Lenhage AG: Leading European Manufacturer of Construction Tools and Fasteners

Lenhage AG is European manufacturer and seller of tools fasteners for the construction industry. Reigo Weinhardt is expatriates president and general manager in Seoul. South Korea construction market was booming

Best opportunity was power generation
Opportunity: Nuclear Power Generation Plants
South Korea is planning to build 8 new nuclear power generation plants in sparsely populated southeast coast of the country Coastal area was seismically active. Recent natural disasters are fresh in people’s mind So high quality products needed

Chun-Ha Construction would be the main contractor for all of these projects Weinhardt and his management team developed plan a year ago to become key supplier of safety anchors for these plants Failure of anchors and fasteners could be catastrophic

Value of anchors is tens of millions of dollars
Competition
Only one competitor in country

Competitor was not manufacturer but distributor of US made anchors.

Similar quality to Lenhage AG’s products. Competitor: no engineering or technical support staff, no technical information, no quality testing/assrunace programs.

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Competitor: spend money on lavish entertainment, payment to purchasing and site managers to ensure that his product were used with few questions asked Personal relationship is vital for business success

Kick-backs to agents and decision makers were common in this industry and were done by mot local companies to secure business. Weinhardt determined it. He knew he had better products, better documentations, and better people than his competitors. He felt business was rightfully his. Company actions

Full-time salesperson responsible for developing relationship with all parties from workers to mangers to site engineers Sales engineers:

purchasing department at Chun-Ha Construction’s headquarters to stay in touch and build relationship with the key purchasing officials.

Weihardt: entertaining Lee and other key decision makers, to build trust and strong relationship. Documentations in Korean.

Several thousand dollars paid to local testing agency to have documentation
Many assurances.
Local competitors could not provide assurances as Weihardt did.
The Dilemma
Competing dealer also met minimum standard for the project
Testing data as well
Lenhage AG’s products were more expensive than those from the dealers Lee’s choice to choose either company
Lee wants to receive 1% of the value of each order in cash directly to his downtown office by Weinhardt.
Competitor would do it with no question.
Weinhardt’s answer needed by Friday
Thoughts
1.
Concerned about US FCPA
Company had a published policy against paying bribes
His boss in Europe won’t allow it
Legal or illegal
Lee is no government official
Some level of facilitation payment is normal
Other local suppliers would not hesitate

Local accounting standards: could establish sales expense account that could be used for any purpose. Do not need to provide receipt or documentation to tax officials or auditors Citizens could open bank account under a name other than their own. Could not be traced directly to them. Double standard ethic for domestic companies, but it might be viewed entirely differently if a foreign company made this payment Personal legal exposure, family

Blackmailing from employee, if he found out
Will Lee ask again?
Other purchasing agents?
Company’s reputation

He deserved it and organization had best products. He needed to win it. If he wins contract, he can make close working relationship with lee’s company and others Financial success, Weihandt’s own compensation and career

Lenhage AG’s international image, global reputation

If lose contract: it will undermine his ability to lead in the future 95% of workers were Korean. If he win contract, workers will experience great pride. It will make great morale and loyalty to the company
Decision

There were 2 options. 1st one is: pay the money and success. 2nd one is: Don’t pay and lose whole last year work. He had to think about what law should be concerned? Risks, Who can be good consultant? Who would be the best position to help him? Guide.