Precision International Inc. is a leading manufacturer of integrated circuits (chips) and

related software for such specialty markets as communications and mass storage, as well

as PC-based audio, video, and multimedia. The company has also made significant

strides in wireless communications.

The systems and products of Precision's wireless business have been selling well in its

already existing markets in the United States, Japan, and Europe. But, like any company,

Precision is eager to grow the business. At a strategy session with the Wireless Division,

Precision's CEO John Bearing and division managers decide to explore the potential of

expanding their business to China.

Initial research indicates that China is likely to develop into a huge market for wireless

because its people do not currently have this capability and the government has made

spending on wireless a priority. Subsequent research does raise one concern for Precision

wireless managers. They tell Bearing, "We have this problem. China allocates

frequencies and makes franchise decisions city by city, district by district. A 'payoff' is

usually required to government officials to get licenses."

The CEO says, "A lot of companies are doing business with China right now. How do

they get around the problem?"

His managers have done their homework: "We believe most other companies contract

with agents to represent them in the country and to get the licenses. What these

contractors do is their own business, but apparently it works pretty well because the

CEOs of all those companies are able to sign a statement required by law saying that they

have no knowledge at all of paying bribes for their business."

"I wonder if paying someone else to do the crime is the same as our doing the crime,"

Bearing says. "I'm just not very comfortable with the whole question of kickbacks. So, let

me ask you, if we don't expand into China, how much business will we lose, potentially?"

His Wireless Division manager responds, "It will be huge not to do business in all the

countries expecting payoffs. China alone represents easily $100 million of business per

year. It's not life and death, but it is a sizable incremental opportunity for us, not to

mention potential Japanese partners who will make significant capital investments. All

we have to do is add our already-existing technology. When you consider all that, we

have a lot to gain. What will we really lose if our local contractors are forced to make

payoffs every now and then?"

Bearing wants his company to succeed, he wants to maximize shareholder value, he

wants to keep his job, and he wants to model ethical leadership. He has made an effort to

build a corporate culture characterized not only by aggressive R&D and growth but also

by integrity, honesty, teamwork, and respect for the individual. As a result, the company

enjoys an excellent reputation among its customers and suppliers, employee morale is

high, and ethics is a priority at the company.

Questions:

1. What should John Bearing decide in this case? Justify your answer.