Is Bribery a Source of Competitive Advantage for Local Competition?

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Business Ethics
Bribery Case Study
Simone-Maria Kofler

Is bribery a source of Competitive
Advantage for local competition?
ABSTRACT. Over five years after the firsts signs of crisis, developed economies are stagnating again. This fact, force multinationals to rely on emerging markets with the aim to compensate the lack of growth in mature markets. This pressure for results is transferred from headquarters to local managers, for instance, in the BRIC countries. Therefore, local managers try to accelerate the local bureaucracy and achieve fast results; however, in order to do that, they are facing an ethical situation, bribery, which is the common way to accelerate processes in emerging markets, especially when trying to establish a new subsidiary or business. What should the local managers do?

Even though, multinationals are applying higher anti-bribery standards, bribery is still present in many forms and was not reduced in the past years, as stated in 2010’s report from Transparency International

(TI),

the

world’s

leading

non-governmental

anti-corruption

organization. There are many assumptions about the reasons, but we would like to bring the idea that some local managers, see bribery as a possible source of competitive advantage, so they tend to keep bribes in order to achieve fast results without thinking about the risks for the whole corporation. However, it might not be the best long-term strategy, as pointed out by Michael Porter in his article about “The Link Between Competitive Advantage and Corporate Social Responsibility”. In this case study, we try to give ideas about how to solve the bribes in business.

Introduction

Corruption has been a political and social issue for centuries and bribery is one of the key aspects to take into consideration, since it has been present behind many of the large company/private growths. In addition, knowing that there are different bribes regulations in different countries; companies need really complex compliance policies and controls to fight against bribery at global level, unfortunately not always successful. For example, in 2008 Siemens settled a global corruption case for $1.6 billion. From the Siemens case, we can see

1

Business Ethics
Bribery Case Study
Simone-Maria Kofler

that corruption and bribery is not a cheap beast, thus, based on September 2012 article in the Harvard Business review, the median fine for bribery or corruption between 2007 and 2010 was $7 million and kept lawyers 26% of their time busy. Quite significant, isn’t it? That’s one of the reasons why investing in corporate social responsibility can pay off and be source of competitive Advantage, because beside the financial loss, there is the company image in stake.

Which countries have higher levels of bribery practices?

Bribery can be found either in the supply side, the one who pays the bribe or in the demand side, the recipient of the bribe. Usually, the ones paying the bribe give the responsibility to the ones who receive it giving reasons like; it belongs to culture and conditions, so they justify it via the demand. The demand side simply takes the bribe under the local circumstances (for example, in China) not under the developed countries point of view, so for them it’s necessary to complement their low salaries with some extra income. This means, that normally, it will be easier to detect bribery in the demand side because they will not hide it as much as the supply. Therefore, a good starting point is to know the corruption levels in different countries and analyze the results obtained for a company in the specific countries. If we see strong developments in short period of time, this could lead to bribery practices and would need to be closely investigated. This assumption is based on the knowledge that in highly corrupt countries very few businesses are exempt of bribery practices and we have many real examples, such as the fast Walmart...
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