International Management 8th Edition by Fred Luthans,Jonathan Doh

Exercise 27

For the past two years, the Chicago-based Brattle Company has been thinking about going international.Two months ago, Brattle entered into negotiations with a large company based in Paris to buy one of its branches in Lyon, France.This would give Brattle a foreign subsidiary.Final arrangements on the deal should be completed within a month, although a few developments have occurred that concern the CEO of Brattle, Angela Scherer.
The most serious concern resulted from a conversation that Scherer had with one of the Lyon firm's largest customers.This customer had been introduced to Scherer during a dinner that the Paris headquarters gave in her honor last month.After the dinner, Scherer struck up a conversation with the customer to assure him that when Brattle took over the Lyon operation, it would provide the same high-quality service as its predecessor.The customer seemed interested in Scherer's comments and then said, "Will I also continue to receive $10,000 monthly for directing my business to you?" Scherer was floored; she did not know what to say.Finally she stammered, "That's something I think you and I will have to talk about further." With that, the two shook hands and the customer left.Scherer has not been back in touch with the customer since the dinner and is unsure of what to do next.
The other matter that has Scherer somewhat upset is a phone call from the head of the Lyon operation last week.This manager explained that his firm was very active in local affairs and donated approximately $5,000 a month to charitable organizations and philanthropic activities.Scherer is impressed with the firm's social involvement but wonders whether Brattle will be expected to assume these obligations.She then told her chief financial officer, "We're buying this subsidiary as an investment, and we are willing to continue employing all the local people and paying their benefits.However, I wonder if we're going to have any profits from this operation after we get done with all the side payments for nonoperating matters.We have to cut back a lot of extraneous expenses.For example, I think we have to cut back much of the contribution to the local community, at least for the first couple of years.Also, I can't find any evidence of payment of this said $10,000 a month to that large customer.I wonder if we're being sold a bill of goods, or has it been paying him under the table? In any event, I think we need to look into this situation more closely before we make a final decision on whether to buy this operation."
If Brattle buys the French subsidiary, should Scherer continue to give $5,000 monthly to the local community? Defend your answer.