Ethics in international business, differences in culture and political economy are increasingly important issues for corporations that operate in emerging markets and developing countries, for appropriate behaviour standards are sterner, penalties for international laws and rules offences are severe. Those against this view I perceive are for monopolistic enterprises and purely to gain profits no matter the means. From the Independent Lens website, the documentary film “Power Trip” by Paul Devlin depicts the challenges faced by the AES Corporation, an American energy company, during its attempt to operate an electric company in Tbilisi the capital of the former Soviet Republic of Georgia, a country that offered substantial economic potential. I strongly believe throughout this particularly interesting film there are several management lessons that relate these issues to the legal business environment, and can help me to be more appreciative of the corporate world mechanisms, my co-workers and business associates who are of different countries, culture and political background.
AES, headquartered in Arlington Virginia, USA is one of the world’s largest independent energy companies and utilizes competitive supply, growth distribution and ethical management techniques. AES spent $35 million in 1999 to acquire Telasi, Georgia’s privatized power distribution Company which was formerly state-run. Georgia is strategically positioned in the unstable Caucasus region bordered by the Black Sea, Turkey, Armenia, Azerbaijan and the Russian Federation, and at the time of the film, was led by President Edward Shevardnadze. As seen in the film, the country was facing frustrating, turbulent economic times and lacked the basic amenity of electricity. Devlin’s documentary is depicted from the point of view of Piers Lewis, who at the start of the film was the Strategic Project Director for AES-Telasi. Of the first few minutes of the film, I was taken aback by the messy state of affairs the electricity distribution was in Georgia. I soon discovered that the business climate in Georgia is rampant with corruption, political assassinations and regular street riots. The following evaluates the challenges faced by AES in investing in Georgia.
First, culture matters. Culture provides clues about the attitudes, norms and mores, values, the depth of influence the local religion has on the law of the land, the ethical systems adopted that shape their behaviour and communication between the local workers, consumers and corporate leaders of a country, which countries are most welcoming to investment and which to avoid. As illustrated in the film, the Georgian residents did not have to pay for electricity when they were under Soviet rule. This I believe was already ingrained in their culture therefore their refusal to pay their bills. Once Georgia gained independence the power went. Another cultural issue was the language barrier. At the expense of AES and a contract condition, meters were replaced and meter boxes installed to regulate electrical services. From my research the contract indicates any disputes to be arbitrated in London in English language and English text of the agreement. Communication was poor, for the residents did not understand what it does and why it was needed. The meter installation caused conflicts between neighbours and friends when the power was turned off or disconnected; sometimes death by electrocution occurred and damages to meter boxes. I found the reaction of the Georgians to be quite bizarre, for I can identify with modern meter boxes and for them it is difficult to accept in light of cost issues.
Second, national differences in political economy, provides valuable information on the interplay between economics, law and politics of a country, how public policy institutions are formed and implemented, how interdependence may undermine the efforts of national governments to cope with urgent national issues such as unemployment, inflation, health, and housing, access to food, water and utility services. AES had problems recovering past paid bills for they were non-existent; no records could be found and therefore difficult to reconcile debts. It is assumed that the bills did not make it back to Telasi, the cashier was stealing, or postal bankers were pocketing the money. Another matter to consider is the weak political institution and policies of Georgia due mainly to several previous invasions of occupiers which breeds mistrust of a helping hand. Also the political structure influences the culture and operations of Georgians, especially where the rulers in the past ruled and organized people through fear. The way of social control was to pay attention to detail, build wars between people and lose sight of the big picture.
Third, from an economic standpoint the population of Tbilisi, Georgia was 1.225 million of which 40% of customers had an illegal power line. The light bill was US$24 monthly while typical monthly salary was US$15 to US$75. It is evident to me why AES-Telasi was losing after 16 months of operation, US$120,000 daily. Collections from residential customers were at 10% and this could not sustain the business of AES in Georgia. Also, more tools to implement the most suitable design to create, maintain electrical distribution was needed as told by P. Lewis to General Director M. Scholey. In addition, the physical remoteness of the regions without and far from proper electrical distribution centres, the size of the country and population, the weakness in the communication and connectivity regarding financial services attests to the geographic distance AES combatted with. For example, AES executive found it difficult to acquire funds to buy gas to supply electricity when the hydro station was low on power during the summer drought.
Finally, practicing ethics in international business makes good sense for corporations to adhere to high moral standards. Corruption was a great concern to AES. A popular news reporter made public the unfairness of providing electricity to big politically influenced corporations and was allegedly killed. Such corporations included the airline, who when the power was cut just when a plane was coming in to land, paid their bill instantly. This decision in my opinion is unethical for lives were at stake. With the use of the Ethical Business Leader’s Decision Tree (Bagley and Savage, 2010, p. 27), this decision is illegal and does not maximize shareholder value. Further, it would be ethical to refrain from taking this action. The Chemical Plant received $60 million worth of electricity without paying for it and started paying when locals pressured the government to disconnect power to them. Not to mention political influence on the national dispatch centre by politicians and elites in the power off areas got their lights turned back on.
Managers ought to promote and monitor appropriate behaviour across their companies. This is commendable of AES, which facilitates their staff to taking on responsibility by solving problems they encounter, utilizes open door policy, post-modern western techniques such as, integrity, fairness, social responsibility and fun in their business culture. However, to conclude, I think AES needed to have done more research on the Georgians language system, ethnic, social and political networks, religion and social norms so as to communicate and improve on contract conditions, their customer services, ethical systems, further prevent the loss of life, damages to assets, to allow smoother transition in providing affordable and 'always on' electrical services. On the other hand if it had done proper research the company may have opted not to invest. As the case of Jim Walker, who assisted Nomura Securities Asian operation in Hong Kong in the late 1990s, illustrates when a leader fails to “appreciate the political nature of the environment” (Pfeffer, 2010, p. 9) in which he works, the consequence is opposition, rivalry, loss of control, and ultimately surrender. Companies that succeed in the management of risk, stakeholders demands, pre-empt stakeholder challenges, identify and assess the impact of distance on various industries, can gain a competitive advantage over rivals that do not. In the words of Emile Durkheim, ‘When mores are sufficient, laws are unnecessary; when they are insufficient, laws are unenforceable’.