Explain the rationale for your recommendation

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Reference no: EM133441534

Suppose Stella is about to graduate from Carey and is considering where to open the headquarters for her new company she is about to start. Her company will sell some high value (say $1M) equipment that governments may need for certain functions in their country. She has narrowed down two options: (1) Washington, DC, and (2) Beijing. In this mini-case, we will assume that the two locations are equally attractive for Stella. The only decision-relevant differences between the two locations are outlined below.

Stella has one competing firm located in Beijing and prospective customers know that both company's products are essentially equivalent. Prospective customers are governments of countries that are perceived among the most corrupt in the world.
If Stella opens headquarters in DC, she will be subject to the Foreign Corrupt Practices Act of 1977. The act is strictly enforced and prohibits bribery by US firms in overseas markets. In fact, the 8th amendment to China's Criminal Law added article 164(2), which prohibits bribery by Chinese firms in foreign markets. However, because there are no major enforcement efforts, most businesses do not take the amendment seriously.

Problem:

Consider only the implications of Stella's ability or inability to offer bribes in overseas markets depending on the location of her company's headquarters:

Recommend where Stella should open her headquarters and explain the rationale for your recommendation.
Would your recommendation change if Stella and the government buyer is expected to engage in repeated transactions? Why or why not?

Reference no: EM133441534

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