: Super User; Region; 07 October 2011; Hits: 1940

Greasing the Wheels of Business

Corruption is a difficult issue for many companies, particularly if they are operating in countries where civil servants are poorly paid. Companies which fail to pay bribes to local officials may lose commercial opportunities, either by being effectively locked out of the bidding process or denied the necessary licences needed to operate the business.

On the other hand, revelations of bribe payments resulting from the spread of democracy and the development of a free press, can undermine a company's position locally and seriously damage its international reputation.

Yet companies continue to engage in the practice, often justifying it on the grounds that that if they do not make under the table payments they risk losing a lucrative deal. Strong domestic anti-corruption measures at home, it seems, do not always translate into ethical business practices abroad.One recent example that has come to public attention involves the Australian Wheat Board in the UN Oil-for-Food programme in Iraq. In March 2006, German-US motor company DaimlerChrysler also admitted that an internal probe confirmed allegations of 'improper payments' made by their staff in Africa, Asia and Eastern Europe.

US, German and Australian companies, however, are far from being the worst culprits. In 2006 Transparency International commissioned the Gallup International Association to compile a Bribe Payers Index by conducting in-depth interviews with private sector leaders in 14 emerging market economies. The outcome was a ranking of countries in terms of the degree to which their companies were perceived to be paying bribes abroad.

Australian, Canadian, and UK companies were believed to be the least likely to use bribes to gain business, while Malaysian, South Korean, Taiwanese and Chinese companies had the worst reputations. The survey also revealed that, despite strong legislation aimed at banning the practice, US companies still had room for improvement, as did German firms. Singaporean businessmen also apparently have a middling reputation when it comes to under-the-table payments, a position that contrasts strongly with the well-known success of the island-republic’s leadership in dealing with the practice domestically. Japanese and French companies have even poorer reputations.

What can a company do when an official demands a bribe? The most widely used solution is to use an intermediary, usually the foreign firm’s local partner. However, this does not always guarantee immunity from criminal prosecution. Yet another is to simply say no. Those who advocate such a tactic point out that, while the more immediate problem might be solved as a result of such a payment, the long term costs could be far more serious. A company that pays once will almost certainly be approached for more at a later date. Moreover, once the knowledge of such payments gets around, the demands will increase. Opposition groups could also use it against the foreign company when they gain power.

In rejecting a demand for a bribe, companies may also attempt to use the changing international climate of opinion to their advantage. US firms, for example, can politely cite the Foreign Corrupt Practices Act. Companies associated with other countries in the Organisation for Economic Cooperation and Development (OECD) can cite similar legislation. Yet another tactic is for companies to invest in development projects in local communities in ways that ensure that the company's operation has local support. This makes it much more difficult for corrupt officials to respond by attempting to undermine the company's position in other ways.

It also helps to look for other ways of pleasing local offialdom that do not involve the payment of bribes. For example, a company faced with demands for protection money from corrupt local police officers may respond instead by purchasing equipment for the police (computers, patrol cars, etc) that helps them carry out their duties more efficiently. A similar approach may work with customs officials.

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Key Political Risks

Asia is the fastest growing region in the world, and is likely to remain so in 2013. However, a number of risks cloud the picture.

The good news is that domestic demand in the region remains strong and should continue to cushion the impact of weaker external demand on overall economic growth. The completion of national elections in Japan and South Korea in December 2012 should also help reduce political uncertainties.

But Asian governments will need to guard against the adverse impact of prolonged easy financial conditions on inflation.

Rising inequality also continues to threaten social stability. Ethnic and religious rivalries remain just below the surface in many countries. When combined with government corruption and (in some countries) high youth unemployment, this could become a deadly mix. This seems particularly true of China.

Territorial disputes also require close monitoring. Much diplomatic activity in the new year is likely to be centered on finding ways to reduce tensions over resource-rich islands in the South China Sea, where Beijing's claims overlap with those of Japan, Vietnam and other Southeast Asian states. South Korea and Japan also have rival territorial claims.

North Korea remains the wild card. Inclined to believe its own propaganda, Pyongyang's new leadership could miscalculate, making belligerent moves that plunge the region into a military conflict that nobody wants.