Question

-Please review the the following case and answer the three questions .

.....................Motorola has sent G.I. Quick from the United States to an economically developing nation called Developia, to develop the market for a promising Motorola product, the new X-4 Chip. There are two other multinational companies in direct competition with Motorola for the Developian domestic chip market, namely Red Hotand Blue Lightning.

Quick in not only a fine manager but also a brilliant technologist. He has spent the better part of a year in the new host country and has made considerable progress. He knows that Motorola has a much better product to offer, and has made this persuasively clear to prospective local buyers. He is working especially hard to ensure that the top officials of a large Developian company, namely Supremo, Inc., will give a large order for X-4s to Motorola, rather than buy from Red Hot or Blue Lightning.

The fact is, though, that at present Supremo buys some products of this type from Motorola, some from Red Hot and some from Blue Lightning. The Ostensible reason for this is that Supremo wants to spread its business among three suppliers as a hedge against possible failure of supply – even though, according to rumor, it regards the X-4 as superior on all major counts. Still, G.I. persists in his dogged efforts to make Motorola Supremo’s sole supplier.

One day G.I is called in by Mal Diidh, Supremo’s vice president of purchasing. Mal tells G.I. that he is willing to cancel business with Red Hot and Blue Lightning, as he clearly sees that Motorola offers a better product. Then he adds a vague statement that G.I. has trouble interpreting, but which seems to mean that discreet, covert “friendship gifts” are a rather common business practice in Developia. Quick begins to suspect that Mal might have accepted under-the-table gifts from the two other companies. Slowly, subtly, Mal seems to indicate that if G.I. will provide a gift of about 8 percent of the sale price, Motorola will become his exclusive supplier. If Motorola refuses, however, he will keep the present Motorola contract at its existing level, but expand his business with Red Hot and Blue Lightning, who seem to “understand our Developian culture quite well.”

Please answer the following questions:

1.         What is the issue?

2.         What would you recommend that G.I. Quick do?

3.         Are there any risks to Motorola and Quick if he agreed to provide the friendship gift?

Answer 1

In the given situation, Supremo is one of the parties whom Motorola supplies X-4 product to. Supremo also obtains the similar product from two other parties. G.I. Quick, whom Motorala has sent to Developia to develop the market for X-4, met Mal, Supremo’s Vice President of purchasing. Quick understood that Mal is expecting some ‘under-the-table’ gifts of 8 percent on sale price of the product, in return to which Motorola would become the sole supplier of Supremo. Also, Quick opined that he has obtained similar gift from other two companies. If the gift is not given, Supremo would expand his business with other two parties, the result of which would be less business share to Motorola (even though he agreed that he will keep the present contract at its existing level).

The issue in the given situation is ‘providing gifts’ to promote sales. While providing commissions or benefits of discounts for increased sales is legally permissible, providing for gifts is not legally permitted. Also, this kind of providing gifts to obtain market share would result in (or lead to) practices opposing free competition, which is prohibited in the free economy. The economy functions with free competition, allowing the buyers and sellers participate in the trade without any restrictions.

Hence, Quick should (or Motorola) should not agree to providing ‘under-the-table’ gifts. Quick may try to convince Mal (or Supremo) that Motorola in fact provides the better product, which is also believed by Supremo. The quality of the product offered by Motorola can help it in acquiring / increasing the market share rather than the practice of giving such ‘gifts’. Hence, Quick should not accept to the proposal of Mal.

If Quick (and Motorola) agree to give such gifts for Supremo to make them the sole supplier, it will increase the sales and thereby revenue of Motorola by increasing the market share. However, it would amount to practicing unfair practices of trade, restrictions on free competition which is legally not permitted. It may result in legal penalties and ultimately reputation loss.