Tackling corruption, including fraud, bribery, extortion and cronyism is a key challenge of doing business in emerging markets. Corruption tends to be a deeper problem in emerging markets than in advanced economies – although that is not to say it is absent from developed countries. On the whole this is due to weak institutions, low wages and in some cases a greater tolerance for corrupt practices. Reputational damage from engaging in corrupt practices can be huge. In today’s connected world news of this will reach home markets and could damage sales globally.
Looking at a ranking of all 176 countries covered in Transparency International’s Corruption Perceptions Index 2012, the 75 most corrupt countries are all emerging markets. In fact, all but one of the most corrupt 111 (Greece, which ranks on a par with Moldova and Benin) is an emerging market. Nevertheless there are exceptions: Chile, Uruguay and Botswana all fare well in the rankings. It’s important also to note which markets are striving to tackle corruption: Liberia, Sao Tomé e Príncipe, Georgia, Rwanda and Poland have all made significant advancements in tackling corruption since 2007.
The Most Corrupt of the World’s 50 Largest Economies: 2012
Source: Euromonitor International from Transparency International
Note: Data taken from a ranking of the world’s largest 50 economies (ranked by GDP in PPP terms). The Corruption Perceptions Score relates to perceptions of the degree of corruption as seen by business people and country analysts, and ranges between 10 (highly clean) and 0 (highly corrupt).
Tips for success
A zero tolerance policy for corruption is key. This may bring short-term problems, delays and costs, but in the long-term the benefits are clear. In order to achieve a zero tolerance culture there are several steps that a company can take:
- A deep understanding of the culture and the challenges of the business environment is necessary. This risk assessment must be carried out in each and every market as it is impossible (and dangerous) to assume all markets are the same. Carrying out a comprehensive risk assessment so that senior managers have a picture of where and how corruption is most likely to take place is key;
- This will enable the company to establish a clear anti-corruption policy from the offset. This policy must come from the top – there should be a clear understanding of all employees that corruption is not tolerated;
- Transparency is crucial. Employees at all levels of the company need to know the company policies and procedures around corruption and that it will not be accepted;
- Compliance officers are needed to constantly ensure that no part of the business – including the supply chain – is involved in corrupt practices;
- The company can build relations with senior officials who will support the business and understand the benefits to the local economy.
Corruption can be tackled and companies can avoid engaging in corrupt practices. With emerging
markets accounting for a projected 70% of global growth in consumer spending in 2013, the long-term gains of a successful emerging market strategy should outweigh the risks involved.