contribution of around $500 million to save the company from bankruptcy. A new Disneyland Paris CEO, a former Burger King executive, introduced several changes in hopes of bringing the Paris park back from the edge of bankruptcy. To make Disneyland Paris a cheaper vacation destination, the CEO lobbied the government to open up Charles de Gaulle airport to more low-cost airlines. Under his direction, Disneyland Paris created its first original character tai- lored for a European audience: the Halloween-themed “L’Homme Citrouille,” or “Pumpkin Man.” He has also introduced a one-day pass giving visitors access to both parks in place of two separate tickets. He is planning new rides, including the Tower of Terror, and other new attractions. If these changes fail to bring in millions of new visitors, Disney and the French government might once again be forced to consider dramatic measures. Even though French President Jacques Chirac called the spread of American culture an “ecological disaster” and the French gov- ernment imposes quotas on non-French movies to offset the influ- ence of Hollywood and officially discourages the use of English words such as “e-mail,” Disneyland Paris was important to the French economy. In light of France’s 10 percent unemployment at the time, Disneyland Paris is seen as a job-creation success. The company accounted for an estimated 43,000 jobs and its parks attracted over 12 million visitors a year, more than the Louvre Museum and the Eiffel Tower combined. By 2008 Disneyland Paris was experiencing increases in park attendance, and the turn- around appeared to be working.
DISNEY’S GREAT LEAP INTO CHINA Disney’s record with overseas theme parks has been mixed. Tokyo Disneyland is a smash hit with 25 million visitors a year, and Disneyland Paris, opened in 1992, was a financial sinkhole that just now is showing promise of a turnaround. Disney was
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determined not to make the same cultural and management mis- takes in China that had plagued Disneyland Paris. Disney took special steps to make Hong Kong Disneyland cul- turally acceptable. “Disney has learned that they can’t impose the American will—or Disney’s version of it—on another continent.” “They’ve bent over backward to make Hong Kong Disneyland blend in with the surroundings.” “We’ve come at it with an American sensibility, but we still appeal to local tastes,” says one of Hong Kong Disneyland’s landscape architects. Desiring to bring Disneyland Hong Kong into harmony with local customs from the beginning, it was decided to observe feng shui in planning and construction. Feng shui is the practice of arranging objects (such as the internal placement of furniture) to achieve harmony with one’s environment. It is also used for choos- ing a place to live. Proponents claim that feng shui has effects on health, wealth, and personal relationships. The park’s designers brought in a feng shui master who rotated the front gate, repositioned cash registers, and ordered boulders set in key locations to ensure the park’s prosperity. He even chose the park’s “auspicious” opening date. New construction was often begun with a traditional good-luck ceremony featuring a carved suckling pig. Other feng shui influences include the park’s orienta- tion to face water with mountains behind. Feng shui experts also designated “no fire zones” in the kitchens to try to keep the five elements of metal, water, wood, fire, and earth in balance. Along with following feng shui principles, the park’s hotels have no floors that are designated as fourth floors, because 4 is consid- ered an unlucky number in Chinese culture. Furthermore, the open- ing date was set for September 12, 2006, because it was listed as an auspicious date for opening a business in the Chinese almanac. But the park’s success wasn’t a sure thing. The park received more than 5 million visitors in its first year but short of its targeted 5.6 million, and the second year was equally disappointing with attendance dropping nearly 30 percent below forecasts. Many of those who came complained that it was too small and had little to excite those unfamiliar with Disney’s cast of characters. Disneyland is supposed to be “The Happiest Place on Earth,” but Liang Ning isn’t too happy. The engineer brought his family to Disney’s new theme park in Hong Kong from the southern Chinese city of Guangzhou one Saturday in April with high hopes, but by day’s end, he was less than spellbound. “I wanted to forget the world and feel like I was in a fairytale,” he says. Instead, he complains, “it’s just not big enough” and “not very different from the amusement parks we have” in China. Hong Kong Disneyland has only 16 attractions and only one a classic Disney thrill ride, Space Mountain, compared with 52 rides at Disneyland Paris. After the first year’s lackluster beginning, Disney management introduced five new attractions and added “It’s a Small World,” the ride made famous at the flagship Disneyland in Anaheim, California. A variety of other new entertainment offerings were due in 2008. Guests’ lack of knowledge of Disney characters created a special hurdle in China. Until a few years ago, hardly anyone in mainland China knew Mickey Mouse and Donald Duck even existed. Disney characters were banned for nearly 40 years, so knowledge of Disney lore is limited. China was the first market where Disney opened a park in which there had been no long-term relationship with attendees. It was the Chinese consumer who was expected to understand Disney, or so it seemed. Chinese tourists unfamiliar with Disney’s traditional stories were sometimes left bewildered by the Hong Kong park’s attractions.
To compensate for the lack of awareness of Disney characters and create the mystique of a Disney experience, Disney launched numerous marketing initiatives designed to familiarize guests with Disneyland. One of the first buildings upon entering the park exhibits artwork and film footage of Disney history, from the cre- ation of Mickey Mouse through the construction of Hong Kong Disneyland. Tour groups are greeted by a Disney host who intro- duces them to Walt Disney, the park’s attractions, characters, and other background information. For example, the character Buzz Lightyear explains Toy Story and the Buzz Lightyear Astro Blaster attraction. Even though there were complaints about the park size and the unfamiliarity of Disney characters, there were unique features built with the Asian guest in mind that have proved to be very popular. Fantasy Gardens, one of the park’s original features, was designed to appeal to guests from Hong Kong and mainland China who love to take pictures. At five gazebos, photo-happy tourists can always find Mickey, Minnie, and other popular characters who will sign autographs and pose for photos and videos. Mulan has her own pavilion in the garden, designed like a Chinese temple. Mickey even has a new red-and-gold Chinese suit to wear. Restaurants boast local fare, such as Indian curries, Japanese sushi, and Chinese mango pudding, served in containers shaped like Mickey Mouse heads. All in all, Hong Kong Disney is Chinese throughout. It’s not so much an American theme park as Mickey Mouse coming to China. The atmosphere is uncomplicated and truly family oriented. It is possible to have a genuine family park experience where six-year- olds take precedence. However, early advertising that featured the family missed its mark somewhat by featuring a family consist- ing of two kids and two parents, which did not have the impact it was supposed to have, because China’s government limits most couples to just one child. The error was quickly corrected in a new TV commercial, which the company says was designed to “forge a stronger emotional connection with Mickey.” The revised ad featured one child, two parents, and two grandparents together sharing branded Disney activities, such as watching a movie and giving a plush version of the mouse as gifts. “Let’s visit Mickey together!” says the father in the commercial, before scenes at the park set to traditional Chinese music. Many other aspects of the park have been modified to better suit its Chinese visitors. The cast members are extremely diverse, understand various cultures, and, in many cases, speak three languages. Signs, audio-recorded messages, and attractions are also in several languages. For example, riders can choose from English, Mandarin, or Cantonese on the Jungle River Cruise. Disney runs promotions throughout the year. For example, the “Stay and Play for Two Days” promotion was created mainly to give mainland tourists a chance to experience the park for a longer period of time. Because many Chinese tourists cross into Hong Kong by bus, they arrive at Disneyland mid-day. With this promo- tion, if a guest stays at a Disneyland hotel and purchases a one-day ticket, the guest is given a second day at the park for free. Special Chinese holidays feature attractions and decorations unique to the holiday. For the February 7, 2008, New Year holiday (the Year of the Rat), Disney suited up its own house rodents, Mickey and Minnie, in special red Chinese New Year outfits for its self-proclaimed Year of the Mouse. The Disneyland Chinese New Year campaign, which lasts until February 24, features a logo with the kind of visual pun that only the Chinese might appreciate: the Chinese character for “luck” flipped upside-down (a New Year
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tradition), with mouse ears added on top. Inside the park, vendors hawk deep-fried dumplings and turnip cakes. The parade down Main Street, U.S.A., is joined by the “Rhythm of Life Procession,” featuring a dragon dance and puppets of birds, flowers, and fish, set to traditional Chinese music. And of course there’s the god of wealth, a relative newcomer to the regular Hong Kong Disneyland gang, joined by the gods of longevity and happiness, all major figures in Chinese New Year celebrations. The Hong Kong park has been reducing its losses since open- ing, from more than $170 million early on to $92.5 million in 2010 and only $30.5 million in 2011. However, plans to increase the capacity of the park 23 percent are going forward, with the new attractions to open in 2014. There are broader implications for Disney from the performance of the Hong Kong theme park than just its financial health. From the outset, executives at the business’s Burbank headquarters viewed Hong Kong Disneyland as a springboard to promote awareness of the Disney name among the mainland Chinese population and cement ties with Beijing. The next theme park is set for Shanghai, and the last thing they want is a “turkey” in Hong Kong that would undermine their whole China strategy. The new $4 billion park in Shanghai is scheduled for completion, also in 2016. Disney will hold a 47 percent stake there. The new park ultimately will be 50 percent larger than the Hong Kong park. Even though 330 million Chinese live within a three-hour drive of Shanghai, the company will have to work very hard to repeat the successes of the U.S. and Japanese parks’ atten- dance levels, at well over 20 million visitors per year. The most the Hong Kong park has attracted is some 6 million visitors.
QUESTIONS 1. What factors contributed to EuroDisney’s poor performance
during its first year of operation? What factors contributed to Hong Kong Disney’s poor performance during its first year?
2. To what degree do you consider that these factors were (a) foreseeable and (b) controllable by EuroDisney, Hong Kong Disney, or the parent company, Disney?
3. What role does ethnocentrism play in the story of EuroDisney’s launch?
4. How do you assess the cross-cultural marketing skills of Disney?
5. Why did success in Tokyo predispose Disney management to be too optimistic in their expectations of success in France? In China? Discuss.
6. Why do you think the experience in France didn’t help Disney avoid some of the problems in Hong Kong?
7. Now that Hong Kong Disney is up and running, will the Shanghai development benefit from the Hong Kong experience?
8. Now that Disney has opened Hong Kong Disney and begun work on the Shanghai location, where and when should it go next? Assume you are a consultant hired to give Disney advice on the issue of where and when to go next. Pick three locations and select the one you think will be the best new location for “Disneyland X.” Discuss.
9. Given your choice of locale X for the newest Disneyland, what are the operational implications of the history of EuroDisney and Disney Hong Kong for the new park?
10. Think forward to 2020 and presume the rough politics and violence of the MENA region settle down substantially. Where would be the best location for a Disney park in that region? Defend your choice.
This case was prepared by Lyn S. Amine, Ph.D., Professor of Marketing and Inter- national Business, Distinguished Fellow of the Academy of Marketing Science, and President, Women of the Academy of International Business, Saint Louis University, and graduate student Carolyn A. Tochtrop, Saint Louis University, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a situ- ation. The original case appearing in prior editions has been edited and updated to reflect recent developments. Source: “An American in Paris,” BusinessWeek, March 12, 1990, pp. 60 – 61, 64; Asahi Shimbun, “ Tokyo Disney Prospers In Its Own Way,” Asahi Evening News, April 22, 2003; Chester Dawson, “Will Tokyo Embrace Another Mouse?” Business- Week, September 10, 2001; “Euro Disney Gets Its Rights Issue Thanks to Under- writing Banks but Success in Balance,” Euroweek, February 11, 2005; “EuroDisney’s Prince Charming?” BusinessWeek, June 13, 1994, p. 42; “Saudi to Buy as Much as 24% of EuroDisney,” The Wall Street Journal, June 2, 1994, p. A4; Bernard J. Wolf- son, “The Mouse That Roared Back,” Orange County Register, April 9, 2000, p. 1; “ Disney Applies Feng Shui to Hong Kong Park,” AP Online, June 27, 2005; Michael Schuman, “Disney’s Great Leap into China,” Time, July 11, 2005; Michael Schuman, “Disney’s Hong Kong Headache,” Time, May 8, 2006; “A Bumpy Ride for Disneyland in Hong Kong; Despite Fixes, Some Observers Say Troubles Could Follow company to Shanghai,” The Washington Post, November 20, 2006; Dikky Sinn, “Hong Kong Government Unhappy with Disneyland’s Performance,” AP Worldstream, December 4, 2007; Elaine Kurtenbach, “Reports: Shanghai Disneyland May be Built on Yangtze Island; City Officials Mum on Talks,” AP Worldstream, December 4, 2007; Lauren Booth, “The Wonderful World of Mandarin Mickey . . .” The Independent on Sunday, July 22, 2007; Mark Kleinman, “Magic Kingdom Fails to Cast Its Spell in the Middle Kingdom . . .” The Sunday Telegraph (London), February 25, 2007; Paula M. Miller, “Disneyland in Hong Kong,” China Business Review, January 1, 2007; Jeffrey Ng, “Hong Kong Disneyland Seeks New Magic,” The Wall Street Journal, December 19, 2007; Geoffrey A. Fowler, “Main Street, K.K.; Disney Localizes Mickey to Boost Its Hong Kong Theme Park,” The Wall Street Journal, January 23, 2008; “A Chinese Makeover for Mickey and Minnie,” The New York Times, January 22, 2008; “Mickey in Shanghai,” BusinessWeek, November 16, 2009, p. 6; Chester Yung, “Hong Kong Says Loss at Theme Park Shrank,” The Wall Street Journal, January 20, 2010, p. B4; Ronald Grover, Stephanie Wong, and Wendy Leung, “Disney Gets a Second Chance in China,” Bloomberg Businessweek, April 18, 2011, pp. 21–22.
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Cultural Norms, Fair & Lovely, and Advertising
Fair & Lovely, a branded product of Hindustan Unilever Ltd. (HUL), is touted as a cosmetic that lightens skin color. On its website (hul.com.in), the company calls its product “the miracle worker,” “proven to deliver one to three shades of change.” While tanning is the rage in Western countries, skin lightening treatments are popular in Asia. According to industry sources, the top-selling skin lightening cream in India is Fair & Lovely from Hindustan Unilever Ltd. (HUL), followed by CavinKare’s Fairever brand. HUL’s Fair & Lovely brand dominated the market with a 90 percent share until CavinKare Ltd. (CKL) launched Fairever. In just two years, the Fairever brand gained an impressive 15 percent market share. HUL’s share of market for the Fair & Lovely line generates about $60 million annually. The product sells for about 23 rupees ($0.29) for a 25-gram tube of cream. The rapid growth of CavinKare’s Fairever (www.cavinkare .com) brand prompted HUL to increase its advertising effort and to launch a series of ads depicting a “fairer girl gets the boy theme.” One advertisement featured a financially strapped father lamenting his fate, saying, “If only I had a son,” while his dark-skinned daugh- ter looks on, helpless and demoralized because she can’t bear the financial responsibility of her family. Fast-forward and plain Jane has been transformed into a gorgeous light-skinned woman through the use of a “fairness cream,” Fair & Lovely. Now clad in a miniskirt, the woman is a successful flight attendant and can take her father to dine at a five-star hotel. She’s happy and so is her father. In another ad, two attractive young women are sitting in a bedroom; one has a boyfriend and, consequently, is happy. The darker-skinned woman, lacking a boyfriend, is not happy. Her friend’s advice—Use a bar of soap to wash away the dark skin that’s keeping men from flocking to her. HUL’s series of ads provoked CavinKare Ltd. to counter with an ad that takes a dig at HUL’s Fair & Lovely ad. CavinKare’s ad has a father–daughter duo as the protagonists, with the father shown encouraging the daughter to be an achiever irrespective of her complexion. CavinKare maintained that the objective of its new commercial is not to take a dig at Fair & Lovely but to “reinforce Fairever’s positioning.” Skin color is a powerful theme in India, and much of Asia, where a lighter color represents a higher status. While Americans and Europeans flock to tanning salons, many across Asia seek ways to have “fair” complexions. Culturally, fair skin is associated with positive values that relate to class and beauty. One Indian lady commented that when she was growing up, her mother for- bade her to go outdoors. She was not trying to keep her daughter out of trouble but was trying to keep her skin from getting dark. Brahmins, the priestly caste at the top of the social hierarchy, are considered fair because they traditionally stayed inside, por- ing over books. The undercaste at the bottom of the ladder are regarded as the darkest people because they customarily worked in the searing sun. Ancient Hindu scriptures and modern poetry eulogize women endowed with skin made of white marble. Skin color is closely identified with caste and is laden with symbolism. Pursue any of the “grooms” and “brides wanted” ads
in newspapers or on the Web that are used by families to arrange suitable alliances, and you will see that most potential grooms and their families are looking for “fair” brides; some even are progressive enough to invite responses from women belonging to a different caste. These ads, hundreds of which appear in India’s daily newspapers, reflect attempts to solicit individuals with the appropriate religion, caste, regional ancestry, professional and educational qualifications, and, frequently, skin color. Even in the growing numbers of ads that announce “caste no bar,” the adjective “fair” regularly precedes professional qualifications. In everyday conversation, the ultimate compliment on someone’s looks is to say someone is gora (fair). “I have no problem with people wanting to be lighter,” said a Delhi beauty parlor owner, Saroj Nath. “It doesn’t make you racist, any more than trying to make yourself look younger makes you ageist.” Bollywood (India’s Hollywood) glorifies conventions on beauty by always casting a fair-skinned actress in the role of heroine, surrounded by the darkest extras. Women want to use whiteners because it is “aspirational, like losing weight.” Even the gods supposedly lament their dark complexion— Krishna sings plaintively, “Radha kyoon gori, main kyoon kala? (Why is Radha so fair when I’m dark?).” A skin deficient in melanin (the pigment that determines the skin’s brown color) is an ancient predilection. More than 3,500 years ago, Charaka, the famous sage, wrote about herbs that could help make the skin fair. Indian dermatologists maintain that fairness products cannot truly work as they reach only the upper layers of the skin and so do not affect melanin production. Nevertheless, for some, Fair & Lovely is a “miracle worker.” A user gushes that “The last time I went to my parents’ home, I got compliments on my fair skin from everyone.” For others, there is only disappointment. One 26-year-old working woman has been a regular user for the past eight years but to no avail. “I should have turned into Snow White by now but my skin is still the same wheatish color.” As an owner of a public relations firm commented, “My maid has been using Fair and Lovely for years and I still can’t see her in the dark . . .. But she goes on using it. Hope springs eternal, I suppose.” The number of Indians who think lighter skin is more beautiful may be shrinking. Sumit Isralni, a 22-year-old hair designer in his father’s salon, thinks things have changed in the last two years, at least in India’s most cosmopolitan cities, Delhi, Mumbai, and Bangalore. Women now “prefer their own complexion, their natu- ral way” Isralni says; he prefers a more “Indian beauty” himself: “I won’t judge my wife on how fair her complexion is.” Sunita Gupta, a beautician in the same salon, is more critical. “It’s just foolishness!” she exclaimed. The premise of the ads that women could not become airline attendants if they are dark-skinned was wrong, she said. “Nowadays people like black beauty.” It is a truism that women, especially in the tropics, desire to be a shade fairer, no matter what their skin color. Yet, unlike the approach used in India, advertisements elsewhere usually show how to use the product and how it works.
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Part 6 Supplementary Material
Commenting on the cultural bias toward fair skin, one critic states, “There are attractive people who go through life feeling inferior to their fairer sisters. And all because of charming grand- mothers and aunts who do not hesitate to make unflattering com- parisons. Kalee Kalooti is an oft-heard comment about women who happen to have darker skin. They get humiliated and morti- fied over the color of their skin, a fact over which they have no con- trol. Are societal values responsible? Or advertising campaigns? Advertising moguls claim they only reflect prevailing attitudes in India. This is possibly true but what about ethics in advertising? Is it correct to make advertisements that openly denigrate a majority of Indian people—the dark-skinned populace? The advertising is blatant in their strategy. Mock anyone who is not the right color and shoot down their self-image.” A dermatologist comments, “Fairness obtained with the help of creams is short-lived. The main reason being, most of these creams contain a certain amount of bleaching agent, which whitens facial hair, and not the skin, which leads people to believe that the cream worked.” Furthermore, “In India the popularity of a product depends totally on the success of its advertising.” HUL launched its television ad campaign to promote Fair & Lovely but withdrew it after four months amid severe criticism for its portrayal of women. Activists argued that one of the messages the company sends through its “air hostess” ads demonstrating the preference for a son who would be able to take on the financial responsibility for his parents is especially harmful in a country such as India where gender discrimination is rampant. Another offense is perpetuating a culture of discrimination in a society where “fair” is synonymous with “beautiful.” AIDWA (All India Women’s Democratic Association) lodged a complaint at the time with HUL about their offensive ads, but Hindustan Unilever failed to respond. The women’s association then appealed to the National Human Rights Commission alleging that the ad demeaned women. AIDWA objected to three things: (1) the ads were racist, (2) they were promoting son preference, and (3) they were insulting to working women. “The way they portrayed the young woman who, after using Fair & Lovely, became attractive and therefore lands a job suggested that the main qualification for a woman to get a job is the way she looks.” The Human Rights Commission passed AIDWA’s complaints on to the Ministry of Information and Broadcasting, which said the campaign violated the Cable and Television Network Act of 1995—provisions in the act state that no advertisement shall be permitted which “derides any race, caste, color, creed and nationality” and that “Women must not be portrayed in a manner that emphasized passive, submissive qualities and encourages them to play a subordinate secondary role in the family and society.” The government issued notices of the complaints to HUL. After a year-long campaign led by the AIDWA, Hindustan Unilever Limited discontinued two of its tele- vision advertisements for Fair & Lovely fairness cold cream. Shortly after pulling its ads off the air, HUL launched its Fair & Lovely Foundation, vowing to “encourage economic empower- ment of women across India” by providing resources in education and business to millions of women “who, though immensely tal- ented and capable, need a guiding hand to help them take the leap forward,” presumably into a fairer future. HUL sponsored career fairs in over 20 cities across the country offering counseling in as many as 110 careers. It supported 100 rural scholarships for women students passing their 10th grade, a professional course for aspiring beauticians, and a three-month
Home Healthcare Nursing Assistant course catering to young women between the ages of 18 and 30 years. According to HUL, the Fair & Lovely Academy for Home Care Nursing Assistants offers a unique training opportunity for young women who pos- sess no entry-level skills and therefore are not employable in the new economy job market. The Fair & Lovely Foundation plans to serve as a catalyst for the economic empowerment for women across India. The Fair & Lovely Foundation will showcase the achievements of these women not only to honor them but also to set an example for other women to follow. AIDWA’s campaign against ads that convey the message, “if she is not fair in color, she won’t get married or won’t get promoted,” also has resulted in some adjustment to fairness cream ads. In revised versions of the fairness cream ads, the “get fair to attract a groom” theme is being reworked with “enhance your self- confidence” so that a potential groom himself begs for attention. It is an attempt at typifying the modern Indian woman, who has more than just marriage on her mind. Advertising focus is now on the message that lighter skin enables women to obtain jobs conven- tionally held by men. She is career-oriented, has high aspirations, and, at the same time, wants to look good. AIDWA concedes that the current crop of television ads for fairness creams are “not as demeaning” as ones in the past. However, it remains against the product; as the president of AIDWA stated, “It is downright racist to denigrate dark skin.” Although AIWDA’s campaign against fairness creams seems to have had a modest impact on changing the advertising message, it has not slowed the demand for fairness creams. Sales of Fair & Lovely, for example, have been growing 15 to 20 percent year over year, and the $318 million market for skin care has grown by 42.7 percent in the last three years. Says Euromonitor International, a research firm: “Half of the skin care market in India is fairness creams and 60 to 65 percent of Indian women use these products daily.” Recently, several Indian companies were extending their market- ing of fairness creams beyond urban and rural markets. CavinKare’s launch of Fairever, a fairness cream in a small sachet pack priced at Rs 5, aimed at rural markets where some 320 million Indians reside. Most marketers have found rural markets impossible to penetrate profitably due to low income levels and inadequate distribution systems, among other problems. However, HUL is approaching the market through Project Shakti, a rural initiative that targets small villages with populations of 2,000 people or less. It empowers underprivileged rural women by providing income-generating opportunities to sell small, lower priced packets of its brands in villages. Special packaging for the rural market was designed to provide single-use sachet packets at 50 paise for a sachet of shampoo to Rs 5 for a fairness cream (for a week’s usage). The aim is to have 100,000 “Shakti Ammas,” as they are called, spread across 500,000 villages in India by year end. CavinKare is growing at 25 percent in rural areas compared with 15 percent in urban centers. In addition to expanding market effort into rural markets, an unexpected market arose when a research study revealed Indian men were applying girlie fairness potions in droves—but on the sly. It was estimated that 40 percent of boyfriends/husbands of girlfriends/wives were applying white magic solutions that came in little tubes. Indian companies spotted a business opportunity, and Fair & Handsome, Menz Active, Fair One Man, and a male bleach called Saka were introduced to the male market. The sector expanded dramatically when Shah Rukh Khan, a highly acclaimed Bollywood actor likened to an Indian Tom Cruise, decided to endorse Fair & Handsome. Euromonitor International forecasts
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Cases 2 The Cultural Environment of Global Marketing
that in the next five years, spending on men’s grooming products will rise 24 percent to 14.5 billion rupees, or US$320 million. A recent product review in www.mouthshut.com, praises Fair & Lovely fairness cream: “[Fair & Lovely] contains fairness vitamins which penetrate deep down our skin to give us radiant fairness.” “I don’t know if it can change the skin color from dark to fair, but my personal experience is that it works very well, if you have a natu- rally fair color and want to preserve it without much headache.” “I think Riya Sen has the best skin right now in Bollywood. It appears to be really soft and tender. So, to have a soft and fair skin like her I recommend Fair & Lovely Fairness Lotion or Cream.” Yet “skin color isn’t a proof of greatness. Those with wheatish or dark skin are by no way inferior to those who have fair skin.” Here are a few facts from Hindustan Unilever Ltd.’s homepage:
Lever Limited is India’s largest Packaged Mass Consump- tion Goods Company. We are leaders in Home and Personal Care Products and Food and Beverages including such products as Ponds and Pepsodent. We seek to meet ev- eryday needs of people everywhere—to anticipate the as- pirations of our consumers and customers and to respond creatively and competitively with branded products and ser- vices which raise the quality of life. It is this purpose which inspires us to build brands. Over the past 70 years, we have introduced about 110 brands. Fair & Lovely has been specially designed and proven to deliver one to three shades of change in most people. Also its sunscreen system is specially optimized for Indian skin. Indian skin, unlike Caucasian skin, tends to “tan” rather than “burn” and, hence, requires a different combination of UVA and UVB sunscreens.
You may want to visit HUL’s homepage (hul.com.in) for addi- tional information about the company.
QUESTIONS 1. Is it ethical to sell a product that is, at best, only mildly effec-
tive? Discuss. 2. Is it ethical to exploit cultural norms and values to promote a
3. Is the advertising of Fair & Lovely demeaning to women, or is it promoting the fairness cream in a way not too dissimilar from how most cosmetics are promoted?
4. Will HUL’s Fair & Lovely Foundation be enough to counter charges made by AIDWA? Discuss.
5. In light of AIDWA’s charges, how would you suggest Fair & Lovely promote its product? Discuss. Would your response be different if Fairever continued to use “fairness” as a theme of its promotion? Discuss.
6. Propose a promotion/marketing program that will counter all the arguments and charges against Fair & Lovely and be an effective program.
7. Now that a male market for fairness cream exists, is the strength of AIDWA’s argument weakened?
8. Comment on using “Shakti Ammas” to introduce “fairness cream for the masses” in light of AIDWA’s charges.
9. Listen to “In India, Skin-Whitening Creams Reflect Old Biases,” NPR, November 12, 2009.
Sources: Nicole Leistikow, “Indian Women Criticize ‘Fair and Lovely’ Ideal,” Women’s eNews, April 28, 2003; Arundhati Parmar, “Objections to Indian Ad Not Taken Lightly,” Marketing News, June 9, 2003, p. 4; “Fair & Lovely Launches Foundation to Promote Economic Empowerment of Women,” press release, Fair & Lovely Foundation, hul.com.in (search for foundation), March 11, 2003; Rina Chan- dran, “All for Self-Control,” Business Line (The Hindu), April 24, 2003; Khozem Merchant and Edward Luce, “Not So Fair and Lovely,” Financial Times, March 19, 2003; “Fair & Lovely Redefines Fairness with Multivitamin Total Fairness Cream,” press release, Hindustan Unilever Ltd., May 3, 2005; “CavinKare Launches Small Sachet Packs,” Business India, December 7, 2006; “Analysis of Skin Care Advertis- ing on TV During January–August 2006,” Indiantelevision.com Media, Advertising, Marketing Watch, October 17, 2006; “Women Power Gets Full Play in CavinKare’s Brand Strategy.” The Economic Times (New Delhi, India), December 8, 2006; Heather Timmons, “Telling India’s Modern Women They Have Power, Even Over Their Skin Tone,” The New York Times, May 30, 2007; “The Year We Almost Lost Tall (or Short or Medium-Height), Dark and Handsome,” The Hindustan Times, December 29, 2007; “India’s Hue and Cry Over Paler Skin,” The Sunday Telegraph (London), July 1, 2007; “Fair and Lovely?” University Wire, June 4, 2007; “The Race to Keep up with Modern India,” Media, June 29, 2007; Aneel Karnani, “Doing Well by Doing Good—Case Study: ‘Fair & Lovely’ Whitening Cream,” Strategic Management Journal 28, no. 13 (2007), pp. 1351–57; “In India, Skin-Whitening Creams Reflect Old Biases,” NPR, November 12, 2009.
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Starnes-Brenner Machine Tool Company: To Bribe or Not to Bribe?
The Starnes-Brenner Machine Tool Company of Iowa City, Iowa, has a small one-man sales office headed by Frank Rothe in Latino, a major Latin American country. Frank has been in Latino for about 10 years and is retiring this year; his replacement is Bill Hunsaker, one of Starnes-Brenner’s top salespeople. Both will be in Latino for about eight months, during which time Frank will show Bill the ropes, introduce him to their principal customers, and, in general, prepare him to take over. Frank has been very successful as a foreign representative in spite of his unique style and, at times, complete refusal to follow company policy when it doesn’t suit him. The company hasn’t really done much about his method of operation, though from time to time he has angered some top company people. As President Jack McCaughey, who retired a couple of years ago, once remarked to a vice president who was complaining about Frank, “If he’s making money—and he is (more than any of the other foreign offices)—then leave the guy alone.” When McCaughey retired, the new chief immediately instituted organizational changes that gave more emphasis to the over- seas operations, moving the company toward a truly worldwide operation into which a loner like Frank would probably not fit. In fact, one of the key reasons for selecting Bill as Frank’s replacement, besides Bill’s record as a top salesperson, is Bill’s capacity to be an organization man. He understands the need for coordination among operations and will cooperate with the home office so that the Latino office can be expanded and brought into the mainstream. The company knows there is much to be learned from Frank, and Bill’s job is to learn everything possible. The company cer- tainly doesn’t want to continue some of Frank’s practices, but much of his knowledge is vital for continued, smooth opera- tion. Today, Starnes-Brenner’s foreign sales account for about 25 percent of the company’s total profits, compared with about 5 percent only 10 years ago. The company is actually changing character, from being principally an exporter, without any real concern for continuous foreign market representation, to having worldwide operations, where the foreign divisions are part of the total effort rather than a stepchild operation. In fact, Latino is one of the last operational divisions to be assimilated into the new organization. Rather than try to change Frank, the company has been waiting for him to retire before making any significant adjustments in its Latino operations. Bill Hunsaker is 36 years old, with a wife and three children; he is a very good salesperson and administrator, though he has had no foreign experience. He has the reputation of being fair, honest, and a straight shooter. Some back at the home office see his assignment as part of a grooming job for a top position, per- haps eventually the presidency. The Hunsakers are now settled in their new home after having been in Latino for about two weeks. Today is Bill’s first day on the job. When Bill arrived at the office, Frank was on his way to a local factory to inspect some Starnes-Brenner machines that had to have some adjustments made before being acceptable to the Latino
government agency buying them. Bill joined Frank for the plant visit. Later, after the visit, we join the two at lunch. Bill, tasting some chili, remarks, “Boy! This certainly isn’t like the chili we have in America.” “No, it isn’t, and there’s another difference, too. The Latinos are Americans and nothing angers a Latino more than to have a ‘Gringo’ refer to the United States as America as if to say that Latino isn’t part of America also. The Latinos rightly consider their country as part of America (take a look at the map), and people from the United States are North Americans at best. So, for future reference, refer to home either as the United States, States, or North America, but, for gosh sakes, not just America. Not to change the subject, Bill, but could you see that any change had been made in those S-27s from the standard model?” “No, they looked like the standard. Was there something out of whack when they arrived?” “No, I couldn’t see any problem—I suspect this is the best piece of sophisticated bribe taking I’ve come across yet. Most of the time the Latinos are more ‘honest’ about their mordidas than this.” “What’s a mordida?” Bill asks. “You know, kumshaw, dash, bustarella, mordida; they are all the same: a little grease to expedite the action. Mordida is the local word for a slight offering or, if you prefer, bribe,” says Frank. Bill quizzically responds, “Do we pay bribes to get sales?” “Oh, it depends on the situation, but it’s certainly something you have to be prepared to deal with.” Boy, what a greenhorn, Frank thinks to himself, as he continues, “Here’s the story. When the S-27s arrived last January, we began uncrating them and right away the jefe engineer (a government official)—jefe, that’s the head man in charge—began extra-careful examination and declared there was a vital defect in the machines; he claimed the machinery would be dangerous and thus unacceptable if it wasn’t corrected. I looked it over but couldn’t see anything wrong, so I agreed to have our staff engineer check all the machines and correct any flaws that might exist. Well, the jefe said there wasn’t enough time to wait for an engineer to come from the States, that the machines could be adjusted locally, and we could pay him and he would make all the necessary arrangements. So, what do you do? No adjustment his way and there would be an order can- celed; and, maybe there was something out of line, those things have been known to happen. But for the life of me, I can’t see that anything had been done since the machines were supposedly fixed. So, let’s face it, we just paid a bribe, and a pretty darn big bribe at that—about $1,200 per machine. What makes it so aggravating is that that’s the second one I’ve had to pay on this shipment.” “The second?” asks Bill. “Yeah, at the border, when we were transferring the machines to Latino trucks, it was hot and they were moving slow as molasses. It took them over an hour to transfer one machine to a Latino truck and we had ten others to go. It seemed that every time I spoke to the dock boss about speeding things up, they just got slower. Finally, out of desperation, I slipped him a fistful of
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pesos and, sure enough, in the next three hours they had the whole thing loaded. Just one of the local customs of doing business. Generally, though, it comes at the lower level where wages don’t cover living expenses too well.” There is a pause, and Bill asks, “What does that do to our profits?” “Runs them down, of course, but I look at it as just one of the many costs of doing business—I do my best not to pay, but when I have to, I do.” Hesitantly, Bill replies, “I don’t like it, Frank. We’ve got good products, they’re priced right, we give good service, and keep plenty of spare parts in the country, so why should we have to pay bribes? It’s just no way to do business. You’ve already had to pay two bribes on one shipment; if you keep it up, the word’s going to get around and you’ll be paying at every level. Then all the profit goes out the window—you know, once you start, where do you stop? Besides that, where do we stand legally? The Foreign Bribery Act makes paying bribes like you’ve just paid illegal. I’d say the best policy is to never start: You might lose a few sales, but let it be known that there are no bribes; we sell the best, service the best at fair prices, and that’s all.” “You mean the Foreign Corrupt Practices Act, don’t you?” Frank asks, and continues, in an I’m-not-really-so-out-of-touch tone of voice, “Haven’t some of the provisions of the Foreign Corrupt Practices Act been softened somewhat?” “Yes, you’re right, the provisions on paying a mordida or grease have been softened, but paying the government official is still illegal, softening or not,” replies Bill. Oh boy! Frank thinks to himself as he replies, “Look, what I did was just peanuts as far as the Foreign Corrupt Practices Act goes. The people we pay off are small, and, granted we give good service, but we’ve only been doing it for the last year or so. Before that I never knew when I was going to have equipment to sell. In fact, we only had products when there were surpluses stateside. I had to pay the right people to get sales, and besides, you’re not back in the States any longer. Things are just done different here. You follow that policy and I guarantee that you’ll have fewer sales because our competitors from Germany, Italy, and Japan will pay. Look, Bill, everybody does it here; it’s a way of life, and the costs are generally reflected in the markup and overhead. There is even a code of behavior involved. We’re not actually encouraging it to spread, just perpetuating an accepted way of doing business.” Patiently and slightly condescendingly, Bill replies, “I know, Frank, but wrong is wrong and we want to operate differently now. We hope to set up an operation here on a continuous basis; we plan to operate in Latino just like we do in the United States. Really expand our operation and make a long-range market commitment, grow with the country! And one of the first things we must avoid is unethical . . .” Frank interrupts, “But really, is it unethical? Everybody does it, the Latinos even pay mordidas to other Latinos; it’s a fact of life— is it really unethical? I think that the circumstances that exist in a country justify and dictate the behavior. Remember, man, ‘When in Rome, do as the Romans do.’” Almost shouting, Bill blurts out, “I can’t buy that. We know that our management practices and relationships are our strongest point. Really, all we have to differentiate us from the rest of our competition, Latino and others, is that we are better managed and, as far as I’m concerned, graft and other unethical behavior have got to be cut out to create a healthy industry. In the long run, it
should strengthen our position. We can’t build our future on illegal and unethical practices.” Frank angrily replies, “Look, it’s done in the States all the time. What about the big dinners, drinks, and all the other hanky-panky that goes on? Not to mention PACs’ [Political Action Committee] payments to congresspeople, and all those high speaking fees certain congresspeople get from special interests. How many congresspeople have gone to jail or lost reelection on those kinds of things? What is that, if it isn’t mordida the North American way? The only difference is that instead of cash only, in the United States we pay in merchandise and cash.” “That’s really not the same and you know it. Besides, we certainly get a lot of business transacted during those dinners even if we are paying the bill.” “Bull. The only difference is that here bribes go on in the open; they don’t hide it or dress it in foolish ritual that fools no one. It goes on in the United States and everyone denies the existence of it. That’s all the difference—in the United States we’re just more hypocritical about it all.” “Look,” Frank continues, almost shouting, “we are getting off on the wrong foot and we’ve got eight months to work together. Just keep your eyes and mind open and let’s talk about it again in a couple of months when you’ve seen how the whole country operates; perhaps then you won’t be so quick to judge it absolutely wrong.” Frank, lowering his voice, says thoughtfully, “I know it’s hard to take; probably the most disturbing problem in underde- veloped countries is the matter of graft. And, frankly, we don’t do much advance preparation so we can deal firmly with it. It bothered me at first; but then I figured it makes its economic contribution, too, since the payoff is as much a part of the eco- nomic process as a payroll. What’s our real economic role, any- way, besides making a profit, of course? Are we developers of wealth, helping to push the country to greater economic growth, or are we missionaries? Or should we be both? I really don’t know, but I don’t think we can be both simultaneously, and my feeling is that, as the company prospers, as higher salaries are paid, and better standards of living are reached, we’ll see better ethics. Until then, we’ve got to operate or leave, and if you are going to win the opposition over, you’d better join them and change them from within, not fight them.” Before Bill could reply, a Latino friend of Frank’s joined them, and they changed the topic of conversation.
QUESTIONS 1. Is what Frank did ethical? By whose ethics—those of
Latino or the United States? 2. Are Frank’s two different payments legal under the Foreign
Corrupt Practices Act as amended by the Omnibus Trade and Competitiveness Act of 1988?
3. Identify the types of payments made in the case; that is, are they lubrication, extortion, or subornation?
4. Frank seemed to imply that there is a similarity between what he was doing and what happens in the United States. Is there any difference? Explain.
5. Are there any legal differences between the money paid to the dockworkers and the money paid the jefe (government official)? Any ethical differences?
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Part 6 Supplementary Material
6. Frank’s attitude seems to imply that a foreigner must comply with all local customs, but some would say that one of the contributions made by U.S. firms is to change local ways of doing business. Who is right?