Over the years, the influence of money in countries is increasingly causing corruption and affecting democracy. Unfortunately, most countries fail to fight corruption.
According to the Corruption Perception Index (CPI), “corruption is more pervasive in countries where big money can flow freely into electoral campaigns and where governments listen only to the voices of wealthy or well-connected individuals.” The CPI is a dataset that ranks countries on a scale of 0-100 by their perceived levels of public corruption according to experts and business people. Only 20 countries have improved their scores since 2012, and 16 countries significantly decreased their scores.
The United States ranks 69 and is declining. New Zealand and Denmark scored the highest ranks with a score of 87 each in 2019. Somalia, South Sudan, and Syria scored the lowest ranks, at 9, 12, and 13 respectively.
Before making the decision to go abroad in a specific country, it is important to evaluate the country’s CPI ranking. CPI matters because when an economy is corrupt, there is typically a small middle class and a significant disparity between the upper class and the lower class. Most of the created wealth flows to rich business leaders who are well connected with government officials. Corrupted economies do not prosper or function properly since their laws are not able to operate naturally and corruption causes an entire society to be disadvantaged.
There are four important steps that companies should take to mitigate corruption risks:
- Assess level of corruption risk. This can be done using the CPI resource, as well as with corporate risk mapping, which is a data visualization tool.
- Implement an anti-corruption policy. This should be part of the business code of ethics, and align with the company strategy. It should define clear roles for boards and top management.
- Ingrain a culture of compliance. After the anti-corruption policy is implemented, there should be ongoing training sessions to bolster the compliance program, as well as continuous iteration to respond to changing risks. Employees who have a greater risk of giving or receiving a bribe should be provided with specific procedures to handle difficult decisions as they arise. International business managers need to abide by a stringent standard of principles.
- Ripple good practices through supply chain. Request that third-party partners abide by the anti-corruption policies, and continuously audit them to ensure they are demonstrating compliance. Every contract should include the Foreign Corrupt Practices Act (FCPA), which penalizes “US exports who violate the law by paying the exporter for the purpose of landing or retaining business.” (Delaney)
In addition, choosing the right mode of entry for a foreign market is a critical decision. For example, if a business is considering entering the Chinese market for the first time, they may consider a joint venture due to their government regulations. A joint venture is when a business joins with a foreign company to produce or market products or services. In China, a joint venture is mandatory for some industries. Advantages include the opportunity to utilize existing sales networks and customer base, access the partner’s existing resources and production facility, and a lower cost base due to local management.
In order to combat corruption, countries should foster independent institutions, freedom of the press, and engage citizens in the most sustainable way possible. As more companies follow the steps above, corruption will continue to be reduced in business practices.
Written by Kimberly O’Hanlon
Essay for BA390: Principles of Marketing Online
Instructor: Nicole Brown, M.A.
March 3rd, 2020
Works Cited:
Delaney, Laurel. “Avoiding Bribery in International Business.” The Balance Small Business. 2 January 2020. https://www.thebalancesmb.com/how-to-avoid-bribes-in-international-business-1953575
Hedley, Mark. “China Market Entry Strategy: A Guide To Entering Chinese Business-to-Business Markets.” B2B International. https://www.b2binternational.com/publications/china-market-entry/
“How can companies doing business overseas reduce the risk of corrupt practices?” The Conversation. 12 Sept. 2017. http://theconversation.com/how-can-companies-doing-business-overseas-reduce-the-risk-of-corrupt-practices-83673
LeMarco, Nicky. “The Effects of Corruption on Business.” Chron. 3 Dec. 2018. https://smallbusiness.chron.com/effects-corruption-business-52808.html
Venkatesan, Ravi and Benton, Leslie. “How Companies Can Take a Stand Against Bribery.” Harvard Business Review. 17 Sept. 2018. https://hbr.org/2018/09/how-companies-can-take-a-stand-against-bribery.
