A guest post from Adrian Gaskell, Editor of The Management Blog for the Chartered Management Institute (CMI), a content collaborator with IBLF.
In our globalised world, companies increasingly find themselves operating in countries with less than squeaky-clean ethical norms.
With most businesses going to great lengths to portray themselves as sustainable and generally good corporate citizens, does trading in these areas rub off on the ethics of those exposed to it? Does it even provide them with a competitive advantage in other more ethical regions? These are the questions asked by Roberto Martin N. Galang of the John Gokongwei School of Management at Ateneo de Manila University, in new research published recently in the Journal of Management studies.
Galang reviewed 600 research articles from over 20 management journals to find examples of companies that deal with corrupt governments of varying levels, in countries including Russia, India, China and other emerging nations.
When in Rome?
Galang’s research revealed that certain companies seem able to thrive, even in corrupt regions, and some manage to prosper without resorting to un-ethical behaviours themselves. He found that an essential element of this success is forging a positive relationship with the local government that takes into account the unique environment of the region.
The research outlines 4 distinct approaches to take when operating in a corrupt market:
- Change from the inside – When firms have the ability to gain political influence in a country, they can use this influence to change the regulatory structure from within the political machine.
- Take the lead role – If a country has limited regulation to begin with, then successful companies often create their own self-regulating industry associations, shifting the responsibility for regulation to the industry rather than the state.
- Keep your friends close – If you’re operating in a country with a strong and centralised government such as China or Russia, successful companies strike up a good relationship with the local government, networking with powerful officials and partnering with important local firms.
- If you can’t beat them – The final strategy is to accede to the local regime, and is used by companies that don’t possess any real political clout in the area they wish to trade in, or where regulation doesn’t really impact on their industry. It is a common strategy in war-torn nations.
Galang stresses that corruption continues to have a major “corrosive” impact on the long-term health of the global economy, making it harder for many developing countries to attract foreign investment and adding uncertainty and risk to the effort of companies that do enter those markets. That said, corruption can be confronted, and its impact largely contained, if the correct local strategy is adopted.