International Marketing Week 1
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5POLITICAL AND LEGAL ENVIRONMENT
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CASE 5-1 WAL-MART BRIBERY CASE IN MEXICO
In 2005, an email was sent to a Wal-Mart lawyer, Maritza I. Munich, by a former executive at the company’s largest for- eign subsidiary—Wal-Mart de Mexico. The email described how Wal-Mart de Mexico had become involved in a series of bribery cases in order to gain market dominance. The bribery was intended to ease the process of getting construction per- mits for Wal-Mart stores across Mexico; sometimes to speed up permit process and other times to obtain confidential infor- mation or eliminate fines. The information was so detailed that it mentioned the specific dates, names, and amounts of the bribes.
The former executive who sent this email was Sergio Cicero Zapata, who resigned from the Wal-Mart de Mexico in 2004 after almost 10 years of working in the company’s real estate department. In an interview with the New York Times conducted in early 2012, Mr. Cicero described how he personally dispatched two outside lawyers to deliver cash to government officials. Their main target was anyone with power to oppose Wal-Mart’s expansion, such as mayors and city council members, obscure urban planners, and low-level bureaucrats who issued permits. These bribes were to buy zoning approvals, reductions in environmental impact fees, and the allegiance of neighborhood leaders. The New York Times conducted a thorough examination of this case and found many instances where permits were approved and given within weeks or days after the two outside lawyers made pay- ments. More and more legal obstacles melted after payments were made.
Ms. Munich was very aware of challenges of avoiding cor- ruption in Latin America, as she had served for 12 years in Mexico and elsewhere in Latin America as a lawyer for Procter & Gamble. In 2004, she insisted that the board adopt a strict anticorruption policy prohibiting all employ- ees from “offering anything of value to a government official on behalf of Wal-Mart.” Ms. Munich took quick action follow- ing Mr. Cicero’s report and hired a Harvard-trained lawyer in Mexico City to meet and interview Mr. Cicero. At the same time, big bosses at the group headquarters in Bentonville, Arkansas, were informed about the payments. Wal-Mart sent
investigators to Mexico City, and within days they found evi- dence of widespread bribery. A paper trail of hundreds of suspect payments totaling more than $24 million was found, as well as documents showing that Wal-Mart de Mexico’s top executives had taken steps to conceal the case from Wal-Mart’s headquarters in Bentonville. The company’s lead investigator, in a confidential report to his superiors, concluded: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”
Mr. Cicero named the Wal-Mart de Mexico’s chief execu- tive, Eduardo Castro-Wright, as the most responsible. Before his tenure with the company, bribes were occasionally paid, but the use of bribes increased after Mr. Wright assumed the position. Leaders of Wal-Mart de Mexico had very aggres- sive growth goals, and the executives were under pressure to do whatever necessary to obtain permits. Fueled by the desire to build hundreds of new stores before Wal-Mart’s competitors, Mr. Castro-Wright would encourage specific pay- ments for specific purposes. He allegedly used the service of gestores—who are a fixture in Mexico’s bureaucracies (some are legitimate)—to get things done as smoothly as possible. These gestores would submit invoices worded with brief, vague descriptions of their services that contain codes known only to the executives.
The Mexican operation indeed is growing much faster than the U.S. one—with Mexico’s 10-year average sales growth being 18 percent, more than twice the rate of the U.S. supercenters. The stunning growth in Mexico made Mr. Castro-Wright a rising star in Bentonville and led to his promotion to a senior position in the United States in 2005. Despite this bribery allegation, surprisingly, he was promoted to vice chairman of Wal-Mart in 2008.
Several years later, in April 2012, the New York Times reported this case to the public. The Times disclosed that Wal-Mart headquarters had launched an investigation and found that their Mexican subsidiary had bribed government officials, but the company ended up not disciplining anyone. The giant retailer did not disclose any of this to the authorities until December 2011. After the article by the New York Times
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2 • Case 5 • Political and Legal Environment
appeared, Wal-Mart said it started an “extensive” investiga- tion in the fall of 2011 into its compliance with the Foreign Cor- rupt Practices Act (FCPA), America’s antibribery law. Within days of the New York Times’ coverage, Wal-Mart’s investors lost $10 billion value from the value of its shares. Felipe Calderón, the Mexican president, as well as some elected offi- cials across the United States were outraged. It seemed that top Wal-Mart executives focused more on damage control than on rooting out wrongdoing. As a giant company that faces
Sources: “Vast Mexico Bribery Case Hushed Up by Wal-Mart after Top-Level Struggle,” New York Times, April 21, 2012; “Walmart’s Mexican Morass: The World’s Biggest Retailer Is Sent Reeling by Allegations of Bribery,” Economist, April 28, 2012; “Walmart in Mexico: Unfinished Story,” Financial Times, April 23, 2012; and “Wal-Mart’s U.S. Expansion Plans Complicated by Bribery Scandal,” New York Times, April 29, 2012.
a saturated market in the United States, Wal-Mart has turned to international expansion as a priority tool for growth. Unfor- tunately, this time, one of its successful international markets had dug a big hole to cover up.
DISCUSSION QUESTIONS
1. How would you evaluate the actions of the executives at Wal-Mart headquarters? What do you think they should have done? 2. What laws do you think have been violated? Who should be blamed for the incidence? 3. What do you think Wal-Mart should do to clean up its tarnished reputation, especially in the international market? How would your recommendations improve Wal-Mart’s rep- utation in the future?
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CASE 5-2 TRADEMARK LAWSUIT IN CHINA: PROVIEW’S IPAD VERSUS APPLE’S IPAD
In late 2010, a struggling Taiwanese-owned company, Proview, threatened to sue Apple for trademark infringement of its iPad trademark. Proview is a contract manufacturer of flat screens that attempted to market its tablet computer called IPAD almost a decade ago. The company registered its IPAD trademarks between 2000 and 2004 in several different coun- tries: the European Union (EU), China, Mexico, South Korea, Singapore, Indonesia, Thailand, and Vietnam.
In 2006, Proview agreed to sell the global trademark for the IPAD name to a U.S.-registered company called IP Applica- tion Development (IPAD) for $55,104. As the company was in great financial trouble, selling the valuable trademarks would help them with their problems. At that time, according to Yang Rongshan, a spokesperson for Proview, Proview did not sus- pect that the company, IPAD, had any association with Apple. Still, according to Mr. Yang, the trademarks for the Chinese market were not included in that agreement.
China’s official trademark database shows that Proview Shenzhen registered the iPad trademark in China as early as 2000, and this is where all the dispute began. Apple claimed that it had made a request to have the China trademark trans- ferred to its name in early 2010, before it began selling the iPad. The Shenzhen court, however, rejected the request in December—a ruling that Apple appealed.
According to legal experts in China, after a patent or trade- mark is recorded with customs, which can normally take up to a month, customs would seize shipments from any sender other than the rights holders. When goods are seized, cus- toms can fine the defendant while the court is deciding on the infringement claims. Shipments would remain blocked dur- ing the court case. Many foreign companies failed to register trademarks in China because they are unaware that this would
Source: “Apple Pays Proview $60m to Resolve IPad Trademark Dis- pute,” BloombergBusiness, www.bloomberg.com, July 2, 2012.
affect exports as well. Despite the rejection, Apple keeps sell- ing iPads in China, and that is what makes this dispute tense. Apple sued Proview Shenzhen, asking the court to transfer the trademark to Apple, a request that was rejected by the court. At the same time, Proview Shenzhen sued Apple resellers in the southern Chinese cities of Shenzhen and Huizhou for an immediate block on sales of iPads. In early 2012, local authorities in a northern Chinese city, Xinhua in the district of Shijiazhuang, a mid-size city in the province next to Beijing, had ordered Apple to stop selling iPads at local resellers. In addition to asking for halt of iPad sales, Proview Shenzhen requested a temporary restraining order on iPad sales in a Shanghai court and filed multiple com- plaints to local commercial authorities demanding that sales of the iPad be frozen. Eventually on June 25, 2012, Apple gave in and agreed to pay $60 million to settle a 2-year-old legal dispute with Proview regarding the iPad trademark in China. Apple sells the iPad in Beijing and many other cities, but the Shijiazhuang move has demonstrated a first small success in the long battle against the U.S. company.
DISCUSSION QUESTIONS
1. .a. If you are Proview, how do you view this case? Support your arguments with data.
b. If you are Apple, how do you view this case? Support your arguments with data.
2. Assume you are an outside observer, which party would you back? Why? On what basis do you make your arguments? 3. What consequences would each of the disputing parties have to bear as a result of this battle? 4. In general, how should foreign companies prevent such incidents? What actions must they take before marketing their products globally?