Getting a boost from corruption

Mar 22 2011 by Brian Amble Print This Article

It may be an inescapable feature of doing business in many countries, but it almost goes without saying that corruption is a bad thing. Not only does it hamper economic growth and development and it leads to an unfair and distribution of wealth, but it affects foreign investment and makes life difficult or even impossible for individual business.

But according to a new study published in the Journal of Management Studies, corruption does not necessarily hamper all companies equally. In fact, being forced to operate in a corrupt environment can actually benefit some companies because they have to improve their organisational capabilities to compensate.

"Victim or Victimizer: Firm Responses to Government Corruption.", by Roberto Martin Galang, argues that being able to navigate the murky waters of corruption can lead a company to meet with more success when investing internationally in other countries with high levels of corruption, giving them a real advantage over competitors who either fail on entry or dare not enter at all.

Indeed, companies with an advantage in operating in corrupt countries are likely to want to protecting that advantage, Galang says. Thus attempts to eliminate government corruption need to bear in mind the potentially strong reactions of the numerous public and private stakeholders that benefit from its illicit largesse.

Corruption can be a hazardous feature of international investment, but as Galang notes, "the heterogeneous impact of government corruption on firm outcomes, is dependent not only on the power wielded by dishonest officials, but also influenced by firm characteristics, industry regulations, political structures, social norms and organizational culture."

Thus, corruption can be a distasteful but manageable part of a company's international investment environment.